Skip to main content
CNN.com /TRANSCRIPTS

CNN TV
EDITIONS





LOU DOBBS MONEYLINE

Stock Prices Soar on Wall Street

Aired February 25, 2002 - 18:00   ET

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


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU DOBBS, CNN ANCHOR: Stock prices soar today on Wall Street. Investor's hopes boosted by rising expectations from some of America's biggest companies, and by the continued boom in the red-hot housing market.

ANNOUNCER: This is LOU DOBBS MONEYLINE for Monday, February 25. Here now, Lou Dobbs.

DOBBS: Good evening, everyone. A huge stock market rally. The rally sparked by good news from corporate America and record home sales. But even on a day when the Dow Jones industrials soared nearly 200 points, there is still concern about investor confidence. Tonight, we begin a special series on who can you trust. that trust, of course, a critical element of Wall Street's success or failure. We'll tell you how the system has failed, and what's being done to fix it.

We'll also hear from stock market strategist Joe McAlinden who says rising stock prices always come before economic recovery. Economist Lakshman Achuthan who says the recovery is well under way, but it may not be as strong as some would like. And market meteorologist Jon Davis joins us to tell us what the weather is to move markets, to move them more than you might imagine.

But first we begin on Wall Street. The Dow climbing back above 10,000 and staying there,upbeat earnings news, a better than expected housing report combining to send stock prices higher today. The Dow Jones industrial soared 177 points. Closing at its highest level in nearly two months. A stunning run up for technology issues, as well, the Nasdaq climbing 45 points, the S&P 500 up 19 on the day.

Christine Romans at the New York Exchange, Greg Clarkin at the Nasdaq market site. We begin with Christine.

CHRISTINE ROMANS, CNN CORRESPONDENT: Lou, from tractors to soap, to lumber, to computer chips investors were buying pretty much everything here today, and the Dow stocks flourished. Take look at Caterpillar, the biggest percentage winner on the day, up nicely here after a bullish article in "Barron's" this weekend. Kodak reiterated guidance, that emboldening the players who have already been seeking safety in Kodak's dividend yield. Kodak shares, you know, up 11 percent just in the past month.

GM raised earnings and production estimates investors took this as a sign the economy is turning. And Proctor and Gamble stages its fifth rally in seven days. Even beleaguered shares of AT&T, that stock down 12 percent in just a month. Got caught in a buying spree over all. Now some bullish forecasts from a couple retailers. Helping out here nicely, Lowe's among them. This one had an earnings report, it's a home improvement retailer, showed profit up 55 percent in the period and guided higher for all of 2002. It's Betting that the economy is going to continue to recover. And people are going to be using that money in their homes.

Williams-Sonoma up a $1.06. GE up better than a dollar, here, as those worries about accounting concerns definitely taking the back seat here, today. EMC, the storage giant, up 86 cents. But, Lou, one stock that was among the most actives here today that did not join in this buying frenzy, AOL-Time-Warner. The COO, Dick Parsons, late this afternoon saying that concerns built into this stock price are -- quote -- "overblown." But still on a rally like this, you did not see that one join along. Those concerns continue.

Also, some folks are starting to talk about the sustainability of this. Remember, last week was a pretty wild week over all. Volume today about 1.3 billion shares. The bulls would have liked to have see more, Lou.

DOBBS: OK, Christine, thank you very much. Christine Romans, let's turn over to Greg Clarkin at the Nasdaq market site. The Nasdaq up 2.5 percent on the day -- Greg.

GREG CLARKIN, CNN CORRESPONDENT: And, Lou, you know, you take that strong economic report, you mix with some pretty good corporate news out of technology companies, and the stage really was set early this morning for a nice run up in the tech stocks.

Let's Start with Qualcomm, the company coming out and saying that their quarter is on track to meet financial goals. On of that they say their chips for cell phones are showing very strong demand. Demand is strong for those chips. And Qualcomm shares up almost 10 percent on the day. That's from a stock that was down 40 percent a year today, before today's trading. Intel rode the wave of the chips stocks, that was up $1.49. Sun Microsystems, it gets upgrade out of Bank of America, they say their recent pull back there offers investors a nice entry opportunity into the stock. And that stock rose 80 cents. And in Emulex, which is a storage company, they had a strong upgrade out of First Albany, and the stock rose nicely.

Now all the big name technology shares participated today. All the big caps are nicely higher. Let's take a look at some of the other names. Dell, Oracle, Cisco, Microsoft all posting pretty decent gains on the day, a really no losing sector. Biotechs and networking stocks were slightly higher. But the chip stocks really the winners today. Philadelphia Semiconductor index up almost 6 percent on the day.

Couple of notes of caution, though, we did see throughout much of the trading session, today, declining issues out ahead of advancing issues. That turned around, right at the very end of trading. And Volume picked up a little bit so possibly some good signs going into the close. And the composite finishing out its best level in about two weeks: 17.69. Lou, back to you.

DOBBS: Greg, we'll always take those kinds of cautionary notes. Greg, thanks. Greg Clarkin.

Well, home sales climbed to an all-time high, jumping more than 16 percent in January. Boosting sales, of course, low mortgage interest rates, unseasonably warm weather and rebounding consumer confidence. Another catalyst on all of this, the increased number of immigrant families joining the ranks of homeowners. Kitty Pilgrim has the report.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Norcross, Georgia is a suburb of Atlanta. A community where Asian immigrants have chosen to settle. Some signs are even in Korean. In this housing development in Huntington Beach, California, immigrant families have joined other home buyers in the rush to sign up to buy a house in a new development.

