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CNN LOU DOBBS MONEYLINE
Dow Declines to 8,684.53; Nasdaq Slides to 1,373.50
Aired July 12, 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.
JAN HOPKINS, GUEST HOST: Tonight, the closing bell rings, bringing an end to one of the worst week's ever on Wall Street. The Dow falls for the fifth street, capping off a brutal 700-point decline this week.
President Bush tonight is under even more pressure to help investors. The White House dramatically revises the state of the nation's finances. The president again steps in to try to reassure the markets. Mr. Bush meets for the first time with his corporate corruption SWAT team.
The British music industry, thanks to bands like the Police and the Rolling Stones, used to dominate the U.S. pop charts. Not anymore. Tonight, how the Grits are hoping to reclaim a multibillion- dollar business.
ANNOUNCER: This is Lou Dobbs' MONEYLINE for Friday, July 12. Sitting in for Lou Dobbs, Jan Hopkins.
HOPKINS: Good evening.
A bitter end today to a brutal week on Wall Street. A staggering three-quarters of a trillion dollars in investor wealth obliterated in the past five days.
The Dow today closed down 117 points. The index closing lower every day this week. The Nasdaq slipped a fraction. The S&P 500 fell 6 points. Markets buckled this week under the weight of corporate scandals and depressed investor confidence.
The Dow lost 694 points, or nearly 7.5 percent. It is the fourth largest weekly point drop on record. It is the worst week since the markets reopened after September 11. The Nasdaq fell percent this week, the largest weekly percentage drop since April. The S&P 500 is down nearly 7 percent for the week, the largest weekly drop since the week after 9/11.
To show how firmly the markets are being gripped by the bears, the Dow is down 13 percent this year. Nasdaq is off 30 percent. The S&P 500 is down 20 percent. The Russell 2000 is skidding 15 percent.
Joining me now to try to make some sense of where this market is going from here is Dick McCabe, the chief market analyst at Merrill Lynch. Dick, are investors really saying that they're fed up?
RICHARD MCCABE, MERRILL LYNCH: I think the market action suggests that they really are becoming concerned and upset about this market slide, this relapse that we've had in recent months, and, unfortunately, that is the situation, the psychology, which typically happens near a bottom. People were bearish last fall, got optimistic by January. Now they're getting bearish again, and it's typically the sign of a bottom.
HOPKINS: But is it really the bottom, or is there going to be more of that outrage next week?
MCCABE: Well, I think we might get some down side follow-through early next week after this weak Friday close, but this may get us to a climactic turn and reversal maybe as quickly as next week.
HOPKINS: We'll talk to you later on the program.
MCCABE: OK.
HOPKINS: Dick McCabe from Merrill Lynch.
Let's move to Washington.
The corporate scandals at WorldCom and Enron and the effect on Wall Street have investors wondering about the safety of their retirement plans. Those scandals have also given Democrats another opportunity to attack a Bush proposal for workers to invest Social Security funds in the stock market.
Tim O'Brien has the story.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): With stock prices falling and the fall election nearing, Democrats seized on President Bush's proposal to privatize Social Security, saying it threatens the security of the nation's elderly.
REP. DICK GEPHARDT (D-MO), MINORITY LEADER: And you bet it scares seniors. It should scare all of us because what they're trying to do is wreck the best pension system that's ever been created in this country.
O'BRIEN: The charge seemed to come out of the blue, but Senate Republican leader Trent Lott took it in stride.
SEN. TRENT LOTT (R-MS), MINORITY LEADER: The only surprise is it's a little earlier than usual. The Social Security scare comes up every two years. When all else fails, political scoundrels scare old people and say, "Oh, something is going to happen to your Social Security." I resent that.
O'BRIEN: Lott said there's no immediate plan to push through any Social Security reform. He also threw his support behind a far-reaching Senate bill aimed at curbing corporate misconduct. Carl Levin of Michigan is proposing executive stock options be counted as an expense against earnings to make financial reports more reliable.
SEN. CARL LEVIN (D), MICHIGAN: Stock options are a form of compensation. They have value, and they should be part of the expenses on the books of the corporation, just the way they are taken as a tax deduction at this point.
O'BRIEN: Earlier, senators voted to ban personal loans from companies to their top officials and directors, citing the potential for conflict of interest.
(on camera): Lawmakers are optimistic they can have a final compromise bill on the president's desk before the August recess. While Democrats and Republicans still argue over what should be in that bill, they all seem to agree it would be perilous now to oppose any measure aimed at restoring investor confidence.
Tim O'Brien, CNN Financial News, Washington.
(END VIDEOTAPE)
HOPKINS: When President Bush addressed Wall Street earlier in the week, one of the main points that he focused on was this special task force on corporate fraud. This SWAT team met for the first time today at the White House.
And Peter Viles has the story.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): The president calls it a SWAT team. His spokesman suggests the task force could be coming to a federal court near you.
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The task force function is to obtain information to prosecute, to arrest, and to imprison corporate executives who engage in fraud and corruption.
VILES: But, technically, that is not what this task force is set up to do. This is a coordinating group with the authority to, quote, "provide direction for the investigation and prosecution of financial crimes."
For example, the biggest criminal fraud case in the nation right now, the Rite Aid scandal, will be handled not by the task force but by this man, the Tom Marino, the U.S. attorney in Central Pennsylvania with guidance from the task force.
Deputy Attorney General Larry Thompson is chairing the task force.
