Return to Transcripts main page
Lou Dobbs Moneyline
Dow Dives 160.32 to 10,222.03; Nasdaq Tumbles 47.43 to 1,804.98; Consumer Confidence Slides in August
Aired August 28, 2001 - 18:00 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. Our top stories tonight, stocks plunge across the board on Wall Street. $180 billion of market cap wiped out today. Behind the sell-off, a surprise decline in consumer confidence in August. Confidence now at a four-month low. And after the closing bell, Gateway announced a restructuring that will result in thousands of layoffs, and a near half billion dollar charge.
It was a punishing session on Wall Street as investors assessed the latest look at consumer confidence. We'll have more for you on that in just a moment. But first, a look at what our reporters are working on this evening. We begin with Steve Young. Steve?
STEVE YOUNG, CNN CORRESPONDENT: Lou, a major shakeup at one of the world's biggest computer makers: Gateway.
LISA LEITER, CNN CORRESPONDENT: Consumer confidence tumbled this month, stoking fears that the economy may have actually contracted in the second quarter.
PETER VILES, CNN CORRESPONDENT: In Washington, the dirty little secret about economic forecasts. Nobody is that good at predicting turnarounds.
KITTY PILGRIM, CNN CORRESPONDENT: This week is the peak driving week of the year. And wouldn't you know, gas prices have been heading higher.
DOBBS: Thanks, Kitty. Those stories coming right up on "MONEYLINE."
But first, a brutal session on Wall Street to tell you about. The Dow tumbled 160 points -- that the worst performance in three weeks. All but two of the Dow 30 stocks ended the day lower. And the ones that did end higher, Philip Morris and AT&T were up only fractionally. Christine Romans at the New York Exchange with this story. Christine?
CHRISTINE ROMANS, CNN CORRESPONDENT: Lou, sagging consumer confidence clobbered investor confidence today and investors fled the stock market for the relative safety of the bond market. Take a look at the Dow Jones Industrial Average. Got hit early on and then fell 160 points, Down 1.5 percent. 10,222 is the level there. Take a look at the brokers. A lot of these names got hurt today. Bear Sterns lowering profit expectations for Goldman Sachs, Lehman and Morgan Stanley Dean Witter, citing a less robust economy and increased competition. Also, many of these names have been sagging when people get worried about the equity market and worried that it's going to continue to move lower.
The biggest downside mover here at the NYSE, the biggest big board loser: Dycom. DY is the ticker symbol. This company coming out and warning on its first quarter and saying things look tough for the year 2002, Lou. Provides engineering and construction service to the telecom sector. A lot of folks say that's just one company to think of as we start going ahead to what could be a preannouncement session in just a couple of weeks.
DOBBS: Setting the stage. Christine, thank you.
The Nasdaq today hurt more than the Dow, plunging 2.5 percent. Greg Clarkin at the Nasdaq marketsite, where he belongs. Greg?
GREG CLARKIN, CNN CORRESPONDENT: I do, Lou. I'll tell you -- consumer confidence figure really did take the wind out of the sails of the markets this morning. We saw the Nasdaq right around break- even around 10:00 this morning. That number came out, and immediately tech stocks tumbled. Now, they mounted a somewhat lukewarm comeback in the afternoon hours. That didn't hold, and the Nasdaq finishing the day right at the session lows down 47 points at 1864.
Now, especially hard hit today, some of the hardware stocks. Take a look at Sun Microsystems. They have a conference call tomorrow to update Wall Street analysts on their quarter. Today we saw Goldman Sachs' Laura Conigliaro coming out and slashing earnings for share estimates on Sun Microsystems. That stock was off. Dell was down. Apple was down. Networkers were hit. Cisco was down.
And also, particularly hard hit were the software stocks. Take a look at this sampling here. Microsoft, PeopleSoft, Oracle, Veritas Software, all finishing the day sharply lower. And traders say at this point we're in that kind of dangerous area after the earnings announcement came out and before the preannouncement. So any piece of economic news is going to be really scrutinized, and that's what we saw today with that consumer confidence. Lou, back to you.
DOBBS: So big problems today for hardware and software.
CLARKIN: Exactly.
DOBBS: OK, Greg, thanks. Greg Clarkin.
Let's take a look now at some of the stocks that are moving in after- hours trading this evening. Jennifer Westhoven at the Instinet trading floor. Jennifer?
JENNIFER WESTHOVEN, CNN CORRESPONDENT: Hi, Lou. We're going to start off talking about CVS. No trades on it, but it's one to watch tomorrow. Company coming to a settlement with the Department of Justice after a what's called a partial fill lawsuit. Essentially, that means a pharmacist might partially fill a prescription and tell a patient to come back later. But if the patient didn't, they would still bill the government for the full amount. CVS says any mistakes were inadvertent, but they will pay four million dollars to settle that. And of course the other stock that we were watching intently here, Gateway, a positive reaction coming after news of a restructuring there. The stock well above the $9 a share mark in late hours trading. And of course we'll have details of that coming up.
