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U.N. Bombing Attack Raises New Fears About Iraq's Future; Impact of Rising Gasoline Prices on Consumers Around Country; Ten Most Profitable College Degrees; Blackout Delivered Power Surge to Fuel Cells Stocks
Aired August 23, 2003 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.
SUSAN LISOVICZ, CNN HOST: Welcome to IN THE MONEY. I'm Susan Lisovicz. Jack Cafferty is on vacation.
Coming up on IN THE MONEY, double trouble. Rebuilding Iraq is hard enough. Now, bombers are making a tough job even tougher. We'll look at whether Baghdad is turning into a target for terror.
Plus, liquid assets. The war in Iraq was supposed to mean cheaper gas, but sabotage there is just one factor boosting prices here. Find out if there's any hope for a break at the pump.
And a B.A. without the B.S. See which college majors pay off in the real world. We'll tell you about the 10 most profitable degrees a student can get. And guess what? Journalism ain't in there.
Joining me for our show today, of course some journalism graduates, CNN correspondent Christine Romans and Andy Serwer, "Fortune" magazine editor-at-large.
And journalism may not be paying off, but investors are certainly seeing some returns. We've had a great run in August.
CHRISTINE ROMANS, CNN FINANCIAL NEWS CORRESPONDENT: Absolutely.
LISOVICZ: Typically not a good month for the markets.
ANDY SERWER, "FORTUNE" MAGAZINE: Right.
ROMANS: The Nasdaq closing at a 16-month high and the Dow at a 14-month high. It's been pretty good, and all summer people have been telling me, oh, this -- you know, there's going to be a correction.
SERWER: Right.
ROMANS: The market has got to come down. History shows that August is really a tough time of the year, but the market keeps plugging along. The question is: Can it continue to plug along into the fall?
SERWER: Right.
ROMANS: We've already had a lot of good economic news. The stock market has already anticipated that. Now what happens?
SERWER: Right, right.
LISOVICZ: Yes.
(CROSSTALK)
ROMANS: More proof.
SERWER: The economy has got to come through. We're maybe seeing some signs, though, Christine, because July, there were a few little tics and tocks. And just on Friday, Intel raised its estimates for the month...
ROMANS: Sure.
SERWER: ... saying they were going to make $300 million more in revenue for the quarter. I mean, that's a lot of money. And Craig Barrett of Intel is usually a very conservative guy, so investors really taking heart with that. But you're right. The economy really has to come through. Now, it's the economy's turn.
ROMANS: Right.
SERWER: It's been the market already.
LISOVICZ: And then, broad base rallied, by the way, too. Russell 2000, which measures small-cap stocks, is also on a two-week run.
SERWER: Although, I'll tell you something. It's really showing those Nasdaq stocks so much more volatile, they go down further and now they're coming back higher.
LISOVICZ: Oh, yes.
ROMANS: But the industrials have been very, very good. Tech is sexy, but industrials have been doing, very, very well.
SERWER: I like that.
LISOVICZ: We have reported on it all, but now we go to something that has been distressing the markets, managed to shrug it off, and that is Iraq. Nobody said that rebuilding Iraq was going to be easy. Then, again, nobody said it was going to be this hard or this bloody.
The bombing attack this week on the U.N. headquarters in Baghdad raised the stakes and raised new fears about Iraq's future.
For the latest now, we are joined from Baghdad by Ben Wedeman.
Hello -- Ben.
BEN WEDEMAN, CNN CAIRO BUREAU CHIEF: Yes, Susan, it has been a hard and bloody week here in Iraq. Of course, on Tuesday we had the car bombing -- or, rather, the truck bombing of the U.N. headquarters here. That left more than 20 people dead and really shook the American adventure or experiment in nation-building in Iraq to its foundations.
However, you did have some other news as well, and that was the capture of two key figures from Saddam Hussein's old regime. The first on Tuesday, also the day of that U.N. bombing, was Taha Yassin Ramadan, who was the vice president of Iraq, a very key figure. And on Thursday was the capture of Ali Hassan al-Majid, otherwise known as "Chemical Ali."
But it really was, Susan, that attack on the U.N. headquarters that really shook the atmosphere here in Baghdad more than any other event since April 10, when U.S. forces came into Baghdad.
ROMANS: Ben, it's Christine Romans here. I want to ask you: what is the view on the streets of Baghdad about the U.S. and the U.N. at this point? Is there, I guess, happiness at what has happened here? Or, are the Iraqi people a little fed up and concerned about what's happening in terms of security and the bombing at the U.N.?
WEDEMAN: Well, I think a lot of people really were shaken by the bombing of the U.N. The United Nations, of course, is seen as an international body that represents the will of the international community. The United Nations really tried to make a point to distinguish itself from the U.S. presence here, and therefore when this explosion went off, it really did shake people like nothing else before.
The United States is seen, obviously, by many people here as an outside power, an occupying power, and there's still a good deal of resistance and resentment to it. But really, the United Nations has a special -- is the focus of a different kind of feeling here, and people really were disturbed.
So, this was the first kind of attack on an international body of its kind, and it did shake the atmosphere in a way that nothing else has.
ROMANS: Ben Wedeman in Baghdad -- thank you, Ben.
Turning Iraq around might take more military muscle, more money, or all of the above.
For more about that, we're joined from Washington by James Dobbins. He's the director of the Rand Corporation's International Security and Policy Defense Center. He's also a former special envoy to Afghanistan.
Welcome to the program.
JAMES DOBBINS, RAND: Thank you.
ROMANS: Do we need more U.S. troops in Iraq after the events of this week?
DOBBINS: Well, I think an analysis of previous operations of this sort would suggest we need more troops of some sort.
SERWER: Mr. Dobbins, let me ask you a question. You know, you're saying we need more troops. I would like to suggest that we could maybe pull out of Iraq completely. What do you think about that? Why can't we turn over the whole business to the United Nations? That way, no one gets killed, no more U.S. soldiers get killed, and we also do a tremendous amount in terms of generating goodwill towards the United States. It sounds like a radical idea. And I want to also ask you, though, if you had a son and daughter, would you send them to Iraq?
DOBBINS: Well, I don't think turning it over to the United Nations and pulling out is really an option. The United States is the largest, most powerful and most important member of the United Nations. I think involving the United Nations, but more importantly our principal allies around the world in this operation much more comprehensively is an option and perhaps our best option.
SERWER: What about sending your children to Iraq as soldiers?
DOBBINS: Well, I do have children. I certainly think this is a mission worth making sacrifices for, and if my sons were in the armed forces, I certainly would expect them to go to Iraq.
LISOVICZ: And, of course, you've been in some hot spots yourself, Mr. Dobbins, a top troubleshooter in Kosovo, Bosnia, Haiti and Somalia. So, you've seen some rough spots. The research I have shows that there are 139,000 American troops in Iraq with an additional 22,000 troops from other countries, half of that England. What do you think is a sufficient number to get Iraq back on solid footing?
DOBBINS: Well, I think that if one wanted to achieve the level of security that we were able to achieve in Bosnia, and then in Kosovo in the late '90s, it might require between 300,000 and 500,000 troops.
ROMANS: Wow, 300,000 and 500,000! But the American public doesn't seem, at this point, to be too hot on the idea of sending more over there. And, do we have a supply -- I mean, can we even do it if we needed to?
DOBBINS: Well, the answer is no, given the current structure of our armed forces. I think that to do this job properly is likely to require a greater effort, both in terms of manpower but also of money and of time than most of us had initially anticipated. I do think that the administration will probably have to cross one of two thresholds: Either an increase in the overall size of the U.S. armed forces, which I imagine could be controversial, or a substantial broadening of participation in the coalition in order to attract in other competent countries that are capable of mounting large-scale expeditionary operations, and who have large aid budgets.
SERWER: I want to follow up on that point. I mean, isn't it imperative, in fact, that we get other nations involved? Some nations, it seems, have rejected that call. Which nations would be most likely to come to the United States' aid? DOBBINS: Well, first of all, I think in order to attract other nations, we are going to have to offer them a voice in the management of the operation, commensurate with their contributions, whatever those contributions prove to be. I think the nations that we need to be looking to principally are, as I've said, the nations that have the capacity of mounting large expeditionary operations, have the command, the control, the deployment capabilities to sustain their own efforts, and have large assistance budgets so that they can complement their military efforts with the economic and political efforts that are needed to take advantage of the time that troops buy..
SERWER: Like which ones? Which countries?
DOBBINS: I think the countries we operated with most closely in the Balkans come to mind -- the British, the Italians, the Germans, the French. And, of course, there are other countries like India and Pakistan who don't have much money and who probably can't deploy or sustain their troops, but who do have large numbers of troops that could be helpful.
LISOVICZ: But, Mr. Dobbins, isn't the U.S. missing the boat? There was a memorable op-ed piece in "The New York Times" this week after that heinous bombing at U.N. headquarters in Baghdad, saying that the U.S. has, in fact, created a terrorist state. All of that hatred for the U.S. in the Arab world just simmered over when the U.S. went in it and invaded this country. The infrastructure, not together. Guerrilla operations. The borders are porous, and terrorists from all sides are coming in. Isn't this the wrong argument right now? It's not more boots. It's just getting out.
DOBBINS: Well, I don't think that there is a realistic option to just get out. The Iraqi security institutions -- the army, the police, the secret service, the secret police, the intelligence organs -- have all disintegrated. They are gone. And new ones can't be created quickly. We have created new police forces before in Panama, in El Salvador, in Haiti, in Bosnia and Kosovo, and we know that it takes a couple of years. And during that couple of years, security in Iraq, whatever level it is, is going to be provided by the United States and its coalition partners.
I do believe that coalition could be substantially expanded if we were prepared to share responsibility for its management with countries in proportion to which they contributed to the efforts, but I don't think there's any option but to stick with this mission.
SERWER: All right, we're going to have to leave it there. Interesting stuff. That's James Dobbins, the Rand International Security and Defense Policy Center. Thank you very much.
DOBBINS: Pleasure.
SERWER: Up ahead on IN THE MONEY, fill up and pay up. We'll look at why it's costing you more to hit the road this summer.
Plus, how to land a sheepskin without getting fleeced. Find out which degrees make college grads richer and make their parents happier.
