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Interview: Director of the White house Office of Management & Budget

>> welcome back. i’m michael mckee. the white house has cut its estimate for this year’s deficit to $333 billion. that’s 23% lower than the office of management and budget’s february forecast of $427 billion deficit. joshua bolton is director of the white house office of management & budget. he joins us from the white house. thank you for joining us, mr. director. analysts say we don’t know for sure why tax receipts are up so much and the deficit is falling. they suggest a number of one- time reasons. is it too early to celebrate? your own projections show it going up in the next fiscal year.

>> it is time to recognize that the president’s policies are working, that at tax relief in particular which was an essential part of the president’s economic growth plan restored growth to the economy, has restored jobs to the economy. as a result we have more revenues coming into the treasury and we’re able to project reducing the deficit faster than we originally projected it.

>> deficit projections don’t include spending for military operations in iraq and afghanistan. in terms of the bond market a, actual indebtedness that you have to fund, too early to celebrate?

>> no, i don’t think so. the numbers we put out today of oeur expectation a of the deficit in 2005 which is down to 2.7% of g.d.p., that number includes all of the costs we expect in 2005 including the cost from iraq and afghanistan. so those numbers are solid, they’re good. it’s good news for the economy. and the rest of the budget path that we laid out in our announcements today, out for 2010 show a steadily declining path down to somewhere near 1% of g.d.p. by 2009 and 2010. it may be we’ll be somewhat above or below, but i don’t think there’s anything in the numbers that don’t suggest we’re not on the strong solid path regardless of how much additional needs to be spent in fighting the war on terror or other contingencies that might come up.

>> you’ll be closer to phaoegt the president’s goal of cutting the deficit in half as a percentage of g.d.p. are you commited to keeping it there? will the president submit no budget that moves you in the other direction?

>> i don’t anticipate any situation in which the president will be proposing something that moves us in the other direction. on the contrary. i expect the president’s budgets and his proposals will be designed to keep us well on that path which we’re ahead of pace on right now to cut deficit in half by 2009. looks like we’ll do better than that. that’s what today’s numbers show. and the most important thing they show is the policies in place now are working. they need to be sustained.

>> are you confident that congress will heed the president’s request to hold the line on spending as they work on the speping bills for next year?

>> they have done well so far. last year’s budget came in roughly at the levels that the president asked for. this year the president asked for a tough budget. he said keep discretionary spending no higher than the rate of inflation and the non- security elements of that spending actually cut it. house of representatives passed appropriation bills that he meet the targets that the president asked for. tougher in the senate where the situation is different. so far i think we can say congress is on a pretty good path. i’m optimistic of being able to continue to hold the line on spending which is a crucial element of bringing the deficit down. not just getting revenues up. we need to keep spending at a reasonable level.

>> only 30 seconds left. no progress on social security reform. what happens to the deficit in that case?

>> there aren’t substantial effects on the deficit in the short to medium run from social security. ‘ president’s plan is implemented, likely to be transition financing costs in the midyears but those don’t increase the debt of the united states because all we’re doing is bringing forward an obligation that the government owes. if we don’t address social security and take on this huge unfunded liability, the long- term dangers in our system will remain. the announcement today suggests that our short and medium term budget picture looks very good. long-term budget picture does not look good unless we take on entitlements like social security.

>> thank you, joshua bolten. back to you, ellen.

>> ok, mike. thanks to both of you for that. we take a break and come back with world and national news.
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Listen Market briefing --- Ellen (slow)
Chart of the day --- Tom (slow)
>> we told you a few moments ago that the white house budget officials are cutting estimates to $333 billion. what about the longer term outlook? goldman sachs does disagree with the bush administration officials and that is subject of “chart of the day.” here to explain is tom keenen. a colorful chart awaits us.

>> we have colorful debate today. you just had joshua bolten on in the show. i spoke with joel caplin his assistant. and you get the white house spin. the o.m.b. is within the white house, clearly it’s their moment of glory, lower deficit. some people disagree.

>> tell us what this says.

>> this is tax receipts as a percent of g.d.p. this is the economic revolution of the bush administration. here is a high percentage of taxes. as a percent of g.d.p. at the clinton years, here is this collapse due to the tax cuts, recession as well. down we go, way outside the 50-year trend line. that’s what the red lines are. two deviations outside that. many people say thing has to come back up. that will be the debate in the next couple of years.

>> has to come back in order for what?

>> some say it dosen’t have to come back. the bush administration would say we need to make the tax cuts permanent to keep it down near that. that will boost economic growth, tax revenues will rise and that will lower that budget deficit. others disagree. saying these are a temporary one-off tax cut. they’re worried about a slippage in spending restraint because of today’s good news. congress may want to spend more money because of the better numbers. what it sums up to is this is maybe the beginning of a political debate as we move to twix and on to 2008.