DOBBS: OK, Jennifer. Thank you very much. Jennifer Westhoven at the Instinet desk.
Steve Young is here now and he has more on that Gateway restructuring. This is a big deal.
YOUNG: This is huge, Lou. Faced with a global technology slowdown, a lot of technology companies have been shrinking their lines of business, but this Gateway restructuring takes the cake. For starters, Gateway is cutting its U.S. work force by 15 percent. Then it is lopping 25 percent off its worldwide work force. It says it's immediately closing all company-owned operations in Malaysia, Singapore, Japan, Australia and New Zealand.
Gateway had previously indicated it might exit Europe and will decide that in the next 30 days. It's taking a third-quarter special charge of $475 million. Gateway says in revised guidance for the second half of the year it expects a slight loss pre-tax, excluding special charges for the third quarter, and a return to profitability for the fourth quarter.
(BEGIN VIDEO CLIP)
ERIC ROTHDEUTSCH, ROBERTSON STEPHENS: It seems like a pretty reasonable strategy, but certainly the jury is going to be out for quite a while to see whether or not these new strategies are going to pay dividends or not.
(END VIDEO CLIP)
YOUNG: Gateway's founder, chairman and CEO Ted Waitt, said in a statement, "We're planning to win by building a lean, nimble organization that is unified and focused on our customer base unlike any other time in our history." But except for the U.S., Gateway's strategy now seems to be exiting the world. Lou.
DOBBS: Steve, in this case Ted Waitt, a fierce competitor, brought back into the company because of all of these problems. Is there any projection here in terms of revenue? Just how serious is the problem for Gateway? Do we have any indication?
YOUNG: No. No dollar figures given. On the conference call he also said they're closing down a plant in Salt Lake City. I think one big concern, they're shutting almost half their calling centers for technical support. So I think that's going to be on the minds of their customers.
DOBBS: This is without question a recession, certainly for the PC companies. All right, Steve, thanks. Steve Young.
Slamming stock prices today: a surprising drop in consumer confidence this month. The report sparking concern that consumer spending may be on the decline. Lisa Leiter has the story from Chicago.
(BEGIN VIDEOTAPE)
LEITER (voice-over): The last time consumers felt this pessimistic about the economy, the Nasdaq hit its low for the year. Consumers' feelings about their current financial situation sank to a 4-year low in August, as more people worry about losing their jobs.
UNIDENTIFIED FEMALE: I'm an interior designer, and basically our jobs are affected if people are having financial problems. They're not going to want to go out and spend money on furniture and things that you don't need.
LEITER: But expectations about the future rose, and some economists say that's what really matters.
DELOS SMITH, THE CONFERENCE BOARD: It is February, March of 2002 that should worry everybody, not what's happening now. We know what's happening now. It's slow and it's sluggish. The present situation reflects a number that is still too high. And I can guarantee you that present situation is going to be coming down. We hope the expectations will hold on.
LEITER: If confidence doesn't hold up, it could threaten consumer spending, which accounts for two-thirds of economic growth. The question is whether there was any growth at all in the second quarter. The government initially estimated that the economy grew .7 percent between March and June, its slowest pace in eight years. But economists now expect that number to be flat or even slightly negative when it is revised tomorrow because of unexpectedly low business inventories.
DANA JOHNSON, BANC ONE CAPITAL MARKETS: Markets and economists will certainly take notice if it becomes a small negative rather than a small positive, because that would create the possibility that it's the beginning of a recession.
(END VIDEOTAPE)
LEITER: If second-quarter GDP is negative, that doesn't necessarily mean that the economy is in recession. But even if the economy doesn't officially shrink for two straight quarters, some say this slowdown has been so severe and so widespread that it feels like a recession -- Lou.
DOBBS: Sometimes that's a more important indicator. Lisa, thank you very much. Lisa Leiter from Chicago tonight.
Bonds surged after the release of that consumer confidence report: the 10-year jumping 22 ticks, the yield tonight at 4.83 percent. The 30-year gaining 27/32, and the yield there at 5.4 percent.
My guest tonight has been bearish on the economy: He warns we are already in recession, despite the fact that we have not yet seen that classic definition of two consecutive contracting quarters of growth. Lakshman Achuthan of the Economic Cycle Research Institute joins us now. Lakshman, it's good to have you with us.
LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Good evening.
DOBBS: We have heard enough bad news already tonight. Give us some good news.
ACHUTHAN: Well, I think people are starting to realize the situation we're in, and beginning to take actions to deal with it. Policy makers took action already and now businesses and finally consumers are doing their thing.
DOBBS: In those actions -- specifically, you're talking about the tax rebate, of course, you're talking about the monetary policy, now we have seven interest rate cuts.
ACHUTHAN: Right.
DOBBS: What actions are we seeing in terms of restructurings and consolidation? Is that what you're referring to?
ACHUTHAN: Right. The businesses have led this downturn. They've been pulling back, trying to get to profitable business plans as quickly as they can. Some faster than others. And now, we see the impact of that, where businesses have pulled back on spending -- including employment -- hitting the consumer to some degree.
