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CNN MONEYLINE NEWS HOUR

Dow Slips 77.89 to 10,454.34; Nasdaq Falls 42.71 to 2,016.61; Consumer Confidence Retreats in April

Aired April 24, 2001 - 18:30   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.
WILLOW BAY, CNN ANCHOR: Main Street confidence plunges as consumers fear the once-hot job market is turning cold.

This is MONEYLINE for April 24, 2001.

Headlines about layoffs take a damaging toll on consumer confidence: Will spending suffer as well?

The latest broadside from Beijing to Washington: China formally protests the biggest sale of U.S. arms to Taiwan in a decade.

And how to produce New York's latest sensation.

(BEGIN VIDEO CLIP)

UNIDENTIFIED ACTOR: Never put your own money in the show.

(END VIDEO CLIP)

BAY: But plenty are putting their money in the box office: It's the Broadway show pulling in a million dollars a day.

ANNOUNCER: This is MONEYLINE.

BAY: Hello, everyone, and welcome to MONEYLINE.

It was another down day in the markets, stocks retreating across- the-board for the third-straight day. We have complete market coverage tonight with Allan Chernoff; Bruce Francis, with after-the- bell results from Amazon; and Terry Keenan, covering late-breaking news from Disney.

But we begin with job jitters, slamming Main Street faith in the economy. Consumer confidence slumped in April for the sixth month out of seven, Americans beaten down by the drumbeat of layoff news from corporate giants.

Lisa Leiter reports.

(BEGIN VIDEOTAPE)

LISA LEITER, CNN CORRESPONDENT (voice-over): Americans are feeling downbeat about the economy. A key reading on consumer confidence drops sharply this month after a surprising rebound in March. The index now matches the 4 1/2-year low hit in February. Fueling the anxiety: Not the swoon in stock prices, as many assumed, but fears about jobs.

KEN GOLDSTEIN, CONFERENCE BOARD: They're worried about the labor market, not the stock market, period. They always have been, they are now.

LEITER: And it's no wonder, as consumers get bombarded with banner headlines announcing more and more job cuts.

JOHN CHALLENGER, CHALLENGER, GRAY & CHRISTMAS: Through the first 18 days of April, we've already surpassed 100,000 job cuts. That makes five consecutive months over 100,000, again, unprecedented.

LEITER: The Conference Board found more people say jobs are hard to get, that they're increasingly worried about current and future business conditions, and fewer people are planning to buy new homes, cars and appliances in the next six months. But economists point out that the survey was completed before last week's surprise interest rate cut by the Federal Reserve and the stock market rally that followed it.

ANTHONY CHAN, BANC ONE INVESTMENT ADVISORS: Consumers might pause a little bit in the second quarter, but with the Federal Reserve essentially re-energizing Main Street by lowering interest rates and the possibility they'll lower rates further, I think consumers will come back towards the latter part of the second quarter.

(END VIDEOTAPE)

LEITER: Consumer confidence is crucial because consumers have continued to hold up this economy, continuing to spend even while businesses are pulling back, and if consumer spending, which accounts for two-thirds of economic growth, slows sharply, the chances of a recession rise dramatically -- Willow.

BAY: Lisa, what is the outlook, then, for consumer spending? What signs are you seeing?

LEITER: Well, so far in April, the beginning of the second quarter, it seems like retail sales are holding up rather well. Just today, we got two weekly chain store sales reports, both showing increases and both companies saying that they attribute it to the warmer weather we've been seeing in the past few weeks.

BAY: All right. So far, so good. Lisa Leiter reporting. Thanks, Lisa.

The flood of layoff news continued today, announcements ranging from high tech to high finance. From the high tech realm, JDS Uniphase, the fiberoptic giant, said it would slash 5,000 jobs. JDS also slashed its future forecasts, sending the shares down more than $3. Last year, JDS said it would buy rival SDL for $40 billion. Now, with those shares down 85 percent from the 52-week high, JDS is not even worth $40 billion, more like half of that. And from high finance, Morgan Stanley. Today, the company said it was slashing 1,500 jobs because of the slowing economy, joining Goldman Sachs, Merrill Lynch, among other financial heavyweights, to announce layoffs. The stock today fell $2.20 to $61.60. It is down more than 40 percent from its 52-week high.

Morgan Stanley and JDS were just two of the losers in what was another disappointing day on Wall Street, the third straight day of declines across-the-board. The Dow today fell 77 points, or less than a percent, to close at 10454. And the Nasdaq, which had been on a tear up until last Friday, fell 42 or about 2 percent.

