Market briefing --- Matt (slow)
NYSE --- Bob (fast)
Interview: Rohatyn Partners---Rohatyn, Felix---President
welcome to “world financial report.” the big mover in extended hours, one of them, shares of ebay. they are on the rise after the company reported a 92% increase in its profit. more people listed items for sale on their internet auction site and used paypal, their payment service to square up their bills. the numbers were better than analysts expected. first quarter income climbing to 32 cents a share. 92% higher. the company is raising its full year sales and profit forecasts. sales this past quarter for 59% higher, year and year better than expectations. bloomberg’s greg miles will be speaking with ebay c.e.o. meg whitman in “bloomberg live” coming up at 6:00 p.m. new york time. qualcomm also boosting its trast. second quarter profit quadruple dead manned for phones that use qualcomm’s wireless technology surged last quarter. taking a look at qualcomm shares in extended hours, add oferinge $2.50. second quarter income raising to 58 drents a share. back out extraordinary items, earnings topped forecast by five cents. actually, you see there 48 cents to 50 cents. revenue up 19%, also topping estimates. the chip maker said third quarter earnings will be as much as 50 cents a share, 11 cents more than analysts were expecting. shares closed higher ahead of the report. let’s give you the closing numbers here today. s&p 500 up for the fourth time in five days. the dow not worth speaking about there percentagewise. the nasdaq almost .9% higher. bonds also moving here today, rising. the 10-year up and this after fed chairman alan greenspan says he doesn’t see broad-based inflation. some relief in the bond markets , you might say. latest trade in the currency markets if we can. there you go. little change there. dollar was mixed in u.s. trade. bob bowdon has been tracking the action down at the big board and joins us with the latest. bob?
>> mr. nesto, a number of companies had earnings today a number of big-cap companies had earnings. in number were up today. a couple down. united stecknologies, the biggest drag on the dow jones industrials, although the dow finished up two points. shares of u.p.x. dropped 8% after the company failed to boost its 2004 forecast that. was down. another big cap laggard with earnings, j.p. morgan shares down 2.25% after recording better than expected 92 cents a share against 87 cents as an expectation. the plem was consumer banking profit fell as mortgage earnings dropped 48%. that is in contrast to other companies like bank of america and citigroup which reported stronger first quarter consumer lending. other bank stocks were mostly higher. as i indicated, many of the large cap stocks with earnings were up on the day such as ford. that stock up 10% after it said first quarter net income more than doubled to 1.95 -- $1.95 billion. operating earnings were 96 cents a share against a 44 cent share expectation. other auto stocks rallied as well with daimlerchrysler shares, in particular, up over 3% on the day. if you think those ford gains were impressive, consider motorola stock which was up 19%. motorola reporting first quarter profit of 19 cents a share. motorola only expected to report 17 cents. that’s once again 19 cents instead of seven cents more than double the expectations. eastman kodak shares up 2.6% after it said that profit for the full year 2004 would be as much as $2.45 a share. the company only expected to earn $2.18. that’s the latest. matt nesto, back to you in the big studio.
>> thanks, bob, very much. federal reserve chairman alan greenspan says the economy is in a vigorous expansion with no broad-based inflation pressures yet.
>> as i noted previously, the federal funds rate must rise at some point to prevent pressures on price inflation from eventually emerging.
>> greenspan says faster growth has started to boost hiring, but worker incomes have yet to rise and trigger higher prices. economists and investors say his comments are laying the ground work for an interest rate increase as soon as august. our next guest says the u.s. economy is heading towards catastrophe, similar to the situation new york city faced in the 1970’s, only worse. investment banker felix rohatyn is the president of rohatyn associates and is also the former ambassador to france and says the federal budget deficit is out of control. he joins us in the studio. the budget deficit out of control and the u.s., the federal government in worse shape than the city of new york in the 1970’s.
>> i think it has a lot of similarities. basically we are violating the most basic rule of business, which is that you never take risks that you can’t afford to lose. new york city took those risks and almost went bankrupt by having totally out of control deficit, and assuming that the markets , that the bond markets would always buy their bonds. in the last analysis we were able to fix it, but it came very, very close to a total loss. i think at the national level we are running this poll sieve giving away free money, of running huge budget and foreign deficits, big increases in the national debt and collapse of our currency. on the assumption that the foreign central banks are always going to finance us no matter what. they may do that, but they may ask for much higher interest rates or some of them may not do it. i just think that these risks, at least we ought to recognize that we are taking them because if we lose, it’s going to be very, very serious.
>> some people would say the projected budget deficit at $500 billion, $550 billion, as a percentage of g.d.p. today, is less than it has been historically because of the size of the economy. now estimated at $11.6 trillion.
>> we never, in my recollection, we are running both domestic deficits of that magnitude and foreign deficits of an equal magnitude because our foreign deficit is also $500 billion a year. we are running $1 trillion of combined deficits, and we expect foreign capital to always support us, namely at the rate of $2 billion a day. i think that is a bad bet to make without having any kind of backup plan in case things go wrong.
>> it’s interesting. you make the correlation with new york city which got the federal bailout, but that option is not available to the federal government.
>> it isn’t available. what we are relying on, instead of our reliance on the federal government in new york, we are relying on the central banks of china, indonesian, the european to make up these deficits. i saw in the paper yesterday in “the washington post” a quote from the vice-chairman of the national bank of china saying, “don’t expect to us keep buying your treasury bonds if you don’t do something about the value of the dollar, which keeps decreasing all the time.”
>> eroding their investment value.
>> and maybe, at the very least, making them require much higher interest rates in order to keep in the game. you see how sensitive this economy is to higher interest rates.
>> what if they stop buying? i think you wrote in your column that was in “the financial times” last week that the dollar would fall preciptously if interest rates move up and we have to deal with a global crisis.
>> it might. i don’t think this is a risk we can take. when we dealt with the new york city fiscal crisis, we were able to generate bipartisan cooperation here between the republicans and the democrats. i think to deal with the national problems that are created by what i believe to be a reckless economic and fiscal policy, we don’t have at this stage the possibility of bipartisan cooperation in washington, which i think is totally fundamental to this. we are fighting a war by ourselves, which is probably going to require another $50 billion, $100 billion. we have the chinese beginning to say, wait, don’t assume we are always going to buy your bonds. democrats and republicans don’t talk to each other, which i think is extremely dangerous.
>> thank you very much. one of his closing points in the column is that he would like to see the u.s. safer, not only from terrorism, but financially and economically safer, as well. policy makers from the i.f.m. are gathering in washington. we’ll be joined by the chief economist of the world bank next.