DOBBS: The consumer -- this confidence report against the housing report yesterday, we're starting to see some suggestions -- and certainly they're not definitive in any way, but some suggestions -- that the consumer, who's been strong and resilient throughout this year, is starting to say, "Hey, wait a minute. Something is going on here."
ACHUTHAN: Sure. I think the lower interest rates, the aggressive policy earlier this year shored up the consumer. It can only go so far, especially when employment is eroding as it is. The recurring claims numbers have gotten almost to an eight year high.
DOBBS: The jobless benefit claims.
ACHUTHAN: The jobless benefit claims. They come out every Thursday morning. And so that means that there's some uncertainty out there among the consumer that's starting to gain some traction.
DOBBS: Let's get to it. Are we going to have a recession or not?
ACHUTHAN: Yes. We've said very clearly on this show that I think we are in a recession. It began sometime in the first half of this year. I don't know when. I do know it will end at some point. That's the good thing about cycles. The problem is -- and I think there's a real problem -- that Japan is in recession. That Germany reported last week second-quarter annualized growth at a -.1 percent. The last time Japan, Germany and the U.S. at the same time were heading down was 25 years ago.
DOBBS: In the '70s. And what does that portend? Is this going to be -- when I ask is this going to be a recession, what I should have said more carefully, artfully, was will it be two consecutive quarters of contracting economic growth?
ACHUTHAN: The third quarter is shaping up a little shaky already ,from the readings we're initial readings we're getting.
DOBBS: We're going to have that revision tomorrow. What's your best guess?
ACHUTHAN: My best guess is, I'll guarantee it's down. Now, if they actually...
DOBBS: Negative?
ACHUTHAN: Down from .7. If it's minus .2, or plus .2 percent -- I don't think it really matters.
DOBBS: Who cares?
ACHUTHAN: Who cares? I mean, we all know what's going on.
DOBBS: Well, you know who cares. Everybody is going to be looking at that. If it's negative, it's a big deal.
ACHUTHAN: Well, it's a headline. It's a headline. But I don't think it changes the reality of what the companies are telling you, or the reality of the layoffs, or the reality of the pull back in the consumer. And that global cyclical downturn, at the same time, it just puts a bigger headwind in front of us as we try to kickstart the economy.
DOBBS: What should the consumer do? What should the investor -- as we look at this. We can talk in macroeconomic theory, we can look at the individual statistics emerging -- they emerged, they're not really delivered -- from Washington, as it would appear. What should the investor, what should a consumer, a saver, be doing here?
ACHUTHAN: Keep your powder dry. Be ready for it to get a little worse before it gets better. A recovery is not imminent. I think that's the clearest thing we can say right now, is that it's not tomorrow. And it's probably not next week or next month. It may be a little bit further off. And we should be prepared for that, and you'll be healthier and better for the up turn if you can do that.
DOBBS: So you're saying this is not necessarily the time to be buying stocks. It's not necessarily the time not to be saving some of that green stuff.
ACHUTHAN: It's probably better. You sleep better.
DOBBS: I know certainly I do.
ACHUTHAN: OK.
DOBBS: Thanks very much. Lakshman Achuthan. Thanks.
It's one of the biggest boardroom battles in recent memory. It is pitting Computer Associates Chairman Charles Wang against shareholder Sam Wyly. It all comes to a head tomorrow when the company shareholder meeting gets under way. Fred Katayama with the report.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): It's the eve of the WWF: the Wyly-Wong fight. Computer Associates, led by Chairman Charles Wong, appealed to investors today in a newspaper ad, boasting that its stock has risen more than 70 percent this year. It's the latest salvo in a battle that began in June.
Texas billionaire Sam Wyly launched a proxy fight, charging CA and its stock with underperforming against its peers over the last five years. He vowed to split CA into four businesses and replace Wong and his 10-member board. But after winning little support, Wyly changed his game plan two weeks ago. He now wants to replace just four members of the board, including Wong and former Senator Alfonse D'Amato.
PETER GOLDMACHER, MERRILL LYNCH: Putting four people on the board does not accomplish too much. He still does not have a majority. Majority rules on board fights. So I think rather than being productive, it could actually be counterproductive.
KATAYAMA: Most analysts believe CA will win. Wyly has the support of the California Public Employees' Retirement System, but CALPERS owns less than 1 percent of CA. And Wyly holds just 100 shares. CA has the support of investor Walter Haefner and his 21 percent stake. Add to that the 9 percent under management and employee control, and the CA camp has 30 percent of the votes.
SARAH MATTSON, DAIN RAUSCHER WESSELS: I don't think that Wyly and his slate of proposed board members have really put forward a compelling reason for shareholders to vote them onto the board. I think most shareholders believe that the current management is making some changes. Perhaps the proxy fight has accelerated some of those changes.
(END VIDEOTAPE)
KATAYAMA: Since Wyly launched his fight, CA stock has not moved much, keeping to a range of $30 to $36 a share. Analysts say that means most investors believe Wyly will not succeed in his bid. But they say his proxy fight has been good for shareholders, because it has served as a wake-up call to CA's board and its managers -- Lou.