And blue skies and golden years. Is Northwest Airlines using gimmicks to pad out its pension plan? We'll take a closer look when IN THE MONEY continues.
(COMMERCIAL BREAK)
LISOVICZ: The spike in gas prices is definitely on our viewers' minds this week. Here is one typical e-mail we received from Shirley in Michigan: "Most households have two people working, but not elderly people, like me, on a fixed income. Now, I can't go to the store and buy groceries or my medicine. Higher gas prices hurt us."
ROMANS: One thing affecting the cost of gas is the stability in Iraq. Oil prices came under pressure this week, after saboteurs hit a key pipeline in northern Iraq for a second time. But that's just one of the many factors at play with the cost of gas up about a dime a gallon in the past three weeks.
To help us figure out what's behind that increase, we're joined by Tom Kloza. He's the publisher and chief oil analyst for the Oil Price Information Service.
Tom, thanks for joining us.
TOM KLOZA, OIL PRICE INFORMATION SERVICE: Nice to be here.
ROMANS: What's pushing prices up? And can we expect it to continue?
KLOZA: Well, we can expect it to continue for a while. What's pushed prices up basically in the last six weeks or so has been a disconnect between the price of gasoline and the price of crude. Crude oil has actually been very, very steady all summer -- about $31 or $32. But we've had an inordinate amount of refinery problems, mostly on the West Coast, but certainly on the East Coast, the Northeast, we had some...
ROMANS: The blackout, right?
KLOZA: We had some problems with the blackout, and we just simply use much more gasoline than we manufacture during the summertime, so there's no margin of error.
LISOVICZ: But that's my question. Every summer it seems repeated, Tom.
KLOZA: Right, right.
LISOVICZ: We use gas more often, and we're driving our cars to our weekend houses, people are staying close to home, the economy hasn't been that great. Why can't refineries anticipate this and just produce more gas?
KLOZA: Well, actually we're seeing refineries running at about 93 percent of capacity. SERWER: Right.
KLOZA: And that's about as close to full capacity as you can really generate in this country. The reality is, is we need imports, we need finished gasoline imports from elsewhere, and we need to build up a little bit before the summer. Now, we got lulled into a false sense of security this summer, to a certain extent. We started the summer with gasoline demand that was flat or slightly below where it was a year ago.
But it seems as though consumers have back-ended their vacation, or perhaps it is real evidence that the economy is getting going right now, and we've had demand that's been about 2 percent higher than last year. Now, 2 percent doesn't sound like a lot, unless you consider the notion that we haven't added any refineries in 30 years. We're not getting any more out of our refineries, and it's a little bit more difficult to make the gasoline. Throw in the rolling blackouts this year, and you've got some real problems.
SERWER: Yes. Tom, I want to ask you. Just let me jump in here. I mean, you're one of these analysts who says, OK, just wait until the price gets back to its normal level of $24. See, I don't buy that at all. You talked about not much excess capacity. We're getting a lot of oil from very unstable places. Isn't it true that this is the new reality -- oil is always going to be 30 bucks and up?
KLOZA: I don't think so, not for crude oil.
SERWER: All right.
KLOZA: And this one is not about crude oil, this particular rally we're seeing. Let me put this in perspective for you. Normally, gasoline sells for about 10 to 12 cents a gallon at wholesale above the price of crude. And crude oil has been very boring this year, about $30-$31 a barrel.
In the last week or two weeks -- and this has been building up for a while -- gasoline is selling for 40 and 50 and 60 cents more than the price of crude oil. So, this has been a disconnect, where gasoline has gone into its own orbit, irrespective of what's happened with crude.
ROMANS: Let me...
SERWER: Well, what's going to make the price of oil go down? I'm sorry, Christine.
ROMANS: OK.
KLOZA: Well, the price of gasoline is going to go down...
SERWER: I mean, the price of oil?
KLOZA: ... once we get through the summer, once we get through Labor Day weekend, we actually do make a little bit more gasoline than we use. SERWER: But what about oil, though?
KLOZA: Well, I think on the crude oil side, you have to look at it from this perspective: You know, if I were to ask you, what does it actually cost to bring oil to the market and find it in all of these godforsaken places in the globe, you'd probably say $15 or $20 or whatever.
ROMANS: Right.
KLOZA: The real answer is something south of $5 a barrel. The same technology which has helped us in communications has been helping us find oil much easier. Now, there's a lot of crude oil coming on- stream in the next few years, from the former Soviet Union, from Columbia, from places likes the Gulf of Guinea in Africa, all over the world. And ostensibly, I don't think you can expect to see a product, a commodity like crude oil trade continually for six or seven times the amount...
ROMANS: Right.
KLOZA: ... than it costs to bring it out of the ground. So, at some point, it will correct. And my bet is it will probably correct in 2004, or even the winter 2003.
ROMANS: All right, so this is my big question, and I think all of you guys have probably noticed this too. It feels as though gas prices at the pump go up much faster than they come down. Is that true?
KLOZA: I think that's true. I think there's a little bit of a rocket and a feather approach, where they go up like a rocket and down like a feather.
SERWER: I like that.
ROMANS: It doesn't feel very fair.
KLOZA: And as a matter of...
(CROSSTALK)
SERWER: It's like interest rates at the bank.
ROMANS: Oh, yes, exactly.
KLOZA: As a matter of fact, you mentioned 10 cents. If you were to drive around today, you'd see a lot of pumps that are going up 15 and 20 cents a gallon. In the last two days alone, we've had wholesale prices move up in 10 and 15 and 20 cent increment. We hit all-time highs yesterday in virtually every part of the country on wholesale. I don't need to be John Maynard Kings (ph) to predict that probably is going to manifest itself in the retail sector.
ROMANS: Sure.
LISOVICZ: So, we know that the consumers are getting hurt. That must mean somebody is making bundles of money.
KLOZA: Right.
LISOVICZ: Is it the gas stations, the people at the pump who are really rolling in the dough?
KLOZA: Definitely not that poor gas station guy, I can tell you that much. Really, if you've been in the oil production business since 1999 when prices were about $11 a barrel, you've been doing very, very well. Refiners have had a less -- more of an uneven performance since then. But in the last few weeks, refinery margins, which are typically about $5 a barrel or so, have gone above $30 a barrel on the West Coast and above $15 a barrel east of the Rockies. So, it's a feast or famine business. Right now, the refineries are sort of enjoying a bacchanalia feast like in the Mardi Gras.
ROMANS: At our benefit.
SERWER: Yes, I like that. All right, Tom, well I hope you're right about gas prices falling. We could all use that. Tom Kloza, the chief analyst for Oil Price Information Service, thanks very much for being on.
KLOZA: Thanks.
SERWER: OK.
Coming up on IN THE MONEY, the Northwest shuffle. We'll tell you how the airline is stuffing the hole in its pension plan with something besides money.
Also ahead, burn it or earn it. You paid plenty of cash for a college degree. Find out how to get the biggest bang for your buck with the top 10 performing majors.
(COMMERCIAL BREAK)
LISOVICZ: It's time now to check the top stories of the week in our money minute.
Some of the nation's biggest retailers are showing signs of what could be a broader economic recovery. Home Depot and Staples both reported earnings improvements and beat expectations. At the same time, Wal-Mart says its back-to-school sales have been strong, despite the big Northeast blackout.
Things aren't as rosy at HP Compaq. The PC and printer giant disappointed Wall Street experts with a weaker-than-expected earnings report. HP's CEO, Carly Fiorina, blamed seasonal problems for the disappointment, but she also promised the company would do better in the next three months.
The explosion in home prices could be coming to an end. Right now, U.S. home prices are rising by an average of 7 percent a year, but real estate experts say the recent spike in mortgage rates could slow that growth to 4 percent a year. SERWER: Our sock of the week is at the center of what could become a problem for many other companies, their employees and investors. We're talking about under-funded pension funds, and Northwest Airlines has a pension fund that Wall Street experts are looking at with a lot of scrutiny.
Northwest got a break of sorts this week, when the government approved its request to use privately-held stock in a little-known company it owns to bolster its sagging pension fund. But that wasn't enough to change anybody's mind at Standard & Poor's credit rating service, which gave Northwest a negative outlook.
That's not the kind of news that any struggling airlines needs these days. Check that out. Northwest stock has been basically flat over the past year, but it's down about 75 percent from where it was three years ago.
So, what about it, guys? To me, this sounds like risky business.
ROMANS: Well, you know, people...
LISOVICZ: What choice does it have?
ROMANS: Absolutely. The under-funded pension situation is so dire. Yet, this week, a couple of major reports saying, in fact, that it's getting a little better with stock prices increasing and the interest rate sort of stabilizing that maybe it's not as bad as we thought, the overall situation at least.
LISOVICZ: But then, you have to consider the sector. Airlines.
ROMANS: Right.
LISOVICZ: It's not like people -- business class has come back.
SERWER: Yes.
LISOVICZ: Remember, Northwest specializes in Asia. And guess what?
SERWER: Right.
LISOVICZ: There was a new virus there that really hurt Northwest.
ROMANS: Yes.
LISOVICZ: So, it sort of got a double whammy. Do you guys know the other two times when this kind of arrangement was approved?
ROMANS: No.
LISOVICZ: One of them was Pan Am.
ROMANS: Right.
LISOVICZ: The other one was General Motors.
SERWER: Oh, we've got a track record here, I think. Well, you know, you're so right, Susan. I mean, what a tortured history, what a tortured business. I mean, you look back over the past 10 years with Northwest flirting with bankruptcy, LBOs, IPOs, you name it, all kinds of stuff going on.
Remember the blizzard of '99...
ROMANS: Yes.
SERWER: ... where they kept the people on the plane? They sued them for what? I got $17 million. I think there was a big settlement suit there for millions of dollars -- I don't know if it was 17 -- millions of dollars. To me, I have two questions: Why would you work at one of these places, and why would you invest some one? I'm talking about airlines.
LISOVICZ: Well, some people have no choice.
SERWER: Yes, that's hard..
LISOVICZ: I mean, they've been working there a long time.
SERWER: It's hard.
LISOVICZ: You know, the stock actually, though, trading at $9 -- $9 and change is actually $2 off its 52-week high. Of course, it's way off...