A 2 percent move is substantial, but today actually felt like a rather quiet day since we're in the midst of one of the most volatile periods in Nasdaq history. Allan Chernoff joins us now from the Nasdaq market site with more on what all that volatility means -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Willow, the recent ups and downs of the Nasdaq composite, they're enough to make investors sick to their stomachs. But it's important to pay attention to this volatility, because it could be sending an important signal about the market.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): Only twice before has the Nasdaq rollercoaster swung so violently for so long. Last spring and at the end of the year into early January, the average daily change in the composite over a one-month period was 4.1 percent. Currently, it's 3.4 percent.

That kind of volatility indicates a tug-of-war between the bulls and the bears, between investors celebrating expected benefits from Federal Reserve interest rate cuts, and those worrying about declining corporate earnings. Money managers say, it's a bottom searching process.

BRUCE BARTLETT, OPPENHEIMER FUNDS: The conundrum is that the market generally will pick the bottom about six months in advance of the actual operating statistics themselves turning around. So, when there's a movement in the market, there's a tendency for people to pile on in order not to miss that inflection point in the market.

CHERNOFF: That fear of missing the bottom plays against fear that stocks will resume sinking. In other words, many money managers have yet to be convinced this is the beginning of a new bull market lag. So, they're not willing to commit to stocks for long periods. Instead, trading in and out of stocks.

SAM STOVALL, STANDARD & POOR'S: Professional investors are not willing to take long-term positions. They feel that they can make money in a bear market. But they are not willing to buy and hold.

CHERNOFF: That's fueling intraday volatility. The average swing from low to high each day has been 2.4 percent. Again, the third most volatile reading in the Nasdaq record books.

Analysts say, high volatility can often signal a turning point. Last April, it pointed to the bear market getting underway. It pointed to a short-lived recovery in January, and now some analyst suspect, it may be signaling a true bull market revival.

(END VIDEOTAPE)

CHERNOFF: But deciding whether there has been a sustained turn in the market is very difficult when earnings keep on sinking. A lot of money managers are saying that they want to see evidence that business fundamentals are in fact stabilizing, before they regain much confidence in Nasdaq stocks -- Willow.

BAY: Allan Chernoff reporting. Thanks, Allan.

Up next: the question facing Jeff Bezos. When will the red ink stop flowing at Amazon.com? And the latest outlook at their quarterly results.

We'll look at the quarter for Disney. Terry Keenan will talk live with CEO Michael Eisner.

Also, the very latest on escalating tension as China blasts back over U.S. arms sales to Taiwan.

(COMMERCIAL BREAK)

BAY: China issued a formal protest today against the White House decision to sell arms to Taiwan. The package would be the largest arms deal with Taiwan in more than a decade, and it comes at a tense time for U.S.-China relations. For the latest and for China's reaction, we go to Kelly Wallace at the White House -- Kelly.

KELLY WALLACE, CNN WHITE HOUSE CORRESPONDENT: Well, Willow, the Bush administration is brushing aside Beijing's concern, saying President Bush made this decision taking into account what the administration is calling Taiwan's legitimate defense needs.

Now, the United States will wait to hear exactly what Taiwan wants to buy. And as reported last night on your show, President Bush has decided not to sell, at least for now, destroyers equipped with the Navy's most sophisticated system known as Aegis radar. However, Mr. Bush has made clear that he will revisit this decision in a year or two, and that he could go ahead and approve such a sale if China continues to point more missiles at Taiwan.

Now, the Taiwanese delegation did come to Washington today and did learn what weapons the U.S. is offering to sell. Those weapons include older destroyers, which include an upgraded radar system. Also, it includes diesel-powered submarine, anti-submarine aircraft and mine-sweeping helicopters.

Now, as you mentioned, China is not happy at all. The Chinese ambassador here in Washington went to the State Department to raise its objections. The White House, though, is saying that Mr. Bush is simply upholding his obligation under a 1979 law which requires the United States to provide the necessary weapons for Taiwan to defend itself against China.

(BEGIN VIDEO CLIP)

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: The president believes very strongly that the best way to promote peace and stability is to make certain that Taiwan has the means necessary to secure its defense needs, and this decision was made on the president's determination on how best to secure the peace and to provide Taiwan with the means necessary to defend itself. And in that sense, it's a stabilizing action.

(END VIDEO CLIP)

WALLACE: And lawmakers from both parties are praising Mr. Bush's decision, saying it strikes the right balance by helping Taipei and sending a message to Beijing.

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), SENATE MINORITY LEADER: I have supported robust sales to Taiwan in the past, I support this one. I think the majority of our colleagues and my caucus would support it as well. We recognize that there is a delicate balance between ensuring the security of Taiwan and maintaining a good relationship with the government of China. I think this package reflects that.

(END VIDEO CLIP)

WALLACE: One complicating factor would be finding a place to manufacture those diesel-powered submarines, because they're no longer made here in the United States, and some countries which do produce them, such as the Netherlands and Germany, have already said they won't sell them to Taiwan because that would represent a violation of their one-China policy -- Willow.

