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CNN LOU DOBBS MONEYLINE
Times Square Readies For 99th Annual New Year's Eve Celebration; Dow Loses Ground For Third Consecutive Year
Aired December 31, 2002 - 18:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KITTY PILGRIM, GUEST HOST: Good evening.
It is now 2003 in Germany and you're looking at live new year's celebrations at the Brandenburg Gate in Berlin. Now, this spectacular firework display is the largest new year's event in the history of the German capital. More than a million people expected to turn out at the famous Brandenburg Gate this evening. Six music stages, a giant Ferris wheel were set up for the festivities.
Here in the United States, security is exceptionally tight around New York's Times Square. Police bomb squads have been conducting security sweeps above ground, as well as in the subway systems. Trash cans have been removed. Manhole covers have been welded shut. Sharpshooters will be stationed at vantage points around Times Square.
Anderson Cooper is in Times Square, where people have been gathering all day long -- Anderson.
ANDERSON COOPER, CNN CORRESPONDENT: Kitty, you know, New Yorkers are very proud of their Times Square celebrations. It's a 99-year annual tradition. I'm sure they think Berlin has nothing on what's happening in New York right about now.
It's about six hours before the ball drops here in Times Square, often called the crossroads of the world. Tonight it certainly seems like that. We have tens of thousands of people here. The police expect as many as 500,000 people here all watching that crystal ball, thousand pound crystal ball dropping at the stroke of midnight.
Of course, security is the big thing on everyone's minds here right now. Security has never been tighter and this in a city which is used to having large scale events with high levels of security.
Here's some of what Police Commissioner Ray Kelly had to say earlier today.
(BEGIN VIDEO CLIP)
RAY KELLY, NEW YORK POLICE COMMISSIONER: Well, again, I think we're doing everything that we reasonably can do. We have to use some common sense in applying some of the, you know, tactics that we're going to use tonight. So, you know, we think we have reached that balance between providing security and making certain that people have a good, happy time. (END VIDEO CLIP)
COOPER: In terms of security, there's a lot we see and a lot we don't see. What we see, as many as 6,000 uniformed police here. They have every block blocked off. The people, as I said, there are going to be about 500,000 people here, they're being cordoned into very controlled areas. Canine units are on patrol. The bomb squad is on patrol.
A lot you don't see, though. The manholes are all sealed. There are no garbage cans. There are no porta potties here. There are apparently snipers in some of the buildings around here observing the crowd through binoculars just in case anything happens. There's also some elite units, an archangel unit, which is a biohazard unit, also a unit called the Hercules squad, a very heavily armed police force which is here in midtown, apparently in some armored black SUVs.
So security very tight here in Times Square. But everyone seems to be having a good time at this point, people just waiting. The crowds are building and building and it is going to be a very long but a very fun night -- Kitty.
PILGRIM: Well, everyone seems very well prepared, Anderson, and have a lovely evening and happy New Year.
Thanks.
COOPER: You, too.
PILGRIM: Anderson Cooper from Times Square.
Well, security is also being increased in New York Harbor tonight. The Office of Homeland Security says it received information about a possible terrorist attack by boat. Sources tell CNN the information gives no specific day or exact method of attack. Officials also say the threat was a "very low level of credibility."
The FBI today said the five men it wants to question came into the country on fake British passports. Now, the men are thought to have crossed into upstate New York from Canada. All are of Middle Eastern origin. The FBI calls the search very serious. Recent terrorist attacks overseas and a high level of intelligence chatter have led to a heightened state of concern by law enforcement.
President Bush today also appealed for the public's help in catching the five men. It was just one of many national security issues he weighed in on today from his ranch in Crawford, Texas.
The president warned an attack from Saddam Hussein would cripple the U.S. economy, adding that Saddam still hasn't gotten the message about disarmament.
Well, here with more on the president's impromptu news conference is Suzanne Malveaux. And she had more from Texas -- Suzanne.
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Hi, Kitty. It was at a coffeehouse in Crawford that President Bush answered the one question that has been on so many people's minds. That is, why is the administration considering going to war with Iraq when it says it has no weapons of mass destruction at the same time not considering using military action when it comes to North Korea, a country that does have nuclear weapons and has been making moves possibly to produce more?
Well, President Bush says when it comes to North Korea, it is not a military showdown, but rather a diplomatic one. He still believes that a peaceful resolution is possible through diplomacy and despite the calls from Russia and South Korea for a dialogue, not isolation, the president is confident that he will win the support of North Korea's neighbors.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: There's strong consensus not only amongst the nations in the neighborhood and our friends, but also with the international organizations such as the IAEA that North Korea ought to comply with international regulations. I believe this can be done peacefully through diplomacy and we will continue to work that way. All options, of course, are always on the table for any president, but by working with these countries we can resolve this.
(END VIDEO CLIP)
MALVEAUX: Now, President Bush contrasted that with the situation in Iraq, saying that it was in the '90s that Saddam Hussein was trying to make and develop a nuclear weapon. He believes that he is still making those efforts today.
(BEGIN VIDEO CLIP)
BUSH: The international community has been trying to resolve the situation in Iraq through diplomacy for 11 years. And for 11 years Saddam Hussein has defied the international community.