Asian and Hispanic, two major groups of immigrants, are boosting housing numbers nationwide. During the 1990's nine million immigrants came to this country legally. The only other decade that even approaches that kind of influx of immigration was between 1900 and 1910. Immigrants tend to buy homes about 10 years after arriving in the United States. They tend to be in the 25-44 age range, prime family building time. But home builders say they are not buying the basic starter home.

MICHAEL CARLINER, NATL. ASSOC. HOME BUILDERS: One of the trends that we see with immigrant families is that they will purchase for an extended family. Where the parents will live with them, the grandchildren will live with them, so in a lot of instances its a larger home with more bedrooms that can accommodate an extended family.

PILGRIM: Generally, home sales reflect economic slowdown, but not this time. Immigration has kept the pace brisk, filling in the void left by the baby boomers moving out of first time home buying market.

UNIDENTIFIED MALE: The immigration population has filled in for what we normally would have expected to be, a slow down based on the influence of the babies bust in late 1960's and 1970's. The people that are immigrating are generally about the ages of the people in that group, and it smoothed out the age distribution, it's increasing the number of first time buyers.

(END VIDEOTAPE)

PILGRIM: Now this trend should hold for quite some time. The immigration boom of the 1990's has to play out, and according to the Census Bureau the number of households will increase for at least the next 10 years -- Lou.

DOBBS: That's some powerful stuff in terms of the demographics. PILGRIM: It certainly is. And it's a good sign in the economy.

DOBBS: All right. Kitty, thank you very much.

Today's powerful rally lifted the blue chips for the year. The Dow now up more than 1 percent on the year. But the Nasdaq and the S&P 500, however, remain sharply lower, year to date.

For now on the future of these markets, Joseph McAlinden of Morgan Stanley Investment. Good to have you here.

JOSEPH MCALINDEN, MORGAN STANLEY INV. MGMT.: Good to be here.

DOBBS: The market today and Friday, posting a better than 300 point gain. Good times are here?

MCALINDEN: Well good times are here; it's beginning to look like good times are here and the economy is evidence by the day today on home sales. But also data that we had -- had creeping out in the last couple of weeks. And finally that's beginning to get investors attention overshadowing these account issues, which had depressed them for a while in February.

DOBBS: And tomorrow we have an opportunity to reacquaint investors with those concerns, we will hear not only about Enron, but the role of analysts on Wall Street, and why they were keeping their buy recommendations on Enron as it imploded. So investors will be focusing on that again as we in the news media focus on it, one presumes. How important will be the Enron affect over the direction of the market in the next few months?

MCALINDEN: It may constrain it a little bit further. But I think within a couple of months it is actually going to turn into a positive effect -- Lou. Because once we get through the first quarter, I think there's going to be a rush of companies calling in their auditors, look at their books, get out lots of detailed footnotes to reassure people that they're not one of the ones that were cooking the books. And so we need to get to that space. That point in time which will be April or May.

DOBBS: How strong do you think corporate earnings are going to be? We are coming up on the period. We're a little ways away but --

MCALINDEN: Historically earnings don't turn up until a quarter or two after the economy. So we are saying we think the economy is turning right now. And so you would look for the earnings to turn up in the second quarter or the third quarter, which is what I believe will happen. It will be up moderately for the year. But the key is it will be up very strongly in 2003 over 2002 with a much higher level of confidence in those earnings.

DOBBS: Should investors at this point, hold back their cash, simply wait or are there opportunities, in your judgment, in this market.

MCALINDEN: I would not hold back cash. I think we have seen a major bull market get under way beginning in the third week of September. And we've had an interruption with this Enron news in late January and February. I think that's beginning to blow over. And that we're moving now into another strong advance. I think this Dow, as I said to you before, is on its way to 12,000. I think it would be foolish to wait. The return on cash is very, very low now. Most money market funds are 1.5, 1.75 percent, whereas a return on stocks could be 15 or 20 percent over the course of the next year.

DOBBS: Unless one gets a terrible surprise and finds out that the accounting in the financial reporting of the company is not been what everyone presumed?

MCALINDEN: Right. And there probably will be additional companies, but there's 11,000 companies out there. And the vast majority of them are keeping their books properly and not engaging in these games. And once investors get to the point where they have confidence in that, which is going to take another couple of months, this market I think is going a lot higher.

DOBBS: In terms of where we should put our money, what sectors, what industries?

MCALINDEN: I still think the basic industries look attractive. Capital goods, the capital spending cycle is not going to turn up until late this year or early next year. But the capital goods stocks are starting to look attractive now. The one long shot domestically I think is the energy stocks, which could, over the next two or three years, do very well.

And I'll give you one last note. Looking outside of our borders, I think that EFAA (ph) or the non-U.S. markets will outperform the U.S. over the next year.

DOBBS: And you've been very high on Japan, which frankly, surprises me a bit.

MCALINDEN: I think that Japan has -- there are a number of signs starting to come out indicating that the downside is minimal, the upside could be dramatic. Japan could be the call of decade here. We want to watch for developments...

DOBBS: Are you making the call?

