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Interview: Wells Capital Management

>> the monthly anticipation of the jobs report comes out at 8:30 new york time. economists surveyed by bloomberg anticipate 200,000 jobs wered a last month. however, our next guest dishave a different forecast. tkpweury schlossberg with wells capital management joins us from san francisco. gary, good to have you on the show.

>> thank you. good to be here.

>> before we get to that jobs report, we have to start with today’s attacks in london. when you look at landscape, how long do you think it will be before we see what kind of economic fallout, if any, this will have given the fact that you had that initial reaction this morning where people were really concerned. that seemed to really abate by the end of the day.

>> hopefully it will be short lived. certainly we won’t know until out over the next several weeks or over the next couple of months as the data comes through. if this is similar to the attack in madrid, the hope is that the economic fallout will be limited.

>> what sign also you look for in the coming weeks? which pockets of the economy, for example?

>> we had the weekly consumer confidence polls of consumer sentiment, consumer confidence. weekly same store sales. it’s the weekly economic data in the u.s. that should provide clues to the fallout. the hope is that that fallout will be fairly limited for an economy that seems to be on the up swing now. we had a limited soft patch in the second quarter. things seem to improve now as we head into the second half of the year. hopefully we can maintain that.

>> what are signs of improvement that are most important right now?

>> beginning with today’s same store sales report, of course, the improved weather certainly helped. the backdrop i think is supportive as well. we had the strong egs gain in chain store sales from last year. auto sales are holding up quite well. aggressive incentives attributed to that a.purchasing managers survey on manufacturing and non- manufacturing came in a bit better than expected. it looks like we are regaining some momentum despite a rise in oil prices.

>> let’s tie this into the jobs report that comes out tomorrow. your forecast is not as optimistic as the consensus as the retail sales. what are you forecasting for tomorrow?

>> bg hraor for an increase of 185,000 in non-farm payrolls. the difference with consensus is more degree certainly than tone. it’s a clear cut improvement over what we saw in may, a 78,000 increase according to the preliminary data. early returns are encouraging. perhaps the most hopeful sign is the employment component to that non-manufacturing purchasing survey. it is consistent with a good- sized increase. jobless claims numbers were fairly steady during early june. that may limit the rise. more generally i think in june. even now as things are improving there is a certain amount of caution among business amid that rise in oil prices. i would temper the forecast but still a good number for tomorrow i hope.

>> why do you think you’re below the consensus? do you think people are too optimistic?

>> we are coming off a weak report in may. it’s really more a question of degree than anything else. 200,000 increase would probably put us closer to an underlying trend that is more consistent with growth of 3.5%. i think we’re moving in that direction. i don’t know we’ll be there with tomorrow’s number. i think that the move back up toward a more acceptable employment number on average, the underlying trend, will be a little more extended. but, again, i’d say that i’m still looking for a good spin to that employment number tomorrow despite all the hurdles with a strong dollar, fed tightening and rising oil prices.

>> do you think consumers -- let’s tie this to the jobs report and your expectations -- do you think consumer also keep spending given where oil levels are and given the job creation we have?

>> i think the encouraging part of it is that job creation i think is positioned to support the kind of growth and consumer spending we have seen as of late. more importantly unlike the previous oil price spikes back in the 1970’s and early 1980’s, the backdrop is more conducive to spending. specifically interest rates are low. they have been declining until recently. that provides support to housing. consumer spending indirectly through increase in household wealth. refi activity is up. subdued inflation contributing to the low level of interest rates is providing support to purchasing power as well. fundamentals driving consumer spending i think are quite good and should remain so over the next couple of months. a lot of the strength centered on consumer spending and housing. a slower rotation than expected toward business investment i think.

>> so very briefly what do you see on the wage increase front?

>> we are looking for a .2% rise in average hourly earnings tomorrow which translates to a fairly restrained increase. i believe it’s 2.5% or so year over year. we’re not looking for wage inflation really getting out of control at this point.

>> gary, thank you for joining us.

>> thank you. good to be here.

>> gary schlossberg of wells capital management. well, the london bombings did sipped the u.s. treasury market surging earlier today. we take a closer look at market reaction. we’ll have our “chart of the day.” we will be joined by bloomberg editor-at-large tom keene for a closer look.
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>> welcome back to “ after the bell.” media entertainment moguls are meeting in sun valley, idaho for their annual gathering. that overshadowed by events today in london. greg miles from sun valley with some perspective from there. greg?

>> this business meeting is supposed to include a little relaxation, white water rafting and bicycling. more than 300 moguls and c.e.o.’s and their families. the bombings in london caused many to dramatically change their schedules and even agendas at least for today. for example, dick parsons, c.e.o. of time warner, number one entertainment company in the world, spent one hour on the phone touching base to make sure his employees were safe in london. touching base with his executives worldwide. also talking to his top security executive abroad. he called him back to new york city because of the bombings. at the same time you have bob iger, incoming c.e.o. of walt disney company, now the president. he told me he was on the phone at 5:30 a.m. this morning talking with his executives all the way from china to london. he said he received about 50 emails. he made 20 personal phone calls to check to see if everything was ok. you have the host of this conference here in sun valley at last minute adding a new panel late this morning for the business executives and c.e.o.’s. the final topic was terrorism. one of the lead members on the panel was a guest here at sun valley at the conference. he is george tenet, former director of the c.i.a. talking about the problems imposed by the continuing spread of terrorism. also john malone, chairman of liberty media, was at that panel. let’s listen to what john malone had to say about that.

>> everybody knows we’re vulnerable from these kind of attacks. i think if anyone suffers this they’re probably as well policed because of their prior history with the i.r.a. as anyone in the world.

>> at the same time, a new c.e.o. i talked to said they planed to increase their level of security as a result of the attacks. that’s because they say their security levels already are very high. in fact, the chairman of gameco said c.e.o.’s and investors have to learn to live with continuing terrorist attacks. let’s listen to what he had to say about that. >> the market has an ability to support surprises because of the underlying resilience of earnings and the outlook for earnings and so that’s what you focus on short term. at some point in time they may not. right now you have a marginal safety in the market . >> the prime minister of turkey also a guest at the conference. he held a long-scheduled press conference this morning. he came in late because he said he had been trying to get to london to find out what was going on thrfplt he told me he was not planing to increase the level of security across turkey. he says since the istanbul attacks about 18 months ago, security was already very high. back to you.

>> ok. thanks so much. greg will keep us apprised of developments out of sun valley. in terms of market reaction today, certainly insurance stocks were one pocket of weakness. attacks in london, however, may not cost very much for the industry. most of the damage to public subways that may be ensured by the u.k. government. all this happening as the insurance industry in the u.s. is embattled with treasury secretary john snow over government subsidized terrorism insurance. last week recall the treasury issued a report saying terrorism risk insurance acts should not be renewed in december. let’s get perspective on this and how it is playing out. margaret poper covering the story. in terms of laying the groundwork, give us a sense how the terrorism insurance works in the u.k. so we understand the context here.

>> there are two forms of insurance at work here. one is london transport has set up its own captive insurance subsidiary which is what larger companies do to make sure they’re covered as a cheaper way of getting coverage. there is pulre which is in reaction to terrorism by the i.r in 1993. that covers buildings destroyed by terrorism in london.

>> in terms of how it plays out in the u.s., what is the speculation in terms of whether or not this helped the effort here, the case for renewing the subsidy in the u.s.?

>> i think for u.s. insurers in some ways helps make their case because it keeps fresh that terrorism is very real and has to be dealt with. bob hartwig, the economist for the insurance lobby, said to me that the only way to have an efficient dealing with claims after an act of terrorism is to have an act like tria in place.

>> this could be a boom to the insurance industry here.

>> it bolsters the case for passing the law which would be good for them t.would limit their liability and give them backup from the government. in addition, it probably raises premiums because people will look at this and say the threat of terrorism is higher or perceived to be higher so they’ll be able to charge more. it hasn’t cost them anything in paying out claims.

>> which could be historical precedence we have seen in the past which is stocks fall and people are concerned about the cost but you see the premiums go up in terms of what the companies can charge.

>> that’s right. i think you saw the stocks drop suddenly and recover most of the drop by the afternoon as the market sort of figured out well, the damage in terms of actual cost to the insurance companies is not going to be that great.

>> thank you for joining us.

>> good to be here.

>> margaret poper covering the finance industry at bloomberg. a quick break. when we come back, certainly a lot of questions for investors today. one is will the terrorist attacks in london have a major impact on economic growth. also investors looking ahead on the economic calendar. tomorrow we have the june jobs report. what is anticipated? coming up, we’ll talk to gary schlossberg, chief economist with wells capital management. he joins us straight ahead.

Chart of the day
>> the spread between the 10 and two-year treasury notes narrowed further today, shrinking to levels not seen since february 2001. economists at a.b.m. amro say the fed could take more aggressive action to raise short-term interest rates that investors should be prepared for longer and higher rate hikes. that is the subject of “chart of the day.” here to explain is our editor-at-large tom keene. he joins us. with this chart, looking at these spreads that have been so much in focus.

>> we tried to link two things. i thought on a friday ending the week this would be of interest. here is the spread back 20 years. looks like a mountain chart. what it amounts to is up, up, up we go. this is a wide spread, a steep yield curve. the 10-year yield much higher than the two-year yield. then down we go. here is the boom of the 1990’s, then up again, up, up, up we go. here is this descent. from 275 basis points, 2.75%. down today in the morning today, 22 basis points getting quite close to that inverted yield curve.

>> that yellow line here is going to be that point where it inverts?

>> it doesn’t happen too often, which is interesting. what a.b.m. am row is saying, great g.d.p. report, booming economy. the fed is bringing rates up. if we begin to see inflation as governor bernanke talked about earlier, if we begin to see a continuians of a boom economy, the fed may fall behind. he is suggesting you may see one or even two 1/2 percentage point increases in the next six months or out a bit further from there. that is something unusual.