LARRY THOMPSON, DEPUTY U.S. ATTORNEY GENERAL: We have hundreds of career prosecutors involved in these investigations, professional and dedicated prosecutors. We are going to pursue these matters with vigor and in an aggressive manner, as they should be.
VILES: And unlike the Enron task force, which is a group of prosecutors and FBI agents assigned full-time to Houston and to the Enron case, this is not a full-time job. The president put 15 people on the task force, including 10 from the Justice Department and including SEC Chairman Harvey Pitt, but all 15 have other jobs and other responsibilities.
FLOYD NORRIS, "THE NEW YORK TIMES": I'm a little encouraged by this. It would be nicer if he had announced, you know, money and people dedicated to it, which he didn't, but the existence of the task force means that, at some point, somebody's going to ask the people on this task force, "What have you accomplished?" and, you know, that realization may produce some action.
(END VIDEOTAPE)
VILES: This task force is also charged with making recommendations to the president about changes in the laws on white- collar crime. At the speed at which Congress is moving right now, it does not appear likely that Congress will wait to hear those recommendations before acting to change the laws on white-collar crime -- Jan.
HOPKINS: Pete, how many investigations are going on at this point?
VILES: You know, we don't know how many criminal investigations are going on, but we hear every week about a new one. This week, we heard about two. Qwest said they are under criminal investigation. Late this afternoon, El Paso said they had received a subpoena from the Justice Department about the so-called roundtrip trade. So that's an investigation. They don't issue a subpoena just because they're curious.
So we're learning about a lot of them. That's Houston. That's Denver. We know about Enron in Houston. We know about WorldCom. There are a lot of them out there. The idea here is the Justice Department -- this task force isn't going to take them over, but they're going to share information better.
So, if somebody figures out something that works somewhere, the word will get around the Justice Department.
HOPKINS: Peter Viles.
Thanks.
VILES: Sure.
HOPKINS: Qwest Communications is reportedly considering restating financial results for 2001, erasing more than a billion dollars in revenue. "The Wall Street Journal" reports that Qwest's new management has not made a final decision yet, and a Qwest spokesperson declined to comment. Qwest is the subject of investigations, as Pete mentioned, by both the Securities and Exchange Commission and the Justice Department. Qwest stock has been battered over the last 52 weeks. It traded at $30 a share a year ago. Today, it closed near $2.
Federal prosecutors received another two weeks to try to work out a plea agreement with former ImClone systems CEO Sam Waksal. Prosecutors have until July 26 to continue talks with Waksal's attorney. Waksal was arrested in June for alleged insider trading. That, apparently, happened before the government's rejection of ImClone's application for a new cancer drug.
The top Democrat in the House today hit back at claims he received an improper loan. A spokesman for Congressman Richard Gephardt said the Federal Election Commission had said that the 1988 loan met all legal requirements. Gephardt received the $125,000 loan from Federal Citibank when he ran for president. His chief fund- raiser, Terrence McAuliffe, was on the bank's board at the time.
The red ink returns to Washington. The White House projected this year's federal budget deficit will hit $165 billion. No surplus. A deficit of $165 billion. Up from earlier projections. The White House cites several factors, including a fall-off in capital gains tax receipts as a result of the decline in the stock market.
Kelly Wallace has the story from Washington -- Kelly.
KELLY WALLACE, CNN WHITE HOUSE CORRESPONDENT: Jan, the White House trying to put the best spin on what could be some troubling news for the administration heading into the November elections.
Bush aides say the reason for the higher projected deficit include the costs associated with fighting the war on terror and protecting the U.S. from a future terrorist attack, and also, as you noted, the larger-than-expected drop in capital gains tax revenues due to what we've been seeing in the markets.
Still, Budget Director Mitch Daniels said there's reason for optimism. He said economic growth would be larger than previously anticipated for the year, and he said the government could return to the black in three years.
(BEGIN VIDEO CLIP)
MITCH DANIELS, OMB DIRECTOR: The recession, milder than we had anticipated, and the recovery, more rapid than we'd anticipated, gives us the prospect of regaining balance in the federal budget perhaps by 2005.
(END VIDEO CLIP)
WALLACE: But Democrats say the president's team is looking at, quote, "rosy projections," and they accuse the administration of particularly cooking the books to try to hide the true deficit.
Further, Democrats are taking issue with the president's $1.35- trillion tax cut. They say that is the reason that has wiped away government surpluses over the past few years.
(BEGIN VIDEO CLIP)
SEN. TOM DASCHLE (D-SD), MAJORITY LEADER: This is a clear editorial on the fiscal policies of this administration. I have said before that it was a disaster. I think the numbers today demonstrate why I believe that.
(END VIDEO CLIP)
WALLACE: But to that, White House aides point to the 12 Senate Democrats that supported last year's trillion-dollar tax cut.
Still, there might be some reason for concern inside the Bush White House. According to a new CNN/"Time" poll, 62 percent of the American people said they approved of the president's handling of the economy back in April. That number has dropped to 54 percent.
To prevent that number from going down even further, Jan, look for this president to continue talking about the economy, talking about corporate responsibility. In fact, he will take that message on the road. That will be his focus during a visit to Alabama on Monday -- Jan.
HOPKINS: So the White House thinks that that things are going to turn around next year. There aren't going to be expenses for fighting terrorism next year, the economy will be better, and the stock market improved? Is that the assumption?
WALLACE: The White House certainly projecting deficits for again next year and the year after. Mitch Daniels, though, hoping to see a surplus by 2005.
The administration's message is, if lawmakers really restrain federal spending, really kind of only put money where it needs to go -- in the view of this administration, that should go to fighting the war on terror and protecting the U.S. from a terrorist attack -- then the administration will be able to achieve its projections and a surplus by 2005.