MCALINDEN: In money that I manage, I'm inching in. I'm slightly over with Japan right now. I would go to a massive overweight. If I could see just a few more signs on the bank reform side and structural reform in Japan, but what we are seeing is quantitative easing of the monetary policy for the first time. It's very dramatic.

DOBBS: Joe, thank you very much. Joe McAlinden. And when you get ready to make that call all the way, let me know.

MCALINDEN: Thanks.

DOBBS: Coming up next, the United States wants to extradite the top suspect in the kidnapping and the murder of "Wall Street Journal" reporter Daniel Pearl.

American security experts arrive in Italy. They're there to help investigate a terrorist plot to attack the U.S. embassy in Rome. We'll have that story coming up.

And drought is threatening much of the eastern United States. We'll have expert opinion coming up on what this unseasonably warm weather means for the markets and the economy.

(COMMERCIAL BREAK)

DOBBS: The U.S.-led military operation in Afghanistan has unearthed evidence from terrorist camps that may have prevented attacks on American targets. Now, intelligence sources say they're learning who may have supplied some the weapons to the Taliban and the al Qaeda. Barbara Starr reports.

(BEGIN VIDEOTAPE)

BARBARA STARR, CNN CORRESPONDENT (voice-over): This Russian, Victor Boot (ph), known to U.S. intelligence for years as the world's most notorious arms trafficker, is now the subject of an international manhunt. CNN has learned that British military intelligence recently found documents and other evidence in Afghanistan that they believe proves Boot supplied arms to the Taliban and al Qaeda right up until September 11.

PHILLIP VAN NIEKERK, CENTER FOR PUBLIC INTEGRITY: He's an extraordinary person and he's very big. And the question has to be asked how one individual is able to go as far and to sell as many weapons to as many places as he does.

STARR: Phillip van Niekerk, an investigative journalist, has looked into Boot's worldwide network and obtained Belgian intelligence documents detailing his arms shipments to the Taliban.

VAN NIEKERK: We know of at least one case where he's commissioned, his profit was $50 million, which is fairly substantial when you're talking about a war that's conducted primarily with small arms.

STARR: Two U.S. intelligence sources tell CNN there is also circumstantial evidence that Boot has shipped weapons technology into Iraq. U.S. intelligence believes he may have supplied Baghdad with sophisticated missile guidance sets. U.S. military officials urgently want Boot in custody to ask him about any possible link between Osama bin Laden and Saddam Hussein.

Intelligence agencies have kept Victor Boot on their radar for years as he operated a fleet of Russian cargo planes from the United Arab Emirates. Intelligence officials tell CNN he shipped everything from tanks to rifles into civil wars and conflicts in numerous countries across Africa and Asia. U.S., British and you United Nations officials believe that as payment, he took drugs from Afghan buyers and diamonds from Africans, and that he also flew arms into the Abu Sayyaf group in the Philippines, a group which has been linked to al Qaeda.

Sources say Boot will do anything for a deal, often sheltering his illegal activities behind legitimate operations and multiple identities. A U.S. government docile (ph) calls him intelligent and personable.

VAN NIEKERK: His operation is very extensive, 40 to 60 planes, something like 300 people on the ground, plus, a network of associates spreading across the globe.

(END VIDEOTAPE)

STARR (on camera): And, Lou, tonight Victor Boot may be feeling the pressure. Belgian authorities have taken a man into custody, a diamond mine owner from Kenya, who is said to have a lot of information about Boot's dealings with the al Qaeda. U.S. authorities want to talk to that man. And it is also widely believed that now, Interpol has issued an international arrest warrant for Victor Boot -- Lou.

DOBBS: Barbara, thank you very much. Barbara Starr from Washington.

Well, the U.S. government says intense negotiations are now underway with Pakistan to extradite the top suspect in the kidnapping and brutal murder of Daniel Pearl. Pakistani authorities say Ahmed Omar Saeed Shaykh masterminded Pearl's abduction a month ago. Today, the White House said legal options exist for his extradition.

(BEGIN VIDEO CLIP)

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: There is actually a treaty dealing with extradition with Pakistan that was signed in 1931. It went into effect in 1942. Prior to Pakistan becoming a sovereign state, because that was under the time when Pakistan was under the British empire, but it's interesting to note that the lawyers say that treaty does remain in effect.

(END VIDEO CLIP)

DOBBS: Meanwhile, a Pakistani judge has ordered Shaykh and two alleged accomplices jailed for two more weeks while prosecutors continue to build their case.

American security experts today arrived in Rome. They're there to inspect a utility tunnel that terrorists may have planned to use to attack the U.S. embassy. Italian police believe a group of Moroccan men planned to use the tunnel to launch a chemical attack on the embassy. Last week, police raided their apartment in Rome and they found large quantities of a cyanide compound, explosive powder and maps of the water network around the U.S. embassy.

Still ahead here, we're going to give you an advance look at tomorrow's hottest hearing on Capitol Hill. The topic, of course, is Enron. The witnesses are two former top executives who very much disagree, vice president Sherron Watkins and former CEO Jeffrey Skilling.

We'll also be talking with the leading authority on corporate governance about what went wrong at Enron and what should be done to make it right in corporate America. That's all later here in the broadcast.

In this country, Americans are experiencing the warmest weather since records began in 1895. The effects in the East are plain to see. Reservoirs are well below normal levels. The mild weather is having a big economic impact as well.

Joining us now, Jon Davis, meteorologist at Salomon Smith Barney, joining us from Chicago. Jon, good to have you here.

