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Lou Dobbs Moneyline
Dow Declines 211.88 to 9712.27; Nasdaq Declines 56.47 to 1944.44
Aired January 16, 2002 - 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.
ANNOUNCER: Tonight on LOU DOBBS MONEYLINE: The White House is taking a tough stand on questions about Enron. The Enron auditor fired by Andersen met with congressional investigators, and the FBI is asking agents who are also CPAs to join its Enron task force. Our reporters are covering the story in Washington and New York.
We'll also be live in Texas with Donald Carty, the CEO of American Airlines, which just reported a record loss.
Kmart is on the brink of bankruptcy. Kmart's biggest brand is Martha Stewart, and she is our guest tonight.
Bleak earnings reports sent stock prices reeling on Wall Street.
This is LOU DOBBS MONEYLINE for Wednesday, January 16. Here now, Lou Dobbs.
LOU DOBBS, HOST: Good evening.
A brutal day on Wall Street, the Dow Jones industrials plunged more than 200 points. Declining issues beat out advancers by a better than 2-to-1 margin. We'll have a lot for you on all of the activity in Wall Street later in the broadcast.
But first, a tense exchange took place during a briefing at the White House today. White House spokesman Ari Fleischer took exception to questions about telephone calls that may or may not have been made to the White House by representatives of Enron. White House correspondent Major Garrett joins us now with the details -- Major.
MAJOR GARRETT, CNN CORRESPONDENT: Good evening, Lou.
A very contentious briefing here at the White House, but one, many White House advisers tell me later, that didn't produce any new revelations, no news. So actually, they're quite happy with it. The central question being asked by reporters to Ari Fleischer was, is the White House conducting any kind of review, formal or informal, about who with Enron at any time contacted senior administration or White House officials. All Ari Fleischer would say is, "We've told you about the contacts so far." Enron officials did speak with the treasury secretary, Paul O'Neill, and the commerce secretary, Don Evans, and Office of Management and Budget director Mitch Daniels. That's it. But under persistent questioning about whether or not the White House should be more actively curious about this, Ari Fleischer said, "No. If you have specific questions or have any allegations of wrongdoing, we'll be glad to respond."
The essence of it, Lou, is, after conversations with many senior White House officials today, is the White House does not want the following headline to appear in any newspaper around the country: "Why investigates internal activity in Enron bankruptcy." They just don't want to convey to anyone that there's anything worth investigating here at the White House. Nevertheless, the White House is responsive to general questions about what its overall economic team did as Enron collapsed.
And the White House has just moments ago released a statement summarizing the activities of the National Economic Council. Let me read just a couple of sentences from that. "The monitoring, which began in mid-October," the White House says, "consisted" -- I'm directly reading from the statement -- "of observing the spreads in the energy markets to see if they widened to the point of where natural gas disruptions could occur or the national economy could be harmed. The national economic team looked at currency markets, equity markets, bond markets and other financial indicators to determine if there were any indications of a shortage of liquidity that might signal a more widespread problem."
Ultimately, the National Economic Council determined there wouldn't be. Treasury Department, Energy Department concurred. And so, the White House said, monitoring was active. No intervention was carried out. And as Ari Fleischer told reporters today, all the relevant federal government agencies have been told to respond to questions but only if they're pointed and very specific.
Here's what he said.
(BEGIN VIDEO CLIP)
ARI FLEISCHER, WHITE HOUSE SPOKESMAN: All the agencies are aware, as a result of the questions that they've gotten from the press, as well as conversations that we've had with the agencies, that if there are any questions the press is asking about those contacts, they should look into it and see if they can't answer reporters' questions.
(END VIDEO CLIP)
GARRETT: What the White House wants to avoid is a fishing expedition. They say it is not legitimate for this White House or any White House to disclose all the conversations it may have had with any company, or labor union, for that matter, about any governmental topic. That's the way government operates, and it shouldn't have to be obliged to prove a negative, essentially, that nobody did anything wrong and all these conversations were actually normal -- Lou.
DOBBS: Major, one could, I suppose, take the ironic view also the White House doesn't want to conduct a fishing expedition against its own interest, but at the same time, it would seem, if you will, the higher ground to say, "We are conducting a full investigation of all of the contacts between Enron and this administration, and those details will be forthcoming." Why would that seem implausible here?
GARRETT: And I phrased the question almost exactly as you put it, Lou, to several senior officials this afternoon. I said, "Look, Enron is slightly a different company. It's not just an ordinary company." Number one, it was large, the seventh largest, and many people at this White House have had in their previous incarnations active contacts with Enron. "Wouldn't it be in your best interests to conduct an investigation and reassure the public?"
The answer I got was, "Look, we are not going to dignify what the media thinks is a potential political scandal because there is none. We are absolutely confident," these senior officials told me, "that nobody did anything wrong," that the contacts from Enron were generic and that the White House monitored the situation, its various agencies monitored the situation, discovered there were no wider problems for the economy or energy markets. There was no means by which the government should intervene, and that's the end of the story. And that's where this White House hopes it stays -- Lou.
DOBBS: Major, thank you very much. Major Garrett from the White House.
In other Enron developments tonight, Senator Patrick Leahy raised concerns today about the Justice Department's investigation of Enron, citing possible conflict of interest. The Enron auditor fired by Andersen, David Duncan, is still in meetings this evening, meeting with congressional investigators.