BAY: So, Kelly, how concerned is the Bush administration about its relationship with China at this point?

WALLACE: Well, you know, publicly they seem to be dismissing any concern. But privately, senior administration officials knew that the Chinese wouldn't be happy, especially with the proposed sales of diesel-powered submarines, which the Chinese views as offensive in nature. The Bush administration saying, though, its entire package is defensive in nature.

But again, the officials here do know that the Chinese -- they knew that the Chinese wouldn't be happy. They do think that they will be facing a rocky time for the time being, and of course, this comes just after the standoff with Beijing over those crew members and that American surveillance plane which the Chinese still do hold -- Willow.

BAY: Kelly Wallace reporting from the White House tonight, thank you. One group watching this process with particular care: corporate America. We're joined from Washington now by Robert Kapp, who runs the U.S.-China Business Council. Bob, welcome.

ROBERT KAPP, U.S.-CHINA BUSINESS COUNCIL: Howdy.

BAY: President Bush says this is the right package for this moment. What's the reaction, though, from the business community?

KAPP: Well, Willow, American business doesn't take a position on this radar system or that missile system. I think we understand that this is a very delicate three-way relationship in which each side has a role to play, and that the United States cannot afford to completely toss away the concerns either of Taiwan or of the Mainland, so it's a long-term difficult problem.

I think American business does feel that a stable environment between ourselves and the People's Republic is necessary for the development of our economic activities there, which is now very large. So, any shock to the system is watched with considerable concern.

But, so far at least, the American business has not felt that this represents some sort of fundamental turning point in the U.S.- China relation. We'll have to see in the months to come whether that turns out to be true or not.

BAY: So, at this point, it appears as if you're concerned about stability. It appears as if there is no real shake-up to the stability. The concerns of the business community, is it fair to say they're muted?

KAPP: Well, they're muted, but the United States and China have played a very long and difficult game of tit-for-tat. And the idea is to -- the idea is not to set off such a downward spiral of retaliatory actions by each side against the last action by the other side, that you wind up really putting the whole relationship into the tank. We don't think that we're there yet.

BAY: OK, so it's not likely then that this armed package will cause China to retaliate in any way?

KAPP: I'm afraid I can't quite go that far, Willow. The Chinese have maintained for certain kinds of weaponry sales they would take action of one kind of another. Whether immediate and direct and invisible to the naked eye, or perhaps more indirect is the function of their behavior toward third states, for example, and we'll just have to see how that plays out.

BAY: Now, for example, China has said, submarines are one of the elements that they would respond very negatively to. Of course, they're in the arms package to Taiwan. Is China drawing a line in the sand there, and is that potentially a problem?

KAPP: The two countries have drawn lines in the sand over and over again. And when one goes across that line, there could be reactions that have long-term, medium-term of short-term effects. When the Dutch sold the submarines that the Chinese did not like in 1980 -- or whenever it was --relation between the Netherlands and China really fell into disrepair for about three years, and then began to recover.

The difference here is that the United States is so much more a central of a player in the Taiwan question, which the Chinese feel is essential to their national sovereignty and their national existence.

BAY: Bob Kapp, of the U.S.-China Business Council, thanks for joining us tonight.

KAPP: Thank you, Willow.

BAY: And we have one more note from Asia: a stunning shakeup in Japan's ruling party, with a self-styled reformer poised to become prime minister. This after Junichiro Koizumi scored a sweeping victory in a second round of primaries. He promised to usher in economic reforms, aimed at easing Japan out of recession. Parliament will gather later this week to formally elect a prime minister.

Coming up: all the after-hours results. We'll start with Amazon.com. The online retailer is winning new customers, so will it reach its goal of profitability? Plus, it's springtime on Broadway for one very hot show.

(COMMERCIAL BREAK)

BAY: In tonight's "Tech Watch": late-breaking results from tech bellwether Amazon. The Internet giant kept its cool in the high- pressure earnings season, and confirmed it is still on track to post its first operating profit this year. In after-hours trading, the stock is up fractionally, at $15.80. Our Bruce Francis has been listening to the company's conference call and he joins us now.

Bruce, what have you discovered?

BRUCE FRANCIS, CNN CORRESPONDENT: Well, Willow, Amazon.com's results stand out this quarter, mostly because they are sticking with forecasts and the company is not predicting tough times ahead.

(BEGIN VIDEOTAPE)

FRANCIS (voice-over): Amazon.com crowed that the company's target of profitability in the fourth quarter is on plan. Amazon.com said that it had a pro forma operating net loss of 21 cents a share, slightly better than the loss of 22 cents a share or less it predicted earlier this month. Revenue edged out that estimate, too, at $700 million.