JON DAVIS, SALOMON SMITH BARNEY: My pleasure.

DOBBS: What is the reason for this warm weather?

DAVIS: Well, that's actually something that we've been debating over the last four to six weeks. And traditionally, we think of El Ninos and things like that creating this kind of warm weather. But this winter is very unique in that we don't have those atmospheric signals there that really created this. And really when you look back to last fall, this winter was kind of one of those that was somewhat unforecastable as to there's really no indication that we're going to get into this kind of ultra-warm conditions.

DOBBS: And, unforecastable or unforecast at least, this warm weather. As I understand it, the last three months, the warmest on record ever. The period January 15 to February 15 in the United Kingdom, the warmest ever. And they've been keeping records a lot longer than we. What is the impact? We know that, for example, because of the warm weather, housing (UNINTELLIGIBLE), as we just reported, soared in the month of January. What are some of the other effects?

DAVIS: Well, really from an energy standpoint, when we talk about heating demand across the U.S., whether that's natural gas, whether that's heating oil, certainly from a consumer standpoint, we don't nearly have the kind of heating bills that we had for, example, a year ago. There's actually a lot of additional money in people's pockets here this winter compared to a year ago. And the differences are really remarkable. Across most areas of the country, especially in the big population centers of the central and the eastern U.S.

DOBBS: And that's more good news in what has been a recession and even though, if we may believe the experts now, in recovery. What about the impact on agriculture itself?

DAVIS: Well, really, from an agriculture standpoint, we've really had a dry bias across much of the country over the past three and a half months. That has had some minor implications. But, of course, in the winter, we don't grow that many crops. But that will become a very hot issue as we go into the spring and summer. Of course, the timeframe, won't even to begin to grow their summer crops across the U.S. DOBBS: Well, and as you know, New York City, a drought warning. We're told that this could be a very severe drought. Let me ask you, how severe is this drought? How large an area will be affected?

DAVIS: That's a really big issue and that's an issue that we're going to hear a lot about over the next six or eight months. We have unusually dry conditions in about the eastern quarter of the country, but that corresponds to heavy population centers from the northeast through the mid-Atlantic region down into the southeast.

The situation began last summer, has continued over the winter. And this is the timeframe where you expect to see an increase in reservoirs, an increase in moisture levels. And we still can do that in the spring. But we're getting closer and closer to the summer, when we typically see a decline in moisture conditions across those areas. So we're kind of running out of time to really improve this situation and there's no question, that especially when you go into the summer, we're going to have some problems.

DOBBS: Well, since you're in financial forecasting as well as meteorology, let's get a rate and a date here, as they say, Jon. How severe is this drought going to be, in your judgment?

DAVIS: Well, I mean, over the last four to five decades, for the last six or seven months, this is one of the drier periods we've ever seen across the eastern U.S., and with very little chance of improving greatly over the next couple of months. As you go into the spring, go into the summer, this is certainly going to be an issue that we hear about in a lot of the eastern U.S. And typically, these situations don't improve in the summer. They improve at this time of year and that's the reason for the concern.

DOBBS: Is it correct, as I hear you, to state your view, that this has the potential to be the worst drought in four or five decades?

DAVIS: Well, in some areas, possibly, but you never have that widespread of a situation across those locales. And so the difference in this situation is really population growth across areas like the southeast and mid-Atlantic. We need a lot more fresh water nowadays than let's say what we needed four or five decades ago. So the world is a little bit different now here, and thus the effects in the eastern U.S. will likely be even greater.

DOBBS: OK. Jon Davis, as always, good to have you here. Thank you.

DAVIS: My pleasure.

DOBBS: Well, coming up next, squaring off on Capitol Hill. Two key witness in the Enron investigation prepare to take the stand. Two very different accounts about what happened. They'll be testifying before Congress.

And tonight, the first in our five-part special series for investors. Who can you trust? We'll take a look why one of Wall Street's early warning systems failed to alert investors about Enron's collapse.

ANNOUNCER: Next, Lou talks to Espen Eckbo, director for the Center of Corporate Governance.

(COMMERCIAL BREAK)

DOBBS: Enron vice president Sherron Watkins and former CEO Jeff Skilling will face off on Capitol Hill tomorrow, both scheduled to testify before the Senate Commerce Committee hearing on Enron's collapse. Their testimony is becoming more than just a war of words. And earlier this month, they gave clearly contradictory accounts of who knew what and when. Allan Dodds Frank reports.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Smooth and confident, almost to the point of arrogance, former Enron CEO Jeffrey Skilling showed no fear, only a failure of memory during his first appearance.

JEFFREY SKILLING, FORMER ENRON CEO: All I can say is on October, or August 14, the date that I left the company, I believed that the company's financial statements were an accurate reflection of its financial condition.

FRANK: Despite his reputation as a control freak who knew the key details of Enron's critical dealings, Skilling testified he could not remember a board of directors' discussion about a partnership set up by chief financial officer Andrew Fastow.

UNIDENTIFIED MALE: You never heard Mr. Fastow say that you would approve all these transactions?

SKILLING: I don't recall.

FRANK: In fact, Skilling recalled little about Enron's special partnerships.

SKILLING: While I was at Enron, I was not aware of any financing arrangements designed to conceal liabilities or inflate profitability.

FRANK: But a week later, Enron vice president Sherron Watkins challenged Skilling.