And we know Enron spent freely on political contributions. As it turns out, so did Andersen, its accounting firm. Kate Snow now with the story from Washington -- Kate.
KATE SNOW, CNN CORRESPONDENT: Well, Lou, we'll start with that. Andersen definitely was generous, as you mentioned, even more generous than Enron, in some cases. An independent group here in Washington today put out a list of its contributions, pointing to the fact that 94 of the 100 senators on Capitol Hill received contributions from Andersen over the last 10 years, and more than half of the House members. And the person at the top of the list, as far as House representatives go, who got the most money from Andersen is Representative Billy Tauzin, with $47,000.
I spoke to his office a few moments ago, and they say, "Look, it doesn't matter if they contributed a million dollars to his campaign. We are not going to cut Andersen any slack." In fact, they said both Ford and Firestone contributed to Tauzin's campaign, and they took them, in one aide's words, "to the woodshed," as well.
Also, check out that list there. It is not just Republicans on the list. Clearly, Billy Tauzin tops the list, but the next member receiving the next most amount of money is Sherrod Brown, a Democrat. Then you have a Republican, and fourthly, you have Martin Frost, another Democrat. If you look at the Senate, it is the same kind of thing. A Republican tops the list there, Phil Gramm receiving $73,000 from Andersen over the past 10 years, but the next two are Democrats, and then Jon Kyl, a Republican, at the bottom of the list. So clearly, Lou, the Andersen company is an equal opportunity giver on Capitol Hill.
DOBBS: Illustrative and -- Kate, what can you tell us about Senator Patrick Leahy's letter citing those concerns about conflict of interest?
SNOW: Well, Leahy wrote a letter today. You'll remember that Ashcroft, the attorney general, John Ashcroft, has recused himself from this case, and so a deputy attorney general is now handling it. Leahy wrote a letter to that man, saying -- raising some questions about what he sees as a potential conflict of interest. He's pointing out the fact that Andersen, Arthur Andersen, actually has a contract with the Department of Justice and the FBI right now, an agreement they entered into for Andersen to help them take a look at the FBI and restructure or reorganize the FBI. This is an ongoing thing at the FBI. They've been trying to make it more streamlined.
And he raises the question, because Andersen is consulting with them on that, is it a conflict of interest to then have the Justice Department, the very same department, be looking into Andersen, as they relate to Enron?
I wanted to tell you a little bit, also, Lou, about what's happening right now. As we speak, eight investigators do continue to question David Duncan, who is the former employee with Andersen who was let go yesterday after Andersen charged that he shredded documents. That continues at this hour -- Lou.
DOBBS: It's been a full day for Mr. Duncan. Kate Snow, thank you.
We have just learned that the executive who wrote the letter to Ken Lay, Sherron Watkins, laying out concerns about Enron's business practices, its accounting practices and its vulnerabilities -- those vulnerabilities obviously led to Enron's collapse -- also shared her concerns with the company's accounting firm, Andersen.
Tim O'Brien has the exclusive story now from Washington -- Tim.
TIM O'BRIEN, CNN CORRESPONDENT: Lou, if there's been a smoking gun in the Enron investigation so far, it surely is the letter sent by an Enron vice president to company CEO Kenneth Lay, warning him that the company might, quote, "imploded in a wave of accounting scandal." The letter by Sherron Watkins was released investigators on the House Energy and Commerce Committee yesterday. Ms. Watkins also met personally with CEO Lay to press her case.
Well, committee sources now tell CNN they've uncovered yet another internal memorandum indicating Ms. Watkins also shared those concerns with three partners with Arthur Andersen. And one of those partners, we're told, is David Duncan, who oversaw Enron's audit, the principal auditor. The other partners were not involved in the Enron account but were senior officials of the company.
Ms. Watkins apparently was concerned about her upcoming face-to- face meeting with the boss, Chairman Lay, and wanted to use the Arthur Andersen partners as a sounding board. But her comments about how accounting methods might bring down the company could not have set well with Duncan, who was heading up the audit.
We have yet to hear Mr. Duncan's side of the story, which, as Kate said, he has been telling to House investigators all afternoon. But the report that he was personally warned that Andersen's accounting methods could cause trouble and might be publicly challenged conceivably could have provided a motive to destroy documents.
The letter Ms. Watkins wrote to Chairman Lay may make it difficult for him to claim he was unaware of possibly unethical or illegal accounting practices. Well, the same now can be said for auditor David Duncan and his company, Arthur Andersen, in light of these new disclosures -- Lou.
DOBBS: Tim, thank you. Good work. Tim O'Brien from Washington.
Well, the Enron collapse and scandal has devastated the public reputation of accounting firm Andersen, and the nation's other major accounting firms have been tarnished, as well. Now efforts are under way to control that damage and to restore investor and business confidence.
Allan Chernoff has our story.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Damage control is now the operative phrase not only for Andersen but also for the entire accounting industry. The Securities and Exchange Commission is trying to avoid a crisis of confidence in financial standards. SEC chair Harvey Pitt is working with top accountants to develop a new system for overseeing auditors. A press conference is scheduled for tomorrow afternoon.
JOSHUA RONEN, NEW YORK UNIVERSITY: I would think that the confidence would have been shaken, to a large extent. And it would not be restored without some drastic reform.
CHERNOFF: In full-page newspaper ads, Andersen promised it will soon announce "comprehensive changes in our practices and policies."