>> are the economists today and the reports you are reading and economists you are speaking to, are they saying investors new year there trying to catch up because people have been so keeping those deals so low when it comes to the market ?

>> there is a complacent. they kept the yields go to get the job market low again. it’s going pretty good. they kept the yields low to get the economy going again. we saw today terrific numbers below that 3.4%. there is a point where they have to catch up. they are doing it in this measured pace. we begin now and suggests in the july into august, we may see economists saying, what about .5%, 50 basis points. not august, not september, but into the end of the year into 2006.

>> what about the reaction specifically to today’s report? it did come in weak earn had been expected in terms of the consensus. people viewing it as bullish for the economy given that we had this string of quarters above 3%.

>> right. persistently good numbers above historic trend line 3.3% or so. the headline number 3.4%, ho-hum. beneath it we saw this interesting idea of booming demand coming out of the inventories. the theory now is now we have to reglennish those inventories, which looks good for this third quarter. richard bernard at morgan stanley said, look, the question is now to soft patch. it’s surprisingly strong resilient summer economy.

>> i was just talking to gina martin making that same point. the strength will come, she believes from the business side but perhaps weakness is from the consumer side.

>> then you get this worry about what the fed is worried about, inflation. you heard governor bernanke. inflation looks in good control. right now a measured rate.

>> thanks, tom. tom keene, our editor-at-large in bloomberg. police investigating the july 21 attempted bombings in london have arrested four men in the british capital as well as rome. mark crumpton joins with us the latest.

>> a police official says all four men whose security camera images were released are believed to be in custody. one was arrested earlier this week. one is in custody in italy, the other two are believed to have been captured in london. sky news reports two of the men are suspected of being among the would-be bomb horse attempted to detonate the devices on three london subway trains and a bus.

>> investigation has, of course, moved with some speed. i must emphasize it is still continuing. it is dynamic, it is wide-ranging. there will be more very visible police activity

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Listen Money and sports

>> bob good gnaw resigned this week. came after the nhl and players ended their lockout. in this week’s “money and sports,” we’re joined by mike beauto in our atlanta bureau. give us a recap of why and who is going to replace him?

>> exactly. to anybody that follows the nhl lockout this was the worst-kept secret that bob goodenow would be out of a job when this ended. bob goodenow and bettman stepped back. the two had been at each other’s throat. it became personal rather than a business-like situation. 24% rollback in salaries plus a salary cap which they―the players were against from the beginning thrafment’s what you have in place now. when players get stuck with sock they didn’t want they vote and they voted out bob good e now.

>> what are the expectations in terms waff his plans are and what we could see him do?

>> ted saskin is good night replacing him. a lot of people say he is the one that reached ate yeement. he is a different personality than bob. players like him. the owners seem to have a little more respect for him. it’s still contentious between the two sides. this seems to be a safe bet for the near future.

>> let’s turn our attention to football. al michael signed an eight-year contract to stick with “sunday night football” when it switched to espn next year. how important was it for espn to get him?

>> it was extremely important. when you think of “monday night football,” at least in the last 20 years or so you think about al michaels. his voice is synonymous with “monday night football.” abc lost “monday night football” to espn next year. it is a big step. his only other choice was to go to nbc. nbc has john madden. al michaels and john madden paired up last year. aving al michaels is a big deal for espn. it will give them the credibility they need on “monday night football.” the big deal for al is the money involved, about $6 million a year. the other offer was about $3 until. an easy decision for al michaels.

>> what other changes could we see on this front?

>> like i said. squon madden is going to nbc so al michaels needs somebody to work with. he’ll have joe theseman who is on espn before. he is a very opinionated commentary and suzy kolber on the sidelines. the most important piece is in place as far as espn is concerned and that’s al michaels.

>> let’s talk about larry brown coming to the new york knicks. did not come cheaply. how is his signing going to affect the knicks’ financially?

>> the good news is it doesn’t go on to their player payroll. it goes under their coaching payroll. about $12 million is what is reported in the new york area papers they’ll be paying him per year to get that money back, knicks will have to get at least in the second round of play-offs to recoup that salary money the way the money works out in the play-offs, knicks could make about $2 million per game. you do the math. you need to get to the second round before you get your larry brown money back.

>> in terms of the prospects, what is the buzz about this?

>> you get a big coach in place. that attracts the players. knicks haven’t made the play-offs since 2000. you get on the west coast phil jackson back with the lakers. larry brown in new york. two biggest markets , two biggest profile coaches. the players will follow. at least the knicks are hoping so.

>> have a great weekend.

>> thanks, ellen. when we come back, we’ll get you caught up with the latest world and national headlines. also the world’s “world’s biggest movers.” today a look at the turkish stock market .

Interview: Chief Investment Officer with Amsouth Bancorp

>> july is drawing to a close. on this last trading day of the month, the s&p has slid back from a four-year high. still, the dow and s&p both up 3.6% for the month. reporting their best july since 1997. it is the best july for the nasdaq since 2003. all this today on the heels of a report that showed continued economic expansion, but that does raise the question of whether higher bond yields are going to attract investors away from the stock market . a lot to discuss. joining me from his firm in birmingham, alabama, to offer his perspective is joe keating, chief investment officer with amsouth bancorp where he helps oversee $25 billion in assets. joe, thank you for joining us on this friday.

>> glad to be here, ellen.

>> what do today’s economic reports tell you about the pace of growth in coming months and have they changed your outlook, at all?

>> the second quarter report was solid. 3.4% growth rate in the economy by itself is pretty much right in line, maybe just a touch above the economy’s long run growth rate. what was interesting is that the headline number was actually depressed by 2.6% because of the inventory drawdown. if you added that back in, that means the economy grew at a pace in excess of 5%. the number i look at is the sum of consumer spending, business capital spending and housing that. grew at a pace of 4.4%. good strong final demand in the economy during the second quarter. inventory draw down says good things about the third quarter because it means thaten vin tries need to be reglennished as well as demand in the third quarter will have to be met with new production, not by drawing down inventories.

>> we saw a lot of this reflected in the bond market today. you saw those yields move higher. that 10-year back above 4.25%. are you shifting your allocation recommendations at all given the rise in bond yields recently?

>> not at the moment. what we have done is we have made sure our duryaugses an bond portfolio are relatively close in duration of the market . we’re still a little shy, but we are darn close. when you take a look at it, right now a very conservative earnings estimate for the s&p 500 in 2005 would say that the market is currently trading something like 17 times below expected earnings, whereas if you took sort of an earnings multiple on a 10-year treasury, it’s about 23 times. on that speaker expective, we think common stocks are still cheap relative to the bond market .

>> what yields would you have to see in the treasury market to make treasuries more attractive to you?

>> well, we think the 10-year treasury right now is in a trading range of 4% to 4.5%. if we get closer to that 4.5%, we probably get closer to neutral on durations in our bond portfolios. if we went above 4.5%, we would probably start moving our durations out and become more interest-rate sensitive in our bond portfolios than the interest rate sensitivity of the overall bond market .

>> begin the rally we saw in stocks during july, retailers particularly strong, real estate particularly strong, what changes are you guys making based on the gains you had in your portfolios you manage?

>> we think the single best play in the equity market today is to invest in dividend-paying stocks. in particular, to invest in companies that have done the best job historically of growing their cash flow, earnings and dividends. we all know returns on common stocks will, both long-term capital gains as well as the dividend is tax advantage relative to, say, the interest income their earnings on a fixed-income security. we are trying to position our portfolio toward companies doing the best job historically growing their dividends and where we think the dividend growth rate will be best in the coming years.

>> let’s name some of these. honeywell and ablabs are two you like in part because of the dividend.

>> that’s right. we really are concentrating on big brand-name companies that have done great jobs of growing their dividends over time. both these companies that you just mentioned are very large brand name companies. both of them are about 10% dividend growers, historically. both have their own particular things going on. abbott labs relative to not having real risk on patent expiration. honeywell being well placed in the aerospace industry. good solid company wrs we think investors can benefit greatly from the growth of dividend over time.

>> i believe you personally own shares of both companies, is that correct?

>> yes, i do. we put our money where our mouth is at the organization in terms of owning the stocks in our portfolios, as well as myself owning them.

>> what you do like about johnson controls?

>> johnson controls is an interesting company. it has grown its dividend in over a 13% compound annual rate over the past few years. it operates in a tough business in the automotive business. what it’s done, it’s done a great job taking market share from other providers of parts into the auto industry. great company, very well managed. good balance sheet, paying down their debt. it’s a company we think has great prospects on a go-forward basis.

>> the biggest risk with johnson controls?

>> we tend to get more and more decline in domestic auto share, in market share by domestic manufacturers. johnson controls is doing a very good job making sure they are also supplying the foreign manufacturer. better twy say that would be just an overall decline in spending on autos would be their biggest risk.

>> thanks. have a wonderful weekend. we’ll take a quick break and come back with our weekly edition of “money and sports.”
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>> welcome back to “ after the bell.” u.s. stocks dropped on concerns the federal reserve continued to raise interest rates comes after the latest report on gross domestic product. as we look ahead, we have procter and gamble set to report quarterly earnings on monday. suez an o’halloran has the story―the story. suzanne o’halloran has the story.

>> p&g is to say profits grew by 8%. net income is expected to be 55 cents a share according to thomson financial. revenue probably rose 8%. that is the smallest gain in two years. chief executive rolled out products such as downey softener in developing countries such as mexico. this helped p&g tap markets that are growing twice as fast as here in the u.s. investor nick colas says it will be helped by the company’s ability to manage higher commodity prices.

>> this quarter is going to be a combination, i think, of some modest top-line growth and cost-savings growth. it is an important part of p&g’s earnings growth over the past months as energy price is have risen.