SERWER: Yes.
LISOVICZ: ... $65, say, which was its all-time high, of course when the market behaved a lot differently.
ROMANS: Well, when you talk to investing professionals, you know, people are, you know, trying to make money in investing. It's only the really tough-gutted kind of people who are investing in these kinds of stocks. So, when you ask people -- you know, investment professionals should be recommending to people to talk about these stocks. They say no.
SERWER: Yes, I mean, these...
ROMANS: These stocks are not for individual investors.
SERWER: They just go up and down over time, and down more than up -- I mean, if that's possible. I don't know. We'll have to ask (UNINTELLIGIBLE).
LISOVICZ: But, do these analysts, Christine, think that ultimately Northwest will go out of business? I mean, there are only a handful of big players left.
ROMANS: Well, right now, they say were in this interesting juxtaposition time in the market, when, you know, you've got the low cost carriers who are actually doing well.
SERWER: Right.
ROMANS: And that the big major guys have got to change their business model to look like the little guys in order to survive.
SERWER: Right. But then, Northwest is sort of in the middle with the -- you know, below the big ones -- below the Continentals, the Deltas, the US Airs and the AMRs. So, you really wonder if there is room for the U.S. Airs and the NWAs continuously.
LISOVICZ: Well, Northwest was really trying to find some partners to help prop them up.
SERWER: I thought that partner with KLM was going to fly to Baghdad. Remember that? I think (UNINTELLIGIBLE) the company.
ROMANS: Right. All I care about is not sitting on the tarmac for four hours. You just want to get where you're going to go.
SERWER: Detroit in a blizzard. That was bad. That was bad.
(CROSSTALK)
ROMANS: All right, everybody.
Next on IN THE MONEY, we're going to offer some back-to-school advice you can really use. Find out which college majors are the best for students who want to make the big bucks after graduation.
And, putting some juice in your portfolio. We'll take a closer look at alternative energy stocks in light of last week's massive blackout. Stay with us.
(COMMERCIAL BREAK)
(INTERRUPTED BY NEWS BREAK)
LISOVICZ: Welcome back to IN THE MONEY.
College is one of the biggest investments you can make, and some of us want that investment to pay off. Of course, if you'd like to spend four years studying Indo-European basket weaving rituals, well, don't let us stop you. Then again, don't come crying to us if you can't bust out of that Roman Noodle bracket after graduation.
But you want to make a buck. CNN Money contributing writer, Les Christy, is here to tell you how. He's been researching the most top 10 most profitable college majors. And shock: basket weaving is not there in the top 10 list.
LES CHRISTIE, CNN MONEY: I think it is, but, you know, it's somewhere in between.
LISOVICZ: So, what is the most profitable major right now?
CHRISTIE: Right now, it's pharmacy. Pharmacists, when they get out of...
SERWER: Oh, come on! Really?
CHRISTIE: Yes, yes. Now, it's a little bit of an unfair comparison, because it's usually about a six-year program rather than a four.
ROMANS: Right.
CHRISTIE: But the starting salary for a pharmacist now is over $81,000.
SERWER: Whew!
ROMANS: But I have heard that that's a great starting salary, but it doesn't necessarily advance. Like, in other careers, maybe you start a little lower, but you have this sort of exponential ability to advance. Does pharmacology, 81,000, and you sort of make 81,000 forever, or you can even make more that that eventually?
CHRISTIE: Absolutely. And one of the reasons why is because there is a real shortage of pharmacists, and that's going to get worse as the time goes on. And that's because of demographic trends...
ROMANS: Sure.
CHRISTIE: ... and also because of the whole trend in pharmaceuticals, where the pharmacy companies are just churning out new medicines for whatever ails you.
SERWER: And these are pharmacists who work at the big chains, like CVS and Walgreens? You don't have to own your own pharmacy?
CHRISTIE: That's right. And...
SERWER: I'm surprised. That's so much more money than I thought.
LISOVICZ: You put on a white smock and you...
SERWER: I'm leaving! Hang on a second. I'm out of here. I'm going to go work at a pharmacy.
CHRISTIE: Well, I mean, that's true. And, as we know, mom and pop are going by the wayside.
SERWER: Right.
CHRISTIE: You walk down any street in New York and you'll run into chain store after chain store.
ROMANS: Right.
SERWER: Wayne Reed (ph).
LISOVICZ: Well, you know, Les, I guess the big question is, now that we are a few years past the shock of the Internet bubble, is tech high on the list?
CHRISTIE: Tech is still high in terms of salaries, but it's coming down. And there's a couple of reasons for that, one of which is an awful lot of the people who were laid off in the -- after the tech bubble burst are very young, and they are willing to settle for entry-level positions again.
ROMANS: Sure.
CHRISTIE: So that the people coming out of college, they're getting hit with a double whammy on this one.
ROMANS: When I was in college, every time I'd come back, my parents would sit me down and talk about my major. And my dad would say, "So, have you switched to engineering yet?" I never did switch to engineering, and, you know, (UNINTELLIGIBLE).
SERWER: We're glad.
ROMANS: Yes. But I'm wondering, is engineering still a very sought-after career? I know that chemical engineering and electrical engineering and things like that, they also have pretty good starting salaries.
LISOVICZ: No fun in college.
(CROSSTALK)
SERWER: Double EEs, those double EEs, yes. They weren't real partiers.
CHRISTIE: No, but they do very well still after they graduate. Their salaries have not really popped much the last couple years, but they're still getting hired. And there are a couple of other advantages to that kind of technical degree. You tend to be more sought after, so that if there are fewer jobs available, you are sort of at the top of the queue, or the front of the queue. But also, it gives you a lot of flexibility later on in your career. If you want to go into sales or management, you can.
ROMANS: Sure.
CHRISTIE: Whereas if you go -- if you're a humanities major or if you're a poet or a basket weaver, there is very little possibility of you going on...
LISOVICZ: Or a journalist.
CHRISTIE: ... to those more technical.
LISOVICZ: You mentioned pharmacy number one, and you mentioned the demographics, but also there is a nursing shortage. So, a nursing degree is also something very valuable right now.
CHRISTIE: Right. Of course, the starting salary for nursing is not as high as pharmacists, but there's a huge shortage of nurses, and it's only going to get worse.
SERWER: (UNINTELLIGIBLE) for years, right?
CHRISTIE: Yes, for years. I think the figure is something like they're going to need a million nurses over the next 10 years.
ROMANS: So, except for what your major is in and what your grade point average is, there must be other ways to sort of really bone up before you get out. I'm sure internships, relevant work experience. What kind of advice do you get from the experts about what people should do to augment just a degree?
CHRISTIE: Well, internships are great, but not everyone does it. A lot of students could be doing it, but they don't. Fewer than half actually try to take internships. The second thing that you can do is you can network. You can start networking while you're still in college.
ROMANS: How do you do that?
CHRISTIE: Well, you can join clubs at school and join national clubs and, you know, attend the conferences of the professional organizations that you are aiming at. You can also do things like just get acquainted with the whole hiring process, you know. Colleges offer resume writing classes or seminars and interviewing techniques.
SERWER: Right.
CHRISTIE: And, you know, a lot of -- one of employers' biggest complaint is that kids come into interviews, and they don't know anything about the company, they don't know anything about the job. That's really a no-no.
(CROSSTALK)
SERWER: Les, let me ask you a quick last question. This has the old humanities debate. I was a humanities major.
UNIDENTIFIED FEMALE: Me too.
CHRISTIE: Me too.
SERWER: So, all of these people, you don't get a job right out of college as an English major, but isn't it true that later on in life it's important -- maybe I'm trying to justify my own existence here -- that you're literate, that you're a person who can understand and knows books, as opposed to being one of those business majors, where you get a great job right out of school but it might hurt you later on, I hope?
CHRISTIE: I think all of the business majors should send their mail to Andy. They can be just as literate. I think that the point is, though, that they can -- business majors too, not quite as much as engineers or as other technicians, but they have a little flexibility to move around, and they can become a basket weaver if they so desire.
LISOVICZ: Or a basket case who can't even get a job.
SERWER: Right. All right, well, duly noted, Les. Thanks a lot. Les Christie, contributing writer for CNN Money, thanks very much.
CHRISTIE: Thank you.
SERWER: OK.
Ahead on IN THE MONEY, charged up. This month's blackout delivered a power surge to fuel cells stocks. We'll look at whether they've got the juice for the long haul.
And the long good-bye. Former star analyst, Jack Grubman, is out at Citigroup, but he's still on the payroll? We'll tell you why.
(COMMERCIAL BREAK)
SERWER: When the Northeast power grid crashed last week, one building in Manhattan never lost power, and that building was the Central Park police precinct house, which happens to be powered by fuel cell technology. A lot of people think fuel cells are the way to go, not only for an alternative energy source, but also for a good investment.
Joining us now to talk about that is Sanjay Shrestha of First Albany. And before we begin, we should mention that Sanjay and First Albany have no conflict of interest with any of the companies and stocks we're going to talk about.
Sanjay, welcome to the program.
SANJAY SHRESTHA, FIRST ALBANY: Thank you.
SERWER: I guess if I could...
SHRESTHA: Thanks for having me here.
SERWER: You're welcome. Could we start off where you can just sort of describe what alternative energy is? I don't think a lot of people are familiar with that.
SHRESTHA: Oh, sure, sure. When we talk about the alternative energy, it's a pretty broad space. And essentially as, you know, pretty much like a concise way, it is essentially all of the technologies that are involved in the generation, the distribution, as well as the conversion of electricity. And that includes technology ranging from fuel cells, micro turbines, solar power, as well as some technology such as superconductivity that can essentially transmit electricity in a much more efficient manner and also includes some technology that can be used for the backup solutions such flywheels and a battery-based solution.
SERWER: Wow!
ROMANS: This is long-term, concept-type stuff. When you start talking about investing in this space, these are areas that are volatile, stocks that move very quickly, in some cases companies that are not profitable. But it's an idea that a lot of people are very interested in. We saw a lot of these stocks fly this week.
SHRESTHA: Sure.
ROMANS: Give investors a little bit of advice about how to carefully tread in this arena.
