Return to Transcripts main page
Lou Dobbs Moneyline
Dow Advances 102.76 to 10,276.90; Nasdaq Rises 28.71 to 1,860.01; Budget Surplus Evaporating
Aired August 22, 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.
JAN HOPKINS, CNN ANCHOR: Good evening. In tonight's headlines, a powerful rebound in Wall Street. The Dow gained 102 points, the Nasdaq up 28, closing at its high for the session. The big winners today, chip stocks after report showed that a semiconductor demand strengthened during July. And the White House says this year's projected budget surplus has shrunk by more than $123 billion.
I'll hear from the President's top economic adviser, who says it doesn't threaten fiscal stability or Social Security, Larry Lindsay. Stocks today rebounded after selling off yesterday in the wake of the Fed's latest rate cut. Stocks overall are actually lower since the Fed began its easing campaign. That's what Allan Chernoff is looking into tonight.
Let's get a preview -- Allan.
ALLAN CHERNOFF, CNN CORRESPONDENT: Jan, the stock market appears to be ignoring history, ignoring the Federal Reserve, but we've got some data indicating that patience still may pay off for investors.
TIM O'BRIEN, CNN CORRESPONDENT: Will your Social Security money be going into the stock market? A presidential commission today met in Washington to talk about the safety of the retirement system.
HILLARY LANE, CNN CORRESPONDENT: Pay phones in peril. Companies are in a rush to exit the business in a world that's gone wireless.
KITTY PILGRIM, CNN CORRESPONDENT: The strong dollar had U.S. manufacturers howling. Now with the dollar weakening, some economists are worried about the U.S. markets -- Jan.
HOPKINS: Thanks, Kitty. All those stories ahead on MONEYLINE. We begin tonight on Wall Street where stocks advanced across the board. The markets languished for most of the session, but the buyers emerged in the last two hours of trading.
Christine Romans is at the New York Stock Exchange -- Christine.
CHRISTINE ROMANS, CNN CORRESPONDENT: Hi, there, Jan. A snapback rally for the broader markets, taking back some of the losses from yesterday. Let's take look how the Dow Jones industrial average fared on the session. You're right, it languished much of the session, but then look. A rally in the afternoon, it closes up 102 points, 10,276. Bulls noted that the leadership came from two key groups, the financials in particular. They like the fact that the brokers had such a nice day. Look at Goldman Sachs, Merrill, Morgan Stanley, Lehman Brothers, J.P. Morgan, also big board chips, a nice rally there.
Look at Texas Instruments, Motorola, National Semi, Micron Technology and Cypress Semiconductor. There was also that GM outlook. Folks like the auto stocks and the auto parts stocks today. They did better. 3M was a stronger Euro play. That one also helped the Dow Jones industrial average. And there was some stability in the drug stocks as well -- Jan.
HOPKINS: So all in all, a much better day today than yesterday?
ROMANS: Absolutely. But look, the volume was better today in the rally, but still it didn't take back all of yesterday's losses.
HOPKINS: Thanks. Christine Romans at the New York Stock Exchange.
Fueling the rally today on the Nasdaq was chip stocks.
Jennifer Rogers has more on that from the Nasdaq market site -- Jen.
JENNIFER ROGERS, CNN CORRESPONDENT: Hi there, Jan. Well, the Nasdaq closing at its highs for the session, but it was definitely a bumpy road getting there. Let's take a look at the intraday chart for the Nasdaq. We gapped higher at the open, but then we were hugging the flat line for a while here. Closing up though 50 points. The level 1860 volume coming out. 1.5 million.
What turned it around? What kicked in? Well, it was the chips as you were saying. Check out the Philly semiconductor index. The chips really turning on the heat after 2:00. The 16 issues in the index, only two were down. AMD over on the big board and Rambus here. Really lending some footing to the semi rally, also TriQuint Semi.
Let's take a look at some of these stocks. TriQuint coming out after the bell. Last night, there was communication chipmaker reaffirming guidance for the third quarter and the fourth. You can see it up there. Nearly $3.00 or more than 15 percent. Altera up more than 8 percent. Intel up more than 3. That book-to-bill coming out very nicely, moving AMAT higher. And we had PMC Sierra up more than 10 percent. And those are just some of the winners here -- Jan.
HOPKINS: Thanks, Jen Rogers, at the Nasdaq. Let's take a look at the action tonight in after hours trading.
Jennifer Westhoven is at the Instinet trading floor -- Jennifer.
JENNIFER WESTHOVEN, CNN CORRESPONDENT: Thanks, Jan. It was looking like just another summer after-hours session, until word came that Ciena would join the Standard and Poor's 500 index. Of course, that means that all the indexes or all the funds that mimic that benchmark index will need to get a piece of Ciena.
That sent its stock up wildly, about 10 percent with a gain of $1.81 to $19.25. Interesting though that the stock picked up heavy volume and a 13 percent gain about 12 minutes before that news announcement.