>> the $57 billion acquisition of gillette will boost p&g’s overseas sales. gillette got 65% of revenue from outside the u.s. last year. p&g raised its long-term annual sales forecast when it announced the purchase of gillette in january. sales are expected to rise between 5% and 7%. william schmidt says p&g is benefitting from new products. the company launched 106 new items in april including tide to go, a portable stain remover. p&g has topped analyst profit estimates in the past eight quarters, yet the stock’s 5% rise during the past year is trailing the s&p 500’s gain of 13%. the majority of analysts recommend buying the stock. 33% rate it a hold. as we mentioned, p&g continues to face higher commodity costs and morgan stanley says oil and coffee are the toughest one force the company. analysts expect p&g to discuss how it will address that and other issues on monday’s conference call. back to you.

>> thank you so much. moody’s saying new york attorney general elliot spitzer’s office subpoenaed information how the company rigged reinsurance companies and mortgage-backed securities. spitzer’s subpoena details how moody’s pursued and performed the businesses of rating reinsurance companies since january 1, 1997. it included how moody’s put together unsolicited ratings as well as ratings on companies that did not participate in the process. moody’s saying it is cooperating and responding for the demands from spitzer’s office. biotech stocks gained on the back of better than expected second quarter earnings. many investors expect the rally to continue. in fact, some investors choosing biotech as less risky substitutes for bigger drug companies. here to explain why is bloomberg reporter june lawrence with today’s edition of taking stock. i want to start off. you spoke to some investors who it sounds like are choosing biotech for the first time. never considered them before. why is that?

>> the investor whose i talk to who have that perspective, they are large-cap growth investors who like health care because it’s got the demographics they like. it’s got the growth. they like biotech because now they see it as less volatile. it’s got these big biotech companies like amgen or genzyme have kind of diversified revenue streams. they are not dependent on just one product. they are not soar and plunge the next day when some bad headline comes out of that one product.

>> we’ve seen a lot of volatility in some of the stocks including bad selloffs.

>> yes. february biogen idec suspended sales of brees brees. it was connected―breeze breeze. there is an argument where you can see some are volatile.

>> given the rally we’ve seen in biotech, what kind of gains are people projecting or hoping for?

>> gains in biotech? i don’t know. they didn’t say they were expecting sort of―they were expecting the best growth in the market . one analysts i talked to at s.g. cowen said biotech will grow 18% for the next five years. earnings are growing to grow 18% earn persian share. big-cap pharma will grow 2%. that is a big differential. if you can get stocks that are similar in terms of riskyness, it’s a good bet.

Interview: Economist with Wachovia Securities

>> well, i think it’s a good number. it reflects strong growth. importantly, it confirms the fact that the american economy is on the right path and the things that underlie that number were encouraging, as well. much stronger exports, strength across the board in construction and housing. and the fact that inventories were depleted suggests we are going to have strong results for the third and fourth quarters.

>> that was treasury secretary john snow giving us his reaction to the latest g.d.p. report and the nation’s output of goods and services grew to 3.4% annual rate in the second quarter. also today a survey showing manufacturing growth accelerated in the chicago area this month. the improvement much stronger than economists had been forecasting. also the university of michigan consumer confidence index for july rising to the highest level since december. what does the future hold for economic growth? here to offer her insight is gina martin, economist with wachovia securities and joins us from our washington bureau. thank you for joining us on this friday.

>> thank you for having me.

>> a lot of focus in today’s report on inventories and the fact that the inventory levels came down. does that indicate to you as we are hearing from other folks and investors are reacting to that economic growth perhaps will accelerate?

>> i think it will because we’ll have an inventory bounceback in the third quarter maybe, and the fourth quarter, as well. inventories went down much quicker than we thought they would

>> given today’s report then, have you been spending time rejiggering your forecast for the second half of the year? we are expecting some final sales slowdown. we’ve got final sales in at the strongest pace we’ve seen since late 2003 in the second quarter, with which was a bit of a surprise for us. we expect that number to moderate going forward that. will be offset by the inventory increase, which keeps the second quarter growth somewhere around 3%.

>> given the fact we have oil prices and back above $60 a barrel, how does that play into it, begin that the slowdown you talk about really seems to be coming on the consumer side ?

>> it certainly is on consumer minds. the latest survey of back-to-school spending shows consumers are little bit hesitant to spend this much this year as last year. i think it’s obviously going to turn onto a little bit of a decline in consumer spending going forward. that’s baked onto our forecast.

>> what’s interesting is we obviously are on the last day of the month. in the stock market where we saw a surge for the major indexes for the month of july, it was the retailers giving the biggest boost to the s&p. it might be particularly interesting or are you watching the retailers closely to see what kind of slowdown they report?

>> i am. i think there is a divergence between retailers. what we are seeing is those retailers catering to the high end are certainly doing very very well. as those consumers haven’t been hit nearly as hard by gas price increases and the overall oil market . you have retailers at the lower market catering to the consumers that have taken a hit given the higher prices.

>> we had a rally in the yields in the treasury market for the month of july. that 10-year yield at 4.27%. how well do you think treasury market is reflecting economic growth prospects?

>> i think the treasury market has finally caught on to the fact there is an inflationary scenario out there. i was a little bit surprised after this morning’s release though that treasuries sold off. especially considering the fact that we’ve got an inflation number that was rather bullish. inflation dropped below 3% in the second quarter. which indicates perhaps this growth is not feeding through to an inflationary scenario. perhaps treasuries are reacting to the fact we have had several consecutive quarters of unit labor cost increases and some inflation is out lfment

>> earlier today we spoke to ben bernanke. he indicated inflation is not a problem. you do think the administration is underplaying inflation concerns?

>> not right now. we have seen several reports over the last month that indicate inflation is slowing from the pace of growth we saw last year and early this year. we got the c.p.i. out flat for the month. the p.p.i. was flat, as well. now we get this g.d.p. deplator under 3%. perhaps we have passed that peak in inflation. one of the key in terms of chairman greenspan as well as our economic team is whether or not unit labor cost increases will feed to future inflation. i think that is why the fed is on a track to increase interest rates for the remainder of this year to fight off that future inflation that may creep up on us this year.

>> where do you see the yield on the 10-year going?

>> i think it will remain in a range, some where around 4.5%, maybe below 4.5% by the end of the year. i think treasuries are in a different universe. it’s obvious foreign investors are very interested in buying u.s. securities and investing in the u.s. market . that is reflected in the u.s. treasury securities. it’s no longer trading simply on growth expectations and inflation expectations, but on a global marketplace. so we can no longer look at just g.d.p. and inflation expectations for the u.s. economy for where the treasury is headed.

>> thank you for joining us. have a wonderful weekend.

>> that was gina martin of wachovia securities. we’ll take a quick break and come back with “chart of the day.”
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Murdoch --- Su (fast)

the government estimates outgoods of goods and services lowered to 3.4%, but the ninth straight quarter above 3% growth. we’ve not seen a run like this for 19 years.

>> right now i think the prospects look very good. forecasts from the administration and from the blue chips suggest we’ll have strong growth this year, growth going onto next year and inflation is not going to be a problem.

>> treasuries fell on the report and on this last trading day of july, recorded their biggest monthly decline since november. bond investors anticipating the federal reserve will continue to raise rates. note the dollar having its fourth week of losses against the euro. let’s get caught up how the stock market settled. declines across the board for the dow, s&p and the nasdaq. as for the weekly performance, the dow ending the week down .1%, the s&p little changed. the nasdaq gaining .2%. a rally when you look the full month of july. with these monthly gains, we saw the s&p and nasdaq reach four-year highs earlier this week. with bank stocks specifically that were one of the weakest groups, bob bowdon wraps up the day and month from the new york stock exchange.

>> here at the new york stock exchange, we finish the day, we finish the week and the month of july in trading. let’s update you. for the day friday, stocks were down across the board. you see the major indexes were hauled down between .6%. stocks managed a slight gain, just .04% on the s&p 500. that marked the fifth consecutive weekly gain for that index. for the month, stocks up almost 3%. it was the second best month in 2005. as for today’s lower markets , good news was bad news. that was the idea. the commerce department says the u.s. economy grew at 3.4% in the second quarter. that’s the ninth straight quarter of above 3% growth which could set the stage for more interest rate increases. if you look at some of the worse stock groups, many were interest-rate sensitive. financial shares dragged on the s&p 500 like mortgage stocks that were down. fannie mae and freddie mac both down over 2%. higher interest rates hurt the home builder stocks. d.r. horton, pulte, toll brothers. all of these stocks, these four are up year-to-date more than 36%. on a day when oil prices rose, oil stocks fell with exxonmobil down over 2%. chevron and conoco down between 1% and 2%. archer daniels midland company, the world’s largest grain processor gained 2.6%. the company had fiscal fourth quarter earnings at 30 cents a share, beating the 28th average estimate. republicans blocked democratic amendments that would have made gun makers open to civil lawsuits. now since they will not be open to those lawsuits you, had smith and wes-on shares up 25%. they shot up, sturm ruger up 11% on the day. i’m bob bowdon, bloomberg news.

>> it was concern abouts higher interest rates and crude oil prices sending the nasdaq lower on this friday. robert gray has the details now from the nasdaq market site.

>> the nasdaq composite closing lower in friday’s session. it was the fifth lowest close for the composite in july, finishing higher than 6% for july. second best month of july for the composites since 1997. it’s a month that typically does not body well for investors’ long the nasdaq. if you look at 1995-2004, during those 10 years, composite rising only three julies with an average loss of 1.5%. investors this month coming out with beater than 6% gain for the composite. as far as friday’s session went, it was definitely concerns over higher interest rates. g.d.p. report, john classman, managing director of equity trading at civic american securities citing the g.d.p. report and oil back above $60 and inflation concerns which would portend higher interest rates weighing on stocks. google unraveling, saying microsoft has google in their sights. says earnings being rewarded for companies that have positive forecasts. those that don’t were getting hammered. money on the sidelines, the rally will continue and money will come in from real estate. take a look at some of the stocks leading deet klein friday. h.p. ending their ipod distribution deal. i did talk to gene munster, analyst with piper jaffray. he said it may cause head winds for apple. if people want an ipod, they will be able to find it. synaptics which makes the touch wheel on ipod plunging on their forecast. saw symantec, falling on its forecast, as well. stocks with positive forecasts coming out. they were rising. nasdaq stock market stock rising to a record as it boosted its full year profit forecast. whole foods rising to a record on its forecast. kla-tencor at a better than one-year high, rising up on its forecast. we saw, of course, other stocks rising as well at the nasdaq. i’m robert gray.