SHRESTHA: Absolutely, absolutely. That's a great point. I'm glad you brought that up, because one of the things that we are going to see here a lot is going to be volatility. An investor needs to be really careful about the fact that the early-stage companies are not going to make money anytime soon.
ROMANS: Right.
SHRESTHA: And given the recent event of what just happened here, it is our opinion that the prime beneficiaries are really going to be the guys who actually have the product in the marketplace today. However, having said that, we think, you know, essentially some of these fuel cell companies, you know, do have some solid long-term business plans, do have some cash position. And we would encourage investors to capitalize actually on volatility. Do not chase the stock. Buy on the weakness and focus on the companies that have a strong cash balance and who have the right business model in place.
LISOVICZ: So, Sanjay, for the investor who doesn't have a strong stomach, is there any place that an investor can put his or her money now, where you might actually see some returns in the short term, in the next, say, couple of years?
SHRESTHA: Sure, sure. I mean, you know, within the alternative energy, there are a couple of companies that are actually pretty established and that also have some profitability today. That would include some of the companies like American Power Conversion, some other companies like C & D Technologies. Those guys provide a battery back-up solution that can protect your critical data, as well as equipment.
You know, however, I would not encourage people to chase the stocks. They have had a nice run here, given the recent events of last week. And, again, the stocks are going to be volatile, and you would potentially want to buy them cheaper.
SERWER: Sanjay, let me ask you, though -- I want to back up to this: What is alternative energy?
SHRESTHA: Sure, sure.
SERWER: Because you've got fossil fuels, you've got the sun, you've got the wind.
SHRESTHA: That's right. That's right.
SERWER: Tell me specifically what else is out there, and how viable it is? SHRESTHA: Well, that's a great question.
SERWER: And nuclear, of course.
SHRESTHA: That's a great question. And the most important thing here is fuel cells do hold a lot of potential.
SERWER: And how do those work, just so we can understand it?
SHRESTHA: Absolutely. Essentially nothing more than a chemical reaction. Instead of burning a fuel, you have electricity going in. There's an electrolyte that splits into an electron, which electron is essentially electricity, and that gives you the power.
SERWER: Is it viable?
SHRESTHA: It is viable, but we need a significant subsidy from the government, because the way we see it is the most important thing for any early-stage industry to be a commercial viability, we've got to talk about the economics. That's the key driver. And right now, these technologies are not economical.
ROMANS: If you're bold -- if you're really bold and you want to take a very long-term look at it...
SHRESTHA: Sure.
ROMANS: ... what names are in the fuel cell arena?
SHRESTHA: I would definitely take a look at a company called FuelCell Energy, symbol FCEL. I do like their long-term business model. And I would also take a look at another company called Quantum Technology, symbol QTWW. That company is not the prime beneficiary of the recent event. However, I like that company, because that's probably going to be one of the first fuel cell companies to get to profit.
LISOVICZ: But, Sanjay, is it only because of the capital investment that Detroit is not embracing this? I mean, we've just been talking about these higher gasoline prices, which are really hurting a lot of Americans. Is it just Detroit's reluctance to invest that's really holding this technology back?
SHRESTHA: Well, I think obviously it's a little bit of that. But then, again, we've heard a lot of talk about how we need the backup solution and how we need to do something about the forward- thinking technology. But we really haven't seen some clear path from the government's side to really provide some sort of a clear incentive.
LISOVICZ: Sometimes it takes a disaster to...
SHRESTHA: That's right. That's right.
LISOVICZ: ... in fact, create something better. Do you think that blackout that was the worst in the nation... SHRESTHA: That's absolutely right.
LISOVICZ: ... the situation that was called for -- or needed?
SHRESTHA: Well, essentially, this blackout, as you guys know, it's bigger than the 1965 blackout, and we hope that it certainly sends a message, a wake-up call to Washington and they would essentially start to provide some clear incentive program whereby this technology is going to be cost-competitive with the existing solution, potentially driving a mass adoption and bringing in the economics of scale, and whereby we can start talking about fuel cells as a viable industry instead of a concept.
ROMANS: Sanjay Shrestha of First Albany, thanks so much for joining us today.
SHRESTHA: Thank you so much.
ROMANS: Very interesting stuff.
Just ahead, he can't trade stocks anymore, but former Solomon Smith Barney analyst Jack Grubman is still getting a nice paycheck. Find out how much and why coming up.
And we'll get some of your e-mails and ask the e-mail question of the week. Our address is inthemoney@cnn.com.
But, before we go to the break, Andy has got a quick lesson on hedge funds in this week's edition of "Fortune Fundamentals."
(BEGIN VIDEOTAPE)
SERWER: Today, we're talking hedge funds. Hedge funds sound dark and mysterious, and while these investment funds are secretive, they really aren't that complicated.
Originally, a hedge fund was a pot of money run by a manager who made hedged investments. For instance, a fund's manager would invest in stocks of companies he was bullish on, say airline stocks, and short stocks of companies that he was bearish on, say technology stocks.
This kind of strategy is supposed to work well in both an up and a down market. Lately, the number of hedge funds has grown tremendously, and many of them don't actually hedge.
Today, the term "hedge fund" has become a catch-all phrase that describes any unregulated investment fund, where a money manager takes a cut of any gains on top of an annual fee.
Unlike mutual funds, hedge funds are generally not regulated. Usually, the minimum investment in a hedge fund is at least hundreds of thousands of dollars, and you must be qualified -- make that rich -- to play.
(END VIDEOTAPE) (COMMERCIAL BREAK)
LISOVICZ: Who says crime doesn't pay? Certainly not Jack Grubman. Grubman is the former Solomon Smith Barney stock analyst, who made all of those questionable buy ratings on companies like WorldCom. As part of a settlement related to those calls, Grubman had to pay $15 million and was barred from the securities industry for life.
But all of that isn't stopping Citigroup from paying Grubman a hefty salary. Grubman is still getting about $200,000 a year from his former company, the money part of Grubman's severance package. All Grubman has to do to keep collecting is to promise to help Citigroup defend itself against a series of shareholder lawsuits.
ROMANS: If you run a business that likes to save money and doesn't worry about jinxes, have we got a deal for you. The Enron building in downtown Houston is going up for sale. A New York real estate firm will be accepting sealed bids on the 50-story tower until mid-September.
Some of the proceeds from the sale will be used to pay off the bankrupt energy trader's massive debts. But don't expect the building to fetch a huge price. The commercial real estate market in Houston is already very weak.
SERWER: Yes. I mean, it's just -- I want to go back to the Grubman thing for a second.
ROMANS: All right.
SERWER: Let's take them one by one. I mean, you know, you create -- it's a great job. You create a mess, then you get fired, then you get paid to fix it up. I've got to figure out how to do that.
LISOVICZ: Well, this is different than a golden parachute. Let's be clear on that.
ROMANS: And...
SERWER: That's right.
ROMANS: And the company also forgave a $13 million loan -- I think -- and another $3 million loan. When all of this is said and done, then they'll talk about forgiving that one, too. They're forgiving a loan.
SERWER: Right.
LISOVICZ: Citigroup the parent company of Solomon Smith Barney needs Jack Grubman to defend itself.
ROMANS: Sure.
SERWER: But what I don't understand is, how can you be barred for life and then get paid $200,000 a year?
ROMANS: Right.
LISOVICZ: And he's not doing brokerage calls.
ROMANS: No, that's true.
SERWER: Oh, OK.
ROMANS: And sitting...
SERWER: Oh, I didn't get it.
ROMANS: And sitting in a Citigroup office. I mean, Citigroup also had to give him an office.
SERWER: Right.
ROMANS: You know, that's another part of it, too. But, yes, it's a very...
LISOVICZ: Where is Eliot Spitzer on this?
SERWER: Hey, speaking of offices, though, this Enron building thing, it's funny, 13 percent vacancy rate in Houston, and they're trying to sell this sucker. And, you know, there are other problems. The Chevron Building down there is empty, too, so you've got a lot of empty space.
LISOVICZ: They call them see-thru buildings in Houston, when the last recession, when the oil went bust, and you could -- these tall skyscrapers, and you could see through them, because nobody was there -- no people, no office equipment.
SERWER: Right.
LISOVICZ: And that's what they're having...
(CROSSTALK)
SERWER: Silicone Valley's rate is worse, though. It's 21 percent. But the real story down in Houston with Enron is Lee Fastow, Andy Fastow's wife...
ROMANS: Sure.
SERWER: ... whose trial is about to start on the Superbowl, and the lawyers had to move it because it would be too much of a distraction...
ROMANS: Traffic.
SERWER: ... to traffic, they couldn't have hotel rooms.
ROMANS: It's two circuses. Think about it. You've got the Superbowl and you've got... SERWER: I'd want to have my trial during the Superbowl to distract people, so they wouldn't pay any attention to it.
LISOVICZ: I think the best news, though, is that there is going to be some legal proceedings finally happening.
SERWER: Yes, that's a good point. And the Superbowl, too, so we can really have some fun.
LISOVICZ: OK, let's go to e-mail now, because our viewers have a lot to say. We got a lot of letters about -- not surprisingly -- the Northeast blackout.
But one e-mail from a 17-year-old may have been the most memorable. Sidney in California wrote: "The main objective of terrorism is to evoke fear. I know we say we are winning the war on terror, but my first thought when I heard about the blackout in New York was, 'It's happening again.'"
And certainly, there were a lot of us who thought the same thing, too.
Commenting on the rising number of Americans behind bars, Mary in Seattle wrote: "The new privatization of the prison system makes good financial sense for these businesses. The prison companies benefit, other companies get a ready-made workforce, and other companies can sell prisoner-made products and label them, 'Made in America.'"
That's putting a spin on things.
SERWER: Yes.
LISOVICZ: And now it's time for our e-mail question of the week. Do you think the U.S. should send more troops to Iraq, keep the force about same, or pull out altogether? Send your answers and any other comments to inthemoney@cnn.com.
And that's all for this edition of IN THE MONEY. Join us tomorrow at 3:00 p.m. Eastern Time, when we'll look at the latest violence in Israel and whether the U.S. really is prepared for another round of terrorist attacks on U.S. soil.
Thanks again to my colleagues, Christine Romans from CNN Financial News and Andy Serwer of "Fortune" magazine. Have a great weekend.