The Treasury Department is also prodding for change. Treasury Undersecretary Peter Fisher today said, "New rules should be written if loopholes were used to help Enron." And he reiterated his call for better financial disclosure. "While developments in our capital markets, corporate finance and risk management are racing along at 100 revolutions per minute, the evolution of our accounting and disclosure regime crawls along at 10 RPM, and the gap between them is forever widening. If I sound a little frustrated, I am."
Beyond the question of disclosure, another hot issue: whether accountants should be permitted to engage in consulting for clients.
IRA SORKIN, FORMER N.Y. SEC ADMINISTRATOR: If there's a suspicion that the financial statements of publicly traded corporations are not accurate or misleading, that could have a very serious impact on the entire financial market structure.
(END VIDEOTAPE)
CHERNOFF: Money managers and accounting experts agree nothing less than the integrity of the nation's financial markets is at stake. After all, when investors buy a stock, they're purchasing it based on a belief that a company's financial statements are entirely accurate -- Lou.
DOBBS: Allan, thank you very much. Allan Chernoff.
Still ahead here: Stock prices plunge more than 200 points today on Wall Street. We will tell you why. And Kmart shares continue to tumble. We'll ask Martha Stewart how long she'll do business with Kmart and what the effect will be both on Kmart and her business. And American Airlines lost almost three quarters of a billion dollars, but there are signs its business is improving. I'll be talking with American's chief executive officer next with the outlook for the company and the industry.
Stay with us.
(COMMERCIAL BREAK)
DOBBS: Investors were brutalized on Wall Street today, stock prices falling across the board, that after several weak, disappointing earnings reports, $195 billion of market value erased today, blue chips lower in 7 of the past 8 sessions, the Dow today tumbling 211.88. The Nasdaq fell just over 56 points. The S&P 500 down almost 19 points.
Christine Romans, Greg Clarkin join me now to tell us why it all happened -- Christine.
CHRISTINE ROMANS, CNN CORRESPONDENT: And it came on better volume, as well. But it was primarily earnings, a lot of people talking about earnings, J.P. Morgan starting the whole thing when it missed -- a Dow component -- when that negativity started spreading throughout the financials, it just got worse overall. Twelve cents (ph) reported much lower than Wall Street expected, credibility issues. 3M, Lou, was hurt by asbestos worries. Kmart stung again, the most actively traded stock here. And they're calling it a reality check. Maybe the market might think there's a bottoming out in the economy, but they haven't seen the recovery yet.
DOBBS: Intel disappointing, as well, despite meeting earnings estimates.
GREG CLARKIN, CNN CORRESPONDENT: Exactly, Lou. That was a real wake-up call for technology investors. They had bid up technology stocks significantly in the fourth quarter on the feeling that the first quarter would be a lot stronger. Intel giving a real cautious outlook. On top of that, Intel saying they're going to cut capital spending by 25 percent. That really caught a lot of folks by surprise.
DOBBS: Both markets declining by more than 2 percent today. This seems to be a -- something of a -- of a sea change here. Is that the sense on the floor of the New York exchange?
ROMANS: Seven sessions, 5 percent off the Dow and S&P. I mean, that's -- that's good -- that's a lot -- lot of people saying that right now, the market got too high. Now they want to sell it. And traders want to sell it.
CLARKIN: I got that sense, as well. There was a little fear there this afternoon. We saw the Nasdaq try to come back, couldn't mount any kind of sustainable comeback. One trader I spoke with said, "You know, this is a reevaluation period."
DOBBS: Does this qualify in the opinions of those you speak with and in your -- in your minds as blow-off? We have -- we have heavier volume. We've got a better than 2-to-1 margin, decliners over advancers?
ROMANS: Well, the real pessimists want to see two billion shares on the down side. Then they'll feel like we really sort of capitulated. That's what they'd like.
CLARKIN: In terms of tech stocks, definitely. I mean, there was a lot of sense out there that these things had gotten far ahead of themselves. Everybody kind of knew it, but they wanted to hear something before they took any action. They heard that from Intel.
DOBBS: Everybody likes higher, rather than lower. Thank you both, Christine and Greg.
A question that has long troubled investors in this market: What's the right price to pay for a stock? Are these stocks overvalued? Currently, stocks are trading just about double their historical valuations, but some say that comparison not accurate because the economy is much different today than previously. Have you heard that before?
Kitty Pilgrim takes a look at how strategists and economists are trying the find the right answer on valuation.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): For many Americans, the events which roiled the markets last fall left them financially disoriented. The question now is how to value the market. Are there new rules?
A look at the past months show the Dow Jones Industrial Average went up nearly 25 percent from the low on September 21 but has recently given back some of those gains, now with a P/E of about 22. The Nasdaq composite has gone up 43 percent, with a little giveback in recent days.
DAVID BRIGGS, FEDERATED INVESTORS: I think valuation is a little ahead of itself. You know, there's some evidence out there that the economy has firmed and improved a little bit, but in a lot of areas, particularly in the tech stocks, you've got stocks that are up 40, 50, 60, 70 percent off the lows.
PILGRIM: One of the ways of figuring out valuation is market P/E, or price to earnings ratios. One of the problems is the estimate of future earnings can vary wildly. One economist tracked P/E ratios on the S&P 500 for two decades. He ran another chart of the reciprocal of the 10-year U.S. Treasury bond yields. What he found is when they were in sync, stocks seemed to be valued correctly. But in periods where there is a large disconnect, such as here, it points to big problems. In this case, the Internet bubble.
