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CNN IN THE MONEY

Which U.S. Companies Could Profit in Post-War Iraq?; Are Gas Profiteers a Danger?; A Look at Investing in Israel

Aired March 2, 2003 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JACK CAFFERTY, HOST: Today on IN THE MONEY, from bullets to bulldozers. If America goes to war against Iraq, Washington's promising to rebuild afterwards. We'll tell you which U.S. companies could profit in post-war Iraq.
Plus, talk is cheap until you stop for gas. With the buzz about a possible war helping to drive prices ever higher, we'll look at whether profiteers are gouging you by the gallon.

Also ahead today, investing in Israel. And no, we're not kidding. We'll hear from someone who says ignore the headlines and get in while the getting is good.

Good afternoon. Welcome. I'm Jack Cafferty. This is IN THE MONEY.

War is not just hell; it's hell with a big price tag.

We started getting a sense of the numbers this week when the United States talked about preparations for a possible attack on Iraq.

Washington wants to use Turkey as a base. It's willing to pay a lot. Turkey says Washington's offering about $30 billion in compensation. By way of comparison, the federal government here spends about $54 billion per year on education. And the Securities and Exchange Commission, the watchdog over your stock investments, has a budget of $716 million for this fiscal year.

Also this week, the White House reportedly started tallying the cost of a possible war against Iraq and the rebuilding of the country afterwards. Fighting could devastate Iraq's infrastructure, wrecking everything from streets and buildings to bridges, oil fields, power plants and water supplies.

Based on Pentagon figures, the Bush Administration wants $95 billion, give or take a few. That will include combat, a year of reconstruction and anti-terrorism measures after the war.

But the final bill could be much different, depending on things like how much damage is done and how much financial help we get from other countries in that coalition of the willing.

"TIME" magazine this week says that Washington is already talking about companies that might be involved in the contracts, worth some $900 million, that would be let to rebuild Iraq following a war, assuming it comes to that.

And to talk about it, we're joined from Washington this afternoon by Adam Zagorin, who's a stock writer with "TIME" magazine.

Adam, nice to have you with us. It's a little tough to talk about these numbers, given the fact that no shots have been fired, but it occurs to me that we're headed into this thing at least now without the prospect, unlike during Desert Storm, of the allies paying the lion's share of the cost.

Uncle Sam's going to have to foot most of this on his own, right?

ADAM ZAGORIN, "TIME" MAGAZINE: Yes, I think that's right. Certainly with respect to the costs of the military operation.

On the other hand, I'd expect that once the war is over, if there is a war, that Iraq's neighbors, some of which are quite wealthy, Saudi Arabia, various countries in the Gulf, might well step up to the plate for reconstruction of food supplies, medical supplies, and that kind of thing, which will be costly and which will undoubtedly be needed.

And I think that even countries like Germany and -- which has been quite reluctant to endorse this military campaign that the United States is planning for, even Germany might very well chip in some money and other European countries that have been similarly reluctant.

The fact is that while the war is controversial, reconstructing Iraq will be much less so.

CAFFERTY: We're still, though, talking about staggering sums of money. President Bush is insisting on getting $600 billion in tax cuts through the Congress. We're already operating at something around the neighborhood of a $300 billion deficit.

The cost for the war, the reconstruction and the possible occupation of that country, for as long as it takes to install a democratic government, are variables that are only going to cost more as time goes on.

Is there anybody in the administration saying, wait a minute. This is getting just too expensive. Maybe we should rethink some of these priorities.

ZAGORIN: Well, I think they're certainly very well aware of the issue inside the administration. And they're aware of everything that you just mentioned.

The deputy secretary of defense, Paul Wolfowitz, appeared before Congress in the last couple of days and was asked by the Budget Committee which, of course, has to pull together the budget for next year and so forth, you know, what about the costs? And, citing all these variables and unknowables, he essentially declined to pin down any figures.

CAFFERTY: All right. Let me get our panel introduced on today's program.

As always, Andy Serwer is here, editor-at-large for "Fortune" magazine; and "Money" magazine senior editor Marion Asnes; and one of my favorite Irishmen, who makes it a "Fortune" editors-at-large trifecta, Shawn Tully.

Welcome to the three of you.

Expensive business the country is ready to undertake. What do you think?

ANDY SERWER, EDITOR-AT-LARGE, "FORTUNE:" Well, you know, it's interesting. Larry Lindsey got in a whole bunch of trouble a couple of months ago when he said that the war might cost $100 billion. Then we have reports just this week that, in fact, it might cost $95 billion. That's number one.