Also, want to mention Warnaco. It is not trading here because it did not trade on any of the conventional exchanges after it filed for bankruptcy protection. Tonight, the company says it will post a much bigger than expected second quarter loss. and it will have to go back and restate its results for the past three years. So more trouble there for that retail, the company that makes jeans, swimwear, and lingerie -- Jan.
HOPKINS: Thanks very much. Jennifer Westhoven at Instinet.
The Federal Reserve yesterday cut interest rates. It's the seventh time in eight months. The total reduction in the Fed Funds rate, 3 percentage points. Never before has Fed Chairman Alan Greenspan cut rates so far so fast, but stocks have been defying conventional wisdom, falling at interest rates come down.
Allan Chernoff has the story.
(BEGIN VIDEOTAPE)
CHERNOFF (voice-over): The stock market is defying history. Since its first trade in 1971, the Nasdaq has always responded when the Federal Reserve has cut interest rates at least three consecutive times, except this year when the Fed has been especially aggressive, cutting seven times.
Three months after the first cut in January, the Nasdaq composite was down 36 percent. Six months later, down 18 percent. Compare that to the average, up 7 percent three months after the first rate, nearly twice that six months later.
PETER CANELO, MORGAN STANLEY: The technology and the Nasdaq have been hurt by capital spending slowdowns, which we haven't seen before.
CHERNOFF: Since 1920, there have been 14 periods when the Federal Reserve has lowered interest rates three consecutive times. Only in 1921, 1981 and this year has the Dow Jones industrial average responded with a drop.
On average, the Dow climbed 13 percent three months after the first cut, 15 percent six months later.
TIM HAYES, NED DAVIS RESEARCH: It's been the correcting of the bubblelike conditions that were present in early 2000. And this transition from excessive optimism to more realistic expectations is what has created this shift in sentiment is really what has prevented the market from really responding strongly to the Fed rate cuts.
CHERNOFF: There may be hope though. In the two prior periods when the Dow dipped, 1921 and '81, 12 months after the first interest rate cut, the industrial average was in positive territory.
(END VIDEOTAPE)
Now that is something for the bulls to hang onto, a reflection of the fact that it can take a good amount of time for the economy, corporate profits and sometimes even the stock market to respond to lower interest rates from the Federal Reserve -- Jan.
HOPKINS: So patience is the word of the day?
CHERNOFF: That's exactly what the strategists on Wall Street have been counseling.
HOPKINS: Thanks, Allan Chernoff. Here's how stocks have performed overall since the Fed surprised the world with that first rate cut on January third. The Dow was down more then 3 percent. The Nasdaq is down nearly 20 percent. And the S&P is down more than 9 percent.
A little more than a year ago, the Nasdaq rolled out the welcome mat for splashy IPOs that created instant multi-millionaires. Now they're being shown the door. One former high flyer, Baltimore Technologies, saying today it too will delist.
As Bruce Francis reports, companies are leaving the Exchange. They're delisting at a greater rate than they arrived.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): The IPOs that listed with a bang in the late '90s are delisting with a whimper now. According to Nasdaq, delistings this year outnumber IPOs by a ratio of about 10 to 1. Shareholders caught holding a delisted stock will find that it's tough to trade.
UNIDENTIFIED MALE: The vast majority of the shareholders therefore are really trapped into the stock, unless and until the company can recover and get itself back onto one of the markets.
FRANCIS: A delisted stock is no longer traded through the Nasdaq system. The most common reason is that the company has failed to meet certain financial conditions. And delistings can trigger other negative events.
For Excite@Home, a potential delisting means that the company may have to pay back loans sooner than originally scheduled. In most cases, it means that a company is cut off from the financial markets.
Nasdaq's delistings peaked in 1998, as tougher regulations forced almost 600 companies off the board. After trailing off for two years, delistings are increasing, with 279 as of last month. It's not an overnight process. First a stock a stock has to be below $1.00 for 10 days or fail to meet other key financial targets. After six weeks, the company gets a warning letter. After 90 days, the company is advised that Nasdaq is starting the delisting proceedings. The company is allowed two appeals of a delisting order and may even be granted exceptions if there are plans in place, like a reverse stock split or new capital. Nasdaq has struggled to shake off its old reputation as a place where shakier companies were traded.
KIRK DAVENPORT, LATHAM & WATKINS: They are presenting themselves as a place, a club you want to be a member of. And so therefore, they have to take care to watch the bottom end and ask people to leave if they don't meet the requirements anymore.
(END VIDEOTAPE)
FRANCIS: Now Nasdaq says the delisting process can drag on for nine to 12 months. According to Ned Davis Research, right now there are 556 stocks trading below $1.00 for 10 days or more. So the biggest wave of delistings is probably still to come -- Jan.
HOPKINS: Ooh, that's sobering. Thanks, Bruce.
FRANCIS: Brace yourself.