MICHAEL LEGG, JEFFERIES & COMPANY: We're definitely seeing revenues grow from new means, such as international consumer electronics, both music and video. We're seeing the positive operating margin there. So I think, you know, we're moving in the right direction for being a long-term sustainable company.

FRANCIS: For the current quarter, Amazon unleashed no major surprises. Amazon says that the per share loss should be the same or slightly less, and we should expect flat to slightly lower revenues. Gross margins are expected to improve. And the company's sticking to its goal of a pro forma operating net profit in the fourth quarter.

But a pro forma operating net profit excludes many items, including stock-based compensation costs from employee option programs, good will from acquisitions, impairment-related costs from actions like closing its fulfillment center in Georgia, equity losses on bad investments, and effects of accounting changes.

Factor in those items in this quarter, for example, and Amazon's loss more than quadruples to $234.

ANTHONY NOTO, GOLDMAN SACHS: I think the one positive thing from getting the additional details is that clearly cash is no longer in our mind a large concern. Secondly, the new businesses are continuing to improve in their profitability, such as consumer electronics, toys and kitchens.

FRANCIS: While Amazon's stock is down more than 80 percent from its all-time high, it has almost doubled in the 2 1/2 weeks since its updated guidance. But it's not for everyone.

ARTHUR NEWMAN, ABN AMRO: I think there's a great deal of risk in it. I think a lot of their businesses beyond books, music and video still have to be proven. So we don't really see it terribly attractive at current levels.

(END VIDEOTAPE)

FRANCIS: On a conference call with analysts, Amazon.com CEO Jeff Bezos talked about Amazon not as the world's largest store, as he used to, but as an e-commerce platform, a platform that Amazon.com is increasingly focused on sharing with other companies in order to reach profitability -- Willow.

BAY: All right, Bruce. We're hearing a lot about those partnerships these days.

FRANCIS: And you'll hear more and more.

BAY: Thank you.

Terry Keenan usually joins us from the New York Stock Exchange, but tonight she is working on something very special. So, Terry, what do you have for us?

TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, Disney is out with a couple of surprises today. I'll be speaking with the man who runs the magic kingdom, CEO Michael Eisner, up next.

(COMMERCIAL BREAK)

KEENAN: MONEYLINE continues now. I'm Terry Keenan. Walt Disney unveiled its second quarter results after the bell, taking a nearly $1 billion charge in the quarter. This relating to the closure of its go.com Web site and a previously announced plan to cut 4,000 jobs which Disney said today would partly come from its film animation unit.

Excluding those charges, the company earned 19 cents a share, or $391 million. That was a 33 percent jump in profits. This despite a 4 percent decline in revenue. In after hours trading, Walt Disney shares up 70 cents. It has though, been a tough year for Disney stock, down over 30 percent from its 52-week high.

Joining me now from Orlando, Florida is Michael Eisner, the Chairman and CEO of the Walt Disney company. Mr. Eisner welcome. Good to have you with us.

MICHAEL EISNER, CEO, WALT DISNEY: Thank you, Terry.

KEENAN: Theme parks, the one big area of revenue growth, in the quarter, but with consumer confidence coming down so sharply and gasoline prices going up so sharply, are you sure that that revenue growth can continue as the year progresses?

EISNER: Well, we're pretty confident about our theme parks. We've had a great five years in a row here and there's a lot to offer at Walt Disney world. We have a new theme park: Disney California Adventure in California. We have a new park opening in Tokyo, and next year in Europe. This segment of our business is pretty healthy.

KEENAN: Yes, how is California Adventure doing? It got of to a slow start. California economy has its own problem with the electricity situation. How is that theme park doing right now?

EISNER: Well we're very happy with the theme park. We opened it intentionally in a weak and we had a lot of rain as well. But all the exit research has the ratings just a smidgen underneath Disneyland itself which is gigantic, and everybody loves the park, and now we have to make sure we market it well and sell the three-day ticket. And we think with what we're introducing this summer, which I'm not yet ready to announce, because I'll get killed by the person that's putting it all together, we think it kicks in and will be just as strong as our other multiple park places.

KEENAN: You took a big charge, more than $800 million for the closure of your go.com portal. Where does that leave your Internet strategy now?

EISNER: Well, first of all, that $800 million is all goodwill, no cash, no Disney equity. It was simply a function of accounting and the getting in in a very prudent way, without cash. When we went in to "go" reviving, bringing back to the company abc.com, the half we didn't own, and ESPN.com.

We have very strong vertical sites in ESPN, ABC and Disney. And future will be streaming movies online and music and things like that. We feel very confident about our experience in the Internet and this write-off that you're talking about is a complete noneconomic write- off. KEENAN: Cash isn't your problem. Revenue growth may be down 4 percent in the current quarter. Quick-fix acquisition -- did you have a broad -- a strong balance sheet. Are acquisitions in the cards for you, a big acquisition, in the next few months?