But, Jan, Democrats say, again, these are rosy, rosy projections and truly expect that deficit number to be higher in the years to come -- Jan.
HOPKINS: Kelly Wallace.
Thank you.
A pipe bomb went off underneath a car in Washington today severely burning a man. Police say that the bomb exploded in a parking garage when a 21-year-old man tried to start the car. The man suffered burns over more than half his body. Police say they don't know why the bomb was planted or how it was set off. They say the explosion, though, does not appear to have anything to do with terrorism. Police in Texas are on heightened alert after an intelligence warning about a possible terrorist threat. The warning concerns oil refineries in Houston and communities along the Houston ship canal. The FBI says it does not attach a high level of credibility to the threat against an oil refinery, but it says it passed on the warning to local officials out of the need for an abundance of caution.
A federal appeals court today ruled that an American-born Taliban cannot meet with his lawyer until a lower court has reconsidered the issue. Yasser Hamdi is a Saudi Arabian citizen, was born in Louisiana, and captured in Afghanistan. The lower court had ordered Hamdi be given access to an attorney, but the appeals court said the judge had not adequately considered the government's view that Hamdi is an enemy combatant.
Palestinian leader Yasser Arafat has sent a letter to Secretary of State Colin Powell giving details of his reform program. The State Department says the letter outlines a variety of reforms, including plans for elections.
Meanwhile, the violence continues. Two Palestinians were killed, two wounded when Israeli troops raided Central Gaza. Separately, a Palestinian journalist died today after being shot by Israeli troops in the West Bank.
Hundreds of Mexican farmers protesting plans for a new airport are threatening to kill about a dozen hostages. The farmers, armed with machetes, are demanding the release of fellow protesters arrested by police. They say they will tie the hostages to gasoline trucks and set them on fire if their demands are not met.
The farmers are trying to stop their land from being seized for a new airport. Government officials say they're not negotiating with the protesters, and the government is running out of patience.
Turning now to tonight's MONEYLINE quick vote: What has been the biggest disappointment this week -- President Bush, the stock market, or Major League Baseball? Please cast your vote at cnn.com/moneyline. Of course, we'll have the results for you later in the broadcast.
Still to come on MONEYLINE, our editors' circle will discuss the brutal week on Wall Street and President Bush's crackdown on corporate fraud. "Fortune"'s Rik Kirkland, Dennis Kneale of "Forbes," and Jim Ellis of "BusinessWeek" will be my guests.
If you're hot tonight, you're not alone. The nation's power companies are struggling to meet the summer demand for electricity. We'll have a special report.
And the glory days for British pop groups like Pink Floyd are over. We'll tell you why British music has become a tough sell in the USA.
All that and more when MONEYLINE returns.
(COMMERCIAL BREAK) HOPKINS: It's been an exceptionally busy week for Wall Street. President Bush announced a major crackdown on corporate fraud in a speech in New York. Stocks suffered their largest weekly decline since September of last year.
Both topics feature prominently in the latest editions of "BusinessWeek," "Forbes," and "Fortune." Executives from these three magazines are here tonight for our editors' circle, and, as you can tell, we already started talking.
Rik Kirkland is managing editor of "Fortune." Dennis Kneale holds the position at "Forbes." Jim Ellis is chief of correspondents at "BusinessWeek."
I think the top story of the week is the markets, and the reaction, I guess, to everything else that's been going on. So I'm going to throw out to you what you think is the reason why the market is down so sharply.
Dennis, you first.
DENNIS KNEALE, "FORBES": Well, the market's down so sharply because, right now, it's a fraidy-cat market. We used to be afraid of missing out on something great, now we're just afraid of anything that could go wrong, and so the slightest thing happens, and I think the market tends to overreact, and the market's over -- down because it's still kind of expensive versus how it's been historically over 80 years.
But what I worry about most is are investors finally losing faith. Are Main Street investors instead of just Wall Street sophisticates finally beginning to think no one out...
JIM ELLIS, "BUSINESSWEEK": I think that's the understatement of the year. I think that we've seen for some weeks now that smaller investors have sort of figured out that this is a rigged game, that, basically, this is like going to Vegas. You know you're going to lose. It's just how much fun can you have, and nobody's having any fun anymore.
I think that the president really -- really sort of doesn't understand what's going on here. He said a lot of the right things, but there wasn't a whole lot of substance, a whole lot of new law that he proposed in his speech, and I think that all he's done is provided basically a floor. I mean, Congress is going to trump him on all that.
RIK KIRKLAND, "FORTUNE": All this law is going to fix -- you know, the fox is out of the, you know, hen house here. I mean, you know, it's like -- what you don't understand, after WorldCom, which is the shocking thing about that, $3.8 billion, nobody got it. The SEC. No regulators. No journalists. Bam. It's gone like that.
And it makes you as an investor think, "How much more is out there?" Until we know and we feel like it's 5, 10, 15, 20, 25 percent of the operating profits of the big 500 companies, the Fortune 500, I'd say -- Dennis would use another term -- you know, you don't know, and so people are edgy.
ELLIS: It's very difficult...
HOPKINS: Well, are people really giving up on the stock market? Do you think that they're really throwing in the towel?
KNEALE: No, they're not. I mean, I don't think the mutual fund sales are the most important thing to watch, right, because mutual funds is the way most of us invest in the stock market, and they've lost some, but they're not plummeting in terms of dollar volume the way the markets are doing.