HOPKINS: Still ahead tonight on MONEYLINE, phone companies are hanging up on payphones. We'll tell you what it means for the millions who still rely on them. Millions are lining up for Powerball tickets. The payoff could be nearly $200 million. We'll have the latest. And the latest on the budget surplus. It is shrinking right before our eyes, but a senior White House official tells us there's no need to worry.
ANNOUNCER: Next, Jan talks with former Fed governor and White House economics adviser, Lawrence Lindsay.
(COMMERCIAL BREAK)
HOPKINS: Wildfires continue to scorch the western United States. Firefighters are battling two new blazes near Yosemite National Park. Thousands of people have been evacuated from the area. There are now 44 major fires burning in the West, well half a million acres of land blackened.
A tropical storm is battering Japan. That storm has washed through Tokyo. Now it's heading north. In its wake, air and train travel has been curtailed. At least seven people have died. Heavy rains now threaten to bring flooding and landslides.
Stormy weather a factor in today's landing of the space shuttle. Rain in Florida delaying Discovery's touchdown for a couple of hours. When the skies cleared, the landing came off without a hitch. Discovery carried seven astronauts, three of them have spent more than five months aboard Space Station Alpha.
New White House figures show the budget surplus shrank by more than $123 billion. Democrats say the drop-off threatens money earmarked for Social Security. The Bush administration says it's the surplus is still the second largest on record and says it's now up to Congress tighten its budgetary belt. For more, we're joined by Major Garrett, who's at the president's ranch in Crawford, Texas -- Major.
MAJOR GARRETT, CNN CORRESPONDENT: Hello, Jan. That's exactly right. The Bush administration basically says it's the victim of a couple of things. One, a sluggish economy that's drained almost $80 billion in revenue, expected revenue, out of the Treasury. The other thing they say they're a victim of something that's kind of described as new math in Washington.
You know, not so long ago, an operating surplus of somewhere in the range of $160 billion would have been celebrated, but not any more. Why? Well, because Congress, Republican and Democrat, have basically agreed not to touch in any way the excess Social Security revenue that comes in from payroll taxes.
This year, that's going to be $157 billion, leaving what in Washington is now called a real surplus of only $1 billion. Now the White House says well, that's the consensus. That's everyone wants to do. The President even agrees that's what he wants to do. Some economists say having all that money in Washington, particularly at a time of sluggish economic growth, may not be such a good idea, but it's the partisan consensus nonetheless. The White House also says, as you indicated, that looking forward, Congress needs to keep a lid on spending.
(BEGIN VIDEO CLIP)
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: No matter what the size of the operating surplus, there are going to be politicians in Washington and both parties who are going to try to spend it. This budget represents fiscal restraint that will imposed on Congress because Congress knows if it busts the budget, it will spend Social Security. And the president will protect Social Security for our seniors.
(END VIDEO CLIP)
GARRETT: The White House also points out there's plenty of money in the President's budget for education, defense and other national priorities. And he intends to keep Democrats on that budget -- Jan.
HOPKINS: We should point out that this is an administration forecast and we still have to hear from Congress. And the surplus at Social Security may evaporate next week.
GARRETT: Well, that's exactly right. The Congressional Budget Office, which serves at the pleasure of Congress, not the President, is expected to come out with numbers that show a slightly different situation, that in fact this budget year will eat into some Social Security trust funds, although not very much -- Jan.
HOPKINS: Thanks, Major Garrett.
Meanwhile, revamping Social Security was debated on Capitol Hill today. President Bush wants to give younger workers the option to invest part of their taxes in the stock market. But according to one government study, that could harm the long-term future of Social Security.
Tim O'Brien reports.
(BEGIN VIDEOTAPE)
O'BRIEN (voice-over): Allowing U.S. workers to divert Social Security payments to private retirement accounts has been controversial from the start and even more so today with the Social Security system threatened by the declining budget surplus. Leaders of the President's blue ribbon commission on Social Security sought to alleviate the fears, promising their goal was to reinforce Social Security, not undermine it.
RICHARD PARSONS, CO-CHAIRMAN, SOCIAL SECURITY COMMITTEE: The extent to which we're thinking about private accounts, this would be a supplemental additional part of the overall package, but no one is thinking about "privatization of the system" or removing the safety net that Social Security provides for all Americans.
O'BRIEN: Parsons, who is also the Chief Operating Officer of AOL Time Warner, parent company of CNN, added that cuts in retirement benefits cannot be ruled out with or without private retirement accounts. Without new revenue or a reduction in benefits, the Social Security fund will be exhausted by the year 2038. But the center on Budget and Policy priorities predicts the fund will be depleted 14 years sooner by 2024 if U.S. workers divert only 2 percent of their Social Security deductions to private retirement accounts. Not everyone agrees.
TIMOTHY PENNY, COMMISSION MEMBER: We think that if done properly, private accounts of future retirees can actually enhance the retirement income of today's workers.
UNIDENTIFIED FEMALE: Privatization puts at risk some portion of their retirement insurance. This is supposed to be an insurance program, not an investment program.
