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American Morning
America Recovers: As Economy Goes Down, Wall Street Goes Up
Aired October 29, 2001 - 09:30 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.
MILES O'BRIEN, CNN ANCHOR: Andy Serwer, "Fortune" magazine, here beside me.
You know, I can't figure the market out.
ANDY SERWER, "FORTUNE" MAGAZINE: No one can figure the market out, Miles. Is this irrational exuberance? What's going on?
Well, it's a dichotomy between what's going on in the economy and what's going on in Wall Street. In the economy, we're seeing earnings down, unemployment rising, economic indicators looking sour. On the other hand, Wall Street is going up. The rationale is, with the economy doing so poorly, the understanding is, the belief is, Wall Street will have to stimulate more. That will be good for stocks. Go figure.
O'BRIEN: But you get the sense that the people who are buying into the market don't really realize what's in store.
SERWER: Well, I think they don't know what's in store, but I do think they're anticipating a recovery in the first half of next year. But you know, they've been saying that quarter after quarter after quarter, prosperity is right around the corner, and where have we heard that before?
O'BRIEN: Sounds like some denial to me.
All right, stocks you are watching?
SERWER: Well, there's a whole lot of stuff going on today. We have a new CEO at UAL, the parent of United Airlines. We talked about that earlier in the program. Then also we have a huge deal in satellite TV. GM is selling its Hughes DirecTV business to Echostar. We'll be watching that stock very carefully. And also, Lockheed, near and dear to your heart, those defense contractors which you know so well, got that huge $200 billion contract on Friday. After the bell, Boeing lost out. Those stocks, of course, Lockheed moving higher, Boeing moving south.
O'BRIEN: So we've gone from dot-com to dot-bomb, is that it?
SERWER: Very good.
But you know, defense contractors sort of are the new tech stocks in this market, aren't they?
O'BRIEN: I mean, it's funny, in 18 months how we've gone from paying attention to Cisco, Microsoft and Sun Microsystems now to companies like Boeing, Lockheed and General Dynamics.
O'BRIEN: Now it just so happens I have a "Fortune" magazine here, not sure how it got here, but there is an article that is opened by Andy Serwer about General Dynamics. Why is that one of your favorites?
SERWER: Well, it's an Interesting company. Let me tell you why, and I'll tell you why, they make the M-1 tank, they make nuclear submarines. They make destroyers up in Bath, Maine. They also make guns, and ammo and electronics, but what's really interesting to me about this companies, Miles, is they probably will benefit from this new war. You know, defense contractors have to be very tight-lipped about exactly how much business they are getting out of it, but General Dynamics has just done a terrific job for shareholders over the past 10 years. And when you go back and look at a stock, the stock is up 600 percent over the past decade, which is much more than any other stock.
HEMMER: Well, let me ask you this, weren't they about to buy a shipyard in Newport News, and that failed. Does that affect the stock in any way?
SERWER: Well, I talked to the CEO, Nick Chabria (ph), late last week about that transaction, actually after he found out that the Department of Defense and the Justice Department nixed the deal. This is a big shipyard in Virginia. Now it looks like Norfolk is going to be able to go ahead and buy that particular yard. And he said, yes, we are surprised, but we are going to be able to move on and do our job anyway. They were making nuclear subs with the Goton (ph) Yard electric boat that General Dynamics makes. General Dynamics is going to continue to make nuclear subs there in Connecticut. I think it is a bit of blow for General Dynamics. We'll have to see how the stock goes forward from here.
O'BRIEN: All right, just briefly, more consolidation in this sector?
SERWER: No, I don't think so. We've seen a Tremendous amount, as you know, Miles. We've seen Gwellan, Litman, McDonnell Douglass, all these companies bought up. So we've got five big defense contractors now, Raytheon, Boeing, General Dynamics, Lockheed and Northrop, and I don't think, even with this administration, we're going to be seeing many more acquisitions.
O'BRIEN: Thanks sir. Appreciate it. We'll see you tomorrow. Take care.
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