(CROSSTALK)
KIRKLAND: ... in June, which is about like it was after September 11. So that's a pretty significant amount. On the other hand, I think the flows into markets over the whole year are about even with last year. So...
HOPKINS: So you're saying we have to...
KIRKLAND: So where are we now, is the question.
HOPKINS: Yeah. We have to wait for all the scandals to come out. When do you know that everything has been disclosed?
KNEALE: Well, what -- I worry that the next one, if there is a next one -- and we in the press who got hornswoggled by this and we didn't do enough to find it early, now we're jumping on anything, OK.
We hear that Medco, this pharmacy benefit to management thing owned by Merck -- that they did something with this revenue statement stuff. Now they've been disclosing it for quarter after quarter after quarter, and I think that part of what they're doing is defensive, but "Wall Street Journal" puts that on page one, and people just go crazy over it, and --
But if one big real scandal comes out, multibillion-dollar figure, I'm worried it could really hurt the market.
ELLIS: Yeah. A lot of people think that, you know, now that we're asking CEOs and CFOs to certify the numbers -- that when that kicks in in August, that's going to sort of maybe provide maybe a floor, and people will say, "OK. From here forward, we'll say, 'OK. The numbers might be good.'" But that's not really good for the market, simply because people are going to have to be extremely conservative and...
KIRKLAND: But between now and August, what could happen?
ELLIS: Between now and August, you're going to basically wash out a lot, and so, basically, it's not a time to actually throw your savings into the market.
KNEALE: Although that -- you know, that's no reason for the market to suddenly face a turning point. I've always thought that the solution -- oh, have CEOs sign a statement swearing by the numbers. So what? We're supposed to believe them that...
(CROSSTALK)
KNEALE: Yeah. Exactly. That's -- that does nothing. I think that we've lost sight of something, we as investors in middle America and we in the press. You know, there's like maybe six companies we can think of linked to scandal -- Global Crossing, Enron, Arthur Andersen, Tyco -- but there are -- how many publicly held companies are there? Five thousand? Eight thousand publicly held companies.
ELLIS: Yeah. There's a lot more out there.
KNEALE: And they're -- I still believe -- call me Pollyanna here -- that the vast majority of companies are honest. The vast majority of CEOs want to do a good job. And let not forget the part that we investors had in this.
Three years ago, I liked it if a company kind of pushed the envelope and sheltered profits from taxes and was showing growth, and I didn't mind it, as long as my retirement fund was going up. Now I'm morally outraged.
ELLIS: Well, let's face it. I mean, it's always been that way. A bull market covers up a lot of sin. Now, however, people are looking at huge amounts of value dropping.
Just this past week, the market lost about $2.5 trillion, $2.7 trillion in value. That's an astonishing figure, and sooner or later, people are going to wake up that -- you know, what that translates for Joe Average is, "I'm going to have to work two or three years more to"...
HOPKINS: Right. Do you think that people are really starting to think about that?
ELLIS: They're going to see it when they get their 401(k) statements.
HOPKINS: But a lot of people aren't looking at the 401(k) statements, right?
KNEALE: Sixty-year-olds are and 65-year-olds are, but 40- and 35-year-olds don't have to think about it, and if they didn't sell this week when that -- when the market lost $2.7 trillion, they didn't lose anything yet, and if they're in good stocks, it will come back.
KIRKLAND: But, you know, one of the things they're sitting and looking at is all the billions and billions -- probably more than any period in history compressed -- that CEOs and other executives did take out of the stock, and somebody did get out with a lot of dough, and that's -- that anger is real.
HOPKINS: There's a lot of -- right. There's a lot of wanting heads, you know.
ELLIS: Yeah, but -- I mean, I think that Dennis is right in saying that a lot of people are going to feel that, you know, we were very happy in the late '90s. It was great. We convinced a lot of people that what you want to do is you want to play in that game. "Everybody's making a fortune. You might as well do it, too." Self- directed retirement. You're telling everybody, "Jump into the market." Now they're suddenly realizing that there's a hell of a lot of risk with that.
KNEALE: The thing that bothers me about the criticism of CEO compensation, et cetera -- because, you know, again, when stock were going up, we didn't mind how much money they made, but we knew all along when they were taking out all kinds of hundreds of millions. We saw it, and investors in those companies should have sold the stocks at that time and decided, "This guy is not betting on his own future."
HOPKINS: But, of course, you don't. You don't.
I have one other question for you.
KIRKLAND: They were supposed to be build companies that last, though.
HOPKINS: I want to give you the same vote that we're asking the viewers to take, and that is what's the biggest disappointment of this week -- each of you has to answer this -- President Bush's speech, the markets, or baseball? Rik.
KIRKLAND: It's got to be baseball. What a travesty.
HOPKINS: Dennis.
KNEALE: Yeah, it's baseball. Bush did what he had to do. He can't do too much. The government's going to screw this up. They're going to step in and do way too much. It's got to be baseball.
ELLIS: Jim.
ELLIS: The president's speech. He had a great opportunity to sort of lead the charge, and now basically he's given it to Congress.
HOPKINS: Thank you, all. Jim Ellis, Rik Kirkland, and Dennis Kneale.
Coming up on MONEYLINE, the power crunch facing the nation's utility companies. We'll have a report on the problems facing the electricity industry and all of us that use it.
Pharmaceutical stocks are no longer the safe haven that they used to be. We'll tell you why. That sector is underperforming the overall market, and, of course, the market's down.
Sticker shock at Major League Baseball games. It's not just the price of tickets that's upsetting the fans.