Today, he says they are more or less in sync. Still, that doesn't mean there is much upside to the market because it already made the run-up late last year, anticipating economic recovery.
EDWARD YARDENI, DEUTSCHE BANK SECURITIES: And it just did it at such a fast pace, that we've already discounted whatever recovery we're going to have. And so it's not too late to invest in stocks if you got a long-term horizon, but the gains are going to be more like 5 to 10 percent from this level.
(END VIDEOTAPE)
PILGRIM: Now, all the analysts we spoke to today said there are pockets of extremely overvalued stocks which haven't corrected to reasonable levels. And one sector, for example, is semiconductors. The S&P 500 semiconductor valuations are at 95. Well, in short, P/Es do count, and it's definitely worth taking a look -- Lou.
DOBBS: So perhaps we could say safely and accurately that there are pockets of overvaluation.
PILGRIM: I think that's absolutely accurate, yes.
DOBBS: All right. Well, I -- I thank you, Kitty, as always.
I want to turn now to our next guest, who says this market correctly predicted the recession, and it looks like it's correctly predicting the recovery. Joining us tonight, Michael Holland, who is the chairman of Holland & Company.
Mike good to have you here.
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Great to be here, Lou. Thanks.
DOBBS: I would like to start on the valuation issue.
HOLLAND: Right.
DOBBS: Do you have a sense that this market is overvalued here? HOLLAND: Yes. In terms of exactly what the market has been talking about in respect to the recovery, we haven't had it. We have had an incredible military success. You and I sat out here in September. We've had beyond the market's or anyone's expectations. That's reflected in the market. We don't have the economic recovery yet.
DOBBS: OK. Mike, I understand that your microphone has fallen off. We have...
HOLLAND: Got it back.
DOBBS: ... grant is quickly bringing it back to you. There you go. Thank you.
HOLLAND: But I think, Lou, the economy has now caught up with the military success.
DOBBS: Mike, may I do this?
HOLLAND: Please go ahead.
(CROSSTALK)
DOBBS: And forgive me. I want to apologize to our audience as I play floor manager here doing this.
HOLLAND: You do a great job. Well, thank you.
DOBBS: Thank you. Thank you. After a few decades of the business, one learns something.
In terms of that valuation, do you see that we're correctly forecasting a recovery here?
HOLLAND: Absolutely.
DOBBS: Is that the...
HOLLAND: Absolutely.
DOBBS: The euphoria around it is the reason?
HOLLAND: I believe that they haven't repealed the cycle. We were told a few years ago, that they had repealed the cycle. It didn't happen. We had a recession. We had bear market. I think what the stock market's saying now is, as Greg Clarkin was just talking a second ago -- we had Intel, for example, up 70 percent from those September lows when you and I spoke. To give back 4, 5, 10 percent of that, the -- the Intel numbers are going to look very good for the next couple quarters.
DOBBS: Your counsel to investors out there, whether one is investing directly in the market, directing their investments through their 401(k)...
HOLLAND: Right.
DOBBS: ... whatever the form -- what is your best counsel to them?
HOLLAND: My best counsel is what we have right now is extremely low inflation, will is going to stay low, an accommodative Fed, which you reported Alan Greenspan is going to continue to accommodate this economy with more liquidity and lower rates. It's going to be a while till these companies start reporting really good earnings, but they will come. We have not repealed the cycle. A year from now, we're going to talking about a much better economy. We will have the military success in hand, as well. I think U.S. stocks, the big, best companies will be much higher.
DOBBS: As Allan Chernoff earlier reported here, great concern about the integrity of these markets, in light of the Enron and some other...
HOLLAND: Right.
DOBBS: ... significant-sized failures. Are you concerned about Enron and the spillover with Andersen and the accounting standards and the integrity of the markets and investor confidence, obviously?
HOLLAND: Yeah. Absolutely not. I think we have the most resilient economy, most resilient capitalist structure in the world today. I don't think in any way it's been challenged. I think when companies do bad things, or people within companies do bad things, this is the place where they get found out and they get punished. I think we will have people who will be punished for this. I think Andersen may have been dealt something akin to a mortal blow, but we will have great accounting in the future, just as we've had in the past. I think there were some things that were done by some individuals that will be punished, but that's the strength of this system.
DOBBS: Risk, reward -- the risk in this case overwhelmed any possible reward to the broader set of investors and employees, unfortunately.
HOLLAND: Thank you.
DOBBS: Michael Holland, as always, good to have you here.
HOLLAND: Thank you. Thanks for helping with the mike.
(LAUGHTER)
DOBBS: My pleasure, Mike! Any time. And apologize for the inconvenience to you and to our viewers.
Still ahead here, we'll be talking with a corporate leader with a very powerful brand name, Martha Steward. Will she end her lucrative deal with struggling retailer Kmart? What is next in store for both her brand and her business? And on the day American Airlines posts its biggest loss ever, we'll take a look at the future of the airline industry and American Airlines with the company's chief executive officer.
ANNOUNCER: Coming up: Lou is joined by Donald Carty, CEO of American Airlines.