>> chevron’s second quarter profit declining 11%, soaring energy prices helped to deflect some of the problems that chevron has suffered with refineries as well as production. june grasso has more on what is behind the numbers.

>> chevron shares turned lower on the earnings news. the number two u.s. oil company was not able to take full advantage of the price gains in oil and gas because of down time at two refineries and a continuing drop in output. net income dropped to 3.-- $3.68 billion or $1.76 a share from $1.94 a year earlier. that was seven cents higher than the average analyst estimate.

>> like any energy company they are doing well. they are below last year, but beat estimates. chevron was expected to fall a little bit begin some of the difficulties they are dealing with right now internally. management is probably working on those problems. you’ll see that improve in the next quarter too. chevron climbed to $45 a barrel. production slide in two refineries idle for re―for repairs left chevron unable to capitalize on the quarter rises. chevron’s profit from oil and gas sales fell 6.5% as output from old fields dropped. the company agreed in april to buy unocal to bolster output and raised its offer to $17.3 billion this month to stem off a competing bid from cnooc in china for $18.5 billion in cash.

>> as any chevron holder would assume, would you want their company to make the veafment effectively. you don’t want to overpay. if it gets out of hand, there is nothing wrong with letting this one go.

>> unocal’s second quarter profit rose 39% on higher energy prices. net income per share climbed to $1.73 a share from $1.25 above the average analyst estimate. unocal has recommended shareholders approve the sale to chevron in a vote scheduled for august 10. the bidding were not over yet. it is complicated by the fact that cnooc faces difficulties getting u.s. government approval for any bid for the company. back to you.

>> thank you, june. today’s resignation of news corporate deputy chief operating officer lachlan murdoch took many by surprise. shares of the company closed lower on the news. he was considered a successor to his father chairman rupert murdoch.

>> a lot of people apparently didn’t see this coming. there is no official reason given less an year after news corp moved its headquarters from new york to sydney. the son and potential heir of the company unexpectedly resigned. he and his wife and young son will move back to australia. analyst at u.b.s. with a buy rating on the stock said in a phone interview investor wers caught off guard.

>> it certainly was a surprising announcement. lachlan murdoch is viewed as one of the successors to his father, rupert murdoch. now this leaves only the other son, james murdoch as the possible family successor of the company. i wouldn’t know lachlan murdoch still remains on the board.

>> departure leaves lachlan’s brother james as the only other family member in the running to succeed their father. rupert murdoch is 74. his media includes fox tv, direct satellite and a movie studio. after inheritting a newspaper from his own father. murdoch wants to be replaced by one of his children and has groomed them to take over the business. investors said they prefer murdoch’s second in command peter chernnan. michael nathan says nepotism is a concern. intermediate partners leo hindry had this to say about the nepotism issue. he says lachlan murdoch was the real deal, deserved every role he held and said rupert murdoch did not get enough credit for the exceptional quality of nonfamily executives.

>> thank you. we’ll take a quick break and come back with a closer look at the economy.

Oil future---Ellen (slow)
World and national news --- Mark (slow)

>> gas oil futures fell today in london after hurricane dennis missed oil rigs and coastal refiners in the gulf of mexico. it reached land in western florida yesterday with winds of up to 120 miles per hour, missing louisiana where 16% of u.s. refining capacity is located. gas oil futures fell 5% making for the biggest fluctuation of any commodity around the world today. let’s get perspective on this by bringing in the bloomberg terminal. what we are looking at is a year to date graph of gas oil futures trading on the international petroleum exchange. gas oil prices rose more than% between june 29 and july 6. analysts say dennis has not affected production and refining as badly as the markets anticipated. that caused the commodity to drop to its lowest level in just about two weeks. however, gas oil still up 41%. brent crude futures in london also fell. oil dropping 2.3% to its lowest level since june 30. that cleanup is underway in florida, alabama and mississippi which did take a beating sunday from the hurricane. mark crumpton is here with more in our world and national news update. mark?

>> ellen, although dennis came ashore sunday with less power than forecasters had predicted, it did uproot trees, rip off roofs and siding and knock out power to thousands. dennis made landfall between florida’s pensacola beach and nafar beach with winds up to 120 miles per hour. the national weather service says dennis weakened to a tropical depression over northeast mississippi. president bush has declared florida, alabama and mississippi a disaster area.
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Listen Market briefing --- Ellen (slow)
Earnings --- Deirdre (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)

second-quarter earnings will exceed forecasts. oil prices declined for the third day. a drop of 1.2% for crude. the drop came as hurricane dennis missed rigs and platforms concentrated off the texas and louisiana coast. we’ll have su keenan look at the oil in the aftermath of the hurricane. the settling numbers in the stock market today -- second-quarter profit report for genentech stronger than anticipated, 30 cents a share excluding items. analysts were expecting 26 cents, so beating by four cents a share. sales topping expectations, coming in at $1.53 billion compared to analysts’ estimates of $1.39. the company saying it sees 2005 earnings per share, exkhgating items, rising more than 35%, excluding items. the company saying second-quarter avastin sales up 85% and tarceva sales up, as well. we’ll get reaction from jason kantor of r.b.c. capital markets who raised his price target for those shares. alaska airline pilots voting to reject a proposed contract. the airline pilots’ association at the airline said 90% of those pilots who voted passed ballots against the tentative agreement. the union said 95% of its union members did vote. turning attention back to the stock market and gains we saw today, deirdre bolton was following action all day long and joins us. a lot of focus on the earnings. tell us what happened.

>> we did see the combination of lower oil prices and companies exceeding earnings estimates, feeding investor optimism. the s&p 500 closed at its highest level since march. stocks rose, along with investor expectations for second quarter earnings growth.

>> for this earnings season, my expectations are to do better for the 13th consecutive quarter than analysts’ expectations. analysts’ expectations are in the 8% to 10% area.

>> fueling optimism, mylan laboratories, shares gained 3% after the company’s fiscal first-quarter profit surpassed analysts’ estimates. competitors, watson pharmaceutical, barr pharmaceutical traded up and i’veec at a 52-week high. evidence that business may pick up for semiconductors sent that group higher. intel, texas instruments and applied materials rose. spot prices of the most widely used type of computer memory chip jumped to the highest weekly level in over a year.

>> i think tech spending will be better than what the market expects. i think you’ll see further catch-up with the general market .

>> on the s&p 500, household products maker procter & gamble led gains. prudential upgraded the stock, saying the company will be able to buy back shares aggressively after a shareholder vote tomorrow on its proposed purchase of gillette. among stocks that fell, dreamworks animation, its shares tumbled more than 13.5%. the studio run by jeffrey katzenberg cut its profit forecast and scrapped a stock sale after weak demand for “shrek 2” home videos. the stock is down nearly 40 percent this year.

>> thanks so much. we’ll continue the look at the gains in stocks. deborah kostroun filed details from the big board.

>> the s&p 500, now at its highest level since march 7, also the highest point of the year. that’s how we closed out. stocks rising for a third straight day and in those three kays, the dow has packed on 233 points. since the lows on april 20, we’ve seen pretty big gains in the dow and s&p 500. the dow up 5.1% and s&p 500 up 7.2%. this is the springtime low, also coming in at a time when the market has been tested. terrorist attacks last week out of london, higher interest rates, higher oil and slower earnings so the market has really come out ok since those lows. talking about those levels, looking at record highs we saw on friday. we saw record highs again today. in the russell 2000, small caps and midcaps, so any gains from here, once again, record highs. the stocks rising for the past three days and crude oil falling three days in a row. oil services lower, also integrated oil stocks lower. you now have crude oil at $58.92 a barrel and we saw crude oil coming down today after hurricane dennis missed the oil rigs and platforms off the gulf of mexico. looking at mylan laboratories, it climbed after the drugmaker’s profit last quarter they said, now, will surpass analysts’ estimates. this company is also fighting a $5.4 billion takeover bid by investor carl icahn. wellpoint, largest u.s. health insurance provider, agreed to pay as much as $308 million to settle a lawsuit that claims more than 700,000 doctors were underpaid for treating patients. the company will set up a $135 million fund for doctors and give $5 million to awe foundation for improving healthcare according to doctors’ attorneys and the company saying in separate statements. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> sticking with our look at the stock market today, the nasdaq climbed to its highest close in six months. transportation and chip stocks helped lead the gains. we have details from robert gray.

>> the nasdaq composite gaining more than 1% in today’s session, completing the best three days of gains since october 28, 2004, closing at the highest level since january 3, the forst trading day of the year. the transport and semiconductor stocks leading the way. biotech higher. all the industry groups higher across the board in today’s session. as crude oil fell, transports in particular with out-sized gains in yellow, c.h. robinson, ryanair and northwest airlines moving higher today. semiconductors rising. computer chipmakers gaining. semiconductor equipment makers higher, as well. the s.o.x. at its highest intraday level since december 7, the last time above 450, closing at its highest level since july 9 last year at that 459 level where it closed today, as well, after a 2% gain in today’s trading. saw novellus shares rising, they’re speaking to analysts at semi con west. micro semi corporation at a record high today and maxim enterprises rising after goldman sachs raising it to outperform from in line. ebay saying their online payment service, paypal china, for chinese internet users, launches september 1. with the chinese-related theme, u.t. starcom rising, wireless cable system provider in china, awarded an infrastructure contract from china telecom.

Interview: Chart of the day

>> it is the king of all gas guzzlers, the hummer. if you wanted to fill it up last week t cost a record $74. new evidence that americans may feel pain at pump. wholesale gas prices reached a record $1.71 ra gallon last week. adjusted for inflation, the highest level since march 1984. here to put it in perspective is editor-at-large tom keene in our “chart of the day.” we have been tracking for months the inflation-adjusted number. seems like it is moving back to some levels that people are getting concerned.