UNIDENTIFIED MALE: Do you believe that he knew the actual financial condition of the company, Mr. Skilling, that is?

SHERRON WATKINS, ENRON VICE PRESIDENT: Yes, I do.

FRANK: An exchange about Skilling's knowledge of a partnership called Raptor, one of Enron's special purpose entities.

REP. EDWARD MARKEY (D), MASSACHUSETTS: In your opinion then, at the very top of the company, these men were well briefed with regard to what was going on inside of these special purpose entities?

WATKINS: It would be my opinion that Mr. Skilling would be very well briefed about these transactions.

(END VIDEOTAPE)

FRANK (on camera): Jeffrey McMahon, another critic of former CFO Andrew Fastow, has survived to become president of Enron. He also will testify again. Earlier, McMahon had said he had gone to Skilling to complain about Fastow's handling of the partnerships. But Skilling then testified that he recalled little about McMahon's concerns, other than he was worried about how much he would be paid if he complained -- Lou.

DOBBS: Allan, thank you very much.

Well, new questions tonight about what Jeffrey Skilling knew and when he knew it. Congressional investigators have obtained a copy of a videotape from an October 2000 meeting with employees. On that videotape, Skilling responds to a newspaper article. That article attacked Enron's practice of booking long-term contracts as current income.

(BEGIN VIDEO CLIP, OCTOBER 3, 2000)

SKILLING: So I think the entire article was just, you know, was just one of these things that gets dredged up every couple of years. It has absolutely no merit, no substance. Our accounting policies are not only appropriate, in my opinion, they are conservatively executed, so we're in a strong position from an accounting basis.

(END VIDEO CLIP)

DOBBS: In his February Congressional testimony, Skilling said he knew of nothing wrong with Enron's finances when he resigned last August. Congressman Henry Waxman says the videotape raises questions about his testimony.

Tonight, we begin a special weeklong series for investors. It's called "Who Can You Trust." The series focuses on some of the lessons investors can take from the Enron scandal, a scandal that seemed to catch regulators and market professionals completely off guard.

We begin our series of reports tonight with a look at the credit ratings agencies. These are the agencies you rarely hear about, but who are critical to maintaining investor confidence. Peter Viles reports.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice over): You rarely hear about them, but they can drive a company into bankruptcy, or bring an entire nation to its financial knees. Just ask the finance minister of Argentina.

Credit rating agencies, there are only three that matter and all three face criticism they were late to warn that Enron was unraveling, Fitch, Standard & Poors, and Moody's. All three downgraded Enron debt to junk status on November 28th. Five days later, Enron filed for bankruptcy.

LAWRENCE WHITE, NEW YORK UNIVERSITY: Their job is to be out there looking real hard. Their job is to be a watchdog and I don't think "we were fooled like everybody else" is a good enough excuse.

VILES: The agencies have said Enron failed to provide the information they would have needed to spot the trouble sooner. Agencies can ask for more information, but they can not demand it.

STEPHEN JOYNT, PRESIDENT & CEO, FITCH RATINGS: I would like to think that in the future, we can be more prescient by asking more detailed questions, but I have to tell you that without the proper information, we don't pretend that we're auditors or accountants. I'm not sure, even on re-reflection, that we would have done much differently unless we had a different set of information.

VILES: In fairness, there may have been no way for the agencies to signal Enron's troubles without forcing it into bankruptcy within days, because of ratings triggers that forced Enron to repay $3.9 billion in debt if its ratings slipped below investment trade.

The agencies have responded by requesting more information from other companies about off-balance-sheet entities, and about ratings triggers. They've also moved to speed up credit reviews, but they are hampered. Bond investors have complained that they don't want changes that would make the bond markets more volatile.

In general, agencies have no qualms delivering bad news to large companies. Take Kmart, Standard & Poors has rated its debt as junk for six years now, and Global Crossing never won an investment grade rating from any of the big three ratings agencies.

(END VIDEOTAPE)

VILES (on camera): To date, Congress has not indicated great displeasure with the way the ratings agencies handled Enron. The three agencies have not been asked to testify, nor have they been asked for information about how they went about rating Enron's debt. Lou.

DOBBS: At the same time, it's a little concerning that they're not sure what they would have done differently, because it does seem one thing that all of us should learn in this is that there are things we could have done differently, particularly the ratings agencies which have such power to reach in, much more power and influence than Wall Street analysts.

VILES: While they're saying they wouldn't necessarily have done anything differently, they are doing some things differently now. They're more aggressive about these off-balance-sheet entities, asking the companies "what can you tell us?" Companies don't have to tell them, but those relationships are generally fairly cordial and also, asking about triggers. In the case of Haliburton learning of the trigger, they did downgrade the debt.

DOBBS: And it's interesting that that date, November 28th.

VILES: November 28th.

DOBBS: For all of them.

VILES: Yes.

DOBBS: It looks almost synchronized, doesn't it?

VILES: Yes, it was. It was within minutes in the case of the two large ones, Moody's and Standard & Poors.

DOBBS: And Fitch, before it used to have the reputation of being the more aggressive of the two, of the three, but now trying to be as big as the others. So, it will be interesting. So, thank you very much, Peter Viles. Fascinating.

Enron's collapse has put special focus, of course, on the role of corporate board members. The Bush Administration may be considering ways to make it easier to punish directors and officers who mislead shareholders. Now many companies are finding it much more difficult to recruit new members of the board. Fred Katayama has that story.