(COMMERCIAL BREAK)
DOBBS: Signs today that the economy is taking some tentative steps toward recovery. Factory production fell for the 5th month in a row, but that decline less than many economists had expected. New reports today showing companies continuing to vigorously cut back on their inventories. That is a positive sign for manufacturers.
Kathleen Hays is here to put it all into perspective -- Kathleen.
KATHLEEN HAYS, CNN CORRESPONDENT: Thanks, Lou.
Well, you know, business inventories have been a big roadblock for the U.S. economy. Inventories piled up so much during the recession that firms have had to build them down so they can start producing again. What we saw in November was that they declined 0.1 percent, the 10th monthly decline in row. In fact, manufacturers' inventories were slashed the fastest rate last year on record.
Now, this is one Fed Chairman Greenspan's big hopes. Inventories have been slashed so much that, sooner or later, firms have to start increasing output. Well, in December we didn't exactly see that in the industrial production numbers. Industrial production fell 0.1 percent. It's fallen for 14 of the past 15 months, but that was one of the smallest declines of all that we've seen lately. Auto output was up very sharply, 4 percent. Communications equipment, though, still very weak, down 3 percent. But we know telecommunications companies are still taking a bit of beating.
Now, of course, the -- one of the worries here, a lot of excess capacity. Why are you going to buy new machinery if you've got a lot of excess capacity? The Fed's beige book today -- kind of mixed. Economy still weak, but looking at scattered signs of improvement. Manufacturing still weak. The consumer did have a burst of activity into December, early January. Overall still weak.
A very positive thing, though, that Mike Holland kind of touched on, Lou -- Fed governor Roger Ferguson said he's not sure about the economy, but the Fed will do what it has to to promote economic activity. And that's key.
DOBBS: Now, that's good for the Fed. Nonetheless, despite all of these interest cuts, we still have not seem the stimulative impact that we would expect. We still have -- as Kitty Pilgrim reported, very high valuations in large segments of this market. That is still a huge hurdle. The good news is, at least there's a mixed pictured on the economy, some sign of recovery.
HAYS: Maybe some stabilization, and that's what you step off of to get the recovery.
DOBBS: We'll take it. Kathleen, thanks, as always. Kathleen Hays.
Well, this economy and September 11 attacks against America devastated American Airlines. The nation's largest airline today reported a record loss of almost three-quarters of a billion dollars. That's a drastic slowdown in air travel causing that, coupled with lower fares, pushing revenues down 22 percent from a year ago. American shares down 30 percent over the past year.
But American remains upbeat about its future, saying traffic is improving. We're joined now by Donald Carty, the CEO of American.
It's good to have you with us.
DONALD CARTY, CEO, AMR: Thank you very much, Lou.
DOBBS: I know that you can't be happy about an almost three- quarter of a billion dollar loss, but it was actually better than many on Wall Street had expected. Give us your judgment about the prospects.
CARTY: Well, Lou, I think all of us in the airline business and at American and Wall Street built some pessimistic assumptions post- September 11. And obviously, the fourth quarter is a disaster. That's the only way you can characterize it. Nonetheless, there were a couple of bright spots, and the bright spots were that traffic was actually a little bit better than we thought it would be. Thanksgiving was good. December, Christmas holidays were good.
And now we're entering the new year, and we're actually seeing a little bit of strengthening on the business travel side. And that's -- that's so fundamentally important to us. And if that comes back, then I think we have some optimism that as we move through the early part of 2002, we'll begin to see the financial situation rectify itself.
DOBBS: I, like you, like to take the long term, but in this case, if I may, if you would indulge me in the short term -- over the next three months, what do you expect your travel levels to be, your occupancy levels at American? What are you projecting them to be?
CARTY: Well, our travel levels will not be what they were a year ago. We'll be off 10 or 15 percent.
DOBBS: Right.
CARTY: But we're now off 20 percent in capacity. So actually, our load factors are going to be higher than they were a year ago, and that's going to provide an incentive for us to gradually put back some the capacity that was removed, and we're quite enthused about that.
DOBBS: You had to close routes. You've had to lay people off, large numbers of people. Are you the point you can say with some confidence that there will be no more layoffs, that you've stabilized?
CARTY: Well, you can never say never. But I think, as a general matter, as we move through the year, our current anticipation is we will gradually rebuild the network. We will gradually recall the employees. We'll, as a company, recapture our service and quality leadership. You mentioned very strong brand earlier. We've got an enormously strong brand at American. And we think all of that will cause a return to profitability, ultimately.
DOBBS: And as you struggle to return to profitability, you are dealing also with the fear of flying in the wake of September 11, heightened security measures that are adding very long delays for the traveler. New security measures go into effect Friday. Are you confident that these security measures will be helpful to you and to the safety of the flying public?
CARTY: I think we are, Lou. I think today, we're feeling much more confident that the fear of flying is diminishing. In fact, all our customer survey data tell us that, in part because we've put a comprehensive package of security changes in place as an industry with the help of the federal government.
You're right that in the early days post-September 11, of implementing those security changes, lines at the airports were quite long. And most airports in the country today, we have smoothed out those lines. We still have a couple of problematic airports where we haven't been able to put enough security devices in place simply because some of the facility limitations of those airports.
But in most places in the country, those lines are dissipating. We are going to put in a new security check on baggage requirements this Friday. We're now having worked through this very carefully with the Department of Transportation. I think all of us in the airline industry are much more confident that we can execute on that baggage program with very little disruption than we were say six or eight weeks ago.