>> you know about the hummer because i have seen you on the west side driving your hummer. $74 to fill it up. here’s the chart. up to record highs today in the spot price. green line is the one-year moving average. that’s what economists look at. it smooths things out. what is important here is the green line is above the moving average near the persian gulf war in 1991. nicely above that. 20% higher in price. not back nearly to the teens in the 1970’s and 1980’s. we’re getting there. it’s moving along.

>> you were listening to the interview i did with brendan kyne. he talked about prices for this particular point of a season which is interesting when you think of being in the peak driving season and the prices at this level.

>> that’s true. there’s an ebb and flow to it, nuances to it that i don’t typically cover because we are talking about broader economics. our team in new york and london are looking at those nuances and we’re in the summer. the weather matters, travel mat aers. part of this up move, what i’m hearing from economist sincere about a buoyant economy. a buoyant economy creates a greater demand for hydrocarbon given slower moving supply growth.

>> what are the economists following on this chart?

>> what they’re following on this chart more than anything is a smooth average. they may not look at one-year moving average. they may look at the three-month moving average. what they’re interested in is a persistencey. that may be where they’re most wrong. not we’re at $50, $60, $70. the issue is we sustained above $50. the 200-day moving average well above $50 a barrel. it’s that persistencey. do we keep moving up and raising that overall level.

>> let’s talk about differences between the 2005 economy and that 1984 economy since we’re trying to make comparisons.

>> i aou see the white arrow going back here. what a difference. much more service sector. much more commodity-based. not using hydrocarbons as a percent of g.d.p.’s like we used tofplt i spoke to mr. taylor of the kcato institute and he emphasized incomes of americans are so much greater now on an inflation-adjusted basis. that’s another reason we’re not feeling the pain. as a society which is wealthier than back in the 1980’s t.may take a higher price for that to click in.

>> that’s a key question for economists and investors looking at this market . at what point do consumers start to react? what things are you hearing?

>> i heard many people a year ago telling me $2.40 a gallon. we are only now see ago shift from heavier-weighted cars like a hummer to smaller cars. some say as high as $3. inflation adjusted back in 1979 is $4 .70 a barrel give or take a dime. so we’re a long way from that pain of $4 a gallon, $4.20 a gallon in today’s dollars where you start to see a kind of habit that we saw in the 1970’s and 1980’s.

>> it will be interesting to tie it into the economic data this week. inflation data and retail sales. >> very much so. how will hydrocarbons fill into the c.p.i. number? more importantly when you take it out what is left with the core data, particularly with the fed speeches coming up.

>> always a pleasure. tom keene, editor-at-large at bloomberg news. let’s take a quick break. when we come back, continuing to be about energy. more details on the surge we saw in natural gas. one of the world’s biggest movers. that’s next on “after the bell.”
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Listen Chart of the day

>> with oil hovering at $60 a barrel, one economist says we should pay close attention to canada. the currency may be the strongest among the g-8, the group of eight member nations within the next decade that. according to carl weinberg. here to explain is our editor-at-large tom keene with our “chart of the day.” to start off, you mean shrl the luny.

>> the canadian dollar. carl weinberg is not saying next week or next year but looking outs five years, 10 years, 15 years the loonie will be a giant in oil economics. instead of the petro-dollar, you have the petro-loonie. you seat long-term weakness of the canadian dollar. here’s repeat strength. what he suggests is terrific strength. he doesn’t give us a level that it will go to but the idea is that with this new price of oil, economically in feasible areas now become feasible. speak of which, alberta, where you have oil tarsan to the tune of millions of revenue per year, $200 billion of revenue is some initial calculations if oil stays at $06 or moves higher. why is it so important? john snow visited alberta last week. why waot treasury secretary --

>> tell us why.

>> first trerbgry secretary in two decades to attend and he started his trip in calgary 466 miles northeast of calgary in fort mcmurray, alberta, in the middle of nowhere because that’s where the oil s.he wants canadians to know we care about that oil because other people care as well such as the chinese.

>> so much more talk of the oil fans. in recent months we hear that expression a lot more. people focused on this endeavor to get more oil. what increased production are we seeing already?

>> i don’t think we’re seeing that much already. i don’t pretend to be an expert in this. what weinberg goes back to is the idea of sustained prices. if oil goes back to $40, this may not occur. the 200-day moving average is above $50 a barrel if we stay up here. if we stay at $60, if we go higher, $70, $75, it becomes very, very feasible. you have a lot of oil coming out of the ground. it has to go somewhere. the united states is right next door.

>> in terms of the expression the petro-loonie, you talk about this decade time frame, not tomorrow, not next week, not next month. why start talking about it at this point? is this clearly the direction it is headed in his mind? ao see not predicting where oil will go. he is observing it at new levels that the economics click in and it begins to be feasible. all the oil companies climb on not thinking one year, two year. whenlboard. remember, these guys are think you want to build refineries, pipelines, capacity, you have to think outside in 10 years. they think it is feasible.

>> back to the chart. one thing that is interesting with it is the fact that for so long we had a three-year trend where the dollar was weaker against the euro. but you see this incredible strength for the canadian dollar coming at a time when the u.s. dollar has started to turn around. give us insight here what may be happening.

>> the insight is commodities. canada we perceive as a commodity-based economy. it’s true. it’s still very much commodity- based economy led by oil. you see here that the commodity rally, some would say led by the explosion of goods development in china, that’s not really ended. a little dollar rally. it’s a blip on a 35-year-old map.

>> tom, thank you for dropping by. tom keene with our chart of the day. in the meantime, a quick break. when we come back, the latest world and national headlines. also we’ll continue this look at commodities and at oil. our “world’s biggest mover” segment is a look at gas market in the wake of hurricane dennis. we’ll be back straight ahead.

Interview: Money & Sports

>> it’s official, the nhl and its players ratified a new collective bargaining agreement this week after years of complaining from owners about rising payrolls and franchise values in this week’s “money & sports,” we’re joined by mike buteau out of our atlanta newsroom. mike, how are you?

>> good, derek, how are you?

>> good. what effect will this agreement have on team values now?

>> well, it’s interesting, because as you said, for years, owners were saying salaries were going up, franchise values going down, now, talking with sports bankers who study the finances of teams, they say this will boost revenues of the teams by as much as 35%. how it does that, simply is now there’s a salary cap in place, salaries are tied to 54% of overall revenues so by doing that, you increase the chance of a team essentially making money and when you’re making money, the franchise value goes up. interestingly, though, it will benefit most, according to sports bankers, teams like toronto which is a cash cow to begin with and a team like the new york rangers which has no trouble having enough money to pay players anyway. those are the big markets , most interesting teams as far as fans go, so it will significantly help those teams.

>> what teams benefit the most?

>> well, like i said, the big market teams, toronto, new york. but when you look at the taemmeds that also will benefit from this, hopefully the small market teams is what the nhl hopes for, the carolina hurricanes, national predators, non-traditional hockey markets , here in atlanta, as well, hopefully they’ll be able to get free agents, get the players they haven’t been able to afford in the past because the big money teams that over spent in the past will have the salary cap.

>> now, there were a number of rule changes approved today, no?

>> absolutely.

>> how could they affect the casual hockey fan?

>> the biggest thing you hear from casual hockey fans is there’s not enough scoring, not enough excitement and too much defense that goes on. the rule changes implemented starting this year, they’re getting rid of the center red line, allow a two-line pass, essentially allowing a pass from in your own zone to the far blue line, something you haven’t been able to do in the past, hopefully creating for breakaways and scoring chances. they’ll shrink the goalie equipment a little bit because the goalies are looking like michelin men these days, giving area for more scoring by shrinking that down and there will be a shootout at the end of the day so you’ll always have a winner.

>> let’s turn to the league’s draft, buzz about a guy named sidney crosby. is he the next gretzky, or no?

>> even wayne gretzky says he could be the next wayne gretzky. he doesn’t say that too often. sidney crosby out of nova scotia. they finished the draft lottery and the pittsburgh penguins won it and there’s no question they will select sidney crosby. that’s good for the conferences. pittsburgh filed for bankruptcy a couple of years ago and they need a new arena. it’s the oldest in the league. hopefully, this kid will get them a new arena.

>> is everybody happy with the results?

>> well, when you look at the scenario, the best scenario would have been, according to people looking into this, put the kid in new york, the rangers, the biggest market , would get the most benefit for the nhl because you have him in the biggest market but pittsburgh is a pretty good end result here because, like i said, you keep him in the eastern time zone, that conference and that division playing philadelphia, new york a lot. so you’ll see sidney crosby. plus mario lemieux is still in pittsburgh.

>> let’s turn to football, the jets might not get their new stadium before after the settlement reached today, they won’t have to pay as much rent in giants stadium. tell me about that.

>> the jets sued the new jersey sports and exhibition authority not long ago saying their rent was higher than the new york giants who also share the building. by about 5%, so they settled today and they will be paying 10%, which is what the giants were paying. so they’re still trying to get a new stadium in lower manhattan.

>> thanks for that, mike. mike buteau, live from atlanta. we’ll be right back.
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Listen Market briefing --- Derek (slow)
Interview: Analyst with energy security

>> crude oil prices continue to fluctuate amid speculation about china and worries over supply. are they headed up to $80 a barrel or down to $50? joining me from alston, massachusetts, rick mueller, analyst with energy security lis lis. thanks for joining us, rick.

>> my pleasure.

>> with the chinese economy growing and the latest move to revalue the yuan, what do you see global demand heading for this year?

>> i think it will come in significantly below last year, probably near 2.9 million barrels a day.

>> how about the supply imbalance, now that reserves in saudi arabia have been depleted?

>> i think that’s plenty of oil out there. it’s a question right now where we’re caught with a lack of spare capacity. it will take a while for the new production to come on stream. we’ll probably see elevated prices for a while.

>> do we actually have enough supply to meet global demand at this point?