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Impact of Rising Gasoline Prices on Consumers Around Country; Ten Most Profitable College Degrees; Blackout Delivered Power Surge to Fuel Cells Stocks>
Aired August 23, 2003 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.
SUSAN LISOVICZ, CNN HOST: Welcome to IN THE MONEY. I'm Susan Lisovicz. Jack Cafferty is on vacation.
Coming up on IN THE MONEY, double trouble. Rebuilding Iraq is hard enough. Now, bombers are making a tough job even tougher. We'll look at whether Baghdad is turning into a target for terror.
Plus, liquid assets. The war in Iraq was supposed to mean cheaper gas, but sabotage there is just one factor boosting prices here. Find out if there's any hope for a break at the pump.
And a B.A. without the B.S. See which college majors pay off in the real world. We'll tell you about the 10 most profitable degrees a student can get. And guess what? Journalism ain't in there.
Joining me for our show today, of course some journalism graduates, CNN correspondent Christine Romans and Andy Serwer, "Fortune" magazine editor-at-large.
And journalism may not be paying off, but investors are certainly seeing some returns. We've had a great run in August.
CHRISTINE ROMANS, CNN FINANCIAL NEWS CORRESPONDENT: Absolutely.
LISOVICZ: Typically not a good month for the markets.
ANDY SERWER, "FORTUNE" MAGAZINE: Right.
ROMANS: The Nasdaq closing at a 16-month high and the Dow at a 14-month high. It's been pretty good, and all summer people have been telling me, oh, this -- you know, there's going to be a correction.
SERWER: Right.
ROMANS: The market has got to come down. History shows that August is really a tough time of the year, but the market keeps plugging along. The question is: Can it continue to plug along into the fall?
SERWER: Right.
ROMANS: We've already had a lot of good economic news. The stock market has already anticipated that. Now what happens?
SERWER: Right, right.
LISOVICZ: Yes.
(CROSSTALK)
ROMANS: More proof.
SERWER: The economy has got to come through. We're maybe seeing some signs, though, Christine, because July, there were a few little tics and tocks. And just on Friday, Intel raised its estimates for the month...
ROMANS: Sure.
SERWER: ... saying they were going to make $300 million more in revenue for the quarter. I mean, that's a lot of money. And Craig Barrett of Intel is usually a very conservative guy, so investors really taking heart with that. But you're right. The economy really has to come through. Now, it's the economy's turn.
ROMANS: Right.
SERWER: It's been the market already.
LISOVICZ: And then, broad base rallied, by the way, too. Russell 2000, which measures small-cap stocks, is also on a two-week run.
SERWER: Although, I'll tell you something. It's really showing those Nasdaq stocks so much more volatile, they go down further and now they're coming back higher.
LISOVICZ: Oh, yes.
ROMANS: But the industrials have been very, very good. Tech is sexy, but industrials have been doing, very, very well.
SERWER: I like that.
LISOVICZ: We have reported on it all, but now we go to something that has been distressing the markets, managed to shrug it off, and that is Iraq. Nobody said that rebuilding Iraq was going to be easy. Then, again, nobody said it was going to be this hard or this bloody.
The bombing attack this week on the U.N. headquarters in Baghdad raised the stakes and raised new fears about Iraq's future.
For the latest now, we are joined from Baghdad by Ben Wedeman.
Hello -- Ben.
BEN WEDEMAN, CNN CAIRO BUREAU CHIEF: Yes, Susan, it has been a hard and bloody week here in Iraq. Of course, on Tuesday we had the car bombing -- or, rather, the truck bombing of the U.N. headquarters here. That left more than 20 people dead and really shook the American adventure or experiment in nation-building in Iraq to its foundations.
However, you did have some other news as well, and that was the capture of two key figures from Saddam Hussein's old regime. The first on Tuesday, also the day of that U.N. bombing, was Taha Yassin Ramadan, who was the vice president of Iraq, a very key figure. And on Thursday was the capture of Ali Hassan al-Majid, otherwise known as "Chemical Ali."
But it really was, Susan, that attack on the U.N. headquarters that really shook the atmosphere here in Baghdad more than any other event since April 10, when U.S. forces came into Baghdad.
ROMANS: Ben, it's Christine Romans here. I want to ask you: what is the view on the streets of Baghdad about the U.S. and the U.N. at this point? Is there, I guess, happiness at what has happened here? Or, are the Iraqi people a little fed up and concerned about what's happening in terms of security and the bombing at the U.N.?
WEDEMAN: Well, I think a lot of people really were shaken by the bombing of the U.N. The United Nations, of course, is seen as an international body that represents the will of the international community. The United Nations really tried to make a point to distinguish itself from the U.S. presence here, and therefore when this explosion went off, it really did shake people like nothing else before.
The United States is seen, obviously, by many people here as an outside power, an occupying power, and there's still a good deal of resistance and resentment to it. But really, the United Nations has a special -- is the focus of a different kind of feeling here, and people really were disturbed.
So, this was the first kind of attack on an international body of its kind, and it did shake the atmosphere in a way that nothing else has.
ROMANS: Ben Wedeman in Baghdad -- thank you, Ben.
Turning Iraq around might take more military muscle, more money, or all of the above.
For more about that, we're joined from Washington by James Dobbins. He's the director of the Rand Corporation's International Security and Policy Defense Center. He's also a former special envoy to Afghanistan.
Welcome to the program.
JAMES DOBBINS, RAND: Thank you.
ROMANS: Do we need more U.S. troops in Iraq after the events of this week?
DOBBINS: Well, I think an analysis of previous operations of this sort would suggest we need more troops of some sort.
SERWER: Mr. Dobbins, let me ask you a question. You know, you're saying we need more troops. I would like to suggest that we could maybe pull out of Iraq completely. What do you think about that? Why can't we turn over the whole business to the United Nations? That way, no one gets killed, no more U.S. soldiers get killed, and we also do a tremendous amount in terms of generating goodwill towards the United States. It sounds like a radical idea. And I want to also ask you, though, if you had a son and daughter, would you send them to Iraq?
DOBBINS: Well, I don't think turning it over to the United Nations and pulling out is really an option. The United States is the largest, most powerful and most important member of the United Nations. I think involving the United Nations, but more importantly our principal allies around the world in this operation much more comprehensively is an option and perhaps our best option.
SERWER: What about sending your children to Iraq as soldiers?
DOBBINS: Well, I do have children. I certainly think this is a mission worth making sacrifices for, and if my sons were in the armed forces, I certainly would expect them to go to Iraq.
LISOVICZ: And, of course, you've been in some hot spots yourself, Mr. Dobbins, a top troubleshooter in Kosovo, Bosnia, Haiti and Somalia. So, you've seen some rough spots. The research I have shows that there are 139,000 American troops in Iraq with an additional 22,000 troops from other countries, half of that England. What do you think is a sufficient number to get Iraq back on solid footing?
DOBBINS: Well, I think that if one wanted to achieve the level of security that we were able to achieve in Bosnia, and then in Kosovo in the late '90s, it might require between 300,000 and 500,000 troops.
ROMANS: Wow, 300,000 and 500,000! But the American public doesn't seem, at this point, to be too hot on the idea of sending more over there. And, do we have a supply -- I mean, can we even do it if we needed to?
DOBBINS: Well, the answer is no, given the current structure of our armed forces. I think that to do this job properly is likely to require a greater effort, both in terms of manpower but also of money and of time than most of us had initially anticipated. I do think that the administration will probably have to cross one of two thresholds: Either an increase in the overall size of the U.S. armed forces, which I imagine could be controversial, or a substantial broadening of participation in the coalition in order to attract in other competent countries that are capable of mounting large-scale expeditionary operations, and who have large aid budgets.
SERWER: I want to follow up on that point. I mean, isn't it imperative, in fact, that we get other nations involved? Some nations, it seems, have rejected that call. Which nations would be most likely to come to the United States' aid? DOBBINS: Well, first of all, I think in order to attract other nations, we are going to have to offer them a voice in the management of the operation, commensurate with their contributions, whatever those contributions prove to be. I think the nations that we need to be looking to principally are, as I've said, the nations that have the capacity of mounting large expeditionary operations, have the command, the control, the deployment capabilities to sustain their own efforts, and have large assistance budgets so that they can complement their military efforts with the economic and political efforts that are needed to take advantage of the time that troops buy..
SERWER: Like which ones? Which countries?
DOBBINS: I think the countries we operated with most closely in the Balkans come to mind -- the British, the Italians, the Germans, the French. And, of course, there are other countries like India and Pakistan who don't have much money and who probably can't deploy or sustain their troops, but who do have large numbers of troops that could be helpful.
LISOVICZ: But, Mr. Dobbins, isn't the U.S. missing the boat? There was a memorable op-ed piece in "The New York Times" this week after that heinous bombing at U.N. headquarters in Baghdad, saying that the U.S. has, in fact, created a terrorist state. All of that hatred for the U.S. in the Arab world just simmered over when the U.S. went in it and invaded this country. The infrastructure, not together. Guerrilla operations. The borders are porous, and terrorists from all sides are coming in. Isn't this the wrong argument right now? It's not more boots. It's just getting out.
DOBBINS: Well, I don't think that there is a realistic option to just get out. The Iraqi security institutions -- the army, the police, the secret service, the secret police, the intelligence organs -- have all disintegrated. They are gone. And new ones can't be created quickly. We have created new police forces before in Panama, in El Salvador, in Haiti, in Bosnia and Kosovo, and we know that it takes a couple of years. And during that couple of years, security in Iraq, whatever level it is, is going to be provided by the United States and its coalition partners.
I do believe that coalition could be substantially expanded if we were prepared to share responsibility for its management with countries in proportion to which they contributed to the efforts, but I don't think there's any option but to stick with this mission.
SERWER: All right, we're going to have to leave it there. Interesting stuff. That's James Dobbins, the Rand International Security and Defense Policy Center. Thank you very much.
DOBBINS: Pleasure.
SERWER: Up ahead on IN THE MONEY, fill up and pay up. We'll look at why it's costing you more to hit the road this summer.
Plus, how to land a sheepskin without getting fleeced. Find out which degrees make college grads richer and make their parents happier.