O'BRIEN: The President has said he wants to present an acceptable plan to Congress that will allow employees to choose their own retirement investments, that won't affect benefits of those retiring or near retirement and won't raise payroll taxes.
(END VIDEOTAPE)
Commission members, who already acknowledge their jobs have turned out to be much more difficult than they ever imagined, say they hope to have a plan on the president's desk by the end of the year -- Jan.
HOPKINS: Thanks. Tim O'Brien.
Earlier, I spoke with White House economics adviser Lawrence Lindsey about the shrinking budget surplus and asked him how the Bush administration could expect the budget to stay in the black without touching Social Security.
(BEGIN VIDEOTAPE)
LAWRENCE LINDSEY, WHITE HOUSE ECONOMIC ADVISER: The point is we have, we have that surplus. Remember, from an economic point of view, from a financial markets point of view, you've got to include that Social Security money in there. After all, that's money the government is using to buy back bonds in the market. That means we had -- what? -- $158 billion surplus.
On net, we are retiring that amount of debt. That is the second biggest surplus in American history, both absolutely and as a share of GDP. And so, as far as the government's fiscal health goes, we're doing very, very well.
HOPKINS: But can you really promise that Social Security surplus is going to be a lock box, that isn't touched with only about $2 billion to spare? And that's the administration's forecast.
LINDSEY: Well, the president is committed to that. And we're going to make sure that we don't touch Social Security.
HOPKINS: What about Medicare? With the possibility of using the hospital insurance fund, aren't you really raiding Medicare?
LINDSEY: Well, let's talk a little bit about Medicare. I just want to -- I don't mean to do too many numbers, but let me give you three numbers if I may. We are collecting $175 billion in Medicare taxes and another $22 in medical premiums. So total inflow to Medicare is $197.
We are spending $242. That means every dime in Medicare that is coming in is being spent on Medicare. And we're moving $45 billion from the rest of the budget to spend on Medicare as well. So Medicare is more than amply covered. We are spending all Medicare money on Medicare and $45 billion besides.
HOPKINS: Now you are projecting that the economy next year is going to grow more than 3 percent.
LINDSEY: Yes.
HOPKINS: That is an incredible increase from where we are now.
LINDSEY: Yes.
HOPKINS: How is it going to turn so quickly?
LINDSEY: Well, it's actually turning rather slowly. Remember, we've been in the doldrums now for probably about year and a half in slow growth. And that's a long time for a slowdown. What we have kicking in next year, are three things.
First of all, the tax cut. We'll be having another withholding tax cut January 1. Second, monetary policy. When I was at the Fed, we used to think of the lags as running 12 to 18 months. That means most of the impact of monetary policy is going to come in next year. And finally, we have had some retreat in energy crisis, worth perhaps three-quarters of a percent of GDP as far as more money in the pockets of business and households.
I think those three things together are going to produce substantial growth next year. One more thing to keep in mind, when economies bounce, they really bounce rather quickly. Remember '92 was one of the best years in the 1990's, the first year out of the '90 recession. And excuse me, '83 I believe we grew almost 6 percent. So growth rate of 3.2, which is what we're projecting, I think is just rather reasonable.
HOPKINS: A lot of people are pointing to what's going on in our stock market as very similar to what happened in Japan after the bubble burst. What do you see?
LINDSEY: Well, there are always similarities, but there are some important differences as well. I think the most important one is most of the money in our stock market went into improving technological infrastructure. In Japan, it went into inflating real estate prices. I think that infrastructure's going to pay off long-term for a higher growth rate for the United States economy for the years to come.
I think that's one the key differences. One other difference I'd like to point to, in Japan, the fiscal authorities, the monetary authorities didn't act. Here we did. We passed a tax cut, the Fed cut interest rates. And I think that's going to make a huge difference for the economy going forward.
HOPKINS: Thank you very much.
LINDSEY: My pleasure, Jan.
HOPKINS: Larry Lindsey, the president's economic adviser. Thanks for joining us on MONEYLINE.
(END VIDEOTAPE)
Now for reaction to Mr. Lindsey's comments and to give us his perspective on whether Congress can meet all these budgetary obligations without dipping into things like Medicare and Social Security, we're joined by Paul Krugman. He's "New York Times" columnist and MONEYLINE contributor and also a professor from Princeton.
So be our truth squad. Can we do all of this stuff?
PAUL KRUGMAN, ECONOMIST/"NEW YORK TIMES" COLUMNIST: You know, if a listed firm did the accounting gimmicks that the administration is doing, they would be having an interesting conversation with the lawyers at the SEC right now.
These numbers that you're hearing right now are based on outrageous, you know, making money disappear, making the coins disappear. Is he moving from hand to hand? And they get worse as you get to the out years. I mean, the thing that everybody who's looked at this knows is that this was going to happen, but wasn't supposed to happen this soon.