>> oh, i think so and i think that’s borne out if you look at the inventory numbers, especially here in the u.s. crude stocks and distillate stocks have been rising at comfortable levels. i don’t think there’s much to worry about from that standpoint unless we see a disruption in supply.

>> do you see prices rising above $60 a barrel?

>> there’s always that potential, especially when we’re in a capacity-constrained market where the spare cushion is lower than we’d like to see. that being said, prices seem to be moving toward a lower range, probably in the mid 50’s.

>> what’s the appropriate range for prices? can we see prices return to the $25 to $30 range in the near term?

>> probably not in the near term unless there’s a massive economic dislocation and slowdown similar to the asian financial crisis in 1998. of course, back then, we saw prices go down as low as $10 a barrel. i don’t think that will happen. i think the global economy is much stronger than it was then. i think we’ll probably see prices stay near where they are currently.

>> what’s the speculation in the market , rick? how are investors feeling?

>> there’s nervousness in the market . there is, understanding that saudi arabia is not the big brother we’ve come to depend upon in the oil markets , their spare cushion has fallen to levels where they can’t automatically open up the tap and cover an outage in iraq or venezuela. so i’d have to characterize the mood as nervous.

>> you’re talking about saudi arabia. why would the reserves depleted in the first place and can they, in fact, be rebuilt?

>> basically, there’s a lack of investment there because we had an extended period of relatively low prices after the financial crisis in 1998 and with crude prices in the low 20’s, high teens, there wasn’t incentive for producers to invest in additional capacity. last year, when we saw the dramatic jump in growth, especially in china, that caught the market by surprise, no one factoring that into projections, so we saw that spare capacity number really come down.

>> rick mueller, analyst with energy security analysis, thank you for joining us.

Interview: Investment Strategist with Westwood Holdings

>> the third executive this week moves from credit suisse first boston to morgan stanley. morgan chief john mack has been tapping former colleagues to join him at the firm. 55 of morgan’s managers, bankers and traders left during the battle to oust philip purcell. as we’ve been reporting, earnings season is in full swing and results have topped analysts’ expectations. that is one of the reasons why the s&p 500 has posted its longest string of weekly gains in 10 months. the question is, can the market keep it going? let’s ask david spika, investment strategist with westwood holdings, where he helps manage $4 billion in assets, joining us from dallas, texas. mr. spika, thank you for joining us.

>> thanks for having me, derek.

>> we were talking about energy stocks. how do you feel about energy nowadays?

>> we are still bullish on energy, despite the fact that a lot of people are scared of energy, we’re still very bullish. not all energy companies are created equal but if you look at the sector on the whole, the stocks are valued as if crude oil was about $40 a barrel. we know it’s close to $60 today. the companies continue to beat earnings estimates because the market refuses to give them credit for the true price of oil. as long as that continues, these companies will continue to produce cash flow and earnings vastly exceeding what the market expects and stocks prices will continue to go higher.

>> is this in the near term?

>> we believe so in the near term. we’re at $57 crude today. our analysis shows us that the market is pricing in $40 crude. we’ve done an analysis of what would happen to these stocks’ earnings if crude fell below $40 a barrel and even below $40, we can make an investment case but at $55 to $60 a barrel, they’re extremely undervalued, producing a lot of cash flow, disciplined with their investments and we’re very bullish.

>> what about the s&p 500? does it have the momentum to stay at this pace?

>> think about where we are in the s&p 500. if you told me a year ago that we would see the fed raise interest rates by 2.25%, we’d see energy go above $60 a barrel and that we’d still have earnings―or economic growth of 3.5%, i would have said you’re crazy but economic growth at 3.5% can continue to drive earnings higher and propel the market and the market ‘s still relatively inexpensive, only trading at 16 times. i don’t think we’re pricing in unrealistic expectations today.

>> what do you see as the catalyst that’s driving the market ?

>> i think today the catalyst is as you pointed out, people are optimistic about the earnings season, they’re used to earnings exceeding expectations. we’ve seen this in the past six, seven, eight quarters. investors expect it again, it’s coming to fruition and i think investors are optimistic that the fed will end the rate hike cycle soon. i think most people are looking at 3.75% as being the top of the rate hike cycle. once that ends, the market generally performs much better, particularly if economic growth continues at a reasonable pace.

>> can we can expect to see oil drive things down, or no?

>> above $60 is a wild card. above $60, we attempted for a short period of time and came back down. i think the market is comfortable between $50 and $60, that we can continue to grow the economy at 3.5%. above that, that’s a wild card. if something drove oil above $60 a barrel, we’d have to re-evaluate.

>> what about energy versus technology? how do you see those two sectors?

>> that’s a great question. a lot of people today are saying the energy game is over, let’s bail into technology that’s underperformed. the technology sector has performed very well over the past few weeks. we’d still like energy better because of valuation. valuations are much more attractive and we think that the supply-demand factor in the energy market makes it much more attractive than the tech benology sector where you still just don’t have corporate technology spending at a level that can really drive earnings where they need to be. i’m sure some of the consumer stocks are performing well but overall, corporations are not spending to the extent they need to drive technology earnings where they need to be to justify current valuations. >> what did you buy today?

>> we’re continuing to buy companies in the industrial area of the economy including energy, commodities. companies producing copper, iron ore, coal, we’ll continue to buy companies leveraged to growth in the emerging markets like general electric or rockwell collins, leveraged to the aerospace industry. these are companies we think will continue to do well. we are still bullish on the spending in the industrial part of the economy, particularly relative to what the consumer will do because we feel that game could be played out in the near term.

>> what are the inflation risks?

>> well, that’s a good question. six months ago, i would have told you they’re significant. i’ll tell you, recent data indicates that inflation is very, very tame. i think they would indicate that the fed is doing a very good job of maintaining long-term inflation expectations. now, the c.p.i., is it a true indication of real inflation? most would tell you no but as far as the fed’s concerned, inflation is under control and does not have a material effect on valuations in the financial sector right now.

>> thank you very much. david spika, westwood holdings, thank you for joining us. coming up in this week’s edition of “money & sports,” the nhl has ratified its new contract but can the league return to prelockout revenue levels? mike buteau joins us from atlanta coming up.
点击播报
Listen Market briefing --- Derek (slow)
Earnings for the quarter --- Su (fast)
Taking stock --- Daniel (slow)

average gained 23 points at 10, 651, s&p 500 up six and nasdaq up a point to 2179, benchmarks ended higher. we’re almost halfway through the earnings season. as of today, more than 200 members of the s&p 500 have reported earnings for the quarter. how do the numbers look? we go to su keenan for a report.

>> derek, according to our analysis of thomson financial data, well over 2/3 of the companies now out with earnings have exceeded analysts’ forecasts. to the scorecard, roughly 72%, or 146 of the 204 companies now out, beat earnings forecasts. 15% came in line and 13% missed the mark. nick raich, director of research, says two trends have emerged so far, the strength of energy earnings and double-digit profit growth.

>> energy revisions have been positive on the earnings front. outside of the energy sector, we’re seeing neutral to negative estimate revisions right now. we have 15% growth expectations for the third quarter. it might be a little high. the trend in the second quarter, the numbers here, consensus was 9% for the second quarter. we’ll probably see that number around 12% when they all come in.

>> and the numbers keep coming in. while today’s stock market was influenced by forecasts from google and microsoft, that proved discouraging for investors, putnam investments kevin cronin remains bullish, naming ebay as a highlight of the earnings season. the internet auction site’s stock rose 20% yesterday after exceeding analysts’ estimates for an almost 17% gain on the week. he views general motors’ miss, profit loss of more than a quarter billion dollars when analysts expected a gain, as the low point so far.

>> in terms of impressing, stock performing quite well, ebay, as well. and amgen. on the disappointing side, ford and g.m.’s earnings highlighted cost structure problems plaguing the u.s. auto industry. daimlerchrysler reports next week and we think that will provide insight in terms of whether the u.s. auto industry will turn around soon.

>> in addition to daimlerchrysler next week, we have a lot of big companies out with earnings including american express, dupont, verizon, texas instruments, all coming at you starting monday. derek?

>> thanks for that, sue. as su mentioned, second-quarter profit from u.s. energy companies have been surging, but a rally in the group may slow. global fund managers are more overweight on energy stocks than any other industry group according to a merrill lynch survey. joining me now, bloomberg news reporter daniel hauck with this week’s edition of “taking stock.” energy stocks did pretty good today?

>> they had a great day.

>> but earnings are expected to be strong. why might the rally slow down?

>> it’s interesting. today’s a perfect example. you would think that with earnings coming in as good as they are and next week’s earnings from valero, exxon-mobil, chevron, all expected to be good. we’ve had oil prices that hit a record $62.10 a barrel this month so you would think there would be tremendous optimism about the sector and many of the investors we talked to, although they’re optimistic about the sector long term, in the near term they’re more cautious. part of the reason is obviously the stocks have been rising for so long with a tremendous rally in 2003. 2004, they were rising over 20% and rising in the first half, as well. and people are getting concerned that we do have such high expectations for earnings as you saw today, halliburton and other stocks that blew away earnings. it’s similar to what happened with the technology sector a few years ago that, people are expecting it so much and you’re coming from a tougher base to beat that the expectations are so high that could be disappointments going forward. the other thing we’re seeing, again, you would think with earnings doing so well and oil prices so high, investors would aggressively look to buy these stocks but in actuality, over the past month, according to state street global markets , money is flowing out of energy stocks.

>> even oil stocks?

>> yes.

>> what about oil? do you see a positive or negative here?

>> that’s an interesting thing about the state street analysis. they, right now, this month, out of the 24 s&p groups, energy stocks ranked 20th in terms of money flows and if you compare that to what was going on in october, the last time we had a really big oil rally, at that time, the group ranked second out of 24. so at that time the oil rally was generating a lot of money coming into the group. this time, it’s not. state street is saying that investors are a little bit skeptical about whether the oil rally can last.

>> even so, though, doesn’t it make a strong case for owning energy shares? couldn’t it still make a lot of money at $40 a barrel?