(END VIDEO CLIP)
MALVEAUX: And while the military preparations are in full force for a possible war with Iraq, President Bush saying today that one new year's resolution is to resolve these conflicts peacefully -- Kitty.
PILGRIM: It sounds like a good one.
Suzanne Malveaux reporting from Texas. Thanks, Suzanne, and happy New Year to you.
Well, despite President Bush's statements that he believes the showdown with North Korea can be solved peacefully, regional tensions do remain. The stand-off has also strained the U.S. relationship with South Korea.
Sohn Jie-Ae joins me now from Seoul with more -- Jia-Ae. SOHN JIE-AE, CNN SEOUL BUREAU CHIEF: Yes, Kitty.
The war of words did escalate again here on the Korean Peninsula, although it did take different tones. Now, the streets of Seoul on this new year's morning are very quiet, but in the hours leading up to midnight in South Korea, tens of thousands of South Koreans gathered for a major anti-American rally.
Now, the protesters were relatively peaceful in nature, although there were some scuffles as the demonstrators tried to march towards the U.S. Embassy and the thousands of police stopped them in their tracks.
Now, the anti-American protesters here were angry against, about a recent U.S. military court's acquittal of two U.S. soldiers in the deaths of two South Korean school girls. But their tones were broadly anti-American. They were against the America's policy towards North Korea. They felt that Mr. Bush's stance in trying to pressure North Korea to try to isolate North Korea was not doing inter-Korean relations any good. Some felt that North Korea, that the United States is actually standing in the way of better relations between the two Koreas. There were some protesters that we talked to that were also calling for the withdrawal of the 37,000 troops stationed in the South.
And the protests also had general anti-war tones. We also saw many protesters carrying signs saying that they were against the war in Iraq.
So the protesters here seem to be very angry at North Korea -- at the United States and the way that it was dealing with North Korea -- Kitty.
PILGRIM: All right, thanks very much.
Sohn Jie-Ae reporting from Seoul.
An unmanned Air Force Predator has destroyed a mobile radar system in Iraq. It's the second time a Predator fired Hellfire missiles in Iraq since Friday. Yesterday's strike took place about 75 miles south of Baghdad. A similar Iraqi radar unit was destroyed on Friday.
Well, new year's eve was definitely not a holiday for U.N. weapons inspectors in Iraq. Teams split up to inspect several sites as a number of humanitarian groups appealed to the Iraqi government to seek a peaceful solution to the current tensions.
Rym Brahimi reports from Baghdad.
(BEGIN VIDEOTAPE)
RYM BRAHIMI, CNN CORRESPONDENT: A very busy new year's eve for U.N. weapons inspectors here on the ground. They visited at least seven sites today, among them a mineral water facility, a drug research center and also a center for research and development on oil and petroleum products.
Now, the inspectors also plan to work tomorrow, on January the 1st, 2003. So there's no respite for them. They also have to work fast to meet that 27th of January deadline when the U.N. weapons inspectors have to present a report on their work inspecting the grounds here to the United Nations Security Council. They're also hearing that U.N. chief weapons inspector Hans Blix is planning a visit to Baghdad around mid-January.
Now, in the middle of these inspections still a lot of tension in the region. A lot of tension also with the recurrent events or recent clashes in the no fly zones with the Iraqi foreign minister today writing to U.N. Secretary General Kofi Annan to complain about the latest strike that Iraq says killed three people in the south of Iraq and destroyed a mosque, accusing this time not only the U.S. and Britain, but also Kuwait.
And in the middle of these drums of war, well, quite a few peace groups here in town these days. One of them, the National Council of Churches, met with Iraqi Vice Prime Minister Tariq Aziz, a discussion on hopes for peace, of course, in which Tariq Aziz said he hoped the warmongers in Washington would listen to the peace groups.
Rym Brahimi, CNN, Baghdad.
(END VIDEOTAPE)
PILGRIM: Two of the three murdered U.S. missionaries were buried today in their adopted country of Yemen. Martha Myers and William Koehn were laid to rest in the city of Jibla, in southern Yemen, in accordance with their wills. Now, the body of the third missionary killed at the Baptist hospital, Kathleen Gariety, was moved to Sana'a while her family decides whether to honor her wish to be buried there, as well.
Hospital officials say the condition of a fourth victim wounded in the attack is improving after surgery to remove two bullets.
Coming up next, from North Korea to Iraq, former Secretary of Defense William Cohen joins me to discuss conflicts around the world.
The new year in Venezuela means a fifth week of strikes across the country. We'll tell you what these continuing protests may mean for the price of oil.
On Wall Street today, stocks finished 2002 mixed. The Dow Jones Industrials gained 9, the Nasdaq lost four.
And small investors are enjoying some much deserved attention from Wall Street. We'll tell you why the focus has shifted from big institutional investors to the little guy.
Wharton professor of finance Jeremy Siegel will also join me with his views of what to expect in the new year.
And from Al Gore to Trent Lott, we'll bring you a bipartisan look at some of the year's biggest political plays and blunders.
Stay with us.
(COMMERCIAL BREAK)
PILGRIM: A general strike in Venezuela became violent today. Opponents of President Hugo Chavez clashed with government supporters in the streets of Caracas. Dozens of people were injured. Striking workers want Chavez to step down or call for early elections. The month long strike has paralyzed Venezuela's oil supply. Last week, crude oil prices hit a two year high. Today, prices fell for a second straight day in New York trading.