Number two, it's really interesting to me the dynamic. Some countries are paying, some countries we pay, other countries like Bulgaria, are willing to help but they're not going to give us anything.

So to me, the dynamics of the European allies and non-allies is just fascinating to watch.

SHAWN TULLY, "FORTUNE" MAGAZINE: We see here, Jack, remember when the Kuwaiti war was over, the estimates on rebuilding Kuwait were half a trillion dollars, $500 billion. The most outrageous numbers you ever heard of were getting thrown around.

It cost $4 billion to restore their oil fields. These numbers were exaggerated by, you know, 20, 30 times. These numbers are very, very hard to pin down.

You know, what seems to be reasonable is more like $40 billion for a war that goes on for a couple of months but, you know, the $100 billion number, when you ad in the money being paid to Turkey, which is in that $95 billion.

SERWER: Right.

TULLY: You're up there.

SERWER: Thirty billion dollar to Turkey.

MARION ASNES, SENIOR EDITOR, "MONEY:" One third of it goes...

SERWER: We should all be so lucky, right?

ASNES: I could use $30 billion. Anybody want to declare a war in Westchester?

CAFFERTY: They'll declare a war on you for a lot less.

ASNES: I know. I know my price and unfortunately, it's not $30 billion. CAFFERTY: Adam, the speculation that Saddam Hussein may, in fact, torch his own oil fields, much the way he set fire to the Kuwaiti oil fields, very much a concern on the part of the administration.

But I read some accounts saying that the American military seems fairly confident they might be able to prevent that. What do you hear about the potential costs if he lights up his own oil fields?

ZAGORIN: Well, it's going to go up.

There's a big difference between the Iraqi oil fields and the Kuwaiti fields. For one thing, Kuwait is a very small country, located essentially right around the edge of the Persian Gulf. A lot of the Iraqi oil fields are in the mountainous north where there's no water.

I was talking to oil field professionals who make their living putting out oil field fires about this recently and they were saying, well, before we get in there and douse the flames, we're going to have to drill wells at least in the north.

Now, in the south with the southern oil fields, there is water that can be siphoned out of the Gulf and used to extinguish these fires. But it's going to be expensive, and my guess is that despite the fact that U.S. special forces will attempt to, in all likelihood, take over the oil fields in the early hours of the war, that for one reason or another, there will be some damage.

ASNES: OK. Now, as you know, a lot of cynics have said that this whole campaign is a way for American companies to grab a foothold in Iraq, particularly in the war -- in the oil fields. Whether that's true or not, of course, is anyone's guess, but, in fact, several American companies could stand to benefit from a war in Iraq and from reconstruction.

Which ones in particular and which sectors of the economy do you think this would give a lift to?

ZAGORIN: Well, I think that initially what you'd see is the $900 million in USAID contracts that are being contemplated in the bidding process at the present time.

This involves what's called surface infrastructure, and so you're talking about bridges, roads, overpasses, possibly the reconstruction or refurbishment of ports and so forth.

And U.S. companies have a great deal of detailed information about actually the specs for many of these bridges, you know, how -- hat the spans are, and so forth and so on. Crossing the Tigris and Euphrates rivers. You need to have bridges going across there for commerce and civilian life to resume after a war, and some of these facilities may be targeted.

So in terms of companies, you're talking about some of the same cast of characters that were involved in and are involved in rebuilding Afghanistan. Bechtel, Flour Daniel. There's a company called Louis Berger Group (ph), Perini, Parsons. These are big infrastructure companies that have experience building, around the world, in the Middle East and in other difficult venues.

Another key difference with Afghanistan about rebuilding in Iraq is that Iraq has a lot of trained construction crews. Saddam Hussein builds a lot of palaces. And the people who put up those palaces, some of them are foreigners but there is a sizable civilian construction force in Iraq that can do this work. In Afghanistan, there wasn't.

CAFFERTY: All right. Adam, we've got to leave it there. I appreciate your perspective on what could be a monumental task, presuming that there is a war, and that we are called upon at the end of it to rebuild.

Adam Zagorin, correspondent for "TIME" magazine, thanks for being with us on IN THE MONEY. I appreciate it.

ZAGORIN: Thank you.

CAFFERTY: Coming up as we continue, nailed at the nozzle. With gas prices rising and war talk growing, we'll check allegations that price gougers are making you pay more at the pump.

Plus, trusting your head instead of the headlines. See what happens when you look beyond the turmoil surrounding Israel to spot a possible investment opportunity. Stay with us.

(COMMERCIAL BREAK)

CAFFERTY: Welcome back to our little program here, IN THE MONEY.