>> absolutely, over the long term. this is still a great story. you have growth from china and india that will generate huge demand for oil and this week, what we saw with the revaluation of china’s currency. that will make it cheaper for them to buy oil and that was part of the reason oil prices were going up today.

>> let’s cut to the chase, what should investors buy?

>> i think right now what analysts are saying is that you have to be selective. especially with the runup that energy stocks have had, you can’t just be buying the entire sector. one of the interesting things people were saying that’s rather timely with today is that some of the oil service companies and drillers as you saw today with halliburton and occidental and so forth, that did really well, they’re saying these are the stocks you want to buy because they are the ones that will still rally at the end of an oil rally because some of the integrated oil companies have already made their money off of rising oil prices and now will be investing in equipment and so forth and those stocks will do very well.

>> thank you for that information, bloomberg news reporter daniel hauck, “taking stock.” much more straight ahead, stay with us.

Interview: Commerce Secretary Carlos Guiterrez

>> the bush administration is trying to ally concerns from u.s. technology and movie companies about piracy. michael mckee has a special guest.

>> the commerce department is focusing on intellectual property. president bush appointing chris israel, deputy chief of staff at the commerce department with the priority of piracy and counterfeiting in china. joining me now, commerce secretary carlos guiterrez, joining me from washington, d.c. thank you for joining us, mr. secretary. interesting timing on this appointment because you went to beijing a couple of weeks ago and gave them some warnings about dealing with intellectual property and then yesterday we saw the chinese revalue their currency. do you think that some of the efforts the administration is making are getting through and you can reinforce those with this appointment?

>> well, the announcement the president made today is very important because it’s the first time we’ve had someone focus exclusively on intellectual property rights and that will enable us to monitor our agreements from the meetings in beijing, to follow up to ensure we have full coordination across government agencies to implement these agreements because it’s all about results. as the president said, it’s all about outcomes and performance.

>> do you think your meetings there helped produce the result yesterday?

>> well, we did not take up the subject of currency at the jcct. we talked about intellectual property rights and market access issues. i will say that i believe that this validates a lot of hard work, what was announced yesterday, a lot of hard work by secretary snow and leadership by president bush and validates the bilateral approach we’ve taken in our discussions with china.

>> how do you use this new position to to crack down even further? is it a carot and stick or a lot of stick?

>> we need the coordination and to be focused on results. we have a lot of people in government focused on intellectual property violations. what we need now is management of those resources. and coordination of those resources. that’s what this person will do, what chris israel will do. it’s a matter of getting focused, having the priorities right, making sure we’re measuring the right things and aligning resources to get results so we believe we can take our effort of intellectual property rights to a new level with the position the president has announced.

>> do you think the progress you’ve made and yesterday’s announcement on the yuan will have any effect on your efforts to try to get through the central american free trade agreement, convincing members of congress that you can make progress on trade problems?

>> i think this is another example that this administration is willing to enforce free trade agreements in that we take our agreements seriously. the central american free trade agreement is obviously very separate from our dealings with china but on cafta, cast cafta is something that will pass because of the merits of cafta. it is an agreement that opens up the central american markets for our products of the today, we’re paying a duty on our products going in. it will be important to give us regional competitiveness. as we continue to grow and compete against other regions in the world and companies in other regions of the world and very importantly, as the president has said, these are young, fragile democracies that need our support and want to embrace free trade so cafta will pass on its own merits and cafta is the right agreement for our country.

>> we spoke a week ago and you said at that time you didn’t have the votes yet. have you made progress?

>> i don’t count votes and it’s not part of my skill set but i can tell you that the momentum is clearly there. there is a feeling that people are getting behind cafta, that people are realizing that there is a lot of support throughout the country for cafta, whether it be the national association of manufacturers, the american farm bureau, small businesses. this is something that’s good for job creation, good for our country. i believe members of congress are realizing that and we’re seeing real momentum and that’s why i believe as well as others do that cafta will pass.

>> we’ve got just a few seconds left here. let me ask you this, the administration having to make any more deals to try to get that through?

>> well, as we made very clear before, we’re not going to reopen this agreement. the agreement is going to stay as it stands and we don’t believe that it would be fair to open up this agreement for any industry, given that the agreement is good the way it is, it benefits all industries, it’s been passed by three countries already in central america so we are not going to reopen the agreement for any industry. it is a good, solid agreement the way it is.

>> thank you very much. commerce secretary carlos guiterrez.

>> thanks, mike.

>> thank you very much, mike. we. will wrap up the day’s world and national news stories coming up on the other side of this break.
点击播报
Listen Market briefing --- Derek (slow)
NYSE --- Deirdre (slow)
Today's trading action --- Bob (fast)
Nasdaq --- Robert (slow)

headquarters in new york city, this is bloomberg “after the bell.” dow jones industrial average gained 23 points -- markets spent most of the session mixed but in the last 30 minutes of the trading day, we saw the benchmarks move to close higher. deirdre bolton has the market story.

>> energy stocks extended their gains, making all the difference. the s&p 500 energy index closed up over 3%, at a record. schlumberger, halliburton and occidental petroleum led gains after they all posted better than forecast second-quarter results. some say energy stocks will continue to outperform in the third quarteriment the higher the price of oil generally translate into higher profits for many companies such as an exxon-mobil or conocophillips. that’s definitely leading the way. the high price of oil has impacted materials negatively with rising import costs and energy costs going up.

>> technology earnings were mixed, disappointing some investors. microsoft and google weighed on markets . microsoft held back gains on all three benchmark indices, the company saying that sales and profits this quarter may trail projections. google’s stock closed down more than 3.5% after the company told analysts to expect a slow quarter this period. google’s second-quarter revenue grew at the slowest pace since google went public in august. profit margins shrank for the first time. broadcom, on the other hand, rose more than 11%. the manufacturer of micro chips for computer electronics posted better than forecast second-quarter sales. some strategists are optimistic about the outlook for technology companies’ profit growth.

>> these stocks are very attractively placed with strong earnings and strong balance sheets, so we think the situation is very positive for tech stocks going forward.

>> so far this year, the s&p 500 semiconductor index has gained 14.5%, outperforming the s&p 500 ‘s little bit better than 1.5% gain during that time.

>> per more on today’s trading action, here’s a report from bob bowden at the big board.

>> on friday, the s&p 500 finished up .5%, about the weekly finish. but sometimes it’s good to take a bigger picture perspective and if you look at the weekly finishes for the s&p, four weeks in a row the s&p 500 has finished up. four solid weeks in a row, in fact, six of the last seven weeks, the s&p has gained. however, dean ghoulis with loomis sayles says second-quarter earnings will been solid everywhere. on the day, 7 up stocks for every three down stocks on the s&p 500 and oil stocks winning. oil prices above $58 a barrel today after four closes below $58. also earnings from the likes of halliburton, that up 9.4%. the world’s largest oil services contractor reported $5.2 billion revenue against a $4.9 billion estimate. schlumberger gained over 5%, saying second-quarter profit was 78 cents a share compared to the 67 cents analysts expected. robert half international, the best stock of the s&p 500 today, up 17% in one session. that company said revenue was $817 million compared to $787 that analysts expected. moving on, here’s a fun one for you, maiden form brands climbed 16.75% in one session, moving down intraday, finishing up almost 17%, the first day of trading for the maker of intimate apparel. aventrix pharmaceutical gained on the day, developer of drugs to improve the performance of existing medicines, carl icahn and other investors bought a combined $20 million of the stock. losers include celestica, down 16%, actually 15.3%. from the new york stock exchange, i’m bob bowden.

>> microsoft and google moved lower on friday but the nasdaq closed the week with a small gain. robert gray has details on today’s nasdaq trading from the nasdaq marketsite in times square.

>> the nasdaq composite managing a one-point gain on friday, has now risen 12 of the 15 trading sessions so far this month and managing a nearly 1% gain for the week, the fourth consecutive week of gains, the longest streak since may for the nasdaq composite. more importantly, for some technical analysts remaining in the gains for the year, up some four points from where we started the year, closing at 21 79 in friday’s session. on wednesday, the nasdaq closing at a four-year high and on thursday, touching a four-year intraday high, as well. that’s a look at the nasdaq for the week. looking at the stories from friday, it was strong earnings and revenue reports coming out thursday evening after the close of regular trading. those stocks trading on friday that were propelling the nasdaq higher, the likes of broadcom, sandisk, xilinx, all rising. sandisk and broadcom both posting better than 11% gains and xilinx with a 5% gain. genesis microchip also moving higher after first-quarter sales beat the average analyst estimates, as well, for them. on the laggard side, google shares moving lower from their record in thursday’s session as sales growth slowed. the chief executive saying analysts should not assume they would have a 15% sales growth this year, matching what they did in the year-ago period. microsoft disappointing investors with its revenue period, the range below the average analyst estimates, even though it gave the new name for its windows operating system and release date, late 2006, calling it windows vista. biotech was weak with gilead sciences, although touching a record wednesday, downgraded at u.b.s. to neutral. affymetrix, tumbling after beating the average estimate by a nickel and amgen falling, as well.