DOBBS: I don't think anyone has gone through a more tumultuous period recently than you at American and your colleagues at the company and those at the other airlines. But you also, in addition to that, had the rather public spectacle of a security agent for the White House -- can you hear me, Don, can you hear me?
He's not hearing you. Don, can you hear me? Don, we are bedeviled by gremlins tonight. And even though you can't hear me, from afar I'm saying I apologize. It was good talking with you and we wish you all the best. It was a brilliant question. We'll save it for the next time.
Well, tonight, a long-standing name in retail, Kmart, is fighting for its life. Kmart stock today lost another third of its value, falling to levels not seen since the early 60s. Analysts say the only option left for Kmart is to declare bankruptcy. Over the past few years, Kmart tried to turn its business around, a new management team, an extensive line of products from home living guru -- and she is far more than that, I assure you -- Martha Stewart.
Reports today suggesting that Martha Stewart is about to end that relationship. Both have had business ties since 1997, Kmart selling Martha Stewart-branded goods at its stores. Stewart, one of the retailer's most important suppliers -- no, the most important supplier in terms of merchandising lines -- pulling in $1.5 billion in sales last year. Joining me now, the brand, the CEO, Martha Stewart.
MARTHA STEWART, MARTHA STEWART LIVING OMNIMEDIA: Hi, nice to see you.
DOBBS: Good to have you here. I know you have got to be deeply troubled by what's happening to Kmart. What's your best sense?
STEWART: Well, I think there's tremendous amount of speculation, overspeculation about the whole situation. I think maybe the market has reacted before it should have.
I have talked to Chuck Conaway, the chairman. We are good friends, good partners. And he is not able because of the period of time that it's in right now, he's not able to really tell me anything. So I spoke to him just a few hours ago and he has nothing to report. You know, he took over the helm about 18 months ago, coming from a very successful job. And he knew that there were going to be two to three years of problems with distribution, with inventory controls. And he really hasn't had his time yet to repair all the problems at Kmart.
DOBBS: Martha, as you know, markets, customer-bases are very unforgiving and don't give grace periods.
STEWART: They certainly don't.
DOBBS: And Kmart, obviously -- I quite agree with you. He has had a very short period of time in which to turn things around from a very difficult situation. It's obvious time is running out. The board meeting, three consecutive days in Troy trying to come with an answer, no communication from the company. Have you, at this point, made a commitment either to yourself or to your organization that you are going to stay with Kmart, double take the (UNINTELLIGIBLE).
STEWART: Well, we have a contract with Kmart that runs to 2008. This Kmart -- this contract really does allow us to -- we have a bankruptcy clause in it. But...
DOBBS: A bankruptcy clause that frees you from that contract?
STEWART: Well, it could, but the judges have all kind of interesting interpretations of such clauses. We have no plans whatsoever to depart from our relationship with Kmart. If they do proclaim bankruptcy, they can choose to either terminate our agreement or they could continue us as a supplier.
And we think our brand is so strong and so appealing and so attractive that it will find its customers. And I'm not really worried about that. I'm not worried about that. I feel sorry for Kmart. I hope that this long and famous institution, long lived and famous institution, survives this problem.
DOBBS: Yes, I agree with you. I'm sure all of our viewers...
STEWART: This is a big company.
DOBBS: No one wants to see anyone fail whether large, established or new and nascent. In this case, again the market makes that decision. The concern -- well, you're not concerned, Wall Street is expressing some considerable concern because Kmart is a substantial part of your cash flow, and obviously, your brand and your merchandise extraordinarily important to them.
STEWART: Merchandising accounts for about 30 percent of our ivida (ph). And this year it will be somewhere in the vicinity of about $30 million. And about -- before Internet losses of about $100 million.
DOBBS: Have you been approached already by other retailers to move to that...
STEWART: I don't want to really comment on that, if I may.
DOBBS: And you mentioned Chuck. Has there been discussion between you and Kmart and the CEO, about the possibility of being released should there be a bankruptcy?
STEWART: No, there has not been. And there has not even been a discussion of that. What we're trying to do is just help them weather the storm and get through this.
DOBBS: You are the country's brightest business woman and business people. And how about giving us your judgment how this will unfold. Do you think Kmart here will make it? I'll just put you on the spot.
(LAUGHTER)
STEWART: As I said, I really don't have any information that I can report. And I wish I know. I wish I could end the suspense. The stock market certainly has indicated real problems. And I really just can't make any statements at all about it.
As I say, I wish Chuck well. I hope that these problems are resolved. I hope that in any event, our very strong brand will weather any storm. I'm sure it will. And that's all I can say, Lou. I'm sorry. I just wish I could. Martha Stewart Living is alive and well. We're going to report record revenues, earnings, ivida (ph) for last year. And I'm very excited about the future prospects of our company, and we have that brand I'm talking about and all that good product. You know, I...
DOBBS: It's not often I have an opportunity, Martha, to sit here on the set talking with that brand. And I wish you and your many extensions of your brand all the very best. Thanks for being here.
STEWART: Thank you. It's great. Thank you very much.
DOBBS: Martha Stewart.
Coming up next, indictments handed down today against the so- called shoe bomber. We'll have that report for you. We'll also have a special report for you on an Internet company with alleged terrorist connections worldwide. Secretary of State Colin Powell is trying to ease tensions between India and Pakistan. We'll hear from a former defense secretary on the prospects of those efforts next.