EISNER: The next few months I can't relate to. The fact of the matter is, we made a very good acquisition with Capital Cities ABC. We believe in buying value acquisitions that fit into our corporate strategy. And as values become better, prices of overpriced companies come down. Yes, we can be in the market. However, we're not going to overpay and I wouldn't count on it happening the day after tomorrow. We just have to see what happens.

KEENAN: OK, just tried to pin you down there. Thanks for joining us.

EISNER: Thank you very much.

KEENAN: WELL, coming up in the next half-hour of MONEYLINE, it was once the biggest name in telecom, now AT&T getting squeezed by intense competition. We'll have their latest results.

Plus, one Broadway show that's too hot to handle: A financial windfall on the Great White Way. We'll head back to Willow Bay for more MONEYLINE up next.

(COMMERCIAL BREAK)

BAY: In tonight's headlines: both Amazon and Disney beat Street estimates after the bell, and Amazon repeats its pledge to hit profitability in the fourth quarter. Job worries pushed consumer confidence lower for the six time in seven months, hitting a four and a half year low.

And a Broadway blockbuster, "The Producers," is an immediate hit, playing to packed houses, and charging the highest ticket prices ever. We'll head to the theater for a behind the scenes look.

But first, weak earnings and quarterly warnings dominated Wall Street today. The markets were unable to sustain gains made early on, closing down for the third session in a row.

The Dow gained more than 100 points within the first hour of trading, only to finish near the lows of the day. The index ended down: 77 at 10,454. Some of the biggest Dow losers: Wal-Mart, Hewlett-Packard, and Disney.

A similar story on the Nasdaq, after climbing nearly 40 points in the morning, the index reversed course, dropping: 42 points or about 2 percent at 20.16. Chips and chip-equipment stocks took the biggest hit. The broader market lost: nearly 15 points to close at 1209.

Tonight's MONEYLINE movers: Viacom surprised to the upside, but investor concern about the advertising slowdown and possible strikes in Hollywood, sent Viacom shares down nearly two. Checkpoint sank more than 10. The network security firm beat Wall Street targets, but its outlook raised a red flag, Checkpoint admitting it's disappointed with demand, and declined to give guidance for the next quarter.

Guidant plunged more than four after a profit warning. Late yesterday, the medical device-maker warned of a second quarter sales and profit shortfall, and today's analyst reaction was merciless. Several analysts downgraded the company, and Goldman cut Guidant from its recommended list. Guidant shares are now off nearly 30 percent this year.

Several earnings reports out after the bell. Jen Rogers joins us now from Instinet with all the after hours action.

Jen, what's going on?

JEN ROGERS, CNN CORRESPONDENT: Well, Willow, another busy earnings afternoon here. Let's start with Amazon.com. The company coming out basically in line with guidance it had given the Street earlier this month. It beat its own estimate by a penny. The company also as you mentioned sticking to its guidance of profitability by the end of the year.

We saw the stock up more than a dollar, above $17, but it has pulled back recently. Right now, up just 21 cents at $15.89, the second most active issue here at Instinet.

The most active issue here with over 500 thousand shares changing hands is Applied Micro Circuits, that's AMCC. Shares right now are down more than $2. Now, the communications chip maker came out in line with lowered estimates of 9 cents, but it warned for the next quarter. It also didn't meet the revenue number for this quarter, and we are seeing this stock drop sharply on same heavy volume.

To the upside, though, Disney. Disney up nearly a dollar. Up 92 cents at $29.50. The company coming out and beating the Street by 6 cents: that despite revenues being down from a year ago -- Willow.

BAY: All right, Jen Rogers reporting. Thanks, Jen.

Investors today were contending not just with profit reports, but also with a key economic report on consumer confidence. As we mentioned, confidence took a hit during April, slumping back to 4 1/2- year lows. Joining us now with his take on the report and the economy overall is Anthony Crescenzi, bond market strategist of Miller Tabak.

Tony, welcome.

ANTHONY CRESCENZI, MILLER TABAK: Thank you, Willow.

BAY: What hit the consumer confidence numbers? Was it all about the job market?

CRESCENZI: It seems to be. This confidence number that came out today was released by the Conference Board. Now, the Conference Board survey tends to reflect upon labor market conditions more than most other confidence surveys because they ask a lot of questions about labor market continues. They ask questions such as how do you feel jobs are now? Are they hard to get? Are they plentiful? It seems like the jobs hard to get component is rising while the jobs plentiful component is falling. But luckily, the jobs plentiful component is still kind of high.

BAY: Given what we report, a near daily stream of layoffs, is that number likely to erode further?