(COMMERCIAL BREAK)
HOPKINS: The western heat wave continues. Triple-digit temperatures scorched California and the West again today.
And while July's readings are hot, they are just continuing a trend that began last month. This past month was the country's fifth hottest June in more than a hundred years.
The intense heat is not only affecting people. It is also drying out already parched vegetation, raising fears of more wildfires, and the heat is trapping smog in urban areas, forcing many cities to issue air-quality warnings and driving restrictions.
The heat has been taxing power supplies across the West, and the government has raised the price cap for wholesale electricity prices to make sure that there is an adequate supply. But there have been a smattering of power shortages all across the country that have little to do with the heat.
Kitty Pilgrim looks at the problems of power.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): It's hot out there.
In Nevada, the fourth day of triple-digit highs. One of those days, the hottest in 100 years with a high of 110 degrees.
California has been struggling to keep power even in seasonally high heat. It's a particularly sensitive issue in California after last year's massive power problems.
STEPHEN ALLEN, NORTHEAST POWER COORDINATING COUNCIL: There are infrastructure problems nationwide. Basically, the infrastructure system needs to be upgraded.
Right now, our big heavy-duty transmission lines are the equivalent of small two-lane highways, and, in this era of deregulation, we need super highways where we can move electricity over great distances.
PILGRIM: And New York is on the verge of running short of power. Because the hottest days fell over the long July 4th weekend when Manhattan had emptied out, crisis was averted. But Long Island and Connecticut were particularly overloaded.
Energy demand on the East Coast has risen steadily. Now about 50 percent higher than in 1977 when a power crisis caused massive blackouts, followed by looting and rioting.
After September 11, the close of businesses and job losses in Manhattan suggested that power demand would also be trimmed back, but that is not so. In fact, Con Edison projects steadily increasing demand for the next four years.
JOSEPH OATES, ENERGY MANAGEMENT, CON EDISON: New York City and this part of the country is right on the edge. You know, right now, we have adequate supplies, they're tight, but there's enough to see us through the summer, barring any unforeseen or unusual equipment problems.
But if nothing takes place in the next couple of years in the way of additional supplies brought on line, New York could find itself in the same situation that California was in last year and has been facing recently with their heat wave.
(END VIDEOTAPE)
PILGRIM: It's not as if power companies have been idle on the East Coast. Replacing the infrastructure in Lower Manhattan after the World Trade Center disaster has claimed most of the workload -- Jan.
HOPKINS: Now the focus has to change. Is that right?
PILGRIM: It certainly did, and, before the disaster, everyone knew that it had to be focused on, that there were going to be chronic shortages of power, and -- but the diversion of attention for almost a full year has made a real impact on the way the power is generated.
HOPKINS: And the East Coast is as bad off as California.
PILGRIM: They say it's going to approach it in no time soon.
HOPKINS: Thanks.
Kitty Pilgrim.
Coming up on MONEYLINE, drug stocks were once the safe haven of choice for investors, but even they have been taking a beating lately. We'll tell you why.
Stocks suffer their biggest decline since September 11. Merrill Lynch's Dick McCabe will be back to assess the damage.
And British bands like the Police were once the toast of the United States. Not anymore. We'll take a look at the push to get them back on top. All that and more when MONEYLINE returns.
(COMMERCIAL BREAK)
HOPKINS: If you wanted to buy safety, in the past it's been drug stocks. They've been traditionally regarded as a safe haven for investors during stormy times. Not in this market meltdown, drug company stocks have been suffering even more than other firms.
Fred Katayama takes a look at the problems plaguing the sector.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNN CORRESPONDENT (voice-over): The steady stream of earnings usually makes drug stocks a safe haven for investors, but not now.
UNIDENTIFIED FEMALE: Merck says it booked more than $12 billion in sales for money it never actually collected. KATAYAMA: The accounting disease spread to the drug industry, zapping Bristol-Myers Squibb and the tiffany of the sector, Merck. And Wyeth sank 24 percent after a study linked its hormone drug to health risks.
MARIOLA HAGGAR, HAGGAR CONCORD PARTNERS: These companies will have now a big challenge to rebuild their reputation among the investors on issues ranging from accounting irregularities to efforts to delay generic competition based on frivolous patents.
KATAYAMA: Pharmaceutical stocks have plunged 29 percent this year, under performing the S&P 500. Investors are bailing out of drug stocks because earnings are lousy. Profits typically grow at a double-digit rate.
DAVID SAKS, CIO SAKS MEDSCIENCE FUND: With increasing pressure on reported quality of earnings and with the globalization of these firms as more volatility and investment in R&D is greater so the volatility of returns per year is greater. So I think this year, we're going to see, in my history, first time single-digit EPS growth.
KATAYAMA: Making earnings anemic, many patents on blockbuster drugs like Paxil for depression are expiring, and the pipeline of new hit drugs to replace them is thin. The number of new drugs approved fell from 139 to 98 in the last two years.
Drug companies are struggling to hike prices as much as they'd like because they face pressure from managed care companies and lawmakers. Just yesterday, a Senate committee passed a bill aimed at bringing cheaper generic drugs to market faster.
(END VIDEOTAPE)
KATAYAMA: And so drug stocks are trading at half of their historical price levels, but investors won't buy until they see the outlook for profits improve. Analysts say that won't happen until next year. In the meantime, investors can use a pep pill -- Jan.
HOPKINS: Thanks Fred. We'll find out from our next guest whether it's a good time to buy drug stocks.