>> one thing that intrigues me is why are the war numbers not included for afghanistan and iraq, and is that a fair representation?

>> i would say yes and no. i asked joel the same question. he said some of the war budget is within the numbers that we saw today. clearly not all and most particularly not the future budget. but it’s not just iraq and afghanistan. what goldman sachs is saying is it’s iraq and afghanistan down the road, off the balance sheet. also what we’re seeing is entitlement programs off the balance sheet. some of the medicaid and medicare expenditures down the road. so there’s a number of ideas in spending that aren’t in those budget corrections, and this is strong language. we differ on the longer term outlook. that’s strong language in the world of economics.

>> and where is the improvement in the tax receipts coming from?

>> corporate taxes much better than people expected. also, individual taxes from asset economies, the housing boom, the stock market boom of this year. those individual income receipts have come in and say they may be temporary.

>> tom, thank you.

>> sure.

>> interesting. let’s turn our attention to world and national news. william rehnquist is hospitalized today.

>> a spokeswoman says that justice rehnquist was take on the a hospital in washington overnight with a fever and was admitted for observation and testing. mr. rehnquist suffering from thyroid cancer and has been undergoing radiation and chemo treatments. but he had been going to work every day despite his illness and intense speculation that he would soon retire from the bench. at least 24 civilians, many of them children, were killed in a car bombing in baghdad. u.s. and iraqi officials say a suicide bomber detonated the device in a crowd of children surrounding a u.s. military humvee. a u.s. soldier was among those killed in the attack. at least 17 civilians were wounded. the attack came on a day when the iraqi government cut baghdad’s curfew by an hour citing improved security conditions. no blastoff today and nasa now says the shuttle discovery won’t launch until monday at the earliest.

Interview: Intl Data Corp.

>> welcome back. let’s reiterate after the bell earnings from apple. the company coming in with much strobger than anticipated results for the third quarter. third quarter profit excluding items of 38 cents a share. third quarter sales $3.5 billion. analysts looking for $3.3 billion. growth margin 29.7%. macintosh unit shipments up 35% compared with a year ago. the ipod sales also coming in stronger than had been anticipated. ipod shipments up 616% compared with a year ago period. let’s get immediate reaction from this. joining us now from mountain view, california with his reaction to the earnings is robert o’donnell with international data corporation. bob, i know you have been going through the report in the last few minutes. let’s get your immediate reaction to it.

>> obviously, ellen, it’s great news for apple. clearly they have blown away expectations that other analysts have had. the numbers are strong financially. the numbers are strong from a unit perspective on the mac side and even on the ipod side. what is interesting is there were concerns that this quarter’s ipod shipments may be the first where they saw a small decline which wouldn’t have been surprising really given that seasonally consumer electronics tend to dip in the second quarter. here they beat the growth -- they had growth over the first quarter in ipod shipments. i think that’s an excellent sign.

>> i want to focus specifically on the ipod for another moment. you survey that landscape. why were the ipod shipments stronger than people anticipated? those concerns came from several quarters that the sales growth was slowing. >> i think what it was was there was an overall impact on mp-3 players but apple itself was able to maintain and indeed grow its share of the overall market . i think apple has continued to offer the kind of products and price points that people are looking for. they hit the sub$100 market with the ipod shuffle. they have got color screens at lower prices. they have got a broad array of products and price points that seem to be matching it. plus they have the great interface and all the tremendous marketing that they have done to really build up the ipod brand.

>> we flashed something under you that talked about the macintosh shipments, the number there. what everyone has been looking for in recent months is whether ipod sales would translate to sales boosted for the macintosh computers. what does today’s report tell you about that?

>> well, it tells us a couple of things. first of all, we saw sequential growth in the second quarter which to be honest we expected with apple because one thing that apple does different than other p.c. players is the second quarter is the beginning of the back to school time frame for apple. because apple is so strong in education, a lot of the big bids for schools, programs in the fall actually happen in the second quarter. so seasonally the second quarter has been a strong one for apple. it’s important we saw growth there. in addition, my sense is -- we’ll know more when we have more details―there’s a haloeffect from the ipod onto things such as the mac mini and imac, particularly for consumers.

>> how long account halo effect be anticipated to last, since that must have a certain shelf life?