(BEGIN VIDEOTAPE)

FRED KATAYAMA, CNN CORRESPONDENT (voice over): Executive recruiters are having to dig deeper into their Rolodexes to produce more candidates for company boards. In the post-Enron world, corporate executives are becoming increasingly reluctant to become directors.

DENNIS CAREY, VICE PRESIDENT SPENCER STUART: Enron has had a significant effect on our ability to recruit directors. We recruit for about 250 boards a year, so that the five turndowns for one acceptance pre-Enron, we're now seeing maybe as many as seven, which is a very noticeable difference. Anytime you have to tick off another one or two to get to yes, that's significant.

KATAYAMA: Directors of Enron are under fire for contending they didn't know about its financial problems, and shareholder suits accuse them of insider trading, the panel that has come under the most scrutiny the audit committee. Board recruits fear being put on an audit committee, which they see as an easy target for litigation.

Former commerce secretary Barbara Franklin, a member of several boards, has recently chaired two audit committee meetings.

BARBARA FRANKLIN, FORMER COMMERCE SECRETARY: It's not going to be easy necessarily to lure people onto audit committees now, now that Enron has happened. I do think there's been a sea change here, and the Enron episode is the 9/11 equivalent in the corporate arena.

KATAYAMA: Now, companies are focusing on finding executives with accounting or financial backgrounds for their audit committees. With few executives wanting to join, many firms are seeking retired partners of big five accounting firms, but many of those candidates are turning them down too. One development that could make potential candidates and sitting directors more nervous, few insurers are reserving their right to void their policies covering Enron's directors.

(END VIDEOTAPE)

KATAYAMA (on camera): But experts say there's some good in all this. Already some directors report that boards are meeting more often, and those meetings are getting longer. They're questioning management and outside auditors more and probing deeper than before the Enron debacle. Lou.

DOBBS: I'd be astonished, wouldn't you Fred, if they weren't? There's also a very serious pall being cast here because this is hard work. People who have no appreciation for the member of a board of directors, when he or she is truly probing and getting into the company's business, I mean that is heavy lifting and it's easy to understand why people are very reluctant to join those boards. It's honorific in some ways.

KATAYAMA: We're talking about 175 to 200 hours a year serving on committees when they're assigned to a board, and as you pointed out, the risk of litigation is there, and that's what's scaring a lot of people.

DOBBS: Terrific. All right. Thank you very much, Fred. Well, Espen Eckbo says the boardroom is the investor backstop and in Enron's case, that backstop completely failed. Major changes, of course, are needed. Professor Eckbo is the Director of the Center for Corporate Governance at Dartmouth's Tuck School of Business. Professor, good to have you here.

PROFESSOR ESPEN ECKBO, DARTMOUTH COLLEGE: Good evening, Lou.

DOBBS: We've just heard Fred Katayama report on the difficulty of recruiting suddenly members of the board of directors. Any surprise in that for you?

ECKBO: Well, I think it's clear that after Enron it's going to be hard to get people to join the boards, especially also after the proposed additional penalty for negligence and perhaps incompetent behavior.

DOBBS: Raising the standard as the Bush Administration is proposing, and the President has put forward a panel to make those recommendations, but the suggestion you carry to carelessness and negligence with penalties, how do you react to that as a governance expert?

ECKBO: I'm not so sure it's going to address the real issue with the weakness of the board. As a matter of fact, it might actually backfire. If I'm sitting on the board and I have the chance of being accused of incompetent behavior, I might actually tell management to slow down and do an investment policy that is less risky. And the result of that can be quite lower (UNINTELLIGIBLE) and corporate American might actually suffer from that. DOBBS: What percentage, Professor Eckbo you're an expert, a professor finance at the Tuck School. This is your focus, your career. What percentage of boards would you say are truly fully competent engaged in the business of the company and the board they sit on?

ECKBO: I think that the problem here is that the boards are asked to play two roles. One is as an adviser to the management, which most board can do, and they are actually selected that way. The other role is as a monitor and critical control against the management, and that is a much harder role to play, and many boards do not have that skill.

DOBBS: Many boards do not have that skill. It looks, it suggests as you're suggesting, it looks as though it may become even more difficult. I've had a number of people tell me, who sit on boards, frankly sitting on the audit committee is one of the most burdensome things they can imagine right now, and they're not particularly pleased about it.

ECKBO: It's a tremendously difficult thing to do, to switch from being a consultant and a discussion partner with the management, to become one a monitor and a (UNINTELLIGIBLE) to that management.

The task of the board is to hire and fire and set compensation, and that's hard to do when you get close to management and you play and you sort of have a good relationship with them. Many times they are on the board because management proposed them to be on the board, and we need to sort of get away a little bit from that sort of recommendation and promotion system.

DOBBS: How are you going to get them on the board?

ECKBO: Well, you basically need, I think, to get shareholders involved and recommended and new board members. You need to make it easier to vote down management recommendations. Right now, we have to mount a proxy contest if you disagree with the current slate of board recommended by the incumbent.

DOBBS: And you think that's the best solution?

ECKBO: It's very costly to mount a proxy contest. I think we need to look at the whole system how we elect board members and to instruct board members to be proactive in the sense of looking for problems, being ready to fire management, being ready to ask the hard questions.

DOBBS: All right. Professor Eckbo, thanks very much for being with us.