A punishing week on Wall Street. The Dow suffered its fourth triple-digit decline in the last five sessions. Blue chip index today extended a disturbing trend, closing lower every day on the week. The Dow tumbled 117 points; the Nasdaq stood firm down less than one point on the day; the S&P lost nearly six.
For the week, though, the DOW was down nearly 700 points, nearly 7 1/2 percent decline. It is the fourth largest weekly point drop ever. The Nasdaq fell more than 5 percent; the S&P 500 tumbled nearly 7 percent, now at the lowest level in nearly five years.
The question on everyone's mind is, is the worst behind us? Dick McCabe, chief market analyst of Merrill Lynch joins us now. Is it? I mean that's really -- that is the question. Is the worst behind us? MCCABE: I think we're in the throws of the worse right now, the throws of the emotional stage, which typically marks a bottom or close to a bottom on a market decline. The market's been moving down steadily really since March, and I think we're reaching that climatic stage now where people may get too bullish or too bearish, I should say, on the outlook and that would tend to mark a bottom.
HOPKINS: So, is it too late to sell your stocks? Is that a bad thing to do at this time?
MCCABE: Well I think it's a wrong time now to sell indiscriminately. If certain stocks or certain companies have bad fundamentals, that's a different story. But the temptation now when things look bad and the news looks bad is to sell everything, to get overly bearish, I think that would be the wrong thing to do.
HOPKINS: You know I was hearing today from some traders that you know mutual funds are willing to buy stocks, but they're concerned about their investors selling the mutual funds and so they're afraid to jump in. Everybody's afraid to buy. No one's afraid to sell at this point.
MCCABE: It always seems to be the case at a bottom. It seems like all the reasons are there to sell, that no money is going come in to buy. It's the opposite of two or two and a half years ago, at the top and early 2000, when it seemed like everything was good; technology was great. The investors had to buy.
The baby boomers had to keep putting money in. All the reasons were there why the market would keep going up and it did not. Now we're getting all the reasons to come to the surface, it seems, why things can't get better. And to me that says we're getting someplace near a bottom, but these next couple of weeks could still be a little bit bumpy.
HOPKINS: Could it be a rough day on Monday?
MCCABE: Well given the weak close today, we may see some follow through on the down side on Monday. But if we get a ...
HOPKINS: And Mondays are often bad days, right?
MCCABE: That's it. That's been the case, and it may lead us off, it's a bad day, a really emotional day, lead us to kind of a climatic low point by Tuesday or Wednesday.
HOPKINS: I've been hearing that for a long time. We have to have capitulation. We have to have that climax selling. Do we really have to?
MCCABE: Well, most declines end that way. This really is, in a sense, a retest of the low of last September. Most averages are around those lows they made on September 21, but we may get this emotional, kind of psychological capitulation and some volume selling to give the turn this time around as well. HOPKINS: So you're telling investors that it's not the right time to be indiscriminately selling, but what should you be doing in this kind of market?
MCCABE: Well, I think for those who have available cash, they should be thinking about doing some buying, picking up positions in this emotional selling stage. I would certainly want to emphasize quality, reliable earnings, stocks with dividends and some of the old economy stocks that have held up well in the past two years while technology has been battered are showing that relative strength that often indicates they're going to be leaders. So I like a lot of basic industrials that would benefit from an improving economy like paper stocks and specialty chemicals. I like some of the capital goods like machinery. I like some of the energy stocks like some of the oil services and drilling issues.
HOPKINS: Fred was telling us about drug stocks and they've come down a lot. Are they at the point that investors should be looking at them?
MCCABE: Well really long-term it might be the spot to start nibbling, but it looks as though these stocks need time to stabilize, to regain investor confidence. I think the drugs and the biotech stocks will need time to bottom out or base out. I actually prefer some of the stocks in the health care services field at this point.
HOPKINS: Dick McCabe of Merrill Lynch, thanks.
MCCABE: Thank you.
HOPKINS: Now a reminder to vote in tonight's MONEYLINE poll. What was the biggest disappointment this week? President Bush? His speech? The stock market? Or baseball? Cast your vote at cnn.com/moneyline. We'll bring you the results in just a few minutes.
Up next, the price of a ticket for a baseball game is expensive enough, so why does it cost so much to buy a snack? We'll have a special report.
And the "Road to Perdition" is one of the several new movies to look at this weekend. We'll have a roundup of the latest offerings from Hollywood.
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UNIDENTIFIED MALE: Natural or we got to take him now?
UNIDENTIFIED MALE: I know who to call. He's a guy who's done some work for us.
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HOPKINS: We have some good news to report about children in America. They're healthy -- healthier and more financially secure than they've been in years. Information pulled from seven government reports shows infant mortality is down. Births to teenagers is at a record low. Most children now live in good health, and the child poverty rate is at its lowest level in two decades.
But not all the news is good. Thirteen percent of students say they've had five drinks or more in the past two weeks. Five and a half percent of students smoke. Only 27 percent of this nation's kids eat a healthy diet.
The nation's once favorite pastime continues to find good news hard to come by. Fans are still steaming over Tuesday night's 7-7 tie in the All-Star game. Baseball's high salaried players continue to draw heat for using steroids, whether they've taken the drugs or not.
Teams are finding it harder to cover those multimillion-dollar salaries. Two teams this week came dangerously close to not making payroll, and baseball's negotiators are back at the table with the Players Union hoping to avoid a strike next month.
Meanwhile the fans keep showing up at games, for now at least contending with the players, the owners, the issues and the concessions. That's where fans are really feeling the pinch.
Ceci Rodgers reports from Chicago.