And blue skies and golden years. Is Northwest Airlines using gimmicks to pad out its pension plan? We'll take a closer look when IN THE MONEY continues.
(COMMERCIAL BREAK)
LISOVICZ: The spike in gas prices is definitely on our viewers' minds this week. Here is one typical e-mail we received from Shirley in Michigan: "Most households have two people working, but not elderly people, like me, on a fixed income. Now, I can't go to the store and buy groceries or my medicine. Higher gas prices hurt us."
ROMANS: One thing affecting the cost of gas is the stability in Iraq. Oil prices came under pressure this week, after saboteurs hit a key pipeline in northern Iraq for a second time. But that's just one of the many factors at play with the cost of gas up about a dime a gallon in the past three weeks.
To help us figure out what's behind that increase, we're joined by Tom Kloza. He's the publisher and chief oil analyst for the Oil Price Information Service.
Tom, thanks for joining us.
TOM KLOZA, OIL PRICE INFORMATION SERVICE: Nice to be here.
ROMANS: What's pushing prices up? And can we expect it to continue?
KLOZA: Well, we can expect it to continue for a while. What's pushed prices up basically in the last six weeks or so has been a disconnect between the price of gasoline and the price of crude. Crude oil has actually been very, very steady all summer -- about $31 or $32. But we've had an inordinate amount of refinery problems, mostly on the West Coast, but certainly on the East Coast, the Northeast, we had some...
ROMANS: The blackout, right?
KLOZA: We had some problems with the blackout, and we just simply use much more gasoline than we manufacture during the summertime, so there's no margin of error.
LISOVICZ: But that's my question. Every summer it seems repeated, Tom.
KLOZA: Right, right.
LISOVICZ: We use gas more often, and we're driving our cars to our weekend houses, people are staying close to home, the economy hasn't been that great. Why can't refineries anticipate this and just produce more gas?
KLOZA: Well, actually we're seeing refineries running at about 93 percent of capacity. SERWER: Right.
KLOZA: And that's about as close to full capacity as you can really generate in this country. The reality is, is we need imports, we need finished gasoline imports from elsewhere, and we need to build up a little bit before the summer. Now, we got lulled into a false sense of security this summer, to a certain extent. We started the summer with gasoline demand that was flat or slightly below where it was a year ago.
But it seems as though consumers have back-ended their vacation, or perhaps it is real evidence that the economy is getting going right now, and we've had demand that's been about 2 percent higher than last year. Now, 2 percent doesn't sound like a lot, unless you consider the notion that we haven't added any refineries in 30 years. We're not getting any more out of our refineries, and it's a little bit more difficult to make the gasoline. Throw in the rolling blackouts this year, and you've got some real problems.
SERWER: Yes. Tom, I want to ask you. Just let me jump in here. I mean, you're one of these analysts who says, OK, just wait until the price gets back to its normal level of $24. See, I don't buy that at all. You talked about not much excess capacity. We're getting a lot of oil from very unstable places. Isn't it true that this is the new reality -- oil is always going to be 30 bucks and up?
KLOZA: I don't think so, not for crude oil.
SERWER: All right.
KLOZA: And this one is not about crude oil, this particular rally we're seeing. Let me put this in perspective for you. Normally, gasoline sells for about 10 to 12 cents a gallon at wholesale above the price of crude. And crude oil has been very boring this year, about $30-$31 a barrel.
In the last week or two weeks -- and this has been building up for a while -- gasoline is selling for 40 and 50 and 60 cents more than the price of crude oil. So, this has been a disconnect, where gasoline has gone into its own orbit, irrespective of what's happened with crude.
ROMANS: Let me...
SERWER: Well, what's going to make the price of oil go down? I'm sorry, Christine.
ROMANS: OK.
KLOZA: Well, the price of gasoline is going to go down...
SERWER: I mean, the price of oil?
KLOZA: ... once we get through the summer, once we get through Labor Day weekend, we actually do make a little bit more gasoline than we use. SERWER: But what about oil, though?
KLOZA: Well, I think on the crude oil side, you have to look at it from this perspective: You know, if I were to ask you, what does it actually cost to bring oil to the market and find it in all of these godforsaken places in the globe, you'd probably say $15 or $20 or whatever.
ROMANS: Right.
KLOZA: The real answer is something south of $5 a barrel. The same technology which has helped us in communications has been helping us find oil much easier. Now, there's a lot of crude oil coming on- stream in the next few years, from the former Soviet Union, from Columbia, from places likes the Gulf of Guinea in Africa, all over the world. And ostensibly, I don't think you can expect to see a product, a commodity like crude oil trade continually for six or seven times the amount...
ROMANS: Right.
KLOZA: ... than it costs to bring it out of the ground. So, at some point, it will correct. And my bet is it will probably correct in 2004, or even the winter 2003.
ROMANS: All right, so this is my big question, and I think all of you guys have probably noticed this too. It feels as though gas prices at the pump go up much faster than they come down. Is that true?
KLOZA: I think that's true. I think there's a little bit of a rocket and a feather approach, where they go up like a rocket and down like a feather.
SERWER: I like that.
ROMANS: It doesn't feel very fair.
KLOZA: And as a matter of...
(CROSSTALK)
SERWER: It's like interest rates at the bank.
ROMANS: Oh, yes, exactly.
KLOZA: As a matter of fact, you mentioned 10 cents. If you were to drive around today, you'd see a lot of pumps that are going up 15 and 20 cents a gallon. In the last two days alone, we've had wholesale prices move up in 10 and 15 and 20 cent increment. We hit all-time highs yesterday in virtually every part of the country on wholesale. I don't need to be John Maynard Kings (ph) to predict that probably is going to manifest itself in the retail sector.
ROMANS: Sure.
LISOVICZ: So, we know that the consumers are getting hurt. That must mean somebody is making bundles of money.
KLOZA: Right.
LISOVICZ: Is it the gas stations, the people at the pump who are really rolling in the dough?
KLOZA: Definitely not that poor gas station guy, I can tell you that much. Really, if you've been in the oil production business since 1999 when prices were about $11 a barrel, you've been doing very, very well. Refiners have had a less -- more of an uneven performance since then. But in the last few weeks, refinery margins, which are typically about $5 a barrel or so, have gone above $30 a barrel on the West Coast and above $15 a barrel east of the Rockies. So, it's a feast or famine business. Right now, the refineries are sort of enjoying a bacchanalia feast like in the Mardi Gras.
ROMANS: At our benefit.
SERWER: Yes, I like that. All right, Tom, well I hope you're right about gas prices falling. We could all use that. Tom Kloza, the chief analyst for Oil Price Information Service, thanks very much for being on.
KLOZA: Thanks.
SERWER: OK.
Coming up on IN THE MONEY, the Northwest shuffle. We'll tell you how the airline is stuffing the hole in its pension plan with something besides money.
Also ahead, burn it or earn it. You paid plenty of cash for a college degree. Find out how to get the biggest bang for your buck with the top 10 performing majors.
(COMMERCIAL BREAK)
LISOVICZ: It's time now to check the top stories of the week in our money minute.
Some of the nation's biggest retailers are showing signs of what could be a broader economic recovery. Home Depot and Staples both reported earnings improvements and beat expectations. At the same time, Wal-Mart says its back-to-school sales have been strong, despite the big Northeast blackout.
Things aren't as rosy at HP Compaq. The PC and printer giant disappointed Wall Street experts with a weaker-than-expected earnings report. HP's CEO, Carly Fiorina, blamed seasonal problems for the disappointment, but she also promised the company would do better in the next three months.
The explosion in home prices could be coming to an end. Right now, U.S. home prices are rising by an average of 7 percent a year, but real estate experts say the recent spike in mortgage rates could slow that growth to 4 percent a year. SERWER: Our sock of the week is at the center of what could become a problem for many other companies, their employees and investors. We're talking about under-funded pension funds, and Northwest Airlines has a pension fund that Wall Street experts are looking at with a lot of scrutiny.
Northwest got a break of sorts this week, when the government approved its request to use privately-held stock in a little-known company it owns to bolster its sagging pension fund. But that wasn't enough to change anybody's mind at Standard & Poor's credit rating service, which gave Northwest a negative outlook.
That's not the kind of news that any struggling airlines needs these days. Check that out. Northwest stock has been basically flat over the past year, but it's down about 75 percent from where it was three years ago.
So, what about it, guys? To me, this sounds like risky business.
ROMANS: Well, you know, people...
LISOVICZ: What choice does it have?
ROMANS: Absolutely. The under-funded pension situation is so dire. Yet, this week, a couple of major reports saying, in fact, that it's getting a little better with stock prices increasing and the interest rate sort of stabilizing that maybe it's not as bad as we thought, the overall situation at least.
LISOVICZ: But then, you have to consider the sector. Airlines.
ROMANS: Right.
LISOVICZ: It's not like people -- business class has come back.
SERWER: Yes.
LISOVICZ: Remember, Northwest specializes in Asia. And guess what?
SERWER: Right.
LISOVICZ: There was a new virus there that really hurt Northwest.
ROMANS: Yes.
LISOVICZ: So, it sort of got a double whammy. Do you guys know the other two times when this kind of arrangement was approved?
ROMANS: No.
LISOVICZ: One of them was Pan Am.
ROMANS: Right.
LISOVICZ: The other one was General Motors.
SERWER: Oh, we've got a track record here, I think. Well, you know, you're so right, Susan. I mean, what a tortured history, what a tortured business. I mean, you look back over the past 10 years with Northwest flirting with bankruptcy, LBOs, IPOs, you name it, all kinds of stuff going on.
Remember the blizzard of '99...
ROMANS: Yes.
SERWER: ... where they kept the people on the plane? They sued them for what? I got $17 million. I think there was a big settlement suit there for millions of dollars -- I don't know if it was 17 -- millions of dollars. To me, I have two questions: Why would you work at one of these places, and why would you invest some one? I'm talking about airlines.
LISOVICZ: Well, some people have no choice.
SERWER: Yes, that's hard..
LISOVICZ: I mean, they've been working there a long time.
SERWER: It's hard.
LISOVICZ: You know, the stock actually, though, trading at $9 -- $9 and change is actually $2 off its 52-week high. Of course, it's way off...