As a possible war with Iraq gets closer, the price of gasoline continues to climb. And that's raising concerns about price gouging, with average costs at the pump moving close to record levels now.

They're paying the most in the far western United States. Out there in Hawaii, gasoline tops the list: a gallon of premium unleaded, $2.12. Just a penny cheaper in San Francisco. Santa Cruz, California, third highest, $2.03 a gallon. As we move east, gasoline's $1.74 in Chicago. New Yorkers pay on an average $1.81.

Does this sound familiar? Well, it is but it isn't. Gas prices spiked in 1990 after Iraq invaded Kuwait, but they backed off again during the 1991 Iraq war, after the White House opened the spigot on America's strategic petroleum reserve.

This time, prices are edging up more slowly and not just because of the war talk. Don't forget, it's been a cold winter with a lot of snow. There was a strike in Venezuela, went on for 12 weeks. That country's still not back up to 100 percent production with their oil. So there are other forces here getting some of the blame.

If America does attack Iraq, it's not clear how that country's oil resources might be affected as we were speculating on in the last block. There's concerns Saddam Hussein might torch his own oil fields, creating more headaches if Iraq, in fact, needs rebuilding after the war.

So more now on the rising price of gasoline and oil and the allegations of price gouging. We're joined from Washington by Tyson Slocum, who's the research director for the Energy Program of Public Citizen, the consumer group funded by Ralph Nader.

It's nice to have you with us. Thanks for joining us.

TYSON SLOCUM, PUBLIC CITIZEN: Yes, my pleasure.

CAFFERTY: One of the debates, I know, going on in Washington these days is whether or not we should tap into the strategic petroleum reserve. Crude oil prices continuing to climb ahead of a possible show down with Iraq.

Crude oil prices in 1991 peaked, actually, in October of 1990, several months before the war actually started. By the time the war they were headed back down. That's not happening this time and some people are saying we could bring the price down by tapping that strategic petroleum reserve, but the oil companies don't want any part of that, do they?

SLOCUM: Well, tapping into the oil reserve really is secondary, because it doesn't address the core problem here.

There are two main issues that are contributing to the high gasoline prices.

One is increased industry consolidation. We've allowed so many mergers over the last couple of years that it's really reduced the amount of competition in our domestic markets.

And the second reason is, of course, rising crude oil prices, as you mentioned, contributed by the crisis in Venezuela and the yearlong talk of war in Iraq.

But the first reason here, industry consolidation, is something that's not mentioned enough.

SERWER: Let me interrupt -- This is Andy Serwer -- and ask you. I mean, look, the retail gasoline business is one of the most competitive businesses in the market. You go to any street corner here, gas station here, gas station there, different brand names, different distributors.

How can you tell me that there's not intense competition in this business?

SLOCUM: I don't have to tell you. The Federal Trade Commission can tell you. In 2001, the Federal Trade Commission conducted a study of why gas prices spiked so high in the summer of 2000.

What they found was that, due to industry consolidation, several large oil companies had the power to intentionally withhold gasoline supplies in the marketplace with the sole intention of driving prices up.

SERWER: But then why did the prices go down after that?

SLOCUM: Because you cannot sustain it. I mean, why have energy prices...

SERWER: Well, then, there you go.

SLOCUM: Look, the fact is that we have uncompetitive markets. When you allow the mergers of Exxon Mobile, Chevron, Texaco and Conoco-Phillips, it's driving independents out of business.

And the fact is that these large conglomerates are fully vertically integrated. Not only do they control production and drilling, they also own and control oil refineries and the retail market. In fact, the top five oil companies in the United States control over 40 percent of domestic production, over half of the oil refinery capacity and more than two thirds of the retail market. That is full vertical integration and it's reducing competition.

Consumers should have access to free markets and we don't right now. You know, individual consumers don't and neither do large corporations like manufacturing firms.

ASNES: Wait a second. Wait a second. Look, I drive a car. I know how high the gas prices are. In fact, that looks like my corner gas station with those horrifying prices over there.

But I have to ask you, this is not just a matter of supply; it's also a matter of demand. And people are not stopping to buy the gas.

So clearly, I mean, we live in a free market society and there is a question of what the market will bear. The market is bearing this. It's not -- you know, this is not necessarily completely some nefarious collusion by a bunch of oil magnets.

I mean, we are all filling up our cars. We still drive gas guzzling cars and we are filling them up every week and driving them around. So, I don't understand why it's just the corporations' fault, honestly.