>> it does. it’s unclear. one big question, of course, is how will mac sales be impacted by the announcement of their transition to intel-based processors. that certainly is a big issue in the industry. the question remains is it a big issue in the minds of potential buyers? there are concerns that some people will hold off thinking i will wait until the intel-based macs come out. i think there’s some concern over the next couple of quarters over what impact that announcement will have. on the other hand, just this past week i.b.m., who continues to be their current processor supplier, announced significant upgrades to both their desktop chips for power mac g-5 and potential of a chip for a g-5 notebook which apple has yet to do. it will be interesting to see what apple does. they have been very clear about the fact that they’ll introduce some more power p.c.-based imacs. now they have processors to do it. the question will be which ones they choose to do and how they time those.

>> the company give ago forecast for the fourth quarter saying revenue will come in at $3.5 million. a little shy of what analysts are looking for. they’re saying fourth quarter earnings per share will be 32 cents. analysts looking for 33 cents. does that raise a concern for investors?

>> i wouldn’t say it raises significant concerns. again, my sense is they may be taking into consideration this issue of will the intel transition have an impact on the mac sales. i think it is wise on their part to be a little conservative. not everyone cares about that. there’s a certain group of dedicated apple crowd who does care and they represent a decent proportion of mac sales. so i think they’re wise to be cautious in that regard.

>> thank you for being with us. we appreciate it. robert o’donnell of international data corporation. let’s take a quick break. when we come back, we switch our focus from earnings to washington. the white house budget officials cutting estimates for this year’s deficit, first cut since president bush took office. after a quick break, we go live to washington and speak with josh bolton, director of the white house’s office of management and budget.
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Listen Market briefing --- Ellen (slow)
Harley Davidson --- June (slow)
“after the bell.” let’s recap the day on wall street where the dow was led by i.b.m. numbers coming out from a.m. computer. third quarter earnings per share 37 cents a share. analysts were looking for 31 cents. topping what analysts were looking for. third quarter revenue coming in at $3.5 billion. what analysts were looking for was $3.3 billion in sales. apple computer topping estimations in terms of sales as well as profit. let’s get more details if we have them right now. the company saying the fourth quarter earnings per share seen at 32 cents a share. i can call up for you what analyst estimates are. analysts for the fourth quarter looking for 33 cents a share. apple it looks like for the fourth quarter will come in at 32 cents a share. the company saying third quarter ipod shipments were up 616% over a year ago. clearly the ipod has been the driver of profit as well as sales growth for the company. third quarter growth margin was 29.7%. analysts were looking for 31 cents. excluding items, that profit was 38 cents a share. the company also saying -- macintosh shipments up 1,182,000. the company also saying third quarter revenue for computers, 3.52 billion. analysts looking for 3.3 billion. topping. more perspective. apple up 19% for 2005 in terms of those shares. the stock, however, declined 15% since its peak in february. the s.g. cowen analyst says shares are undervalued at this level. 16 of 23 analysts we track here at bloomberg that cover the stock recommend that investors buy the shares. several analysts recommend a hold. that clues harry blount of lee phrapb. the stock has backed off its highs but boasts the fourth best performance of the s&p technology group for 2005. if you look out a bit further to the past 12 months, it’s the best performing stock in the s&p 500. shares, in fact, have nearly tripled, up 162% since last july. the gain vs. helped apple shed all its losses that followed the tech bubble burst of 2000. let’s bring you into the bloomberg terminal for perspective. what we are looking at is a five  year graph of apple shares. those are in white versus the s&p 500 seen in orange and s&p technology group, yellow line at the bottom. as tech stocks and the rest of the market plunged in 2000, apple fell as well. stayed within a $5 to $10 range for the next three years. then it started to break out in late 2003, early 2004 surpassing its benchmark and the s&p 500 helped by seven straight quarters of three digit growth. let’s reiterate the numbers in terms of what has been happening with the after the bell earnings. the company coming out beating estimations, 38 cents a share for third quarter profit that. is seven cents better than analysts were looking for. the company also saying third quarter revenue $3.5 billion. analysts looking for $3.3 billion. we’ll continue to analyze this. we’ll bring in a guest in a few minutes’ time. we’ll get his reaction to the numbers. he is robert o’donnell, research manager with international data corp. stand by for that in a few moments time. other stocks in focus today, one was harley davidson. shares up because the company raised its earnings forecast for the year, disclosed an s.e.c. investigation as well. june grasso has been following the story. she joins us with details. certainly a lot of details, june.

>> absolutely, ellen. shares were up as much as 5% today after falling 18% this year through yesterday. the company reported second quarter earnings saying per share profit rose to 84 cents from 83 cents a year earlier, five cents above analyst estimates after buying back about 6% of outstanding stock.

>> i think people were expecting the earnings in general. the consensus was to be down because they took a production cut in the second quarter. but because of the higher mix and because the company repurchased 17.7 million shares, that contributed to the 84 cents which was at the high end of the street range.