2002 looks worse than 2001. 2003 looks worse than 2002 and so on. No, there's not -- there's no -- I mean, especially if you consider Medicare in same boat as Social Security, which you should. They're both retirement programs. It's gone. We're into deficit now from here on in.
HOPKINS: So what's it mean? No programs other than a tax cut?
KRUGMAN: Prescription drug coverage is dead as a realistic program. You know, the administration will try to do something fake, but there isn't money for it. The build-ups the Pentagon is expecting are gone. A realistic Social Security reform plan: Reforming the system takes extra money, not just the money that's in the system now. You've got to put something in. That's gone. So either we have no Social Security reform or we have a fake reform that blows up just about the time I retire.
HOPKINS: So we couldn't afford these tax cuts, I mean, is that the bottom line?
KRUGMAN: That's what -- I mean it's crude and it's childish to say, "I told you so," but I told you so. This is exactly what people like me were saying three months ago. And it's happening.
HOPKINS: But we have an economy that's slipping. We have tax cuts coming right at this point, which could be a crucial point. Is it enough to turn the economy around?
KRUGMAN: It's a problem. The rebate is fairly small. I mean, the big problem with this tax cut, which is only partly fixed by the rebate this year, is that it comes in slowly. Most of the big tax cuts come you know, 2005, 2006. When Larry Lindsey talks about Japan, you know, the problem with Japan is they've done lots of deficit spending, but it dribbled out. It started small and then it built and it built. And guess what, that's exactly the way the Bush tax cut is set up.
HOPKINS: What about the economy? Do you see any signs that it's turning?
KRUGMAN: I'm a little depressed. You know, inventories, probably that's over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven't fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It's not a happy picture.
HOPKINS: And so the stock market is reacting the way it should be reacting?
KRUGMAN: I'm not -- I mean, I think there may be some panic in there, but it's hard to see a recovery anytime soon, a real recovery.
HOPKINS: Paul Krugman, Princeton professor, MONEYLINE contributor and "New York Times" columnist, thanks. And still ahead on MONEYLINE, are payphones passe? We'll tell you why they're getting harder to find. And then, should you be worried if the dollar gets weaker? You might be surprised at the answer.
Stocks bouncing after yesterday's trouncing. Where are the markets hanging next? Our next guest says hang in here because eventually, stocks are going up.
ANNOUNCER: After the break, Jan is joined by Michael Holland, the chairman of Holland & Company.
(COMMERCIAL BREAK)
HOPKINS: Stocks rebound on Wall Street one day after the Federal Reserve lowered interest rates for the seventh time this year. Helping boost the markets, a rally in chips, thanks to a report from a trade group saying orders for chipmaking equipment rose 5 percent last month.
The Nasdaq finished up more than 1.5 percent, to 1,860. Advancing issues leading declining issues by a 4-to-3 margin. Checking out the most active issues on the session, shares of Sun Microsystems dropped more than 20 cents in heavy trading. That stock is currently trading less than $1 above its 52-week low.
Intel shares climbed with the rest of the chip sector. That stock gaining nearly $1. Also active in the session, shares of JDS Uniphase climbed nearly 50 cents, but currently that stock is trading 94 percent below its 52-week high.
A 1 percent gain on the Dow, that index climbing 100 points to finish at 10,276. On the Big Board, advancing issues led declining issues by a 3-to-2 margin. Checking out some of the most active stocks on the session, shares of EMC falling 39 cents on heavy trading. The company is currently trading 85 percent below its 52- week high.
Shares of Qwest dropped more than $1 on the day. Morgan Stanley saying it believes the company will have a tough time sustaining its current growth rate. And other active stocks on the session include Nortel, the telecom equipment-maker, moving higher along with the chip sector. Nortel shares gaining nearly 5 percent on the session.
For a look at what investors and traders are expecting tomorrow on Wall Street, let's go back to the New York Stock Exchange and Christine Romans -- Christine.
ROMANS: Hi there, Jan. Lots of folks, bulls and bears talking about whether this rally can stick for tomorrow. The bulls say they would like to see a second day with strong volume and good breadth. The bears are saying the fundamentals really have not changed. Let's take a look at some of the indicators we might get tomorrow. There is a lineup that could maybe cast light on all this.
Jobless Claims come out for the latest week, also the June Federal Open Market Committee meeting's minutes. A lot of different folks talking about this and that it might shed some light on what the Fed has been thinking. Also, more retail earnings. We are going to hear from intimate brands: Kmart, Krispy Kreme and the World Wrestling Federation.
None of those expected to be major market movers but they should cast some light on what people are thinking about in terms of the retail environment. Overall, Jan, a lot of folks wondering if we can get a rally again tomorrow. They are saying it felt like it was pretty technical here today -- Jan.
HOPKINS: Pretty key to what the future is for the market. Thanks, Christine Romans.
Now, for a look at what's facing technology investors. Jen Rogers is at the Nasdaq marketsite -- Jen.