CRESCENZI: Well, it just might. After the last recession, in fact, we saw the jobless rate continue to go up. Jobless claims continued to rise for about a year and a half. So, the jobs market can be looked at as a lagging indicator. Think of a department store, for example. If their sales were to increase of all of sudden because of the Fed's rate cut, would they go out and hire workers all of a sudden? Probably not, there's a lagging effect.

BAY: So, what's your sense about how bad it's going to get in the job market?

CRESCENZI: Well, I don't think it'll get all that much worse except for the lagged effects of the slowing economy. But we have to remember, we came from a very, very tight labor market condition with the jobless rate under 4 percent to 4.3 percent currently.

If it does, in fact, go up to 5 percent, that'll still be far below the 7.8 percent that we saw in the last recession. So, I think even though it's a very terrible situation for many individuals, on a macroeconomic basis, we'll be standing with a low jobless rate.

BAY: A low jobless rate aside, things are getting tougher in the job market and we're seeing that effect on consumer confidence, so will we see an effect on consumer spending?

CRESCENZI: I think that we will, but the Fed's rate cuts are a very significant buffer against a decline in consumer spending. Think of one of the major things that has happened this year, consumers are out there refinancing their homes. There will probably be $700 billion of homes refinanced this year, putting a lot of extra money in people's pockets and it really helps to lift spending.

BAY: So, I mean at this point, do you think the Fed's rate cuts are enough to keep consumer sentiment and therefore consumer spending fairly strong?

CRESCENZI: I think the consumer side of the equation does look, indeed, very good. What we might worry about, and what the Fed seemed to react to last week with this surprise rate cut, is the level of business spending. They're not too worried about consumer spending right, and a tax cut is right around the corner. In the next month, we're going to hear about legislation passing through the Congress.

BAY: Where are we headed in terms of the Fed? More rate cuts are on the way, we presume, but what's your expectation?

CRESCENZI: Well, the bond market priced for the Fed funds rate to go down to 4 percent from 4 1/2 percent currently. I think that's an appropriate assessment. It might go down a little lower than that, but the fact is it's already impacting, as seen through mortgage refinancing, through strong housing conditions, through strong car sales, that the economy is set to rebound.

This quarter alone, automobile production will be boosted to such an extent it'll add 1 1/2 points to GPD after taking away 2 points in the first quarter. It'll be a significant boost to growth, and sentiment regarding the economy will shift a lot and I think we'll hear a lot about the Fed not needing to do much more. In the bond market, the yield's rising, saying we don't think there's going to be a lot more.

BAY: Great, so the bond market is saying that and you tend to agree.

CRESCENZI: I certainly do, at this point.

BAY: All right, Tony Crescenzi, we'll take a little bit of good news there. Thanks.

CRESCENZI: Thank you.

BAY: Coming up on MONEYLINE: After releasing disappointing earnings, AT&T warns for the third straight quarter. When will the long-distance phone company get it together?

And regulation fair disclosure may be losing support fast. We take a look when MONEYLINE continues.

(COMMERCIAL BREAK)

BAY: In tonight's "Sector Report": telecom stocks. First, earnings from the baby bells. Late today, Verizon posted results a penny better than expected, and both sales and profits gained ground. Verizon, you may recall, was formed last year with the merger of Bell Atlantic and GTE.

Qwest communications results matched expectations. Despite a drop in profits, sales climbed 12 percent, thanks to a strong growth in data services. In trading today, Verizon fell fractionally, although it is up almost half a point after hours. Qwest, though, edged higher.

And SBC and Bell South, which already reported in-line with the Street, also moved fractionally. The former Ma Bell also out with numbers today. It edged past lowered estimates, even as profits plunged.

And AT&T tacked on a warning for next quarter. Still, the AT&T faithful say investors should be patient. The company is in the midst of a massive restructuring, and is set to split into three publicly- traded companies this summer. Today, AT&T gained fractionally to $22.12.

Steve Young has the full report.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): What a difference 12 months makes for AT&T's investors and its CEO, Michael Armstrong. Because of grueling competition and plummeting long-distance prices, the company squeezed out a profit of just 6 cents a share after stripping out one-time expenses, down 80 percent from a year ago.

Add in all the accounting baggage, and that's more than a $365 million, or 10-cent-a-share loss. But Wall Street focused instead on AT&T reassurances on its sales guidance, and planned to split into three companies this summer, in what one analyst called the sloppy bottom line.

MARC CROSSMAN, J.P. MORGAN CHASE: If you're focusing on that, you probably don't want to own the stock. If you're focusing on the restructuring value and what the individual pieces are going to be worth from an asset standpoint, you definitely want to hold the stock today, because we didn't hear anything on the top line that really caused us to hit the panic button.

YOUNG: The chairman and CEO of the wireless group, John Zeglis, can point to a sharp 46 percent increase in quarterly sales. Everything else sagged or failed to grow as fast as expected. But despite AT&T's fall from grace, analysts say Armstrong still has breathing room.