>> harley davidson makes about half of all motorcycles with 650 c c or large aer engines sold in the u.s. and one in four worldwide. the company said lower operating income from motorcycle operations pushed second quarter net income down 4%. but the chief executive raised harley’s forecast for 2005 earnings per share saying it will rise 10% to 13%. previous forecast was for growth of 5% to 8%. the gain to be driven by the repurchase of shares. now the s.e.c. is investigating the cut in profit prokwrebgs in april when they reduced motorcycle production targets for this year by 10,000 vehicles prompting a 70% drop in the shares, biggest one-day decline for the stock in 14 years.

>> they’re looking at harley guidance on production and how they get there. i think it’s a more matter of fact investigation rather than anything related to wrongdoing.

>> a.g. edwards has a buy on harley davidson. congers says it’s a solid, conservatively run company generating a lot of cash. the new models will come out in the next few weeks. that’s something analyst also be watching. back to you.

>> watching indeed. thank you so much. we’ll continue our coverage of the earnings out after the bell from a.m. computer. we’ll get reaction from robert o’donnell of the research firm international data corporation.

Interview: G.E.

>> tomorrow is earnings day for general electric. they may post the biggest profit gain in six quarters. investor also pay close attention to what chief executive jeff immelt has to say about growth. he has made more than $60 billion in acquisitions. is he targeting annual revenue growth, he says, of 8% excluding the acquisitions. let’s look at what is anticipated. we bring in brian langenberg joining me from our chicago bureau. let’s kick off with your forecast. what do you expect to hear tomorrow morning on the profit and revenue front?

>> great. we are looking for good news. we expect 11% increase in revenues overall. the bulk being core revenue excluding deals in currency. we are looking for 25% to 28% profit growth. we see earnings coming in at 44 cents versus 38.

>> where is the greatest trend coming from for the company?

>> right. well, if you think about this looking across the portfolio, the biggest incremental contribution, i expect five cents a share pretax from the finance business, mostly in commercial and a rebound in insurance. on the industrial side, year on year gains can be expected from energy and transportation. no signs of weakness. we expect every segment up year over year.

>> what about the plastics group which is closely watched a, because of the impact of oil and b, seen as a parallel to the economy?

>> sure. in terms of its impact on general electric, it’s relatively small. a couple of things. first, the plain old bricks and mortar industrial economy in the u.s., we don’t think the second quarter is particularly strong. one other company preannounced in april and they were not particularly great. people have to remember two things. number one, april and may of last year were very strong months. number two, capital spending cycle is going to be a little lumpy. they don’t go for six quarters. they go for several years. we’ll be bullish. we don’t expect too much out of the segment in the second quarter.

>> it―doesn’t seem like a sign of concern for you.

>> i expect it to be up year over year. not as much as if oil prices were not where they are. we think it is priced in to the industrial sector. we also think it is priced in to general electric which pulled back in recent weeks.

>> what about areas of weakness? any areas that g.e. will come out with saying didn’t do as well as we anticipated or we’re see ago problem?

>> they’re not going to tell us there’s a problem. b, we don’t anticipate problems. with a company the size of general electric, you know, from quarter to quarter, there will be some lumpyness in the results versus what we’ll expect in the individual segment basis. we’re highly confident they’ll come through overall very strong in terms of their operating profits.

>> it seems like when we look segment by segment and overall, you are positive about the company. are there areas that are concerning you right now?

>> no. this is the largest stock in the index. earnings are accelerating at a time when cyclical investors in particular are concerned of decelerating revenue profit growth. they are exposed to the right end markets for multi-year growth, specifically global infrastructure. playing parts of the world where people are working hard to become less poor. there are conditions where they can do that. we’re bullish on the name. that’s why it is our top large cap pick.

>> what about the goal of jeff immelt talking about the 8% sales growth. under or overpromising here?

>> the thing about 8% core growth rate is it is definitional. in the near term they were double digit core growth in the first quarter. i think they could do that in the second quarter. over time i tend to think of their portfolio being a 6% core growth portfolio. but again i tend to take a stringent view as to what i define as core growth. i exclude all deals whether finance or otherwise as well as currency. i think it’s a good target to go for. i think they give it striking distance. it would be a little stretchy. it’s not unfair for the leader of a large company to do that.

>> if he misss that 8% number, you think that will spook investors? will that send shares down?

>> if you were to―talk about tomorrow. if we were to see a core top line growth number not as strong as what people are looking for, it could impact the stock clearly. i don’t think that will happen but yes, it would.

>> in the last 30 seconds, the biggest risk to the stock?