ROGERS: Hi there, Jan. A similar story over here. We did have a bounce today. Most of the traders I talked to were not too convinced with this rally. So what could change their minds is going to be follow through. Will we see follow-through tomorrow with the technology stocks?
That could lend a little bit more to the rally that we saw today, a little bit more confidence. If we can take this momentum -- and remember it was momentum -- because we did close at the high of the session, that would definitely help. Also, chip leadership: On Tuesday people definitely pointed the finger at the chips as a reason the sell-off after the Fed decision, but today, the chips led the index higher on that book to bill.
Also, positive news out of TriQuint. The SOXX, the Philadelphia Semiconductor Index, up 5 percent. If we see that tomorrow, that could also help. We need some positive news. What positive news might we have?
After the bell, Ciena, the S&P 500, saying Ciena will be added to the index. That could lend a little bit of excitement even though Ciena Equipment company trades just 44 cents above its 4 p.m. close. It has been rallying after hours and we could see that lend a little bit of a boost in the techs here at Nasdaq. Back to you, Jan.
HOPKINS: Thanks, Jen Rogers at Nasdaq.
Topping tonight's "MONEYLINE Movers," PolyMedica falling nearly 4. FBI agents raiding the Florida offices of its Liberty Medical Supply subsidiary. Liberty is suspected of Medicare fraud. Simon Worldwide plunging more than 75 percent. Marketing firm's involved in a scam to defraud McDonald's of $13 million in prize money through a monopoly promotion.
McDonald's dropping its account with Simon, which accounts for nearly two-thirds of its business. Intuit is surging more than 6 1/2, the maker of personal finance software reporting a narrower than expected fourth quarter loss. Revenue jumping 18 percent from a year ago. Intuit reaffirming next year's guidance. Despite today's rise, shares of Intuit have lost nearly half their value from their 52-week high of 69.
Michael Holland says the U.S. is risking outright deflation, and he says the Federal Reserve escalated problems yesterday by not cutting interest rates more aggressively. Michael Holland of Holland and Company joins me now.
The Fed is behind the curve and should have gone a half a point yesterday not a quarter of a point?
MICHAEL HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Yes, but I didn't think it sounded so sinister as it just read. My guess is that we are going to 3 percent eventually in the federal funds rate in any case which is where we were in '91, the last recession. You had Larry Lindsey on a few minutes ago from the White House referring to that time. Three percent is where we were during that recession, during that bear market.
Interestingly, the markets, that is the bond market, for example, have already presaged that we are already as bad as it was back then, and yet we're at 3 1/2 percent in the federal funds rate. To give you one example, the 2-year Treasury back then was close to 4 percent. Right now, that 2-year Treasury is trading at nearly 3 1/2 percent, which is where the federal funds rate.
It means that the federal funds rated should be 50 basis points lower. HOPKINS: But it seems that the Fed is moving very quickly to lower rates. You think it's not quick enough.
HOLLAND: The Fed has moved, in very great measure, due to the fact that it raised rates dramatically. Once again, Larry Lindsey's comments were, this slowdown started a year and a half ago. The Fed's increase in rates started around that time.
We already had an economy that was slowing down. The Fed talked about over-heating and it talked about inflation problems. There were no inflation problems. There was no over-heating, we were in the midst of a slowdown. They raised rates to 6 1/2 percent. A year ago June, they raised rates and scared the market by raising them one half of 1 percent to 6 1/2. This was with two percent inflation. We now have one percent inflation.
You said earlier that I said we are risking inflation. We already have deflation in parts of the economy. We are moving to 1 percent and maybe lower inflation.
HOPKINS: Larry Lindsey said something that surprised a lot of us, which was that interest rates cuts won't have an effect perhaps on the economy for 12 to 18 months.
HOLLAND: That's longer than we normally talked about isn't it?
HOPKINS: It is, so when are things going to turn? Or do you see some signs of things improving?
HOLLAND: Well, I think he's voicing the reality. We've always talked on Wall Street of 6-12 months. We've accept that. Perceived wisdom, as they say. We now are in the third quarter. Alan Greenspan, early in the year, talked about a third quarter turn in the economy.
We're in the third quarter, it ain't turned. If anything, talking to business people, it's actually not getting better, it's flat to worse. So, having said that, that's what the reality is. Moving into the fourth quarter Lindsay is saying that they started lowering them, to your point, they raised them quickly, they lowered them quickly.
From January, is when they started, so maybe by December. That's the reality.
HOPKINS: When is the stock market going to turn? It usually turns before the economy does.
HOLLAND: Six to 12 months before the economy? I don't think so. I think this time around, once again, it may be different. I think this market may say we want to see the whites of your eyes before we shoot. In other words, we are going to need more than what we had today from the semiconductor manufacturers that things are getting a little better.
I think it is going to be a little more "show me," a little more skepticism in people before they put -- they have been burned very badly. You talked about stocks earlier, down 85 and 90 percent off their highs, JDS Uniphase and these guys. People are going to be slow to return certainly to those and possible to the stock market.