DOBBS: And improving the stock. Wyly wins anyway, because he is a major shareholder.
KATAYAMA: Sure, although he only owns a hundred shares.
DOBBS: It's down to a hundred shares?
KATAYAMA: Down to a hundred shares. He does have options, but in terms of shares.
DOBBS: Well, let's count those options.
KATAYAMA: They say it's 55 million.
DOBBS: That would work for me. How about you? It's a pittance as far as Charles, of course, is concerned.
KATAYAMA: Oh, yeah.
DOBBS: Thanks.
Straight ahead here on MONEYLINE tonight, it's back-to-school time. For a lot of students that means attending classes run by for- profit companies. We'll take a look at what's becoming a growing national trend.
Then, murder charges have been filed in one of those California wildfires. We'll have that story for you.
Also, believe it or not, another shark attack in Florida at the very same beach! We'll tell you what officials are doing trying to solve this problem.
And the Dixie Chicks. The Dixie Chicks say Sony owes them money, and they're suing. We'll tell you all about it. All of that and more, coming up on MONEYLINE.
(COMMERCIAL BREAK)
DOBBS: This news update. A wounded Chicago police officer tonight is in critical condition. The officer was shot while trying to arrest a suspected bank robber. He was then held hostage by the gunman for more than two hours. Police and FBI agents surrounded the apartment building where he was holed up. The man eventually gave up when he was allowed to talk to a local television reporter.
A California man who allegedly set a wildfire in California is being charged with murder. Two pilots were killed when their planes collided in mid-air. They were battling an out-of-control fire near San Francisco. Police are looking for a second suspect.
Meanwhile, a fire near Los Angeles has nearly been contained. The 1,800-acre blaze had destroyed three structures. It was threatening to damage several luxury homes in the area before it was brought under control.
Another shark attack in Florida, the tenth attack in just over a week. A man was bitten on the heel while swimming in waist-deep water. He was not seriously injured. Officials doing what they can to keep people out of the restricted area. They have closed New Smyrna Beach for a sixth straight day. They have also spotted some 20 sharks swimming near shore.
The NFL is ready to send in the subs this weekend. Talks between the National Football League and its referees have broken down. That paves the way for replacement workers to take the field this weekend. The NFL is offering an immediate 40 percent pay increase and a doubled salary by 2003. The officials want parity with other sports officials. That could mean an increase of 400 percent, in some cases. League officials say their demands are "unreasonable."
The debate over the Social Security surplus could be a simple case of he said, she said. Congressional Budget Office figures say one thing, the White House says another. Regardless, the economy is likely to have -- as it always does -- the final word. Peter Viles has the story.
(BEGIN VIDEOTAPE)
VILES (voice-over): The argument about protecting the mythical Social Security lockbox now comes down to the Achilles' heel of most economists, trying to predict accurately when the economy will change direction.
DAN CRIPPEN, DIRECTOR, CBO: Economists notoriously are bad at picking turning points in the economy. It's almost correct, I think, to say that no one saw this coming, quite what we're in now. And if we indeed get a recession, no one predicted that, or very few.
VILES: The consensus from Wall Street to Washington is a recovery next year. The question is how strong. The Congressional Budget Office predicts 2.6 percent growth. The Blue Chip survey of 47 economists: 2.8 percent. The Federal Reserve in July predicted three to three and a quarter. The administration, 3.2 percent. Historically, the White House is often relatively optimistic in budget debates. The Reagan Administration was repeatedly accused of offering "rosy scenarios."
TOM GALLAGHER, ISI GROUP: The White House has usually had it in their interest to have a more optimistic set of economic forecasts.
VILES: But this time, the anticipated recovery is already running late. It is not clear the economy has bottomed out.
JOHN H. MAKIN, AMERICAN ENTERPRISE INSTITUTE: Remember, in January we were supposed to have a second half recovery for the economy. We're in the second half. We're not having a recovery.
VILES: The administration argues its more bullish forecast is in keeping with past economic recoveries, and recent history does bear this out. The economy spiked 5.6 percent after the 1975 recession, just 2.5 percent after the 1980 slump, but 4.3 percent after the '82 slump and 3.0 percent after the last recession. The average rebound in those four cycles: 3.9 percent.
(END VIDEOTAPE)
VILES: Now, from the strictly economic perspective, the White House and the CBO are not that far apart in their forecasts. The dust-up about Social Security is for the most part a political issue, not an economic one. But, of course, writing a federal budget -- we should remember -- is a political exercise, not an economic one -- Lou.
DOBBS: As if we needed reminding, Peter. Thanks, Pete. Peter Viles. The budget is just one topic for my next guest. Also, the situation in the Middle East, as well as Iraq's claim that it shot down an unmanned U.S. spy plane. I'm joined now by our regular contributor and former defense secretary, William Cohen. Bill, good to have you with us.
WILLIAM COHEN, FORMER DEFENSE SECRETARY: Good to be here, Lou.