Violence marred the new year's eve celebration in the Philippines today. A bomb exploded on the southern island of Mindanao, killing at least six, injuring more than 30. No group claimed responsibility for the bombing, but authorities blamed the separatist group, the Moro Islamic Liberation Front.
President Bush today said he is still hopeful that the situation with Iraq can be resolved peacefully. The United States is expected to have about 100,000 troops in the region by early next year. That's in addition to the thousands of troops already stationed in countries like the Philippines and Kenya.
Joining me now to talk about the increasing strain on U.S. forces is former secretary of defense and MONEYLINE contributor William Cohen.
And thanks very much for joining us this evening.
WILLIAM COHEN, FORMER DEFENSE SECRETARY: A pleasure, Kitty.
PILGRIM: Let's start with Iraq. And, in fact, they are in material breach. We have about 100 inspectors on the ground in Iraq and yet to date no real evidence in hand. How do you see this progressing?
COHEN: Well, I think it's very difficult for the inspectors to actually discover or uncover hidden materials. The best chance for us to get access to that information will be through scientists who leave the country and then report where these materials are, in fact, hidden. So I think the process will continue to play itself out until the end of January and at that time, President Bush will have to make a decision as to whether or not Saddam has fully complied.
So far we've seen the reports that have been filed would be the equivalent, I would say, of spam being sent through the e-mails, that much of that material is simply designed to load up the networks and such, but not give any information.
So I think by the end of January, the president will be faced with a decision of three options. Number one, Saddam could finally fess up and say he has weapons of mass destruction and is going to get rid of them. I think that's highly unlikely. It's possible there could be an internal military coup. But I think the higher probability is that military action will be required to remove or disarm Saddam and his regime.
PILGRIM: All right. We should move on to Iran, because we have so many areas to cover in our sort of wrap up of the hot spots of the world. Iran, now evidence of what there appears to be some kind of nuclear program. Russia has agreed to give nuclear material to Iran. How dangerous is this, Iran, after all, being one of the three axis of evil countries?
COHEN: Well, Iran does possess the potential to be a very long- term threat to stability in the region. This is one of the reasons why President Bush did cite Iran as part of that axis of evil. There are also some very positive signs about changes taking place at the street level, so to speak, with young people who have been born since the reign of the Shah and since the anti-American stance taken by the government in Tehran.
So we have to watch it very carefully and the possible possession of nuclear weapons is high on our list of apprehensions. Iran has managed to keep a very low profile during this year. Next year, I think they'll try to continue to do the same, but the United States is going to, I think, intensify its scrutiny of Iran and its nuclear power program.
PILGRIM: All right, on to North Korea. An impact in many polls we find that the American public is much more concerned about North Korea than perhaps Iraq, in some of our polls.
Do you think it warrants that kind of worry? Is it a crisis? And what do you make of this very tough rhetoric that's coming out of North Korea at this point?
COHEN: Well, North Korea has in the past engaged and used very tough rhetoric. That is not surprising. I think that all of us should be concerned about the potential for North Korea to resume its nuclear weapons production program, which they had pledged to cease and desist from back in 1994. That could pose significant problems for the entire region.
I think it's somewhat disappointing that Russia has not been as strong as it can be and should be. China has been rather silent on this issue. And I think all of the countries in the region have a very vested interest in coming down hard on North Korea in terms of persuading it to discontinue its efforts.
South Korea, in terms of the sentiment that you revealed earlier in the program, a growing anti-American sentiment, we have to look at that very carefully and deal with the new government to see if we can't somehow mollify those sentiments and deal with the South Korean population that is becoming increasingly strident in terms of the U.S. presence and its political positions. I think that's going to be very difficult to deal with North Korea unless we have the strong support of the South Korean government and its population.
PILGRIM: I want to get quick comments, we are almost out of time, but there are intelligence reports that there have been 15 cargo freighters identified as linked to al Qaeda coming out. What do you make of that kind of report?
COHEN: Well, I think we're likely to see more and more efforts designed to attack the United States here at home. The administration has been quite successful in destroying the Taliban in Afghanistan and ripping up the al Qaeda network, but it's also clear that that network is spread far and wide and we should anticipate that every attempt is going to be made by those operatives to somehow bring that back to the United States in a very dramatic way.
So it does not surprise me. We have been on higher and higher alert. We will have to continue this kind of alert for a long, long time to come.
PILGRIM: Vigilance does seem to be the watchword for the year ahead.
Thanks very much for joining us, William Cohen of the Cohen Group.
And happy New Year.
COHEN: The same to you, Kitty.
PILGRIM: Well, does the little guy matter to Wall Street? Probably more than you think. We'll have a special report.
Plus, finance professor Jeremy Siegel of the Wharton School of Business will be along to tell us what 2003 may hold for investors.
Also, political malapropos and missteps, Bill Schneider reports on the biggest bloopers in 2002 for the world of politics.
It was a year of trials and triumphs for the nation's space program. We'll have a special report on the year in space.
That and more coming up on MONEYLINE.
Stay with us.