TIM HORAN, CIBC WORLD MARKETS: He's doing the right things in terms of reducing debt and breaking up the company, and I think the board of directors is clearly going to give him the next two years to re-transition the company. Where he ends up at that point, it's not really clear.

(END VIDEOTAPE)

YOUNG: Some analysts say investors could realize 25 percent growth if they're willing to hang on for another 18 months -- Willow.

BAY: All right, Steve, thank you. Steve Young reporting.

Last but not least in the telecom world: Lucent. The company posted a wider than expected loss today, but revenue outpaced expectations. Meanwhile, Agere, Lucent's struggling fiber optics spinoff, reported a mammoth profit plunge, and announced 2,000 job cuts, or about 11 percent of its work force. Topping it off, Agere expects to post a loss next quarter.

Checking investor reaction, Lucent gained more than a dollar while Agere lost 41 cents to $6.74, still languishing near its $6 IPO price.

Coming up on MONEYLINE, it's been six months since Regulation Fair Disclosure went into effect. So is it working? The SEC debated just that today. We'll have the story when MONEYLINE continues.

(COMMERCIAL BREAK) BAY: It was a rule that sent shockwaves across Wall Street and put a chill into corporate America. Last year's implementation of fair disclosure, in which the Securities and Exchange Commission mandated that companies issue material information to everyone on an equal basis. But now the SEC has second thoughts about how to punish any possible infractions.

Allan Dodds Frank has the story.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): It is always good news when the cops on the beat say they do not plan to hand out many tickets. The cops in this case: acting Securities and Exchange Commission Chairman Laura Unger, and Commissioner Isaac Hunt. Their potential targets: companies struggling to comply with the 6-month-old fair disclosure rule, known as Reg F.D.

POLLY PEARSON, INVESTOR RELATIONS, INC.: That was great news today. They've put it in writing, they've said it on the podium, but to say it in such a mass-market forum such as today, I think will help ease a lot of companies' concerns, that the SEC is just trying to do the right thing.

DAVID SHEDLARZ, CFO, PFIZER: The fact that they reiterated to industry at large that they're going to be cautious about the way they implement the provisions of regulation F.D. is quite good, and something industry needs to hear.

FRANK: The regulation is designed to force companies to release material information to all investors, not just hand-picked stock analysts or mutual fund managers. But one industry study suggests that nearly one company in four, perhaps on the advice of corporate lawyers, has chosen instead to release less information.

LAURA UNGER, ACTING SEC CHAIRMAN: Some of the issuer community understands that we aren't on a witch hunt. and that they would convey that back to the lawyers and perhaps loosen up communications a little bit as a result.

FRANK: Some analysts concede the rule helps investors.

CHUCK HILL, FIRST CALL/THOMSON FINANCIAL: We had too many analysts that were doing not much more than parroting what the company was telling them. Well, that game is over now.

THOMAS KRAEMER, MERRILL LYNCH: What F.D. forces you to do is to talk to customers more, to do more independent survey work.

FRANK (on camera): Reg F.D. is working, according to the media panel. Indeed, disclosure has improved since companies began issuing more press releases and opening conference calls and Webcasts to investors.

Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: Coming up on MONEYLINE, our financial editor, Myron Kandel, says he has no patience for critics of full disclosure. He'll give us his opinion next.

And the producers take the theater world by storm. We head behind the scenes of this newest blockbuster.

(COMMERCIAL BREAK)

BAY: Word today that a California millionaire will finally be allowed to shoot for the stars. Today NASA agreed to permit Dennis Tito to fly to the international space station Alpha aboard a Russian spaceship sent to launch on Saturday. Tito, who paid Russia $20 million for the trip, spared a major row between Russia and U.S. officials. This, after NASA objected to the timing of the first space tourist.

Tito worked for NASA before founding Wilshire Associates and its Wilshire 5000 index of stocks, known as the broader -- broadest measure of the market.

Our financial editor tonight is worried about issues closer to Earth. Joining us, Myron Kandel -- Myron.

MYRON KANDEL, CNN FINANCIAL EDITOR: Well, Willow, all the fuss about Regulation FD leaves me cool. I think the complaints by companies and analysts are too bad, when the considerable record of Arthur Levitt as chairman of the SEC is analyzed, we'll see that Regulation FD was one of his crowning achievements. I think it's good news for the individual investor, and they need some help.

BAY: So, Myron, but let me walk through some of the criticisms. I've had companies say to me, look, we're simply going to disclose less under Regulation FD, and Allan Dodds Frank just reported that one in four companies are releasing less information. Why are you not concerned about that?

KANDEL: Well, because they're probably listening to their lawyers who always give them that kind of advice. The fact is that companies should not disclose information to analysts and professional investors that they don't to the public at large. And sure, they will find their way through, and the SEC has said they're not going to enforce this overly strictly.