DOBBS: Let's begin, Bill, if I may, with this -- all of this talk, this rumbling about the budget. What do you make of it? This is sort of unusual to see so much being made of what is frankly so little in terms of the margin on the budget.
COHEN: What they're doing is they're setting the battlefield up for the fall, where the Democrats, obviously, will go after the administration and say that the tax cut was too deep and now President Bush is dipping into the Social Security trust fund.
This will set the course for the Democrats to try and take control of the House as well as maintain control of the Senate next year. Republicans, by contrast, will argue that with the tax cut and with the cuts in interest rates by the Federal Reserve we'll see a stimulus to the economy that will more than replenish that surplus next year.
DOBBS: Which side do you come down on, Bill?
COHEN: I don't know. I'm one of those one-armed economists that really don't know. I would say at this point, looking at past performance, CBO, as far as the Congress is concerned, tend to be more reliable. If you're from the White House or the executive branch, you point to the Office of Management and Budget. So it depends on where you sit. I think that what will happen, there will be a direct impact, however, on the discussions and debate on the defense budget. I think it's going to be difficult to get the numbers that Secretary Rumsfeld is requesting and at the President Bush is supporting.
DOBBS: Politically -- you as a Republican, serving in a Democratic administration, many years in the Senate, in Congress as well. Is this really a serviceable, effective political issue? All of this noise over the budget. Will this be persuasive with voters?
COHEN: Not on the budget per se. What will happen, the debate will sharpen somewhat. In other words, Democrats will try the force President Bush to start cutting very popular domestic programs or cut back on his tax cut, if they can do that. And so it starts to get very difficult when you get down to the specifics. In general, a debate over the size of the budget or the size of the surplus does not really take too much hold on the American people's attention right now. It's the specifics that most of the parties, Republican and Democrat, will go after during the campaign next year.
DOBBS: Turning if I may to what are now rising, escalating tensions in the Middle East, with the Israeli movements and -- what do you make of this? Is it time now for the Bush administration to take serious charge of this issue and to intervene in that process?
COHEN: There is no light at the end of this tunnel because there's no tunnel. There is no peace that can possibly be prepared and provided, because there is no peace process. I think it's time for the administration to take a much more active role.
DOBBS: We apparently have had technical problems and now I'm told that he is back. Bill, you're back.
COHEN: Back arguing that I think the administration needs to take a much more aggressive posture in the Middle East, not only to help bring about a process that hopefully one day can produce a peace in the Middle East, but also to maintain our own credibility throughout the region. We have a great deal at stake. Israel, the Palestinians have a great deal at stake. But the administration has to look to the moderate Arab states as well, and we are losing credibility there. So we have to have a much more active role in the Middle East if we hope to somehow bring about this process that need to be reignited.
DOBBS: And I think in fairness to the Bush administration, probably we should point out that over the course of 53 years, no one has yet come up with, if you will, the answer for what is frustrating and historically persistent tensions and violence in the Middle East. Bill Cohen, as always it is good to have you with us.
COHEN: Great to be here.
DOBBS: Well, let's turn to the Dixie Chicks. It's a perfectly natural flow of things. They are fighting back against Sony. The Grammy- winning girls are suing the music giant. They say Sony cheated them out of more than four million dollars in royalty payments. The group's two albums earned the company more than $175 million. Back in July, Sony fired the first shot. They sued the girl group for trying to get out of their contract illegally.
Coming up in the next half hour of MONEYLINE, no more Dixie Chicks. But we'll be telling about for-profit schools that are booming. We'll take a look at the effect that's having on public education. Gasoline prices. They're on the rise again. We'll tell you why, and what it could mean for all of us. And stock prices continue to decline as the economy continues to slump. But my next guest says hang on. There is hope.
(COMMERCIAL BREAK) DOBBS: Well, stocks tumbled across Wall Street today, after a weaker-than-expected report on consumer confidence. The Dow dropped more than 1 percent, to 10,222. Only two of the Dow 30 stocks finished higher on the day.
Declining issues beating out advancers by a three to two margin, and among the most actives today on the Big Board: Lucent shares topping the list, the telecom gear maker finishing on the upside after saying it will close its Israeli, Chromatis Networks. Texas Instruments down nearly 30 cents on the session. Speaking in Taiwan, the company's chief operating officer repeatedly stressed that demand remains weak and tech spend is still very soft. In other active issues today: Shares of AIG trading heavily on news with its deal with Hyundai, stalled over price differences.
And a tougher day for technology stocks, where the Nasdaq fell nearly 2.5 percent on the session, finishing at 1,846. And as you see there, declining issues beating out advancers by a two to one margin. Sun Microsystems topping the most actives list on the Nasdaq, shares down nearly $1 after Goldman Sachs cut its quarterly and full-year earnings forecast for the company.
Intel shares initially climbing higher after the chip maker says it expects a seasonal improvement in the demand. But then, stocks couldn't hold on to those gains, down 64 cents by the close. Checking out other actives: Shares of Rambus down more than 40 cents on the day. Heavy trading in that stock, that following a 30 percent runoff just yesterday.