(COMMERCIAL BREAK)
PILGRIM: People in Sydney, Australia were among the first to ring in the new year. Fireworks lit up Sydney Harbor. On the bridge, thousands of people packed downtown streets. Sydney officials used a command center built for the 2000 Olympic Games to coordinate security. Just gorgeous.
That bring us to our MONEYLINE poll question. If you had to pick now, only one, what's your top new year's resolution? Pay off debt, spend more time with family, lose weight or watch less TV? Now, you can vote on our Web site, cnn.com/moneyline, and we will have the preliminary results later in the broadcast.
Here are the final results of our poll last night, and we asked whether compared to a year ago, you're financially better off, worse off or about the same? Sixteen percent of you said better off, 71 percent said worse and 13 percent said about the same.
Well, as we approach 2003, politicians are no doubt hard at work crafting their new year's resolutions and hopefully keeping in mind the lessons learned in 2002. Both Democrats and Republicans alike enjoyed some top plays and also suffered some embarrassing bloopers this year.
Senior political analyst Bill Schneider has the report.
(BEGIN VIDEOTAPE)
WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST (voice-over): The play of the year for Republicans goes to Karl Rove for masterminding the GOP victory strategy in the 2002 midterm election. Rove persuaded President Bush to do something presidents don't normally like to do, put his political capital at risk. The president campaigned tirelessly for Republican candidates, 15 states in five days. The election became a test of President Bush's clout. Bush campaigned in Colorado, Georgia, North Carolina, South Carolina, Minnesota, Missouri, Texas. All of those states could have gone Democratic and made the president look weak and ineffectual.
In the end, the 2002 election was a personal triumph for President Bush and a strategic triumph for Karl Rove, who understood the first rule of political capital -- if you've got it, use it.
The play of the year for Democrats goes to Al Gore for not running and sparing his party and his country a weary rematch.
AL GORE, FORMER VICE PRESIDENT: I felt that the focus of that race would inevitably have been more on the past than it should have been when all races ought to be focused on the future.
SCHNEIDER: Democrats greeted Gore's decision with relief. In a rematch between Bush and Gore, Democrats would have been forced to run on the message we told you so, not a winning message right now. Now the party can move forward and consider new faces and new ideas. You can say this for Al Gore, he knows how to leave the stage.
GORE: And tonight, for the sake of our unity as a people and the strength of our democracy, I offer my concession.
SCHNEIDER (on camera): But wait, we have bloopers to hand out, as well.
(voice-over): The Republican blooper of the year goes to guess who?
TRENT LOTT (R-MS), SENATE MINORITY LEADER: I want to say this about my state. When Strom Thurmond ran for president, we voted for him. We're proud of it. And if the rest of the country had have followed our lead, we wouldn't have had all these problems over all these years, either.
SCHNEIDER: With that, Senator Lott ended the Republican honeymoon and his career as majority leader. Republicans were instantly forced to demonstrate that they are not a party that traffics with racism, starting with the president.
BUSH: Recent comments by Senator Lott do not reflect the spirit of our country.
SCHNEIDER: The Democrats' blooper of the year? October 29, four days after Minnesota Senator Paul Wellstone died suddenly and tragically in a plane crash. In a breathtaking lapse of judgment and taste, Democrats turned a memorial service into a campaign rally.
SEN. TOM HARKIN (D), IOWA: For Paul Wellstone, will you stand up and keep fighting for social and economic justice? Say yes.
SCHNEIDER: Even Wellstone's son got into the act.
MARK WELLSTONE, SENATOR WELLSTONE'S SON: We will win! We will win! We will win!
SCHNEIDER: That memorial service abruptly ended the moratorium on campaigning in Minnesota and opened the way for President Bush to go there, where he first paid respectful tribute to Wellstone.
BUSH: Paul Wellstone was respected by all who worked with him and will be missed by all who knew him.
SCHNEIDER: And then campaigned for the Republican, calling him a healer.
BUSH: Somebody who's willing to work hard to bring people together for the common good. That's the Norm Coleman I know.
SCHNEIDER: The Wellstone memorial service turned rally ended up rallying Republicans while Democrats paid the price.
(on camera): 2003 is here and you know what that means, more plays, more bloopers, because politicians will always be the same, smart, smart and stupid.
Bill Schneider, CNN, Los Angeles.
(END VIDEOTAPE)
PILGRIM: Well, there were no fireworks this new year's eve on Wall Street. Stocks on Wall Street ended the year with a whimper rather than a bang. The major indexes ended mixed as the Dow finished its third down year in a row.
And Greg Clarkin has more on this disappointing year for investors -- Greg.
GREG CLARKIN, CNN CORRESPONDENT: And, Kitty, Wall Street really did go quietly on this last trading day of 2002. Really, the markets crawling to the finish line in a year that will be remembered for scandal and greed and, yes, a year also remembered as another down one for Wall Street.
Now, on the day the Dow gained nearly nine points, closing out the year at 8,341. The blue chips lost 16.8 percent for the year. The NASDAQ fell four points today. It plunged 31 1/2 percent for the year.