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UNIDENTIFIED FEMALE: Anything else?
CECI RODGERS, CNN CORRESPONDENT (voice over): Fans are getting soaked at the ballparks this year. Besides higher prices for game tickets, parking and souvenirs, there's $6 beer and $3 hot dogs.
UNIDENTIFIED MALE: A day at the ballpark is an automatic $100.
UNIDENTIFIED FEMALE: It'll cost you $20 for chips, hot dog and a coke, very expensive everywhere.
RODGERS: One sports publication has been tracking those costs for the past decade.
DAN MIGALA, TEAM MARKETING REPORT: Across the board, definitely, you know, the prices are rising, and the consumer is the one really feeling the pinch.
RODGERS: For example, the cost of a hot dog is up 57 cents over the past five years. Beer costs nearly $1 more than it did five years ago. Contributing to an overall jump in the cost of a baseball game, parking and incidentals, to $145 on average for a family of four. At Miller Stadium in Milwaukee, they tailgate before the game.
UNIDENTIFIED MALE: The price of hot dog and a beer now, all that's in there, it's well worth coming out and tailgating for a while.
RODGERS: The people who run the concessions say their expenses have skyrocketed. Team owners are charging higher rents to cover the cost of player salaries and brand new stadiums.
JEREMY JACOBS, EXEC. V.P. SPORTSSERVICE: The margins are getting squeezed. The baseball concession business in itself is a nickels and dimes business. We make our money on volume. That's where our profits lie.
RODGERS: And where do they do the most volume? Despite offering everything from seafood buffets to burritos, the money is still to be made in hot dogs and beer.
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RODGERS: And that helps explain why it's easier to raise the cost of a hot dog or a beer 25 cents every year and make more money. You're going to get the profits out of that move and, of course, that means the fans are going to notice it more too. But all the fans we've talked to say, even though they're not happy about high concession costs, it's not going to keep them out of the ballpark -- Jan.
HOPKINS: And they're going to eat once they're there, right?
RODGERS: Right.
HOPKINS: You have a game behind you. What's going on?
RODGERS: Well, OK, we've got the Cubs and the Marlins, and they're in the 12th inning, tied 4-4. I don't think they're going to call this game, Jan. They're going to play it to the end and we have a lot of fans leaving already, but apparently enough in there watching the game.
HOPKINS: OK.
RODGERS: It's -- we're hearing some roar behind us and hopefully we'll have the Cubs pull it off.
HOPKINS: Thank you. Ceci Rodgers, a true ...
RODGERS: All right.
HOPKINS: ... Chicagoan. Still to come on MONEYLINE, a preview of the latest movies plus British bands like "The Rolling Stones" once took America by storm, but now British musicians are struggling to hit the big time in the United States. We'll tell you why when MONEYLINE returns.
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ANNOUNCER: Monday on Lou Dobbs MONEYLINE, the chairman of the Securities and Exchange Commission talks about the controversy surrounding the SEC and what he's doing to restore credibility to the commission and corporate America. Monday on Lou Dobbs MONEYLINE.
HOPKINS: Several new offerings at the box office this weekend. DreamWorks much anticipated "Road to Perdition" opens today, but only in half the number of theaters that "Men In Black II" debuted in last weekend.
Tom Hanks and Paul Newman star in the depression-era drama. Hanks plays a Chicago hit man on the run with his son who has witnessed a mob hit. "Perdition" is the first film from Director Sam Mendes since 1999's Oscar winner "American Beauty".
Among other new releases, Disney's "Reign of Fire". Matthew McConaughey and Christian Bale star in this adventure set in the future where the race of dragons nearly destroys the planet.
MGM's "The Crocodile Hunter: Collision Course" also opens. Aussie Steve Irwin plays himself in this adventure based on the popular nature show on "The Animal Planet".
There is a crisis in Britain. It has nothing to do with the monarchy or England's failure to win the World Cup. It is about music. Last year, not a single British performer was on the charts in the U.S. That's the first time in 30 years. With billions of dollars at stake, the British music industry has come up with a way to fight back.
Susan Lisovicz has the story.
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SUSAN LISOVICZ, CNN CORRESPONDENT (voice over): It started with The Beatles. And the British invasion continued with an army of chart-topping exports -- Led Zeppelin, The Who, The Rolling Stones, Pink Floyd, Queen, The Police.
But now the British empire is singing a different tune. In 1985, the year of the dire straits hit money for nothing. British artists scored a dozen "number one" songs on "Billboards Hot 100 Singles Chart". In the last five years, none.
JUSTIN OPPELAAR, MUSIC EDITOR, VARIETY: Up until the early '90s, mid '90s, the emphasis in pop music in America and in Britain was on rock, you know, with grunge in the early '90s. That emphasis is now shifting in the U.S.
ALAN LIGHT, MUSIC WRITER: And hip-hop, obviously, completely changed the landscape of pop music in the U.S. On the one hand, hip- hop has spread across the globe to every corner of the earth. On the other hand, it remains very much an American-driven form.
LISOVICZ: So as an English band called Cry-Baby performed, British music executives gathered at Virgin Records Time Square store in a summit named after a bitter song by The Clash, "London Calling."
DAVE ALDER, SENIOR V.P. VIRGIN ENTERTAINMENT: But the quality is definitely there and it's the exposure that just isn't there. The media has changed a lot in the last 10 to 15 years, particularly radio, which is really almost blocked out new types of music and become very formulaic in its approach.
LISOVICZ: One plan to fight back, a U.K. music embassy in New York. The dramatic decline in British pop sales in the U.S. is much more than a point of national pride.