SLOCUM: Well, I mean, you have to understand that oil and gas does not just impact individual drivers. I mean, there's only so much conservation that an individual can do.

ASNES: Oh, no.

SLOCUM: The fact is that high energy prices impact the entire economy. It significantly increases transportation costs and other costs for businesses in order to deliver goods to the market. That can negatively impact their earnings and also contribute to inflationary pressures.

There's no question the Federal Trade Commission has found that we do not have adequately competitive markets. Senator Ron Wyden from Oregon has uncovered hundreds of documents that clearly show collusion, where the large oil companies like Chevron Texaco, Exxon Mobile were -- conspired through the mid '90s using their market control to intentionally shut independent refiners out of business. These are facts.

ASNES: You know what, though? If these were facts, there'd be indictments already. I'm sorry. I want to believe you...

SLOCUM: But how many -- how many -- where's Ken Lay? I mean, is he behind bars yet?

CAFFERTY: Good point.

SLOCUM: I mean, the fact is that we do not go after the large companies because of their ties to politicians.

TULLY: But on the other hand...

SLOCUM: It is political. The oil and gas industry has given $43 million in campaign contributions to both parties, 80 percent of that to Republicans.

This is a political issue. And politicians and the lawmakers who receive their budgets from the politicians aren't going to touch it.

That's why the leadership on this is coming from the state level. State attorney generals are the ones filing investigations of this issue. You're not seeing any leadership from the federal government.

TULLY: But these kind of arguments are always used to preserve small companies that have high costs that just don't want the competition from bigger companies that are really reducing their costs by merging. It is big economies of scale here that help consumers.

Now, all these arguments are always being used to preserve the small competitors that actually drive prices up.

SERWER: And everybody knows the price of gas, adjusted for inflation over time, is still very low. We pay less money for gas than Europeans do.

I mean, come on, Tyson. You know, 40 percent market share for the big guys, I just don't buy it.

ASNES: And I would like to see what action is made on individual conservation. In fact, you know, we are all driving very high, you know, very high gas burning cars. We keep our homes too hot. We ship too much by truck.

I mean, yes, this is going to push up prices. It's going to create what's called a demand -- rather a cost push inflation, where the increasing price of transportation is going to push up the price of goods and services throughout the economy. That's a big danger.

But why -- why is not there more discussion about cutting back on fuel use?

SLOCUM: I completely agree that we need to reduce demand. I mean, the United States is the third largest oil producing nation in the world. The problem is not that we don't produce enough, it's that we use too much.

But we haven't seen any leadership from the Bush Administration or from Congress. In fact, Congress and the Bush Administration have flatly rejected increasing fuel economy standards. The -- Vice President Cheney ridiculed conservation as a national energy policy. So we do see a problem here.

And on the point that gasoline is at the same level that it was 20 years ago, well, the fact is the costs of providing gasoline to the market, when adjusted for inflation, have dropped radically.

CAFFERTY: All right, Tyson, appreciate you joining us today and sharing your views on this subject. Tyson Slocum, Public Citizen research director of the Energy Program, which is associate with Ralph Nader. Thanks for being the guest on the broadcast.

SLOCUM: Thank you.

CAFFERTY: Still ahead on IN THE MONEY as we continue: with gas prices up and the prospect of war looming, find out whether Exxon Mobile is a smart place to invest.

Plus, making money or buying trouble? Investors are backing out of Israeli companies and that might be your cue to move in. We'll take a look at that idea, as well. Stick around.

(COMMERCIAL BREAK)

CAFFERTY: Keeping with our oil theme for the day, the stock of the week is Exxon Mobile.

The world's biggest oil company got some unwanted publicity last week when two people died after its oil storage depot on Staten Island exploded. Smoke from the resulting fire ended up covering a large portion of New York City and New Jersey and for a few moments, raised fears of another terrorist attack.

Some believe that Exxon Mobile could be first in line to get at Iraq's huge crude oil reserve if the United States, in fact, goes to war and defeats Iraq. This comes as competitor British Petroleum has just concluded a $6 billion plus deal with Russia to refine a lot of that country's huge oil resources.

So the question is, should investors buy some shares in Exxon Mobile now? The stock peaked in the year 2000 at about $47 a share, and Andy, I think it's around $34, $35 now.

SERWER: Yes.

CAFFERTY: Although the oil company's stocks are finally beginning to move up now that crude oil has gotten close to about $40 a barrel in the last few days.

SERWER: Yes. But see, with this stock -- listen, is it a good time to buy Exxon Mobile? My take is it's always a good time to buy Exxon Mobile.