Now, this was the first three year losing streak for the Dow since the period of 1939 to 1941. The list of worst performing stocks in the S&P 500 is littered with many big names. Gateway lost 61 percent of its value. CNN parent company AOL Time Warner down 59 percent. Home Depot and Intel were the worst performing Dow stocks, down 53 and 50 percent respectively. And electronics retailer Best Buy fell 51 percent.
But now it wasn't all gloom and doom. There were some bright spots. Well, where were they? Well, as one Wall Street veteran put it, they were the drink 'em, smoke 'em and eat 'em stocks. Beer had a very good year. Coors up 15 percent. Anheuser-Busch up seven percent. Consumer goods giant Procter & Gamble up nine percent. And caffeine lost none of its zip. Starbucks gained seven percent and many investors chewed on Wrigley's stock. It rose seven percent, as well.
And while there are many optimistic that Wall Street's losing streak can be broken this year and the threat of war and geopolitical tensions abroad and the worry over unemployment and a sluggish economy at home has many of those investors saying that they are prepared to wait even longer before betting on the market.
So on the one hand you have some of the pros, Kitty, saying it's a good time. Investors, though, you know, there's a lot of uncertainty out there.
PILGRIM: It's interesting that some of those defensive stocks did well, which is to be expected.
Looking forward, let's forget what just happened. Looking forward, what are you hearing right now?
CLARKIN: You know, we talked to a lot of folks in the last couple of days who say, you know, right now they can see some good fundamental reasons to get into certain sectors or certain companies. But still, when investors pick up the newspaper or turn on the TV, they're just kind of overwhelmed to some extent with the uncertainty and nobody really wants to take the plunge right now.
PILGRIM: An understandable feeling.
Thanks very much, Greg Clarkin.
CLARKIN: Sure.
PILGRIM: Well, a soft economy, high-profile business scandals shook the foundation of investor confidence this year. But if Wall Street learned any lessons from the past year, it's that companies need small investors more than ever.
Bill Tucker reports.
(BEGIN VIDEOTAPE)
BILL TUCKER, CNN CORRESPONDENT (voice-over): Buy stock. Become an owner with a say in a company. That's the promise of stock ownership. And until this year you might have gotten the feeling that nobody really cared about the little guy. That's changed. In fact, these days small investors might be feeling downright important.
CHRIS BRUENN, PRESIDENT, NASAA: I think that they have so much more power than they've really realized, and I think that the Wall Street firms realize that without the small investor the market is just not going to be as prosperous as it will be as if all of us, all Americans are able to invest and prosper through that market.
TUCKER: The market, though, has been anything but prosperous over the last three years, with the Nasdaq falling 67 percent and the S&P Dropping 40 percent.
PATRICIA CHADWICK, MAVENGATE PARTNERS: The small investor matters tremendously because the small investor pooled together is the institutional marketplace. Mutual funds really consist of the small investor. 401(k) plans for individuals have relatively small amounts of money that are pooled together, become an important investment for Wall Street. So the small investor is very, very critical and pooled together the small investor is the institutional marketplace.
TUCKER: Fed up with shrinking portfolios, CEOs that lied, analysts they didn't trust and a system they lost faith in, investors shifted their focus. According to figures from AMG Data Services, stock funds had inflows this year of $15 billion. That's the lowest since they started keeping records in 1992. Bond funds, on the other hand, had record inflows of about $120 billion. Investors seem to have decided a lender, not an owner be.
VINCE FARREL, VICTORY CAPITAL MANAGEMENT: If the small investor doesn't trust the playing field, the small investor will not venture forth. So the small investor is absolutely necessary. They don't have to be there. We have to give them the inducement for coming there to play the game with us.
(END VIDEOTAPE)
TUCKER: The last time the S&P 500 was down three years in a row was 1939 through 1941. Wall Street now realizes how badly it needs investor trust and the Street has learned individuals do make a difference.
Bill Tucker, CNN Financial News, New York.
PILGRIM: And if the stock market posts a fourth straight yearly loss in 2003, it would be the first time that has happened since 1929 through 1932. Well, my guest tonight believes that sad piece of history will not be repeated next year.
Jeremy Siegel, professor of finance at the Wharton Business School, joins me from Philadelphia.
JEREMY SIEGEL, PROFESSOR OF FINANCE, WHARTON BUSINESS SCHOOL: And thanks for ringing out the year with us, Professor Siegel.
Thank you. Good evening, Kitty.
Let's take a look at the damage. We had some damage. -- we had some charts that showed the three-year decline, and they are compelling. The Dow down 30 percent. The Nasdaq down about 40 percent. S&P 500 down about 65 percent. Not a good -- actually, the Nasdaq down 65 percent. Not a good showing. Now, what convinces you that next year will be an improvement?
SIEGEL: Well, first of all, one has to contrast those three bad years with spectacular years that we had in the mid and late 1990s. And I think what we needed was to correct all the excesses that we had during those years. And I believe we have right now. My indicators are that we're at a reasonable valuation on the market. It's not dirt cheap, but you know, certainly reasonable by historical standards.
PILGRIM: Professor Siegel, aren't stocks, though, at twice their sort of normal long-run valuations? Can you straighten that out for us?