Well, Wall Street is bracing for tomorrow's report on second quarter GDP. We'll take a look now at how investors and traders may react to that revision, Christine Romans at the New York Exchange -- Christine.
ROMANS: Lou, I cannot remember a time when so many people were talking with so much importance about a number that can often be seen as a rearview mirror gauge, but it's going to be a revision to the second quarter gross domestic profit, it comes out before the opening bell tomorrow, and folks are saying it's really important.
Now, what are the possible scenarios on Wall Street to this? Well, if, as expected, we get no growth or just slight growth in the quarter, some are saying that's probably already pretty factored into the stock market, they've been talking about this for three weeks.
Negative GDP number for the second quarter -- well, traders say that's going to highlight recession fears, and here on Wall Street people are going to be worried about what those headlines are going to say in the newspapers. That could send the bond market higher and the stock market lower. Watch Dow support they say at 10,120, they want to see if those July lows and some of those lows that we saw back in April hold if there is any kind of sell-off.
But Lou, once again I want to stress, people have been talking about this fore a long time, and the job of the stock market of late has been confusing, confound as many people as possible, so we'll see if we'll even get a reaction, and what kind of a reaction it will be.
DOBBS: (UNINTELLIGIBLE) said -- I can't imagine Wall Street being very happy with his words -- that perhaps it's time for consumers to hold back on the stock purchases and their spending?
ROMANS: Well, we'll have to see. We certainly got a big downer from that consumer confidence number today. Maybe this will be part two in the Wall Street being worried about the consumer and the economy again.
DOBBS: OK, Christine, thanks.
Let's go back to Greg Clarkin now at the Nasdaq marketsite to tell us what he suspects will be facing investors tomorrow, and I suspect Sun Microsystems has something to do with it, Greg?
GREG CLARKIN, CNN CORRESPONDENT: Exactly, Lou. They have a conference call scheduled tomorrow after the close of trade, and that is expected to be a big focus, Sun is expected to give kind of a quarterly update as to where their business stands.
I also want to talk a little bit about that GDP revision. As one trader said, you know, right now, there's just not a lot to talk about, not a lot for the market to digest. It's after the earnings report, it is before the preannouncements, so they are really focusing on this revision, and as Christine said, the traders really fear that if it is a particularly negative number, you are going to see a real splash made in the press, and that is just going to contribute to kind of the negative environment surrounding the markets right now.
Now, we mentioned the Sun conference call. Again, nothing startling, the news is expected out of this conference call, but still no one is expecting to get any kind of a good update from Sun.
Choppy trading throughout the end of the week, we're looking at the holiday on Monday, and traders say, you know, increasingly, especially toward the week, end of the week, you're going to look at the trading desk just kind of half-staffed, and they expect to see some volatility in the marketplace, and then hopefully they are looking for a climb back to 1,900. The Nasdaq right now is below that level, and they're hoping that by week's end maybe they can kind of approach that. Lou, back to you.
DOBBS: The last support level that you and I talked about, Greg, was 1,965. What's our new support level?
CLARKIN: At this point, Lou, you know, folks say you look at the kind of the trading range, they're looking at anywhere from 1,880 down to 1,820. That's a broad range, but that's the best they can do at the moment.
DOBBS: OK. Greg, thank you.
Topping tonight's "MONEYLINE Movers," Cox Communications, which dropped nearly $1.5 a share, the country's fifth largest cable company reportedly in talks with AT&T for its broadband unit. Neither company is commenting on those reports. AT&T rejected an unsolicited $40 billion bid from Comcast back in July.
Andrx plunging nearly $5 a share, that after the drug maker's chief scientific officer resigned. Andrx hoping to win a legal battle to launch a copy of the heartburn and ulcer drug Prilosec, the world's top-selling medicine.
Eli Lilly lower for the second straight session. Lilly facing 10 lawsuits alleging it failed to warn patients that a Kansas City pharmacist was diluting its top chemotherapy drug. Lilly calls those charges "untrue" and "absolutely ridiculous." A rocky year for the company, shares down more than 16 percent so far this year.
Well, investors' hopes of a summer rally have all but faded. Sam Stovall now talks of a Santa Claus rally. Sam expects the S&P to finish the year 17 percent higher than where it is now. He expects earnings to turn around by the fourth quarter. Sam, it's good to have you with us, we need a little optimism here tonight.
SAM STOVALL, STANDARD & POOR'S: Well, it's good to be here. I'll spread some.
DOBBS: OK. What do you expect in terms of driving that kind of performance -- 17 percent from here, that sounds pretty good. I think everybody would sign up for that?
STOVALL: Well, that's true. But I think if you look at 17 percent as not really a raging bull type of a scenario, I think near- term we are likely to see some choppy movement, really that the seasonals are working against us at this point.
DOBBS: Now, what do you mean the seasonals?