I think the SEC and the industry and the securities people can come to some agreement, and today's panel was a good start.

BAY: Yes, another question, Myron: one of the hopes here is that that analysts will work harder. They'll do independent surveys. Do we have any sense at this point that that's the case?

KANDEL: Well, they're beginning to do it. You know, too much lately, too often lately, Willow, analysts depended on the companies themselves to give them the news and the outlook for the companies instead of doing their own work. Analysts are supposed to do some analysis, and this will make them do it, Willow.

BAY: All right, Myron, thanks for your take on that.

And we have some late-breaking news about actor Robert Downey Jr. who checked himself into a Los Angeles area rehabilitation facility hours following his arrest earlier today. A spokesman for the actor said Downey will be at the rehab center for 72 hours.

Downey was arrested earlier today in Culver City, California and booked for investigation of being under the influence of a controlled substance. Downey has had a string of drug-related problems, and he was scheduled to appear in court on April 30 for a hearing relating to a drug arrest last year.

Up next: a Broadway blockbuster. Plus, "Ahead of the Curve." Stay with us.

(COMMERCIAL BREAK)

BAY: Taking a look at some of what could move the markets tomorrow: new and existing home sales for March are out in the morning. Both numbers are expected to fall.

And the durable goods report for March is expected to reverse February's loss. Plus, quarterly reports from DaimlerChrysler, Chevron, Halliburton, Bristol Myers-Squibb and American Home Products. To stay a step ahead of the markets, tune into AHEAD OF THE CURVE. That's at 5:00 a.m. Eastern on CNN.

Finally tonight: about a half-a-mile from our New York bureau, what some are calling the "miracle on 44th street." The show is "The Producers," now selling tickets at the rate of about $1 million a day.

Peter Viles joins us now from the theater with the details on this Broadway blockbuster -- Pete.

PETER VILES, CNN CORRESPONDENT: Willow, the miracle here is that this show a throwback, and old-fashioned musical comedy, the kind of show Broadway used to put on 50 years ago. And yet, it has become very quickly the biggest hit on Broadway in years.

(BEGIN VIDEOTAPE)

(BEGIN VIDEO CLIP, "THE PRODUCERS")

NATHAN LANE, ACTOR: Two cardinal rules of being a Broadway producer are one: never put your own money in the show.

MATTHEW BRODERICK, ACTOR: And two?

LANE: Never put your own money in the show!

(END VIDEO CLIP)

VILES (voice-over): Old Broadway advice, but you can bet most theater producers wish they had put some of their money in this show. "The Producers" is the hottest ticker on Broadway in years, even at the highest prices Broadway has ever seen, $100 for the best seats.

UNIDENTIFIED FEMALE: Mel Brooks is terrific, so I'm making the sacrifice for him.

UNIDENTIFIED MALE: It has to be worth it, and I think this is worth it, but it is still very expensive.

(BEGIN VIDEO CLIP, "THE PRODUCERS" MOVIE)

GENE WILDER, ACTOR: Mr. Bialystock, I cannot function in these conditions!

(END VIDEOTAPE)

VILES: Based on a 1967 Mel Brooks movie that became a cult classic, it's the story of two hapless producers who try to stage a flop, a musical about Hitler's Germany, but end up instead with a giant hit. And on 44th street, life is imitating art.

Even in previews, "The Producers" was challenging "The Lion King" for the Broadway box office title. Both take in roughly $1 million a week. When the show opened last Thursday to rave reviews, Mel Brooks and the eight other real producers of the show took a gamble: they raised top ticket prices to $100.

GEORGE WACHTEL, AUDIENCE RESEARCH & ANALYSIS: This is not unprecedented. "42nd Street" opened in 1980 at $35, jumped to 40. "Cats" opened at $40 in 1982, and immediately jumped to 45 after opening.

VILES: Despite the sticker shock, advance sales are running at $1 million a day. Scalpers are getting up to $400 for choice seats to weekend shows.

PAUL LUBIN, ST. JAMES THEATER: Broadway can always use a great hit, and this is one of the greatest hits of all time, I think. You know, based on the response -- the day after opening, we did over $3 million worth of tickets, sold something like 34 or 35,000 tickets in one day. Nothing like that has ever happened on Broadway before.

(END VIDEOTAPE)

VILES: So, just to give you an idea of how head over heels people are about this show, it only opened five days ago, but the critical reviews has been so overwhelmingly positive, and the box office has been so strong, there is talk now on Broadway that this show will be running in this theater 10 years from now -- Willow.

BAY: Pete, I would sneak in and see it tonight anyway. Thank you.

That is MONEYLINE for this Tuesday. I am Willow Bay. "CROSSFIRE" is next.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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