SIEGEL: Well, right now Wall Street is looking for operating earnings at around $50, $55 per share next year. The S&P Closed at $890. So that's about $17, $18. Now, the long-run historical is around 15. If you compare it to the last 12 months, yes, it looks bad, but coming out of a recession. But if you compare it to the projected 12 months, which I think is a much more important comparison, I think we're in the reasonable range.
PILGRIM: And that would presume that you're projecting growth for the year ahead.
SIEGEL: And I am predicting growth for the year ahead. Absolutely.
PILGRIM: And how much?
SIEGEL: I think that earnings are going to be up perhaps around 15 percent. I think GDP is going to show 3 percent to 4 percent growth. I'm more optimistic than many that are now thinking that we've slipped into a slump like the Japanese. I actually think that next year, 2003, is going to be a pretty good year for the economy.
PILGRIM: Well, now that you bring that up, you do hear the word "deflation" quite a bit, which is the decade-long problem of the Japanese. Do you think that we can avoid this trap?
SIEGEL: Absolutely. The Federal Reserve is so keyed into this deflationary problem, we've heard from Greenspan, we've heard from Ben Bernanki, newly appointed governor, they've gone on record saying deflation is worse than inflation, we are going to do all in our power to avoid it, they're going to increase the money supply, they're going to even lower rates more.
And Greenspan has even talked about what else they can do. We know their rates are getting towards zero. There are other measures the Central Bank can take. My look at what's happening with the dollar, with commodity prices, tells me that deflation is not going to be a problem in 2003.
PILGRIM: And is that because of oil potentially going up?
SIEGEL: Well, I think -- actually, I think oil's going to go down after the resolution with Iraq one way or another, whether we go in or not. But I'm looking at other commodity price, and I think the lower dollar is going to firm up those commodity prices, which I think actually in the short run is going to be positive for corporate profits. Because we know the pricing power has been one of the biggest stumbling blocks for firms over the past couple years and I think they're going to have a little easier time next year with that.
PILGRIM: We've certainly seen a bit of deflation in some sort of goods. Might we see it in services, or are we seeing it in services?
SIEGEL: Some -- clearly, some of the services are beginning to look more deflationary than before. But my feeling is that service prices, medical prices are going up even more rapidly. I think wages will continue to rise. So my feeling is that the service sector will still show a rise next year. I think goods are going to stabilize. They've been actually going down in price. I think we'll see stability there. So I think we'll see overall inflation 2 percent to 3 percent on the CPI, which will be really the first uptick for a couple of years that we've had.
PILGRIM: We've seen this incredible inflow into bonds. I guess according to the previous report, $120 billion. Might we see that reverse if there is some inflation?
SIEGEL: My feeling is that bonds, government bonds, long-term government bonds, are really at risk. It worries me because we saw the biggest inflow in the stock funds in March of 2000 at the peak. We're seeing how inflows now in the bond fund. You know, it's not just me, but you know, Bill Gross of Pimpco has also said he feels a shift in the whole -- sea change in the bond valuations. And I think it's going to be a much tougher environment next year for bonds.
PILGRIM: All right. Professor Siegel, we do hope that your optimism is justified. And thanks very much for joining us this evening.
Professor Jeremy Siegel of the Wharton Business School. Thanks a lot.
SIEGEL: Thank you. Happy New Year.
PILGRIM: Now our final update to update our Enron corporate America scoreboard for this year. Thirty-four people have been charged in corporate America since the Enron collapse. Four of them at Enron. Four at Tyco. And the only update to the scoreboard tonight is the number of days since Enron's bankruptcy, now 395.
Coming up on MONEYLINE, we'll look back at some business pioneers who are no longer with us. Also, the new year brings security measures at the nation's airports.
And the fallout from the United Airlines bankruptcy is spreading to some companies that might surprise you. Those stories, much more coming up on MONEYLINE as we look at live pictures here of New York's Times Square. We'll be right back.
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PILGRIM: Here's a quick reminder to vote in tonight MONEYLINE poll. Now the question: If you had to pick one, what's your top New Year's resolution? Pay off debt, spend more time with family, lose weight or watch less TV? You can vote on our Web site, cnn.com/moneyline. We will have the preliminary results later in the broadcast.
Well, the New Year will bring new rules from the Immigration and Naturalization Service for airlines. The INS will require airlines to submit highly-detailed passenger manifests for every plane entering or leaving the United States. Passenger data must be submitted before the plane departs and must include each passenger's complete name, date of birth, citizenship, passport number and issuing country as well as an address in the United States where they plan to stay.
The new year will also bring a deadline for new security measures at the nation's airports. As of midnight, all bags that are checked will be screened for explosives. Patty Davis is at Reagan National Airport in Washington with more.
(BEGIN VIDEOTAPE)
PATTY DAVIS, CNN CORRESPONDENT: The Transportation Security Administration says it will make that midnight deadline to screen all checked luggage at airports across it is country. That deadline put in place by Congress after the September 11 terror attacks.
UNIDENTIFIED MALE: On 9/11 only 5 percent of checked bags were screened for explosives. Tonight all bags will be checked. That's the difference. You can a 95 percent change over the year and couple of months. There is no comparison. That on top of all of the other layers of security that have been put in place over the last year makes it safer today to fly than its ever been.
DAVIS: The TSA will be screening about 2 million bags every day with these big bomb-detection machines with trace detectors also swabbing your bag for traces of explosives.