ECKBO: Thank you too, Lou.

DOBBS: A programming note, tomorrow Senator Byron Dorgan leading the testimony of the Senate committee. Jeffrey Skilling, Sherron Watkins appearing before the Senate Commerce Committee. Of course, he will be joining us as our guest here tomorrow night. And still ahead here now, Olympic success for U.S. athletes, what does that mean in terms of cash? Also, the producer of "West Wing" is in deep hot water over his remarks that he made about the President of the United States. We'll tell you why and what the potential economic impact might be.

(COMMERCIAL BREAK)

DOBBS: The International Monetary Fund will not be making any new loans to Argentina, that word coming from an IMF official today who says, Argentina's fiscal arrangements "have to get back to a more sustainable situation." And they are not in that condition tonight. In Buenos Aires, Argentina's president says he hopes to win further political support this week for more budget cutting steps.

Some economists say today's very strong housing report proves the end of the recession is near, our recovery at hand. It also supports the theory that signs of imminent recovery are credible. That's the view of my guest, MONEYLINE contributor Lakshman Achuthan of the Economic Cycle Research Institute. Good to have you here.

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Thank you.

DOBBS: Strong, I mean it's unbelievable strength in housing. You've been saying that recovery is here. It's just another brick in the foundation of a strong recovery, right?

ACHUTHAN: Definitely, I mean the weather was certainly a helpful factor this time, but underneath that, we're looking at these trends and they're intact. They're telling us that recovery is imminent, and what they're also saying that part of this housing data, there's building permits we look at that was out last week, and that's helping to push our long leading index to a 52-month high. So, looking at the -

DOBBS: That doesn't sound like a recession at all.

ACHUTHAN: Well, we're looking, the long leading index is really interesting. It does just that. It leads by about a year. So even though the recovery in the beginning may be somewhat tepid, this is starting to give us some evidence that it could become more robust in about a year's time.

DOBBS: And you believe that recovery is already underway?

ACHUTHAN: It's happening. It will be dated somewhere in the first quarter, either January, February or March. When the dust settles, we'll say that's the end of the recession.

DOBBS: Those things are great for the academics and the economists, but does this feel to you as you look at all of these reports and all of the financial reporting that we're getting from corporate America, does this feel like recovery to you.

ACHUTHAN: That's a very good point, because this is very subtle. We're going to have, I think, probably a 1991 type recovery, and if you remember back, that was a jobless recovery. It was two weak in the beginning to really turn around the job market, and as we know and as we've been hearing, I think corporate profits are going to remain under pressure for the near term and that's also part of the recovery in the beginning.

DOBBS: So what should investors be looking at to say, recovery is here. The market is on its way. What is the one thing to focus on?

ACHUTHAN: Long leading index. See there is no one thing. There's no Holy Grail. So I would look at a composite of longer leading indicators or the weekly leading index that we talk about, which is also pointing clearly to recovery. You have to take all of these indicators together to get a picture, and to see through this kind of contradicting information that you feel right now. The tough part is that that's for investors, that's for the stock market looking forward.

DOBBS: So what we want to do is every Monday then, when you're here, let's have that index up.

ACHUTHAN: Sure.

DOBBS: And everybody can take a read on it. How about that?

ACHUTHAN: I think that's an excellent idea. That's what I'd do.

DOBBS: All right. We put you to even further work.

ACHUTHAN: OK.

DOBBS: Lakshman, as always, thanks a lot.

ACHUTHAN: Well thank you, Lou.

DOBBS: Appreciate it. The next thing we're going to take a look here on MONEYLINE Olympics. The Olympics may be over, but the race for corporate sponsorship has only just begun. We'll tell you who the likely winners are next. Stay with us.

(COMMERCIAL BREAK)

DOBBS: In corporate news tonight, Williams Communications is considering filing for bankruptcy protection. Rival Global Crossing, of course, filed for Chapter 11 earlier this year. Williams Communications aims to slash costs by 25 percent and expects drastic job cuts. The energy giant, Williams Company, has completed its spin off of the telecom last year.

Liberty Media will not become Europe's largest cable operator. German regulators have rejected John Malone's proposal to buy six regional cable systems from Deutsche Telekom. Liberty Media was about to pay $5 billion for the privilege and Deutsche Telekom saying "no thank you" instead to seek other potential buyers.

And, William Shatner is back in a new series of Priceline ads. This morning, Shatner kicked off a new radio advertising campaign for the Name Your Price travel Web site. Priceline.com says it is Shatner's early commercials that helped make it one of the most recognized brands in the travel industry.

"WOLF BLITZER REPORTS" begins in just a few minutes. Let's go to Wolf to find out what he has for us. Wolf.

WOLF BLITZER, WOLF BLITZER REPORTS: Thank you very much, Lou. We're following several developments. We'll go live to our Chris Burns in Karachi to get the latest on the Daniel Pearl murder investigation, to Herat in western Afghanistan to get a live report from Nic Robertson on Iran's role in Afghanistan, and to our Pentagon Correspondent Jamie McIntyre.

I'll also debrief our Terrorism Analyst Peter Bergen, and our National Security Correspondent David Ensor, on the whereabouts of Osama bin Laden. It's all coming up right at the top of the hour. Lou.

DOBBS: Looking forward to it, Wolf. Thank you. A night on the town cost five traders at Barkley's Capital in London more than a five-figure bar bill. That's a lot of money. It was their money, but that little expense cost them their jobs.