>> crude oil rose amid speculation a stronger chinese currency will make fuel imports cheaper, leading to increased consumption. oil will be cheaper for china’s users because it is denominated in dollars. surging demand in china, world’s second biggest oil consumer, has spurred a two-year, 91% rally in prices. the rally may not extend into next week. according to a bloomberg survey, 62% said oil will drop and only 20% expect prices to rise amid signs refiners will have adequate supplies to meet peak fuel demand later this year. u.s. inventories of crude, gasoline and distillate fuels such as heating oil were above the five-year average last week. 10-year notes rose for the third day in four after a decline that pushed yields to the highest in more than four months drew investors. government debt boosted today from increased concern about terrorism as london police are investigating new incidents the day after the underground network was paralyzed by attempted bombings. the dollar gained against the yen and euro on speculation its drop yesterday following china’s currency revaluation was overdone. kimberly-clark is cutting about 10% of its work force. the consumer products company plans to shed as many as 6,000 jobs by the end of 2008. it will take a $775 million after-tax charge. the move comes after kimberly-clark saw second-quarter profit fall more than 7% to $422 billion. higher commodity and marketing costs outweighed a sales gain of 8%. the company says it will invest more in developing markets such as china. investment banking house lazard is lending advice to an unusual new client, the united auto workers. the union wants to determine whether it should bailout general motors on healthcare costs after the automaker posted $1.4 billion in losses during the first half of this year. the union represents over 100,000 workers and has hired two law firms to evaluate healthcare costs. union cooperation is central to g.m. chief executive rick wagoner’s plan to cut costs. the u.a.w. and its technical team has been meeting intentionally―internally with u.a.w. legal, research, healthcare staff and g.m. representatives in the last several weeks. american express may say profit rose by at least 10% for the 14th quarter, adding new card customers through partnerships with partners such as mbna. second-quarter income probably rose 14% to 78 cents a share according to wall street estimates. the company has benefited from its agreement last year to allow mbna to issue american express credit cards along with mastercard and visa cards. however, the partnership may be at risk after bank of america decided in june to buy mbna. american express is scheduled to report earnings on monday. citigroup chief executive charles prince says chairman sanford weill is still thinking of leaving to start a private equity fund. in a memo, prince says the chairman has not made up his mind about pursuing a new career in buyouts but if he does, citigroup will ensure an orderly transition. people familiar with the matter have said directors blocked weill’s effort to leave before his contract ran out and still keep all his retirement compensation. the commerce department is focusing on making a new effort to combat inelectual piracy

Interview: Leewood Hedge Fund

>> oil price back on the rise, in fact, climbing above $61 a barrel in today’s session. and the latest increase in prices comes at hand of hurricane dennis which shut down an estimated 96% of production in the gulf of mexico. could prices rise further as hurricane season continue as soon as brendan kyne with leewood hedge funds which invest in the energy industry says prices could go as high as $70 in the near term. he joins us from our bureau in toronto to tell us why. welcome.

>> good to be here. thank you. why are we seeing prices for crude oil?

>> i think today’s action was indicative of the risks inherent in the market . you saw a lot of hurricane- related activity, take out of a large platform which i believe is listing in the gulf of mexico. the close proximity of another tropical storm which i think is being upgraded to a hurricane emily. this is a time of year where disruptions in gulf production happen fairly frequently. this on the back of a very tight supply-demand scenario for global crude markets . it has added seasonal uncertainty.

>> what do you do in an environment like this where you see price swings of many dollars a barrel within one, two days?

>> i think as a hedge fund investor with directional bias on the up side towards oil prices and oil stocks, our view really right at this point in time is to establish our long- term trajectory positions which is positively biased and trade around those positions during upward movements where the rationality of the price gets excessive and to add when the bearish sentiment rallies up, and we saw that during the april and may time frame when a lot of market strategists called the market incorrectly during the shoulder season switch from distillates to gasoline refining. it was an excellent buying opportunity.

>> if you set yourself up for higher prices, how high do you think the crude prices are going?

>> we think longer term crude prices move up. we are in agreement with matthew simmons in terms of his view, the energy technician. i think it must be mindful of seasonal biases both in the spring and fall when there are switches in terms of refinery demand moving from gasoline to distillates or back and forth. as we enter the fourth quarter when the international energy agency expects global demand to surge we think that at price of crude is anticipating it at this point in time given the price deck that we are seeing. we think any uninterrupted or any interruptions that appear in the crude market whether a disruption in nigeria, venezuela and terrorist-related activities and storm damage could see the price of crude surge dramatically during the fourth quarter on a temporary spike with the top around 70 in our opinion.

>> if we hit that $70 number, you are saying that’s the top. what do you think would happen at that point?

>> i think there’s always a scramble whenever you have something that exceeds expectations. i think the stocks will react positively. we think a spike to that level or magnitude would be short lived. our view is the trading range for oil is between $50 and $60. i think that’s the rational price level. i believe it will be higher in 2006. for the next six months, that’s where we are at.

>> i mentioned going into the last commercial break that the s&p energy index is at a new record high. given how much we have seen the stocks appreciate, where are you finding value or where are you finding opportunities right now?

>> well, it’s a matter of consensus really because the investment community in the united states and canada is modeling the price of oil for 2005 around 47.50 appearing to be consensus. spot price in excess of that, the average price strain the first half of the year was 51.86. in order to meet the 47.50 price level for the year average, we have to average in the low 40’s for the second half. that will be difficult with the price of crude above that. we think the net income is a raising in the price forecast that analysts are using into the mid 50 range of 2005 that. will raise the estimate in cash flows and revenues for those companies and bring valuation ranges into more reasonable territory. we think from an overall longer term perspective that the stocks have a long way to go. but they have to be traded. let’s be honest, it’s a commodity-related sector with seasonal trends that are favorable and unfavorable.
>> anything in particular that you are avoiding, any particular pockets?

>> we really like energy service a lot. we think there’s some subsector monopolies there. we are pricing on the up side. almost unlimited in terms of what the customers will select given the bloated price of oil and gas to begin with. we think natural gas is a huge story as well. natural gas pricing today in north america is at all time record highs. to some extent the natural gas story has been hidden. the oil price has been an exciting area and a place for investors to focus on. natural gas stocks, the pryinging in gas is incredible and shows little if any signs of weakness. i think the price of gas is up robustly on the fact that we’re having a warm summer in reflection to 2004 and 2003 which run seasonably cool. the second factor is the western coast snow melt in canada and california and oregon and washington was very low meaning reservoirs in the west coast did not fill to capacity. the amount of hydroelectrical production coming out --

>> we will run into our commercial. thank you for joining us.

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Listen Market briefing --- Ellen (slow)
NYSE --- Deb (fast)
Pepsico --- June (slow)

after the bell.” i’m ellen braitman. 30 after the hour. let’s recap the day on wall street where the s&p 500 rose. investors speculate aing second quarter profit will be stronger than forecast. benchmark exceeding this year’s highest close in the last hour of trading. then retreated closing at 1,2122. stocks held back, however, as oil prices closed above $60 a barrel. the dow, as you see, just losing shy of four points. let’s go to deborah kostroun at the new york stock exchange to get an update in terms of activity we saw.

>> thanks, ellen. we did see stocks closing just a little lower. really kind of saw the rally fizzling out a little bit. look at n.c.r. lower all day. as we talk about earnings, the world’s largest maker of automated teller machines forecast 1.40 to 1.45 a share. five analysts expected 1.46. that stock a little lower. as we talk about earnings, pepsi reported better than expected profit. in fact, pepsico said their second quarter earnings rose to 70 cents a share, exceeding the 67-cent analyst expected number. this is a $15 billion market cap company and a broad array of businesses like g.e., also a proxy for the economy. perhaps as you look at hotels, tobacco and most importantly also insurance. not very often that we get to talk about that in the business report. we’ll talk about it now, though. forest labs was higher. maker of celexa. gained after a stroke drug based on vampire bat saliva would be ready for regulatory approval by 2007. that company was raised to a buy by smith barney. back to you in the studio.

>> ok, deb. thanks so much. also making news today, credit suisse first boston banker frank quattrone appealing his conviction of obstructing a probe into csfb. in the first day of oral arguments, his attorney cited a supreme court ruling that overturned the conviction of the accounting firm, arthur andersen. he argued that the may 31 ruling reinforced claims that jurors should have been told that quattrone could be convicted only if he intended for subordinates to destroy documents he knew the government wanted. quattrone will argue that the judge in his trial barred him from offering evidence that would have proved his innocence. quattrone is trying to reverse a conviction that may send him to prison for as long as a year and a half. in another courtroom, bernie ebbers denied a motion for a new trial. u.s. district judge barbara jones making the ruling. ebbers was sreubgtd of conspiracy, securities fraud and filing false statements with the s.e.c. in the $11 billion accounting fraud at worldcom. federal prosecutors recommended he receive life in prison and his sentencing is scheduled for tomorrow. let’s turn to corporate news right now. pepsi’s second quarter earnings rising 13% topping estimates. june grasso has more on what drove the earnings.

>> hi, ellen.

>> a surge in demand for non- carbonated drinks. quaker foods in the u.s. led net income at number two soft drink maker to climb. pepsico shares rose as much as 2.5% on the earnings news. net income climbed to $1.19 billion or 70 cents a share from 61 cents a share a year earlier. three cents above analyst estimates.

>> once again the company beat expectations. there was concern going into the quarter about competitive activity from the coca-cola system as well as impact from rising oil prices from frito lay. they weathered the storm once again.

>> the product diversification allowed the company to post double digit earnings growth over the past several years. revenue for quaker foods soared at 16% in the second quarter led by oatmeal which pepsico marketed as healthy for consumer frito lay snacks revenue grew 6% because of higher sales of lays, cheetos and tostitos lines. north american beverage sales rose 4% because of gains for aquafina and propel. sales of soft drinks declined. they expanded gatorade in markets including china and boosted promotions for the merinda soft drink brand in argentina and international sales jumped 15%.

>> it is key. it’s more than 30% of their business. growing high teens. growing more than 20% from a profit perspective this quarter. you will continue to see strong double digit growth from the business.

>> pepsico sales have risen an average of 7.5% the past five years compared with 2.3% for coca-cola. it’s pepsico’s lead in selling non-carbonated drinks. the chief executive said he will boost market spending for beverages in north america in response to coke’s plan to raise spending by $400 million.

>> you take the beverage side of things it looks like pepsico is funding more coupons to respond to what coke is doing. one thing interesting about the coupon sincere they’re mail-ins.

>> mail-ins are intended to drive volume with coke and pepsi hoping they won’t get redeemed. 15 rate pepsico as a buy and three as a hold. the stock has added 4.5% year to date. back to you.

>> thanks so much. in terms of market activity today, we saw energy stocks rise. we saw the s&p energy index reaching a new record high today. coming back, we look at energy sector. please stay with us.