And some airports will be given more time to put the bomb detection machines in place. But they will still be required to screen 100 percent of bags that they can use bomb-sniffing dogs. They can also do a hand search to help get that job done. Some 56,000 federal passengers and federal bag screeners in place at airports across the country.
What not to do? Well, don't put film, undeveloped film in your checked luggage. The machines will damage and ruin it. Do not lock your bag. The Transportation Security Administration will have to break your lock if they need to get in to check out something they believe to be suspicious.
Do not pack fruitcake, it's dense. So is chocolate, so is cheese. These machines look for dense objects. Bomb are dense and that will alarm the machine. So don't pack those things. It will only slow you down.
Patty Davis, CNN at Reagan National Airport.
(END VIDEOTAPE)
PILGRIM: Another concern for travelers is the United Airlines bankruptcy and the business fallout from the filing is spreading well beyond the airline industry. A number of companies are warning that united is hurting their bottom line including Disney and Pitney Bowes. Fred Katayama reports.
(BEGIN VIDEOTAPE)
FRED KATAYAMA, CNNfn CORRESPONDENT (voice-over): It's no Mickey Mouse investment. An unusual mix of blue chip companies ranging from Disney to Philip Morris, dove into the aircraft leasing business a decade or so ago. But now the parents of United Airlines and U.S. Air have filed for bankruptcy and that's hurting their bottom lines.
Disney is taking a quarterly charge of $83 million for the four wide bodies leased to united. Postage meter maker Pitney Bowes is charging off $100 million and computer services firm, EDS is riding down $40 million.
GREG GIEBER, A.G. EDWARDS: They kept this business. It was not essential to their core. They should have disposed of it.
KATAYAMA: Companies got into aircraft leasing because it offers tax advantages and a steady stream of cash income. They can resell the jets after the 20-year leases expire, but 9/11 and the sharp downturn in the airline industry changed all that.
Jetliner prices have crashed as 1,700 unwanted planes sit idle in the desert. Rents for the popular 737 have fallen roughly 40 percent from upwards of $160,000 a month last year to $100,000 today.
MIKE MILLER, MILLER AIR GROUP: Disney and Pitney Bowes could be the tip of the iceberg. I expect there to be a few dozen more.
KATAYAMA: And jet values could plunge even more.
RICHARD ABOULAFIA, TEAL GROUP: One of the bigger problems they're going to face moving forward is airlines, sometimes bankrupt airlines, coming to them and asking for a renegotiation of lease rates. And that's going to change their long-term prognosis for a return to profitability.
KATAYAMA: Sources close to UAL say the airline wants its lease rates cut in half.
(on camera): Disney and EDS say they intend to remain in the leasing game, but as lenders lose their enthusiasm, analysts say the airlines who urge going an airbus to fork over more of the financing.
Fred Katayama, CNN Financial News, New York.
(END VIDEOTAPE)
PILGRIM: Coming up on MONEYLINE, 2002 was an interesting year for NASA. There were some notable successes, but there were plenty of failures. We'll share some of each.
And a futuristic train rises above the rails in China. We'll show you the world's first commercial levitating train.
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PILGRIM: In Shanghai today German and Chinese leaders ushered in what they hope will be a new era in railway technology. The world's first commercial magnetic levitation train successfully completed its maiden run. And aboard were China's premiere, Zhu Rongji and Germany's Chancellor Gerhard Schroeder. The German built Maglev train hovers above the track and is suspended by powerful opposing magnets. It can travel at speeds up to 260 miles an hour.
It was a year of achievements and setbacks for NASA and international space efforts. The Hubble Telescope gained improved eyesight while the shuttle program struggled into middle age. Miles O'Brien now with a light years' worth of extraterrestrial milestones.
(BEGIN VIDEOTAPE)
MILES O'BRIEN, CNN CORRESPONDENT (voice-over): There were no giant leaps for mankind in space this year. In fact, NASA struggled to make small steps, as its fleet of shuttles showed its age and was grounded for several months with cracks in the fuel lines.
RON DITTIMORE, SPACE SHUTTLE PROGRAM DIRECTOR: It's got hundreds of thousands of parts. Its systems are very complex and they have to work in just the right way. We do a good job of checking out the hardware in between flights, but even then, sometimes that hardware is not going to act the way you want it to.
O'BRIEN: Not everything went the way Lance Bass wanted. After his producers strung the public and the Russian space agency along for months saying they were going to make this teenage heartthrob the next space tourist, they finally admitted they just didn't have the cash.
But not everything was a bust for 2002. In a series of difficult space walks, NASA successfully upgraded the 12-year-old Hubble space telescope with a camera 10 times more powerful. Hubble began its career as a myopic laughing stock, only to come back to rewrite the textbooks and allow astronomers to peer deeper into space than they ever had before. ED WEILER, NASA SCIENCE ADMINISTRATOR: We knew we had redemption, from going from a national joke that the night-time TV hosts were using us, to we did it, we fixed it. And then the rest is history. We went from a national disgrace in some people's minds to a symbol of the great American comeback.
O'BRIEN: And in the fall, the shuttle fleet came back from its summer in repair, carrying over 25 tons of giant parts to the International Space Station circling the Earth 250 miles overhead. On the ground, NASA got a very down-to-Earth new boss, Sean O'Keefe.