STOVALL: Meaning that on average over the past 30 years, July, August, September, October have been poor months for the market overall, and pretty much leads to concerns about third quarter earnings and also then gives reason for investors to engage in tax law selling, which we're likely to see in the latter part of September as well as into October.
DOBBS: And you think despite all of that we can still see a 17 percent gain here against the S&P?
STOVALL: Well, I think the lows that were established in latter part of March, early April, will hold, but because we'll probably come down, maybe retest 1,100 on the S&P 500, maybe 1,640 on the Nasdaq, in the sense these could be lows that launch. However, it's probably just going to be more of a frog leap than it is a missile launch, mainly because I think we're going to see a rebound in earnings, probably because the weak comparisons to fourth quarter of 2000.
DOBBS: Are you saying a rebound in absolute earnings or you're saying a rebound in earnings as compared to the second quarter?
STOVALL: A rebound in year-over-year operating earnings, so fourth quarter of 2001 as compared with fourth quarter of 2000.
DOBBS: OK, fourth quarter.
STOVALL: We're looking for about a 5 percent increase. This is after, however, a 33 percent decline that we saw in the second quarter and an 11 percent decline that we're looking for in the third quarter. So, I think investors are going to start to anticipate rebound in the economy and improvement in earnings, and hopefully that will translate to a Santa Claus rally.
DOBBS: So, let's take a look at the picks that you made back in May in terms of what you expected. Xilinx -- whoops, down 25 percent. You think this were a down market, Sam. Atmel, Auto.Data Processing, Applied Materials and KLA-Tencor.
STOVALL: Well, if you notice, most of these are all from the semiconductor area. Jan Hopkins and I were chatting on the floor of the New York Stock Exchange about these shares, and certainly it's very tough to pick a bottom in technology, but our feeling is, longer- term, these are still good stocks to own.
DOBBS: And you're still with them?
STOVALL: We are.
DOBBS: Have you anything to add to those as we go forward?
STOVALL: Oh, absolutely. I'd like to take much more of a diversified approach at this point. Starting off with an area that I think is likely to do fairly well because of the defensive characteristics, and that's health care with St. Jude Medical.
Continuing on with that, the Old Bank of Hawaii, now called Pacific Century, is likely to be a beneficiary of lower interest rates and a consumer-led recovery. Ocean Energy, in the energy area -- I think don't count the E&P companies at this point. Roxio, Inc., this is a company that makes CD burners, and again, should benefit from a consumer-led recovery. And then finally, Sprint PCS.
DOBBS: Terrific. We'll add them to the list.
STOVALL: All right.
DOBBS: And go get that 17 percent. Sam, thanks. Sam Stovall.
Well, oil prices moved higher, ahead of a report showing tightening U.S. inventory levels. The American Petroleum Institute is reporting supplies are running short since an explosion closed Citgo's Illinois refinery for an expected six months. OPEC is widely anticipated to reduce production for the third time this year. They will meet again on September 1. Light sweet crude oil today, up 50 cents, settling at $27.17 a barrel on the New York market.
It was just four months ago that gasoline prices were rising sharply, prompting dire predictions of summer gasoline prices at $3 a gallon. Well, like so many predictions, it just never happened. But now prices are moving higher again, and Environmental Protection Agency wants to help everybody out. Kitty Pilgrim has the story. (BEGIN VIDEOTAPE)
PILGRIM (voice-over): Late August is road trip time for most of the country. Demand for gasoline is high, refining capacity has been brutally tight, and all it took was a fire at a Chicago refinery to drive prices sky-high again.
The Citgo Petroleum Corporations' Illinois refinery was badly damaged by a fire in mid-August. It produces about 16 percent of the state's supply. Gas prices rose for the third week in a row, hitting a national average price of $1.48 a gallon, although still below the stratospheric levels hit last spring. What makes the refinery fire so catastrophic is different parts of the country each use a different formula of gasoline, each a unique blend formulated for emissions guidelines.
ED MURPHY, AMERICAN PETROLEUM INSTITUTE: When there is a shortage of that unique blend, it is difficult or impossible to bring supplies from elsewhere in the country to make up for that shortfall. That is exactly what we are seeing now in the Chicago, Milwaukee area.
PILGRIM: The Environmental Protection Agency decided to temporarily relax emission standards for the Midwest, through September 15. The timing is awful. In addition to it being high demand season, some refineries have been switching over from gasoline to the winter product, heating fuel.
DAVE NUSSBAUM, INDEPENDENT TRADER: It's the change of season, so a lot of times you get your last hurrah in gasoline, you get a big run like this and heating oil can also be making a move.
(END VIDEOTAPE)
PILGRIM: Refining capacity is a problem that's here to stay, however. Gas consumption drops off in the fall, but one way it is even harder to predict spikes in heating oil demand depends on the economy and the weather, and both are pretty hard to predict - Lou.
DOBBS: Hard to predict? We are having no problem with predictions here. Just predict accurately, that's seems to be the problem. Kitty, thank you a lot.