HOPKINS: Let's take a look at what you were recommending last time you were here, because some of those picks actually are down quite a lot. Banking stocks: J.P. Morgan, Merrill Lynch, IBM, Microsoft, Merck, a gainer.
Which one of those would you still put money in now?
HOLLAND: My largest holding which I talked about is Johnson & Johnson. That's not on there, that's up. Merrill Lynch is a great example. Here is a stock that is down 24 percent and I was on two months ago, the stock was up 3 percent today. That's as of last night, those numbers. Today the stock was up 3 percent.
I think these are stocks, I own all of those stocks, I own the same number of shares. They are smaller positions, that's a joke. But I realize that having experienced what we just experienced over the last couple of months they are much more attractive given the lower interest rates you started out with than they were two months ago and yet the stocks are down.
So for me it's like going to a store and they have priced down some of the quality magazine. Merrill Lynch is a fabulous franchise, it is the worst performer of those stocks, I would buy it today.
HOPKINS: And they will recover.
HOLLAND: From your lips to God's ears.
HOPKINS: Thanks, Michael Holland.
In other corporate news, a federal judge dismissing a lawsuit against Morgan Stanley and its influential Internet analyst, Mary Meeker. Shareholders accusing Meeker of making positive statements about eBay and Amazon to generate investment banking fees. The judge says the suit was in bad taste.
Excite At Home firing the auditing firm that raised doubts about its ability to continue in business. The Internet company dropping Ernst And Young, hiring Price Waterhouse Coopers in its place. Excite says the move was planned months ago and has nothing to do with the negative report.
Tellabs, the latest telecom equipment maker to slash jobs. Tellabs cutting 1,000 jobs, about 13 percent of its work force, and shutting its manufacturing plant in Ireland. Tellabs expecting the moves to save $120 million a year.
After nearly two weeks of talks, Argentina is set to receive another $8 billion in loans from the International Monetary Fund. That brings the total IMF package for Argentina to $22 billion. The deal will also include some type of debt restructuring, one of the conditions set by the Bush Administration. News of the additional aid eased fears that Argentina might default on its debt.
The country currently has $130 billion in government debt. The IMF board is scheduled to vote on the proposal in early September. And on the news, Argentina's main stock index, the MerVal, climbed more than 8 percent to 328.
Still ahead on MONEYLINE, the dollar dilemma. First it was too strong, and now warnings about it becoming too weak. We'll take a look at why stock investors should be concerned.
And later, an icon of the telecom age passing into history sooner than you think.
(COMMERCIAL BREAK)
HOPKINS: The dollar today again losing ground against most major currencies. The recent decline at first, cheered by many U.S. companies. They felt a strong greenback was working against them. As Kitty Pilgrim explains, a weak dollar is cause for concern as well.
(BEGIN VIDEOTAPE)
PILGRIM (voice-over): The dollar is in bear territory. And like the classic children's tale, first it is too strong, then it is too weak. In weakness, there is a real problem. Overseas investors in U.S. financial markets have been watching with dismay as the dollar declined and their gains evaporated.
Seventy percent of all international capital flows come to the United States. Overseas investors own 44 percent of treasuries that are traded, 23 percent of U.S. corporate bonds and 12 percent of stocks. If there were a sudden plunge in the dollar's value, it would have dire consequences on those investments.
LAURA RHAME, BROWN BROTHERS HARRIMAN: Last year, foreigners put $400 billion into the U.S. That is a huge amount of money, and it's 5 percent of our GDP. If that money were to come out, you can imagine the effect on the markets.
PILGRIM: In the last month and a half, the dollar has been declining, particularly against the Japanese yen, even though the Japanese economy is abysmally weak. Currency traders say that's because Japanese investors are already pulling yen back home, although it has yet to show up on official capital flow charts.
The capital repatriation of yen will intensify as it does every year when the Japanese hit their traditional September 30 deadline for window dressing, when yen is called home to strengthen balance sheets. Money that may not come back if the dollar continues to weaken.
ROBERT HORMATS, GOLDMAN SACHS: I think that a weaker dollar in the current environment probably is not going to have too much of an effect on our capital markets, but if it continues there is a risk that foreign investors will be more reluctant to put money into American financial assets.
PILGRIM (on camera): It's clear you can't blame currency for the drop off in U.S. financial markets. It is way too soon to draw conclusions like that. But the weak dollar is one more worry market watchers are keeping their eye on.
Kitty Pilgrim, CNN Financial News, New York.
(END VIDEOTAPE)
HOPKINS: Coming up, will the phone booth go the way of the 8- track?
That story next.
(COMMERCIAL BREAK)
HOPKINS: Coming up on MONEYLINE, if you have held out buying a cell phone, you may need to reconsider. Soon it could be difficult to locate a pay phone. We will tell you why, plus a look at your comments, right after this.