ANNOUNCER: After the break, Lou is joined by chairman and CEO of the Cohen Group, William Cohen.
(COMMERCIAL BREAK)
DOBBS: Secretary of State Colin Powell says he would like to do everything possible to move India and Pakistan toward conversation. Secretary Powell was in Islamabad today, he met with Pakistan's president and foreign minister. Tom Mintier is Islamabad with more on the story -- Tom.
TOM MINTIER, CNN CORRESPONDENT: Lou, the last time a U.S. Secretary of State was here, it was to thank Pakistan for its assistance in the war on terrorism. This time the Secretary of State comes to diffuse a powder keg between India and Pakistan. Now, the secretary of state is on his way to New Delhi but not before he stops in Afghanistan. But the New Delhi portion of his trip here in South Asia is seen as increasingly important. Mr. Powell says he doesn't want to be mediator, but he wouldn't mind being a facilitator, to bring the two sides together to at least talk.
(BEGIN VIDEO CLIP)
POWELL: I could do , and I know that President Bush would like to do everything he can do to get the two sides talking to one another again, on all of the issues that are between them. And one of those issues is Kashmir. And to the extent once such a dialogue begins, the two sides would like the United States or other countries to assist them. We stand ready to assist. But it has to be a dialogue between the two sides and they have to reach out and ask for that assistance. And they will find America standing there with a ready hand.
(END VIDEO CLIP)
MINTIER: One of the ideas, according to the secretary of state, would be to convince both countries to remove the restrictions on over flights by their air carriers in each territory. Also, to bring the diplomats back to Islamabad and New Delhi to at least provide some channels of communications between the two governments to diffuse the situation -- Lou.
DOBBS: Tom, thank you very much. Tom Mintier from Islamabad.
For more now on the war against terrorism, including moving U.S. forces on to the ground in the Philippines, we're joined by former defense secretary and MONEYLINE regular contributor, William Cohen from Washington. Bill, good to have you here.
WILLIAM COHEN, FMR SECRETARY OF DEFENSE: Good evening, Lou.
DOBBS: Let's turn, if we may first to what Secretary of State Powell saying, talking about dialogue, throwing out the possibility of restrict -- removing restrictions on over flights. It's fairly masterful articulation of the obvious, is it not?
COHEN: Well, his mission there is to do precisely what he said: to try and diffuse those tensions.
Clearly, President Musharraf is walking a tightrope. And it's important that he not be pushed off that tightrope. He has taken some very bold and courageous steps in cracking down on quite a few militant extremists, some 1,600 people have been arrested in the past few days and some 500 sites have been closed. And so he's taken positive steps, and I think that has to be recognized. Of course, India is still looking for more crack down coming from President Musharraf. But I think they should be impressed with his sincerity and the fact that he's the best option right now to achieving a peaceful resolution to these issues, rather than having some radical element take over in Pakistan.
DOBBS: Prime Minister Vajpayee saying that he wants to see more action. This is a very difficult situation, Tom Mintier describing it as a powder keg, it is all of that and more. How much concrete can Musharraf do in Pakistan to satisfy the Indians in quick order?
COHEN: Well, he's taken some very large steps, as I just mentioned. They obviously want him to do more. But I think there should be some sort of positive response coming from India, saying well this is a good first step. We'd like to see more, but let's see if we can start talking about the issues. I think Secretary Powell is correct to see if we can't get the diplomats a channel of diplomacy opened up again so they we can talk rather than think about shooting at each other.
And that's precisely why the secretary is there right now. And I think that his presence signifies the United States's interest, and that we want to continue to take a leadership role, but this must come from the parties and it cannot be mandated or dictated by the United States or anyone else. So I think it is a very important mission for him.
DOBBS: As you say, it can't be dictated. Obviously important, but it seems also perhaps the Indians are not quite as, let's say, forgetful as the United States over a short period of time. They've had their parliament blown up by terrorists-based and supported out of Pakistan. They have been in war with Pakistan, three of them, shooting wars -- this is -- and Pakistan was the source of the Taliban up until four months ago. Their sucker and their support, it seems like a lot for us to ask for a quick on the heel reversal on the part of India.
COHEN: I don't think anyone is asking for a quick on the heel reversal. But to recognize that Musharraf, himself, has taken some very positive steps. He disassociated himself with the Taliban, he has facilitated the United States and those allies who participated in the war against terrorism to use Pakistani bases, as such. He has really taken some major steps, and with his statement last week, I think, also articulating the need to curb and crack down on that kind extremism, recognizing that he cannot try to in any way give up the claim of the Kashmiris, to Kashmir itself. That's something that has to be subject to diplomacy and negotiation, so I think we've seen some very strong steps taken. I think India should recognize that, understanding that India also is justifiably outraged by what has taken place in the past, but that's the purpose of the secretary of the state's position and his mission in the region to try and diffuse those tensions.
But I think that there's some real hope here by virtue of our role, but also by virtue of what President Musharraf has done in the near term.
DOBBS: Turning quickly, Bill. With just a few seconds remaining, grounds troops now, U.S. troops on the ground in the Philippines, what in your judgment can we expect to come of that?