Just ahead on MONEYLINE, it's that time of the year again: back to school. I know, I have a couple of daughters who are going to be thrilled to hear that one. But students don't have computers on their must-have list. We'll take a look at what that means for the PC business. And then: those for-profit schools. Why dissatisfaction among parents has created a business opportunity in the classroom. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Gateway's restructuring announcement tonight, the latest response by the industry trying to cut cost as PC demand shows little sign of recovery. Computer hardware stocks, one of the weakest sectors today. As you might expect, this one of the most important times of year for the industry as millions of students go back to college. But P.C. makers are expecting their sales to remain weak even though they ramp up for those big back-to-school specials. Intel said today it expects demand to pick up slightly.
But one of the biggest concerns right now, according to Prudential Securities, is aggressive pricing -- price cuts, in other words. Prudential saying the continuing price war will erode industry profitability. IBM, the biggest drag on the Dow today, down more than $1 a share. Others in the sector also weak. Compaq and of course gateway moving actually higher in the day.
Coming up next on MONEYLINE, the big business of public schools, a look at the growing business of for-profit school systems. We'll take a look at this story in just one moment. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Coming up on MONEYLINE, under-performing public schools are prime targets for corporate America. We'll take a look at a booming industry when MONEYLINE continues.
(COMMERCIAL BREAK)
DOBBS: It's back-to-school in many parts of the country and dissatisfaction with the quality of public education has many school districts turning to private business. Casey Wian has the story.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN CORRESPONDENT (voice-over): School registration in Chester, Pennsylvania is a new experience and not just for these kindergarteners. Ten schools in this chronically under-performing district are getting an overhaul from Edison Schools, the nation's largest for-profit school management company. Edison is bringing in new equipment and a new attitude: longer school days, tougher standards and more access to technology for students and teachers.
UNIDENTIFIED FEMALE: You're going to one more time...
WIAN: Nationwide, Edison runs 113 public schools with 57,000 students. By promising communities improved academic and better management of taxpayer dollars, Edison has become the 45th largest school system in the United States, with plans to be No. 6 within three years.
Teachers unions and some parents have fought to either keep or kick Edison out of some schools.
CHRIS WHITTLE, FOUNDER & CEO, EDISON SCHOOLS: This is a completely new industry that we're in. And as such, we have our failures, we have our successes. Eighty to 85 percent of the schools that we manage are showing significant academic gains.
WIAN: Edison says only three of the 65 contracts it signed in 10 years have been terminated. The head of another for-profit school company answered critics at a recent conference in Los Angeles.
JACK CLEGG, NOBEL LEARNING COMMUNITIES: To correct the situation has been cause for decades, is a year-by-year turnaround process. The turf projectionists won't allow or tolerate the time frame required because it looks bad for them if we do succeed.
WIAN: For-profit schools get mixed grades from investors. Nobel Learning has vacillated between 6 and $10 a share for four years, while Edison School stock has lost nearly half its value this year. Edison is not yet profitable, but analysts expect that to change as the company takes over more schools.
MARK MAROSTICA, U.S. BANCORP PIPER JAFFRAY: We continue to believe investors will reward the company, given its first-mover advantage, given the fact that we're talking about, again, a huge market opportunity.
WIAN: The White House education reform plan, which is in a Congressional conference committee, would put more pressure on school districts to improve academic performance. Those that fail are likely to bring new business to for-profit schools.
Casey Wian, CNN Financial News, Los Angeles.
(END VIDEOTAPE)
DOBBS: Up next we'll share your thoughts and take a look at what's in store tomorrow.
(COMMERCIAL BREAK)
DOBBS: Tomorrow we'll have the revision on the second-quarter gross domestic product. And the big question, of course, is whether or not it's negative. And Computer Associations holds its annual shareholders meeting. Charles Wang, the chairman of Computer Associates, will be here with me tomorrow night to talk about the vote and his company's future.
And taking a look now at some of your thoughts. Consumer confidence numbers showing the weak job market putting a damper on consumer spirits. But Bruce Hoffman in Batesville, Arkansas says when looking at the job market, it should be a question of quality, not quantity. He writes: "If a person loses a high paying job and gets a low paying one, the job rate does not change but the economy is hurt."
Well, I think you're probably right. The weak economy leads us to the possibility that the federal government may dip into Social Security to cover $9 billion of spending. Howard Graves wonders how there can be so much disagreement about the same set of numbers. He writes: "I'm getting the signal that Uncle Sam keeps two sets of books, and only when Congress and the White House disagree do we discover that."
Yes, I think that's a fair statement. And on the same topic, Phil Clyne writes -- quote -- "Instead of tapping Social Security, why not just wipe out the $19.5 billion in pork barrel spending?" There's only one problem with that, Phil. Actually, there's more than one, but the first problem is it's downright un-American. What would all those folks down in Washington do?
We enjoy hearing from you. E-mail us at moneyline@cnn.com. Don't forget to include where you're writing from and your full name, if you don't mind. We'd love to hear from you, as I said.
And for tonight, that is MONEYLINE. Thanks for being with us. I'm Lou Dobbs. Good night from New York City. "FIRST EVENING NEWS" is 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