This is one of those rock solid companies that reflects the economy overall. It' got a 2.5 percent dividend yield. Over time, you look at the stock, it's just been a great thing to own.

You know, I mean, it really reflects the oil industry overall. And last time I looked, the world's economy was oil based. This is it, you know, you can get caught up in these short-term dips in Iraq and this and that but over time, this is just a terrific, terrific company to own.

One thing that scares me is Lee Raymond, the CEO, is probably the least politically correct person on the planet. I mean, this guy doesn't care about global warming. He doesn't care about doing the right -- you know, so he's kind of out there, but he's not going to be CEO forever. So I think it's a great company; I love it.

CAFFERTY: They are visionary in terms of looking at countries like India and China as huge potential markets as those companies begin to develop their economies.

One of the -- One of the real cynical reasons that the United States has taken such an interest in Iraq is that somebody said they'd like to get to those oil fields before the Chinese wind up over there in ten or 15 years.

Exxon Mobile, though, is probably as globally developed and far reaching as any of the multinationals. Yes?

SERWER: Yes. I mean, they're huge. Chevron, Texaco, you guys know it, right?

SULLY: There's going to be tremendous competition from the French, though. You know, Totalelf (ph) is going to want to be in there. We're talking $15, $20 billion a year in oil revenues once Iraq gets back online.

So, the, you know, the advantages of being in that market are enormous.

CAFFERTY: What about the argument that our previous guest was making that these multi-national oil companies are too big, they're not regulated enough, they're stifling competition, and they're able to keep prices artificially inflated?

ASNES: You know, you have a global economy where you have competition from state subsidized corporations all over the world. You have enormous development costs in this industry. You have enormous distribution costs. I think you have to be big to compete.

SERWER: Listen. I mean, I'm glad there are people like Ralph Nader and Nader-ites out their doing their watchdog thing, but there's an alternative to what he's suggesting, which is, you know, North Korea or Cuba.

You know, I mean, come on. This is a free market economy. These companies are going to try to make as much money they can within the parameters of law. You know, they have to watch, sometimes these guys violate that, you know. But otherwise, you know, look.

CAFFERTY: The business of America.

SERWER: They're playing square. They're playing square.

CAFFERTY: It's business.

SERWER: Right.

TULLY: And the great thing about this business is, the whole thing is self correcting.

CAFFERTY: Sure.

TULLY: When the oil prices go up, all of a sudden you can drill in west Texas and oil that's profitable at $20 a barrel becomes extremely profitable again. So the supply flows onto the market, and the price goes back down.

SERWER: Right. And people drive smaller cars, we all wind up...

CAFFERTY: Fifty -- 50 mile to the gallon little automobiles and everything, like you say. It cycles back.

All right. Well, we've solved all those problems.

Still ahead on IN THE MONEY as we continue, hard news, tough choices. Some investors are getting spooked by Israel's political situation. And I guess why wouldn't they? Well, we're going to try to find out whether they're wising up or missing out on an opportunity.

Plus, that other guy named Jack who keeps turning up on your TV set. That one. We'll tell you the latest allegations against former Salomon Smith Barney star Jack Grubman.

Stick around.

(COMMERCIAL BREAK)

CAFFERTY: If you've watched the news at all over the next two years, Israel might seem like the last place you'd want to invest your money.

First off, there's been an unprecedented wave of suicide bombings in the country. Add to that the continuing street battles between Palestinian militants and Israeli troops.

And then stir in the bursting of the tech bubble that slammed Israel's high tech industry and the potential of that war between the United States and Iraq, and you have a recipe for investment disasters.

Or do you? Not necessarily the case. Our next guest says that now may, in fact, be the perfect time to invest in Israeli stocks and companies.

Joining us to talk about it, Herb Greenberg, senior columnist for TheStreet.com and monthly contributor to "Fortune" magazine, as well.

Herb, good to have you with us. I don't know. You've got to sell me. It seems like the last place I'd want to put my money. Why should I think about investing in Israeli companies right now?

HERB GREENBERG, "FORTUNE" MAGAZINE: I have to tell you something, Jack, the guy that told me about this, a guy named Richard Mashele (ph), who runs Sunvest Capital (ph) up in Toronto had to sell me, too.

We were having breakfast back in October. And he started telling me about this. And forget the other issues that people talk about. I was concerned because I tend to go after companies that are going to blow up, not companies that are going to go up.

So I was really nervous, not because of the bombings, not because of the war, not because of anything but because I also know that there have been a number of Israeli companies that have sort of had issues, we might say, and accounting related issues, and I started to think, wait a second. A bunch of companies here that are scamming and that are scheming. So I started listening to him.