COHEN: These are advisers, they're there at the invitation of President Arroyo. She is very much concerned about the spread of terrorism in her own country. The U.S. has a long-standing relationship with the Philippines, we want to be of assistance in helping to train personnel. So they can wage their own war against the al Qaeda supported groups in the Philippines. I think that it's a strong statement coming from her, and a very positive development.
DOBBS: Bill Cohen as always, thanks for being here.
COHEN: Thank you, Lou.
DOBBS: Richard Reid, the shoe bomber indicted on nine criminal charges today. Those charges range from attempted use of a weapon of mass destruction to attempted homicide. Reid is also accused of being an al Qaeda-trained terrorist. Reid was subdued by passengers aboard an American Airlines jetliner last month, as he tried to light explosives inside his sneakers.
Attorney General John Ashcroft says Reid faces up to five life sentences if he is convicted.
Coming up next, here, we'll tell you why the government says terrorism may have an Internet connection
(COMMERCIAL BREAK)
DOBBS: More now on the terrorist money trail. Tonight, an Internet company the government says is linked to terrorists, and the Muslim charities in the United States who support them. Allan Dodds Frank reports.
(BEGIN VIDEOTAPE)
ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): September 5, 2001, six days before the World Trade Center and Pentagon attacks, 80 federal investigators raid the Richardson, Texas headquarters of Infocom, a company that provides Internet services to 500 mostly Islamic Web sites. Led by the FBI, agents from Customs, Immigration and Naturalization, the State Department and Treasury search for evidence linking Infocom to the Middle Eastern terrorist group, Hamas.
Now investigators combing through data from Infocom's computers, wonder whether the company is an Internet hub for terrorists that could yield evidence about Osama bin Laden's al Qaeda network. All three U.S. based Islamic charities whose assets have been blocked by the government use Infocom to host their Web sites.
NEIL LIVINGSTONE, CHAIRMAN & CEO, GLOBALOPTIONS: I'm not sure that the government really knew at the time how strong their ties were to all these other organizations, but they're exploring that right now and they're attempting to see if there is a pattern, which would suggest that Infocom had been used to facilitate terrorism and terrorist fundraising in the United States.
FRANK: The government raid also focused on Infocom's connections to the nation's largest Islamic charity, the Holyland Foundation for Relief and Development. Holyland's chairman works at Infocom, and his family owns the company. On December 4, the government declared Holyland a -- quote -- "Specially designated global terrorist organization," and blocked the foundation's assets, claiming it was funding Hamas.
The government has not disclosed any details of the investigation, but a former government cyberterrorism expert says information from Infocom's computers could be critical.
TOM TALLEUR, INFO SYSTEMS SECURITY ANALYST: There could be all kinds of e-mail in these servers that could be in the clear, clear text that tends to suggest planning methods, meetings, could suggest money laundering activities.
FRANK: Infocom also hosts Web sites for the other two charities whose assets were blocked. The government suspects those groups helped support Osama bin Laden's network.
MATTHEW LEVITT, WASHINGTON INSTITUTE: There are a number of other charity organizations that are associated with Infocom that have not as of yet had their assets frozen. And I think the government will be looking into those files to see if there's a connection between terrorism and these other front organizations.
(END VIDEOTAPE)
FRANK: The government also has suspended Infocom's export license, charging the company with repeated illegal exports of computer technology to Libya and Syria, two countries on the U.S. list of states sponsoring terrorism. Lawyers for Infocom and the Holyland foundation declined to speak to CNN -- Lou.
DOBBS: Infocom was raided, its export license suspended, are they still in business?
FRANK: They're still in business. Believe me they're being closely watched.
DOBBS: Closely watch, indeed, but it's been four months. Has anything come from this federal investigation -- excuse me -- has there been anything come from this federal investigation in search of the hard files on those computers?
FRANK: Not that we know of. The search warrant is still secret, there have been no criminal charges, so far just the export license and $100,000 in their bank accounts frozen for direct links to Hamas.
DOBBS: And four months later we're left with speculation.
FRANK: A lot of questions.
DOBBS: All right. Thanks a lot.
"WOLF BLITZER REPORTS" begins in just a few minutes. Let's go to Wolf now to find out what he has for us tonight -- Wolf.
WOLF BLITZER, CNN ANCHOR: Thank you very much, Lou. Some al Qaeda and Taliban detainees at the U.S. Naval base in Guantanamo Bay are reportedly threatening to kill Americans. We'll go live to our Bob Franken, he is one the base, we'll get details.
Also, our Christiane Amanpour will join us live from Somalia. And our "War Room" panel assesses the fate of Taliban American John Walker and accused shoe bomber Richard Reid. All at the top of the hour -- Lou.
DOBBS: Looking forward to it, Wolf. Thank you.
Coming up next here, how some people are capitalizing on the collapse of Enron -- believe it or not. We'll be right back. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Tomorrow some big name earnings reports; Citigroup, Ford, IBM, Microsoft, GE. And we'll be talking with GE's Chief Executive Officer Jeffrey Immelt. Finally tonight, there maybe no demand for Enron stock, but Enron memorabilia is attracting bidders on eBay. One hundred-seventy Enron items listed on eBay, ranging from Enron golf balls to a Tiffany candy dish with the now infamous logo. Among those most ironic, the Enron planning your retirement mug -- I shouldn't laugh, I'm sorry, but the irony is overwhelming, and the Enron code of ethics book and there are some Enron stock certificates, as well.
For this evening, that is MONEYLINE. Thanks for being with us. Good night from New York.
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