(COMMERCIAL BREAK)
HOPKINS: These days carrying a cell phone seems about as common as carrying a wallet, making the corner phonebooth look like a relic. Now, many phone companies are looking to pull out of the business, or have plans to jack up the price of a call to make up for the sharp decline in use.
Hillary Lane takes a look at the disappearing phonebooth.
(BEGIN VIDEOTAPE)
LANE (voice-over): Just steps from the landmarks that light up New York, the crown jewel in a withering empire.
The busiest pay phone in the largest city in the U.S. But in the age of cell phones, calling cards, and 1-800 numbers, pay phones are fast becoming the dinosaurs of dialing.
FLOYD GREENWOOD, PRUDENTIAL SECURITIES: The pay phone business is really going the way of the buggy whip, so to speak. This is a very slow growth or declining growth business.
LANE: So slow that Bell South recently announced it would hang up on the 143,000 pay phones it operates, phasing them out by 2003. SBC Communications, parent of Pacific Bell, Ameritech and Southwestern Bell, and Qwest Communications, which owns U.S. West, both have tried to sell their pay phone divisions. When no buyer stepped up, they resorted to hiking the cost of a local call to as much as 50 cents, and are pulling out unprofitable phones.
The average public phone brings in 125 to $150 a month, and costs $100 a month to operate, according to the industry's trade association. Piggy bank profits to the major telecoms, which leaves the independent providers like Atlanta's Ultra Telecom, which owns and operates 1,600 public phones, mostly at well-traveled convenience stores.
The independents are growing creative, some adding Internet service to public phones. Others, like Ultra Telecom, selling advertising...
GEORGE SCHMIDT, ULTRA TELECOM: The advertising industry itself is a multibillion dollar industry. And if we can capture just a very small piece of that pie, we look to increase our revenues in that respect as well.
(END VIDEOTAPE)
LANE: No one expects pay phones to disappear entirely. There's still a visible need among the nearly 2/3 of Americans who don't have cell phones, or in areas where cell coverage is weak. And also, 911 calls, but it's a tough business, with profits dropping a quarter at a time -- Jan.
HOPKINS: Thanks very much. From pay phones to payoff. Powerball fever is gripping the nation. The jackpot has grown to $200 million, but you can only play the game in 21 states and Washington, D.C. That has folks all over the country storming into nearby states to buy their tickets, which are selling at about 3,000 a minute.
UNIDENTIFIED MALE: I'm here for my office and friends.
UNIDENTIFIED REPORTER: How many of them?
UNIDENTIFIED MALE: Office, about eight, friends, about five additional. UNIDENTIFIED REPORTER: You've been out here how long today waiting, trying to get these tickets?
UNIDENTIFIED MALE: On the books or off the books?
(LAUGHTER)
UNIDENTIFIED REPORTER: Either way you want to do it, friend.
UNIDENTIFIED MALE: I've been here about two hours.
UNIDENTIFIED REPORTER: And your boss says?
UNIDENTIFIED MALE: Don't come back without tickets.
HOPKINS: So what are the odds of winning tonight's Powerball? About one in 80 million. So good luck.
Coming up next, a look at your e-mail and "Ahead of the Curve."
(COMMERCIAL BREAK)
HOPKINS: Several companies are due to report quarterly results tomorrow, including Krispy Kreme, retailers Kmart, Limited, Intimate Brands and Barnes & Noble. We're also looking for a report on the economy with weekly jobless claims. And Scott Livengood, the chairman and CEO of Krispy Kreme, joins me to talk about his company's sweet success.
Time now for some of your feedback. The latest round of IMF funding for Argentina prompted Jeff in Delray Beach, Florida, to write -- quote -- "Why must we always pay for everyone's negligence and incompetence? As long as they know we'll do this, they will continue to default."
On the same topic, Darrell says -- quote -- "You can't expect the U.S. to bail out the entire world along with all our corporations. We'll have plenty of beggars coming on their knees in the coming months asking for handouts." End quote.
On to the criticism leveled by many of you on Alan Greenspan. Ignacio writes: "I don't understand why everyone makes Mr. Greenspan solely responsible for the interest rate cuts or hikes. These decisions are made by a dozen people who make up the FOMC."
Still plenty of opinions on the tax rebate. Sean in Massachusetts asks: "Why is it those who reflexively assert government monies belong to the taxpayer are not half as quick to point out that the federal debt also belongs to the taxpayer?"
Last night's story about small concert promoters suing a Goliath of the music business, Clear Channel Communications -- Henry says: "Boohoo to the small promoters. They have to relearn basic capitalistic survival 101. Treat your customers well and they will return."
We always welcome your comments. Please send us an e-mail to moneyline@cnn.com.
And one quick programming note to tell you about before we leave. MONEYLINE will be starting a half-hour earlier beginning Monday, August 27th. The new time will be 6:00 to 7:00 p.m. Eastern.
That's MONEYLINE for this Wednesday evening. Thanks for joining us. I'm Jan Hopkins sitting in for Lou Dobbs. Good night from New York. "CROSSFIRE" is 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