And he made a very good point that sort of grabbed my attention. That was, when you get through it, you know, you're talking about 93 companies that trade on U.S. exchanges, 93 Israeli companies.

But when you get down to it, you start, you know, sifting through the rubble and you find they're companies that trade at dirt cheap prices, that are trading at a discount to the cash on their books, that are actually making money or on the road to making money, and are probably good opportunities.

CAFFERTY: You know, the tech sector globally, though, is going absolutely nowhere in a huge hurry.

We see high-tech companies in this country whose stock prices have come down 90 percent, some of them even more, and haven't moved from that fall-off three years ago.

Why should a technology company in Israel be any different than a technology company in the Silicon Valley?

GREENBERG: Well, if it's trading at -- like this one company, Audio Codes, which is trading at discount to cash, 22 percent discount to cash.

And the owners -- what I liked about this story was that the owners, the guy -- the two guys who control the stock, they could liquidate this company today and each one can walk away with $12 million. They could do that. They're not because they see value.

So look, you have to take a stand. And you ask yourself, are these value traps or at this point, are they value stocks?

Even in the U.S., there are companies, there tech companies that are going to have value but you don't buy them for trade, Jack. You talk to Richard Mashel (ph) and he says he's sitting on these things for three-plus years, because he thinks it's going to be that long before the dust settles.

CAFFERTY: OK.

ASNES: Herb, what about some companies that aren't in computer and information technology? What about biotech and the pharmaceuticals?

I mean, you have companies like Teva Pharmaceuticals, which makes a lot of generics and sells a lot of generic drugs here.

And they're also taking a hit because of the Israeli situation, yet their primary markets are here.

GREENBERG: Of course, they're also taking a hit because of, you know, the pharmaceutical -- you know, the impact on the pharmaceutical industry or in the case of any biotech stock, the biotech industry.

You have to also ask yourself, I think, what's going to happen to biotech stocks? I mean, I just bought a biotech mutual fund, because I think, you know, over the next 10 years, it's going to do well. And I'll make my money back in spades at some point; I'll be able to sell the thing.

So I think you have to look at it in the aggregate. And if you really think there's value to the company, again, you know, a war or the events in Israel, if the companies don't get blown up and the people who run those companies, you know, continue to be around, running those companies, you know, they're going to -- they have a business.

ASNES: That's not exactly how I -- I mean, I certainly would love to see Israel come out of this completely unscathed, but when I look at companies that I want to invest in, I don't say to myself, oh, well, this stock will be a great deal if the company doesn't blow up. Come on.

GREENBERG: Some of these companies -- Some of these companies are actually domiciled in the United States. But many of their people, the key people, the key research people, live and work in Israel. The executives live and work in Israel but they're domiciled here.

TULLY: But how can any American investor go around to small Israeli companies and rally do a good job trying to think that their ability to handicap how well these companies are going to do is any better than the market in general?

GREENBERG: Absolutely. Good...

TULLY: It's very difficult to do that. But we see people thinking they can outguess the market all the time. These are small companies, there's a limited amount of information. You can't do as much research as you really need to.

This is a very speculative, high-risk place to invest. It's the kind of place where you want to be very broadly diversified and you want to have it as a very small percentage of your portfolio. You don't want to start putting a big part of your net worth...

GREENBERG: Of course.

TULLY: ... in any market that's volatile.

GREENBERG: Couldn't disagree with you -- couldn't agree with you more, actually. I couldn't agree with you more, and I think in this case, even the guy who was talking about this, he -- you know, talked about a package, a portfolio of, say, 12 stocks, you know.

But the problem, of course, if you look around, there are no -- really no Israeli stock mutual funds. One closed last year and there's one closed end fund called the First Israel Fund. But what you can do is if you look at the companies I talked about in the story, which was in "Fortune," Audio Codes or DSP Group, and you go to, say, Yahoo! Finance, you can look down and you can see which funds, you know, you could do a search and you could find out which mutual funds actually hold some of these stocks. That's one way to get close to them.

But I agree. I would -- You'd never put your life savings in any of things. Again, it's like biotech. When I put biotech, I put it in the riskiest part of my IRA, and it's sitting there as a high-risk investment, specifically as a high-risk investment.

CAFFERTY: All right. Herb, we hope you make a lot of money with it. Thank you for being with us and giving us ideas on another investment alternative. Herb Greenberg, senior columnist for TheStreet.com, also a columnist of "Fortune" magazine.

GREENBERG: Thank you.