SEAN O'KEEFE, NASA ADMINISTRATOR: What is embraced in the very mission objectives and charter and origins of NASA is that what we think is inherent in the American spirit to begin with. That capacity to explore, that willingness to take risks. That willingness to be entrepreneurial and start something where there had been no opportunity previously.
O'BRIEN: And while some don't want to give the $1 billion a year International Space Station that opportunity, the new administrator stands by the many scientific experiments astronauts conducted on board the station in 2002, while continuing his lofty goal of maintaining a human presence in space forever.
Miles O'Brien, CNN
(END VIDEOTAPE)
PILGRIM: "CROSSFIRE" begins in a few minutes, and for a preview let's go to Paul Begala and Tucker Carlson in Washington -- Paul.
PAUL BEGALA, CNN CO-HOST, "CROSSFIRE": It is New Year's Eve on "CROSSFIRE." Maybe many of my fellow Democrats might want to blot out the year 2002 with a little champagne tonight, but there are also some very embarrassing moments for the Republicans which we will revisit, from Trent Lott to the corporate scandals.
TUCKER CARLSON, CNN CO-HOST, "CROSSFIRE": And then, as Paul pointed out, Democrats have been drinking heavily ever since the midterm elections. They no longer control anything in Washington, even members of their own party. We'll gloat about that tonight, and we'll talk about the scandals, the highlights, lowlights, 2002, the year in politics. It's going to be a great show.
PILGRIM: Sounds good.
Tonight, as we say good-bye to 2002, we also wanted to look back at some business legends who passed away this year.
Peter Viles reports.
(BEGIN VIDEO CLIP)
PETER VILES, CNNfn CORRESPONDENT (voice-over): Freddie Heineken once said, "I don't sell beer, I sell warmth." Well, he sure sold a lot of warmth. He designed the famous green Heineken bottle and made his grandfather's brewery into a brand known around the world. Freddie Heineken was 78.
Dave Thomas was also a great salesman.
DAVE THOMAS, WENDY'S FOUNDER: I'm an old-fashioned guy, and that's the truth.
VILES: He started hundreds of commercials for the hamburger chain he named for his daughter Wendy, became a folk hero, built a business empire. Came across as cheerful and outgoing, but at heart Dave Thomas was shy and very determined. Adopted at six weeks old, he campaigned to make adoption easier and cheaper. In his 50s and on top of the world, he went back to school and earned his high school diploma. Dave Thomas was 69.
We lost Ruth Handler, who was a pioneer several times over, co- founder of the Mattel Toy company, creator of its greatest product, Barbie, was her idea, named after her daughter, Barbara. She later built another business designing prosthetic breasts for breast cancer survivors. Betty Ford was a customer.
William Rosenberg was a child of the Depression who appreciated the simple things in life: hot coffee and a fresh donut. He opened the first Dunkin' Donuts in 1950, sold franchises in 1955, and became known as the father of franchising. William Rosenberg was 86.
Stanley Marcus was known as the merchant prince of Dallas, made Neiman Marcus famous for service, style and fantasy, a place where you could buy a London taxi or an original Andy Warhol. To those who said his prices were too high he liked to say, "quality is remembered long after the price is forgotten." Stanley Marcus was 96.
(END VIDEOTAPE)
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PILGRIM: Here are the preliminary results of our MONEYLINE poll question tonight. And we asked, "If you had to pick one, what's your top New Year resolution? Pay off debt,to spend more time with family, lose weight, watch less TV?" Thirty-four percent said pay off debt; 13 percent said spend more time with family; 45 percent said lose weight; 8 percent said watch less TV.
Finally tonight, we've shown you a number of New Year celebrations around the world this evening, and we wanted to bring you the story of one party full of young Americans far from home.
Ryan Chilcote reports on servicemen and women in Kuwait and their unique way to bring in the new year.
(BEGIN VIDEOTAPE)
RYAN CHILCOTE, CNN CORRESPONDENT (voice-over): In the middle of the Kuwaiti desert, just miles away from the border with Iraq, it was time for the soldiers of the U.S. Army's 3rd Infantry to test their mettle at the New Year's talent show.
Specialist Dawn Pay (ph) covered Dru Hill's "Angel." it's dedicated to her friend Antonio (ph), who's serving in Korea.
Sergeant Shawn Kemmer (ph) brought the gospel. That was for his grandma.
Jotty Penchecko (ph) and Raul Perez (ph) showcased some Puerto Rican meringue. She's a specialist in chemical warfare, he's an expert in demolition.
Specialist Qante Eggleston (ph) won first prize: a $100 gift certificate to Camp New York's Exchange.
As always in the Army, the general got to order a tune.
But tonight was mostly a chance for the soldiers to command attention.
Ryan Chilcote, CNN, at Camp New York in the Kuwaiti desert.
(END VIDEOTAPE)
PILGRIM: That is MONEYLINE for this Tuesday evening. Join us tomorrow for a special encore presentation of "The Year in 2003," a co-production with "The Economist" magazine. Thanks for joining us.
For all of us here, happy New Year. Good night from New York. Now let's take a look at the live shot of Big Ben in London.
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