SERWER: Yes.
LISOVICZ: ... $65, say, which was its all-time high, of course when the market behaved a lot differently.
ROMANS: Well, when you talk to investing professionals, you know, people are, you know, trying to make money in investing. It's only the really tough-gutted kind of people who are investing in these kinds of stocks. So, when you ask people -- you know, investment professionals should be recommending to people to talk about these stocks. They say no.
SERWER: Yes, I mean, these...
ROMANS: These stocks are not for individual investors.
SERWER: They just go up and down over time, and down more than up -- I mean, if that's possible. I don't know. We'll have to ask (UNINTELLIGIBLE).
LISOVICZ: But, do these analysts, Christine, think that ultimately Northwest will go out of business? I mean, there are only a handful of big players left.
ROMANS: Well, right now, they say were in this interesting juxtaposition time in the market, when, you know, you've got the low cost carriers who are actually doing well.
SERWER: Right.
ROMANS: And that the big major guys have got to change their business model to look like the little guys in order to survive.
SERWER: Right. But then, Northwest is sort of in the middle with the -- you know, below the big ones -- below the Continentals, the Deltas, the US Airs and the AMRs. So, you really wonder if there is room for the U.S. Airs and the NWAs continuously.
LISOVICZ: Well, Northwest was really trying to find some partners to help prop them up.
SERWER: I thought that partner with KLM was going to fly to Baghdad. Remember that? I think (UNINTELLIGIBLE) the company.
ROMANS: Right. All I care about is not sitting on the tarmac for four hours. You just want to get where you're going to go.
SERWER: Detroit in a blizzard. That was bad. That was bad.
(CROSSTALK)
ROMANS: All right, everybody.
Next on IN THE MONEY, we're going to offer some back-to-school advice you can really use. Find out which college majors are the best for students who want to make the big bucks after graduation.
And, putting some juice in your portfolio. We'll take a closer look at alternative energy stocks in light of last week's massive blackout. Stay with us.
(COMMERCIAL BREAK)
(INTERRUPTED BY NEWS BREAK)
LISOVICZ: Welcome back to IN THE MONEY.
College is one of the biggest investments you can make, and some of us want that investment to pay off. Of course, if you'd like to spend four years studying Indo-European basket weaving rituals, well, don't let us stop you. Then again, don't come crying to us if you can't bust out of that Roman Noodle bracket after graduation.
But you want to make a buck. CNN Money contributing writer, Les Christy, is here to tell you how. He's been researching the most top 10 most profitable college majors. And shock: basket weaving is not there in the top 10 list.
LES CHRISTIE, CNN MONEY: I think it is, but, you know, it's somewhere in between.
LISOVICZ: So, what is the most profitable major right now?
CHRISTIE: Right now, it's pharmacy. Pharmacists, when they get out of...
SERWER: Oh, come on! Really?
CHRISTIE: Yes, yes. Now, it's a little bit of an unfair comparison, because it's usually about a six-year program rather than a four.
ROMANS: Right.
CHRISTIE: But the starting salary for a pharmacist now is over $81,000.
SERWER: Whew!
ROMANS: But I have heard that that's a great starting salary, but it doesn't necessarily advance. Like, in other careers, maybe you start a little lower, but you have this sort of exponential ability to advance. Does pharmacology, 81,000, and you sort of make 81,000 forever, or you can even make more that that eventually?
CHRISTIE: Absolutely. And one of the reasons why is because there is a real shortage of pharmacists, and that's going to get worse as the time goes on. And that's because of demographic trends...
ROMANS: Sure.
CHRISTIE: ... and also because of the whole trend in pharmaceuticals, where the pharmacy companies are just churning out new medicines for whatever ails you.
SERWER: And these are pharmacists who work at the big chains, like CVS and Walgreens? You don't have to own your own pharmacy?
CHRISTIE: That's right. And...
SERWER: I'm surprised. That's so much more money than I thought.
LISOVICZ: You put on a white smock and you...
SERWER: I'm leaving! Hang on a second. I'm out of here. I'm going to go work at a pharmacy.
CHRISTIE: Well, I mean, that's true. And, as we know, mom and pop are going by the wayside.
SERWER: Right.
CHRISTIE: You walk down any street in New York and you'll run into chain store after chain store.
ROMANS: Right.
SERWER: Wayne Reed (ph).
LISOVICZ: Well, you know, Les, I guess the big question is, now that we are a few years past the shock of the Internet bubble, is tech high on the list?
CHRISTIE: Tech is still high in terms of salaries, but it's coming down. And there's a couple of reasons for that, one of which is an awful lot of the people who were laid off in the -- after the tech bubble burst are very young, and they are willing to settle for entry-level positions again.
ROMANS: Sure.
CHRISTIE: So that the people coming out of college, they're getting hit with a double whammy on this one.
ROMANS: When I was in college, every time I'd come back, my parents would sit me down and talk about my major. And my dad would say, "So, have you switched to engineering yet?" I never did switch to engineering, and, you know, (UNINTELLIGIBLE).
SERWER: We're glad.
ROMANS: Yes. But I'm wondering, is engineering still a very sought-after career? I know that chemical engineering and electrical engineering and things like that, they also have pretty good starting salaries.
LISOVICZ: No fun in college.
(CROSSTALK)
SERWER: Double EEs, those double EEs, yes. They weren't real partiers.
CHRISTIE: No, but they do very well still after they graduate. Their salaries have not really popped much the last couple years, but they're still getting hired. And there are a couple of other advantages to that kind of technical degree. You tend to be more sought after, so that if there are fewer jobs available, you are sort of at the top of the queue, or the front of the queue. But also, it gives you a lot of flexibility later on in your career. If you want to go into sales or management, you can.
ROMANS: Sure.
CHRISTIE: Whereas if you go -- if you're a humanities major or if you're a poet or a basket weaver, there is very little possibility of you going on...
LISOVICZ: Or a journalist.
CHRISTIE: ... to those more technical.
LISOVICZ: You mentioned pharmacy number one, and you mentioned the demographics, but also there is a nursing shortage. So, a nursing degree is also something very valuable right now.
CHRISTIE: Right. Of course, the starting salary for nursing is not as high as pharmacists, but there's a huge shortage of nurses, and it's only going to get worse.
SERWER: (UNINTELLIGIBLE) for years, right?
CHRISTIE: Yes, for years. I think the figure is something like they're going to need a million nurses over the next 10 years.
ROMANS: So, except for what your major is in and what your grade point average is, there must be other ways to sort of really bone up before you get out. I'm sure internships, relevant work experience. What kind of advice do you get from the experts about what people should do to augment just a degree?
CHRISTIE: Well, internships are great, but not everyone does it. A lot of students could be doing it, but they don't. Fewer than half actually try to take internships. The second thing that you can do is you can network. You can start networking while you're still in college.
ROMANS: How do you do that?
CHRISTIE: Well, you can join clubs at school and join national clubs and, you know, attend the conferences of the professional organizations that you are aiming at. You can also do things like just get acquainted with the whole hiring process, you know. Colleges offer resume writing classes or seminars and interviewing techniques.
SERWER: Right.
CHRISTIE: And, you know, a lot of -- one of employers' biggest complaint is that kids come into interviews, and they don't know anything about the company, they don't know anything about the job. That's really a no-no.
(CROSSTALK)
SERWER: Les, let me ask you a quick last question. This has the old humanities debate. I was a humanities major.
UNIDENTIFIED FEMALE: Me too.
CHRISTIE: Me too.
SERWER: So, all of these people, you don't get a job right out of college as an English major, but isn't it true that later on in life it's important -- maybe I'm trying to justify my own existence here -- that you're literate, that you're a person who can understand and knows books, as opposed to being one of those business majors, where you get a great job right out of school but it might hurt you later on, I hope?
CHRISTIE: I think all of the business majors should send their mail to Andy. They can be just as literate. I think that the point is, though, that they can -- business majors too, not quite as much as engineers or as other technicians, but they have a little flexibility to move around, and they can become a basket weaver if they so desire.
LISOVICZ: Or a basket case who can't even get a job.
SERWER: Right. All right, well, duly noted, Les. Thanks a lot. Les Christie, contributing writer for CNN Money, thanks very much.
CHRISTIE: Thank you.
SERWER: OK.
Ahead on IN THE MONEY, charged up. This month's blackout delivered a power surge to fuel cells stocks. We'll look at whether they've got the juice for the long haul.
And the long good-bye. Former star analyst, Jack Grubman, is out at Citigroup, but he's still on the payroll? We'll tell you why.
(COMMERCIAL BREAK)
SERWER: When the Northeast power grid crashed last week, one building in Manhattan never lost power, and that building was the Central Park police precinct house, which happens to be powered by fuel cell technology. A lot of people think fuel cells are the way to go, not only for an alternative energy source, but also for a good investment.
Joining us now to talk about that is Sanjay Shrestha of First Albany. And before we begin, we should mention that Sanjay and First Albany have no conflict of interest with any of the companies and stocks we're going to talk about.
Sanjay, welcome to the program.
SANJAY SHRESTHA, FIRST ALBANY: Thank you.
SERWER: I guess if I could...
SHRESTHA: Thanks for having me here.
SERWER: You're welcome. Could we start off where you can just sort of describe what alternative energy is? I don't think a lot of people are familiar with that.
SHRESTHA: Oh, sure, sure. When we talk about the alternative energy, it's a pretty broad space. And essentially as, you know, pretty much like a concise way, it is essentially all of the technologies that are involved in the generation, the distribution, as well as the conversion of electricity. And that includes technology ranging from fuel cells, micro turbines, solar power, as well as some technology such as superconductivity that can essentially transmit electricity in a much more efficient manner and also includes some technology that can be used for the backup solutions such flywheels and a battery-based solution.
SERWER: Wow!
ROMANS: This is long-term, concept-type stuff. When you start talking about investing in this space, these are areas that are volatile, stocks that move very quickly, in some cases companies that are not profitable. But it's an idea that a lot of people are very interested in. We saw a lot of these stocks fly this week.
SHRESTHA: Sure.
ROMANS: Give investors a little bit of advice about how to carefully tread in this arena.