CAFFERTY: As we continue on IN THE MONEY, slamming the suits, one of our favorites here. We'll tell you why the feds are coming down hard on some former top executives from Qwest Communications.

And we'll take your kudos and your complaints as we check on the e-mail bag. Tell us what's on your mind at InTheMoney@CNN.com.

UNIDENTIFIED MALE: There you go. That's pretty.

CAFFERTY: It's a different shirt but they probably wouldn't notice that.

(COMMERCIAL BREAK) CAFFERTY: Time once again to update you on the latest corporate crimes, wrongdoings and assorted shenanigans, in the "Scandal Watch" segment.

Federal prosecutors are charging eight ex-managers at Qwest Communications with accounting fraud. These are the first charges in connection with Qwest's bogus accounting in 2000 and 2001. Possibility of more to come.

There are more accusations against former Salomon Smith Barney analyst Jack Grubman. Grubman wrote the script for then WorldCom CEO Bernie Evers, seen here, when Evers defended his company in front of Wall Street analysts last year.

But Grubman was supposed to be an impartial judge of the company for Salomon's clients, and Grubman kept a buy rating on WorldCom stock until just before a massive accounting scandal forced the company into bankruptcy.

And, he's accused of keeping that rating in return for special favors, which includes getting his twin daughters into an exclusive nursery school in Manhattan.

A major accounting scandal in Holland has its roots in the United States. The top two executives at Royal Ahold resigned this week after the company admitted it overstated earnings from its U.S. supermarket chains by half a billion dollars.

Ahold owns the Giant, Stop and Shop and Bi-Lo chains.

So where do you want to start: you want to do Grubman? You want to do Ahold? You want to...

SERWER: I want to talk. First of all, I've got -- The American pronouncement of that Dutch company...

CAFFERTY: Oh, now don't. No, it's not.

SERWER: In Holland it's Ahold. But that's fine.

Anyway, that's a huge scandal. And you know, we're just sort of getting burned out. I mean, that was a $500 million scandal.

Maybe Grubman is more interesting. I don't know.

TULLY: Grubman has brought analysis to the level of ventriloquism now. It's like he's working Bernie with strings, right? This is a -- It gets curiouser and curiouser.

CAFFERTY: Is he going to jail?

TULLY: I think the odds makers would have to say yes.

CAFFERTY: The Qwest story is interesting because the people indicted, as I understand it, are middle level management people.

SERWER: Right.

ASNES: Yes.

CAFFERTY: Apparently, the idea the prosecutors have is to take these guys in and say, you're facing some hard time unless, of course, you'd like to tell us what you know about, maybe, the people above you doing things that are naughty.

ASNES: It's the drug pusher strategy.

CAFFERTY: Yes.

ASNES: Yes, but it hasn't gotten far enough with Enron.

SERWER: Hasn't gotten far with any of them so far. I mean, they keep getting little fish and they keep hoping to flip them and get the big fish. But it hasn't happened.

The top guys at Qwest are just out there scot-free. And you know, again, it's so hard to nail these white collar criminals, because they get the best legal talent. It's always very gray.

I mean, accounting is a gray area. It's not like murder or robbery.

CAFFERTY: Sure. Right.

SERWER: Robbery, you walk into a 7/11, you take the gun...

CAFFERTY: Take the money.

SERWER: You've committed a crime. Accounting, well, you violated some guidelines.

CAFFERTY: Sure.

SERWER: I mean, violating some guidelines is a very difficult thing.

CAFFERTY: And the law firms that are charged with protecting these guys have to love the fact that the front pages are completely preoccupied with the war on Iraq, the economy, the politics, all of the stories that are taking away from what was front page news back a year or so ago when these things started to happen.

ASNES: That's right. And taking the government's priorities away, as well.

Also, you know, don't forget that this is a country where you're innocent until you're proven guilty and proving someone guilty -- well, theoretically, theoretically, legally -- and proving someone guilty of a white collar crime is an extraordinarily difficult undertaking.

That's what these guys are saying. You think I'm so bad? Prove it. CAFFERTY: How can you look at a WorldCom or an Enron and say, wait a minute, there were no crimes committed here? I mean, it's not that gray an area.

SERWER: There were crimes committed.

CAFFERTY: Of course.

SERWER: I mean, these people were exercising their stock and they were getting rich -- The whole thing was enriching themselves.

Sometimes we take our eye off that ball, Jack, but basically what was going on here was these people were trying -- they're inflating profits to make the stock go up so they could exercise their options and make more money. That's exactly what's happened.

Now proving that whole train, though, is...

CAFFERTY: Now if we can sit here and figure out what's going on. Why can't the prosecutors?