(on camera): The U.S. is the world's largest music market, accounting for approximately 40 percent of global record sales.
PAUL BIRCH, CHMN. BRITISH PHONOGRAPHIC INDUSTRY: The British music industry is worth about $3.5 billion a year. So it's a very important industry to the U.K. (UNINTELLIGIBLE).
LISOVICZ (voice-over): The British music industry is now hoping it does too.
Susan Lisovicz, CNN Financial News, New York.
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HOPKINS: Now let's get the results of tonight's MONEYLINE "Quick Vote." What has been the biggest disappointment this week? Eighty- two percent of you said President Bush's speech; 11 percent said the stock market; 7 percent voted for baseball. Thanks for voting.
"CROSSFIRE" begins in a few moments. For a preview lets go to Washington, Bob Novak and Paul Begala -- Bob first.
ROBERT NOVAK, CO-HOST, "CROSSFIRE": Jan, we're going to talk about the Democrat's teeing off on George W. Bush and Dick Cheney, the politics of personal destruction. Wasn't that what Bill Clinton complained about so much?
PAUL BEGALA, CO-HOST, "CROSSFIRE": And then, of course, we Democrats would call it the economics of fiscal destruction, but then we're going to talk about, you've heard about wide body jets. What about wide bodies on jets? We've got a woman who's very angry because some overweight passengers were bumped off of Southwest Airlines, and then we'll have the guy who's suing Major League Baseball. So that small percentage of your viewers who are angriest about baseball will have the guy on who's suing baseball because they called a tie and stopped the All-Star game. So we'll have a little bit of everything tonight Jan.
HOPKINS: Thanks very much, Paul Begala and Bob Novak.
A fraudulent appraisal has landed an antiques dealer in prison. Russell Pritchard was sentenced to a year behind bars for staging a phony appraised on the "Antiques Roadshow" on PBS. In 1997, Pritchard and his partner appraised a Civil War sword, which they had already purchased. Pritchard also pled guilty to giving people low assessments on antiques on the program and then reselling them at a higher price. Those fraudulent transactions will cost him $830,000. Still ahead a look at your e-mails and "In Their Words".
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HOPKINS: Now a look at your thoughts. Joe Galante writes with an idea on how to clean up Wall Street. "Every day another publicly traded company is exposed for some form of financial fraud." He says: "Investors rightfully cast a wary eye towards all companies." Joe suggests "a 30-day amnesty period to provide company management to come clean."
Chris McGlinn in Pennsylvania also has ideas to reform and boost confidence in the markets. "Why not put former New York City Mayor Rudy Giuliani in charge of the SEC? He cleaned up Times Square. He cleaned up the New York mob. I'm sure that he would do a fantastic job cleaning up corporate America. As SEC chairman, Rudy Giuliani would be the catalyst for some effective corporate governance reform. Markets would rally on an announcement like that."
Mark Paul Davis in Missouri says: "The problems in the market aren't about a lack of confidence. It's about investors robbed."
And Emeric Deutsch writes on the president's suggestion to double jail terms for corporate wrongdoers. "I'm much relieved that the future Lays, Skillings, Ebbers' will spend twice as much time in jail as the present ones." "There's only problem," he says, "two times zero equals zero."
James Bousman in Hawaii writes: "Corporate America is taking me to the cleaners and getting away with it. Sure, some of them are honest, but many of them are building houses with money they have stolen from me.
Readers of today's "New York Post" saw a glaring example of that under the headline "No Shame." The "Post" showed the pictures of former Tyco CEO Dennis Kozlowski's $25 million yacht and his $12 million home. Kozlowski is currently facing a litany of legal trouble, including charges of tax evasion."
Louise says our "Quick Vote" question last night about how'd you rate stocks -- buy, sell, or hold should have been too risky to buy, too late to sell, and as for hold, hold your breath.
Finally, Tim Tessier in Rhode Island writes: "What will bring the investor back to the market? The same thing that motivates people to gamble at casinos, like slots, it's 50 percent greed and 50 percent entertainment."
Thanks for sending us your thoughts. E-mail us at moneyline@cnn.com and include your name and address. Those were your words. Now, "In Their Words."
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NELSON MANDELA, FMR. SOUTH AFRICAN PRESIDENT: We know that a treatment available which restored the immune system would stop the opportunistic infections, especially TB and which would return Aids sufferers to good health for several years at least.
Is it acceptable that his dying parents had no hope of access to treatment? The simple answer is no.
BILL CLINTON, FMR. PRESIDENT OF THE UNITED STATES: The world is being consumed by a disease that is preventable with drugs that turn a death sentence into a chronic illness and prevent mother-to-child transmission with example after example of nations that have reversed the infection. How could we explain that to someone who had not lived through it?
ADAM VILAGOS, NEW YORK CITY FIREFIGHTER: I feel it's a great honor for the New York City Fire Department to receive a medal from our friends. We feel a great camaraderie with the French brothers and hope in the future we can champ the nation and techniques and that sort of thing.
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HOPKINS: Finally tonight, we have a fish story that you might enjoy. A couple fishing in the Florida Keys last weekend bagged a leather bag with $80,000 inside. Authorities say it may have been drug money or alien smuggling money. They also say the couple can keep the cash if no one claims it in the next three months. And so far, no legitimate claim has surfaced.
That's MONEYLINE for this Friday evening. I'm Jan Hopkins in for Lou Dobbs. Thanks for joining us. Lou will be back on Monday. Have a great weekend. Good night from New York.
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