The traders gained notoriety after spending $66,000 of their own money last July on vintage wines at Petro's Restaurant in Central London. The celebration reportedly led to their departure because the extravagance angered some customers.

Their $66,000 bill didn't even include food. The food was thrown in for nothing. But the excessive spending didn't end with drinks. They were said to leave a tip in the four-figure range.

Coming up next here, the "West Wing" war of words and the potential financial impact and the race for post Olympic gold. It's all about finance next. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Scathing criticism tonight from the creator NBC's "The West Wing" about the real West Wing. In an interview in the New Yorker Magazine, the shows creator, Aaron Sorkin blasts President Bush and media coverage of the White House. In the article Sorkin says: "We're simply pretending to believe that Bush exhibited unspeakable courage at the World Series by throwing out the first pitch at Yankee Stadium. The media is waving pom poms, and the entire country is being polite."

NBC and Warner Brothers who produce "The West Wing" declined to comment to MONEYLINE about Sorkin's controversial remarks, but the White House did respond to another of Sorkin's charges that it beefed up President Bush's schedule to make him look busy for a Tom Brokaw special on NBC a few weeks ago. The President says the president's schedule is typically busy.

Well, high ratings for NBC's Olympic coverage won the network bigger profits than had been expected. NBC said those ratings were the prime time equivalent of eight, eight Super Bowls. Total advertising sales $740 million, that translates into a profit of about $75 million. The total likely to widen when receipts from NBC's cable affiliates are included, and of course, high television ratings equal high name recognition for top Olympic athletes.

The United States won more medals at Salt Lake City than in the last three Winter Games combined, and that means the race for corporate endorsements is well underway. Susan Lisovicz has the story.

(BEGIN VIDEOTAPE)

SUSAN LISOVICZ, CNN CORRESPONDENT (voice over): There is the first African-American to win gold in the Winter Games. There is the third generation Olympian who carried the picture of his grandfather to victory. And there is the gold medal speed skater who worked at Home Depot to make ends meet.

Charismatic figures with dramatic performances at the Salt Lake Winter Olympics have captured viewers' attention and corporate America's. Listen to gold medal snowboarder, Ross Powers.

ROSS POWERS, SNOWBOARDER: My agent's been super busy.

LISOVICZ: And so has the agent for Canadian pair skaters Jamie Sale and David Pelletier, who scored the first big deal post Olympics with Crest toothpaste.

MICHAEL KEHOE, PROCTER & GAMBLE: They made the world smile. Their smiles are beautiful in the first place, very natural and healthy, beautiful looking.

LISOVICZ: But experts say determining who will take home the most endorsement gold could be as tricky as some Olympic judging. Gold medal figure skater Sarah Hughes could have limited options.

STEVE ROSENER, FOUNDER, 16W MARKETING: When Madison Avenue or any other company is looking for somebody to get involved, I think the one thing they're looking for is credibility, and I think with credibility the one thing that she lacks is experience, and no fault of hers, but she's 16 years old.

LISOVICZ: But experts say some Olympic champions, like Dan Jansen, have managed for forge careers that are at least as long as their pursuit of athletic excellence.

ROBERT URBACH: It's very popular and powerful getting corporate, head noting corporate speeches and, of course, served as a broadcaster for NBC, which you know, his career has clearly transcended his Olympic performance.

LISOVICZ: Double silver medalist Bode Miller considers Jansen a role model.

BODE MILLER: I want things that I can relate to or I think I can really endorse and support the company with some honesty to myself. LISOVICZ: But he's ruled some things out.

MILLER: I mean there's obvious things. I'm not going to be doing any women's lingerie ads or things like that.

(END VIDEOTAPE)

LISOVICZ (on camera): And that's another thing that corporate sponsors also want, a good personality and good sportsmanship. That may be why Michelle Kwan is believed to earn more in endorsement money than Tara Lipinski, the woman who edged past her in Nagano, and despite a third-place finish, she is expected to be a magnate for more corporate deals post Salt Lake City -- Lou.

DOBBS: How big is this Sarah Hughes, the remarkable 16-year-old, how big do you think she'll be?

LISOVICZ: Huge. Even though her age works against her. Say for instance, she's not going to be getting Chrysler endorsements. She doesn't even drive yet. But the fact is this is a woman who, at a very young age, undertook something very ambitious, edged past veterans, and also is talking about her academic career. She wants to score a 1600 in her SATs. There's lot of companies who want her, especially if she goes to the next Olympics, that's four years.

DOBBS: That motivation and that great smile and wanting to achieve at that level educationally. Maybe we can get a sponsorship for MONEYLINE or something. Thank you very much, Susan. Appreciate it.

LISOVICZ: Future anchorwoman.

DOBBS: Absolutely. Let's keep her. She can do more with 1800, I think than that. Thanks a lot, Susan. Here's a reminder to join us tomorrow, if you would. Richard Meserve, the Chairman of the Nuclear Regulatory Commission will talk about efforts to improve nuclear power plant safety. We hope you will join us for that.

As we continue our coverage of the Enron investigation, the hearings resume tomorrow in Washington. We'll be covering that as well, of course. That's MONEYLINE for this Monday evening. Thanks for being with us. Good night from New York. "WOLF BLITZER REPORTS" begins right now.

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



 
 
 
 


 Search   

Back to the top