ASNES: They have to prove it.

TULLY: They have to prove intent, too, which is very difficult.

SERWER: They've got intent, Shawn. I mean, if it's a, b and c, don't you think it tells you?

TULLY: Well, I think that it's clearly what...

CAFFERTY: Motive.

TULLY: The motive was what you just described. The question is, can you make that -- all of those links and put them all in place and get that chain all nailed down in order to prove, you know, each step along the way, which is very, very difficult.

SERWER: Those law firms are also happy, Jack, because they're making tons of money.

CAFFERTY: That's true.

SERWER: You didn't mention that.

CAFFERTY: Lawyers make the world go around.

ASNES: Drowning the government in a blizzard of paper.

CAFFERTY: A reminder as we go to break here, send us your thoughts, critiques or stories you'd like to see on the program. The address is InTheMoney@CNN.com.

(COMMERCIAL BREAK)

CAFFERTY: We received a lot of e-mails after last week's program. Most of them were critical of France's opposition to the possible war against Iraq.

But a good many of you supported the French position.

Donald from Miami wrote us, "It was refreshing to hear the anti- war side of the argument from the French journalist you had on as a guest. Remember that France would be, in essence, on the front lines in this war."

Oh yes?

One of our viewers in Hawaii writes, "As soon as something happens over there, the French will be running to the U.S. for help, just like everyone else. Some things never change."

A lot of you wrote in about advice about how to beat the high cost of a college education.

A high school counselor from California said, "A student can enroll in a community college and later transfer to a four-year campus. Attending a community college will save the family a substantial amount of money, and the student gains a lot of maturity."

And corporate crime was on a lot of your minds, as well.

Ed from Atlanta wrote this, "Let's get two birds with one stone... Take all these criminal CEO's and give them to companies headquartered in France."

You can make us smarter or just make us laugh with an e-mail of your own. The address is InTheMoney -- all one word -- @CNN.com.

I actually enjoyed the conversation with the French journalist.

SERWER: That was good.

CAFFERTY: Interesting perspective. I didn't agree with him, but it was interesting dialogue.

SERWER: Vive la France, I guess.

CAFFERTY: A little bit.

SERWER: Again, the food's great.

CAFFERTY: I've one more story here that might interest the three of you.

Next time you go to the 7-eleven to pick up the latest edition of "Elle" magazine or "Car and Driver," you might want to know that this guy, Saddam Hussein, has a financial interest in the parent company of those publications.

Mr. Hussein owns roughly $90 million, or a 2 percent stake, in what else? The French conglomerate, Lagardere, which will be happy to know those outstanding shares have been frozen since 1991.

I had no idea.

SERWER: I wonder what his favorite magazine -- do you think it's "Car and Driver"? Do you think he reads "Car and Driver?"

ASNES: Well, now that he's become a fundamentalist, how can he sanction being a part owner of "Elle" magazine, with all those beautiful babes?

SERWER: He reads it in secret.

ASNES: Oh, no, no. Don't tell me!

TULLY: The best thing is that Lagardere's hero is none other than John Wayne.

CAFFERTY: Is that right?

TULLY: Yes.

CAFFERTY: How did that connection come about?

TULLY: Well, he's a big handsome guy who looks a little bit like John Wayne, has taken on that...

CAFFERTY: As opposed to Saddam Hussein, who's a big ugly guy.

SERWER: Listen, that company also owns the defense business in France. So you know, Saddam's sitting there and a Mirage jet comes in, bombs him, "I own a piece of that plane." I mean, it's a very twisted relationship, wouldn't you think?

CAFFERTY: Interesting. I mean, one could begin to connect the dots on some of that stuff, couldn't they?

SERWER: Well, it's French, it's Iraq, "Elle" magazine. I can see a whole conspiracy, can't you?

CAFFERTY: Well, the clock has run out just in time, perhaps, to salvage all our careers.

It's time to drop the curtain on this edition of IN THE MONEY.

We invite you to join us next weekend. We'll take a closer look at someone who's really in the money, Saddam Hussein. We'll have more about his financial holdings.

Turns out he has a sizable investment in the media sector, as well. We'll talk about Saddam's other investments and his spending habits on IN THE MONEY next weekend.

My thanks, as always, to the panel: Andy Serwer, Shawn Tully, "Fortune" magazine; Marion Asnes from "Money" magazine. I'm Jack Cafferty.

Thanks for watching. See you tomorrow morning, 7 a.m. Eastern on "AMERICAN MORNING WITH PAULA ZAHN." Thanks. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com



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