SHRESTHA: Absolutely, absolutely. That's a great point. I'm glad you brought that up, because one of the things that we are going to see here a lot is going to be volatility. An investor needs to be really careful about the fact that the early-stage companies are not going to make money anytime soon.
ROMANS: Right.
SHRESTHA: And given the recent event of what just happened here, it is our opinion that the prime beneficiaries are really going to be the guys who actually have the product in the marketplace today. However, having said that, we think, you know, essentially some of these fuel cell companies, you know, do have some solid long-term business plans, do have some cash position. And we would encourage investors to capitalize actually on volatility. Do not chase the stock. Buy on the weakness and focus on the companies that have a strong cash balance and who have the right business model in place.
LISOVICZ: So, Sanjay, for the investor who doesn't have a strong stomach, is there any place that an investor can put his or her money now, where you might actually see some returns in the short term, in the next, say, couple of years?
SHRESTHA: Sure, sure. I mean, you know, within the alternative energy, there are a couple of companies that are actually pretty established and that also have some profitability today. That would include some of the companies like American Power Conversion, some other companies like C & D Technologies. Those guys provide a battery back-up solution that can protect your critical data, as well as equipment.
You know, however, I would not encourage people to chase the stocks. They have had a nice run here, given the recent events of last week. And, again, the stocks are going to be volatile, and you would potentially want to buy them cheaper.
SERWER: Sanjay, let me ask you, though -- I want to back up to this: What is alternative energy?
SHRESTHA: Sure, sure.
SERWER: Because you've got fossil fuels, you've got the sun, you've got the wind.
SHRESTHA: That's right. That's right.
SERWER: Tell me specifically what else is out there, and how viable it is? SHRESTHA: Well, that's a great question.
SERWER: And nuclear, of course.
SHRESTHA: That's a great question. And the most important thing here is fuel cells do hold a lot of potential.
SERWER: And how do those work, just so we can understand it?
SHRESTHA: Absolutely. Essentially nothing more than a chemical reaction. Instead of burning a fuel, you have electricity going in. There's an electrolyte that splits into an electron, which electron is essentially electricity, and that gives you the power.
SERWER: Is it viable?
SHRESTHA: It is viable, but we need a significant subsidy from the government, because the way we see it is the most important thing for any early-stage industry to be a commercial viability, we've got to talk about the economics. That's the key driver. And right now, these technologies are not economical.
ROMANS: If you're bold -- if you're really bold and you want to take a very long-term look at it...
SHRESTHA: Sure.
ROMANS: ... what names are in the fuel cell arena?
SHRESTHA: I would definitely take a look at a company called FuelCell Energy, symbol FCEL. I do like their long-term business model. And I would also take a look at another company called Quantum Technology, symbol QTWW. That company is not the prime beneficiary of the recent event. However, I like that company, because that's probably going to be one of the first fuel cell companies to get to profit.
LISOVICZ: But, Sanjay, is it only because of the capital investment that Detroit is not embracing this? I mean, we've just been talking about these higher gasoline prices, which are really hurting a lot of Americans. Is it just Detroit's reluctance to invest that's really holding this technology back?
SHRESTHA: Well, I think obviously it's a little bit of that. But then, again, we've heard a lot of talk about how we need the backup solution and how we need to do something about the forward- thinking technology. But we really haven't seen some clear path from the government's side to really provide some sort of a clear incentive.
LISOVICZ: Sometimes it takes a disaster to...
SHRESTHA: That's right. That's right.
LISOVICZ: ... in fact, create something better. Do you think that blackout that was the worst in the nation... SHRESTHA: That's absolutely right.
LISOVICZ: ... the situation that was called for -- or needed?
SHRESTHA: Well, essentially, this blackout, as you guys know, it's bigger than the 1965 blackout, and we hope that it certainly sends a message, a wake-up call to Washington and they would essentially start to provide some clear incentive program whereby this technology is going to be cost-competitive with the existing solution, potentially driving a mass adoption and bringing in the economics of scale, and whereby we can start talking about fuel cells as a viable industry instead of a concept.
ROMANS: Sanjay Shrestha of First Albany, thanks so much for joining us today.
SHRESTHA: Thank you so much.
ROMANS: Very interesting stuff.
Just ahead, he can't trade stocks anymore, but former Solomon Smith Barney analyst Jack Grubman is still getting a nice paycheck. Find out how much and why coming up.
And we'll get some of your e-mails and ask the e-mail question of the week. Our address is inthemoney@cnn.com.
But, before we go to the break, Andy has got a quick lesson on hedge funds in this week's edition of "Fortune Fundamentals."
(BEGIN VIDEOTAPE)
SERWER: Today, we're talking hedge funds. Hedge funds sound dark and mysterious, and while these investment funds are secretive, they really aren't that complicated.
Originally, a hedge fund was a pot of money run by a manager who made hedged investments. For instance, a fund's manager would invest in stocks of companies he was bullish on, say airline stocks, and short stocks of companies that he was bearish on, say technology stocks.
This kind of strategy is supposed to work well in both an up and a down market. Lately, the number of hedge funds has grown tremendously, and many of them don't actually hedge.
Today, the term "hedge fund" has become a catch-all phrase that describes any unregulated investment fund, where a money manager takes a cut of any gains on top of an annual fee.
Unlike mutual funds, hedge funds are generally not regulated. Usually, the minimum investment in a hedge fund is at least hundreds of thousands of dollars, and you must be qualified -- make that rich -- to play.
(END VIDEOTAPE) (COMMERCIAL BREAK)
LISOVICZ: Who says crime doesn't pay? Certainly not Jack Grubman. Grubman is the former Solomon Smith Barney stock analyst, who made all of those questionable buy ratings on companies like WorldCom. As part of a settlement related to those calls, Grubman had to pay $15 million and was barred from the securities industry for life.
But all of that isn't stopping Citigroup from paying Grubman a hefty salary. Grubman is still getting about $200,000 a year from his former company, the money part of Grubman's severance package. All Grubman has to do to keep collecting is to promise to help Citigroup defend itself against a series of shareholder lawsuits.
ROMANS: If you run a business that likes to save money and doesn't worry about jinxes, have we got a deal for you. The Enron building in downtown Houston is going up for sale. A New York real estate firm will be accepting sealed bids on the 50-story tower until mid-September.
Some of the proceeds from the sale will be used to pay off the bankrupt energy trader's massive debts. But don't expect the building to fetch a huge price. The commercial real estate market in Houston is already very weak.
SERWER: Yes. I mean, it's just -- I want to go back to the Grubman thing for a second.
ROMANS: All right.
SERWER: Let's take them one by one. I mean, you know, you create -- it's a great job. You create a mess, then you get fired, then you get paid to fix it up. I've got to figure out how to do that.
LISOVICZ: Well, this is different than a golden parachute. Let's be clear on that.
ROMANS: And...
SERWER: That's right.
ROMANS: And the company also forgave a $13 million loan -- I think -- and another $3 million loan. When all of this is said and done, then they'll talk about forgiving that one, too. They're forgiving a loan.
SERWER: Right.
LISOVICZ: Citigroup the parent company of Solomon Smith Barney needs Jack Grubman to defend itself.
ROMANS: Sure.
SERWER: But what I don't understand is, how can you be barred for life and then get paid $200,000 a year?
ROMANS: Right.
LISOVICZ: And he's not doing brokerage calls.
ROMANS: No, that's true.
SERWER: Oh, OK.
ROMANS: And sitting...
SERWER: Oh, I didn't get it.
ROMANS: And sitting in a Citigroup office. I mean, Citigroup also had to give him an office.
SERWER: Right.
ROMANS: You know, that's another part of it, too. But, yes, it's a very...
LISOVICZ: Where is Eliot Spitzer on this?
SERWER: Hey, speaking of offices, though, this Enron building thing, it's funny, 13 percent vacancy rate in Houston, and they're trying to sell this sucker. And, you know, there are other problems. The Chevron Building down there is empty, too, so you've got a lot of empty space.
LISOVICZ: They call them see-thru buildings in Houston, when the last recession, when the oil went bust, and you could -- these tall skyscrapers, and you could see through them, because nobody was there -- no people, no office equipment.
SERWER: Right.
LISOVICZ: And that's what they're having...
(CROSSTALK)
SERWER: Silicone Valley's rate is worse, though. It's 21 percent. But the real story down in Houston with Enron is Lee Fastow, Andy Fastow's wife...
ROMANS: Sure.
SERWER: ... whose trial is about to start on the Superbowl, and the lawyers had to move it because it would be too much of a distraction...
ROMANS: Traffic.
SERWER: ... to traffic, they couldn't have hotel rooms.
ROMANS: It's two circuses. Think about it. You've got the Superbowl and you've got... SERWER: I'd want to have my trial during the Superbowl to distract people, so they wouldn't pay any attention to it.
LISOVICZ: I think the best news, though, is that there is going to be some legal proceedings finally happening.
SERWER: Yes, that's a good point. And the Superbowl, too, so we can really have some fun.
LISOVICZ: OK, let's go to e-mail now, because our viewers have a lot to say. We got a lot of letters about -- not surprisingly -- the Northeast blackout.
But one e-mail from a 17-year-old may have been the most memorable. Sidney in California wrote: "The main objective of terrorism is to evoke fear. I know we say we are winning the war on terror, but my first thought when I heard about the blackout in New York was, 'It's happening again.'"
And certainly, there were a lot of us who thought the same thing, too.
Commenting on the rising number of Americans behind bars, Mary in Seattle wrote: "The new privatization of the prison system makes good financial sense for these businesses. The prison companies benefit, other companies get a ready-made workforce, and other companies can sell prisoner-made products and label them, 'Made in America.'"
That's putting a spin on things.
SERWER: Yes.
LISOVICZ: And now it's time for our e-mail question of the week. Do you think the U.S. should send more troops to Iraq, keep the force about same, or pull out altogether? Send your answers and any other comments to inthemoney@cnn.com.
And that's all for this edition of IN THE MONEY. Join us tomorrow at 3:00 p.m. Eastern Time, when we'll look at the latest violence in Israel and whether the U.S. really is prepared for another round of terrorist attacks on U.S. soil.
Thanks again to my colleagues, Christine Romans from CNN Financial News and Andy Serwer of "Fortune" magazine. Have a great weekend.
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