>> a meteror―meteor hitting the planet. i’m not look for surprise.

>> there must be some risk that you have priced into the stock.

>> i think that’s a lot of the reason that it has traded up a couple of points in the last few weeks. if you think about the indirect impact of oil on an industrial company, it’s going to be a relatively small part of the total cost for an industrial company but there are derivative impacts on consumer spending, things like that. that doesn’t tend to play out until later. we’re not seeing that yet.

>> thank you for joining us.

>> thank you.

>> brian langenberg joining us from our chicago bureau. we’ll take a quick break. we’ll continue coverage of the latest financial news on bloomberg “after the bell.” keep it here.
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Listen Market briefing --- Ellen (slow)
Marriott --- Bob (fast)
Newspaper publishers --- Brett (slow)
>> welcome back to “after the bell.” i’m ellen braitman. 30 after the hour. let’s recap the day on wall street. stocks rose lifting the s&p 500 to a four-year high. today’s gains coming on better than expected earnings at companies such as apple. index also getting a boost as government reports showed that growth in retail sales came along with tame inflation. the dow up 71 points. s&p three. nasdaq just shy of nine points higher. well, one barometer of the travel industry each quarter and that is the earnings report from marriott international. that was released today. watch closely because marriott is the largest hotel company. bob bowdon is following that report. bob, i want to start off, positive reports but shares trading lower. give us insight.

>> let’s start with the headline numbers which don’t explain the stock drop. that’s what marriott reported. 85 cents a share the operating profit. that well above the 67 cents you see from the same quarter last year, second quarter last year. also beating the 78 cent per share analyst estimate. that news seems good, 85 cents. revenue exceeding estimates coming in at $2.66 billion, up 11% from the $2.4 billion in the same period a year ago and beating the $2.95 billion analysts were looking for. revenue looks like good news. the troubling story was the cost that marriott incurred last quarter like the $94 million it spent to terminate management contracts with c.t.f. holdings. they own hotels which are operated under the marriott name. it sued marriott two years ago alleging improper practices with suppliers. that $94 million resolved the lawsuit and also bought some hotels. marriott spent $29 million upgrading bedding. its room quality has lagged competitors like starwood hotels according to robert lefleur of susquehanna financial group. as a consequence of the charges, net income number was $138 million or 59 cents a share. that doesn’t look like the 85. that’s a drop from the 67 cents that was the net number last year. last year the second quarter net and operating number were the same. this year operating at 85. net at 59. the spinning spending impacted the full-year forecast. 2005 net income range is 2.68 to 2.78 fully missing the entire previous forecast of 2.80 to 2.90. it’s unusual for a new high end to be lower than the old low end. analysts expecting 2.91 for the year. that is a disappointing forecast. still the future was character identifies positively by c.e.o. will yard marriott jr. who said with robust industry demand, our increasing share of expected low industry supply growth and the strength of our brand preference we skpeblgt continued pricing power and strong financial results for the remainder of 2005 and beyond. marriott shares have closed down 3.5%. throughout the day sinking as the day went on finishing at virtually the low mark of the session down 3.5%. checking reaction in other hotel stocks. down across the board as well. you see choice hotels the worst down 1%. starwood also down around 1% on the day. back to you.

>> ok. bob, thank you so much. we stick with the travel-related stories for a moment and bring you the latest on airline news. delta raising some fares by as much as $100. higher fuel costs pushed the airline toward bankruptcy. they surged on that news up 18%. it was the biggest gain in the s&p 500. in the meantime, higher prices and more bookings helped southwest increase profit in the second quarter. net income at largest low-fare carrier up 41% from a year ago. beat the average analyst estimate by .two cents a share. southwest is battling rising oil prices by hedging fuel costs. it has been an industry leader in terms of hedging. chief executive gary kelly says the hedging bets saved $196 million in the last quarter alone.

>> even with our hedge, our jet fuel prices were up 24.5% year over year. it’s definitely a head wind. overall, though, our cost performance even with that was very good. our unit costs were down 3.5%. if you exclude fuel, they were down 7.7%. we are doing our best to lower our cost to be able to afford higher energy prices. i’m confident we can do that. >> and those shares of southwest today ended up 3.2% higher. also gaining today, shares of the second biggest newspaper publisher in the u.s., tribune company. gains coming as profit more than doubled in the second quarter. that mostly on a gain of an investment. other newspaper publishers are battling lower ad revenue and higher costs. let’s get an update from brett gary.

>> a difficult year for the newspaper publishers. siting such as google erode revenue at the top newspaper companies. both tribune and knight-ridder, number four newspaper publisher, posted a drop in national advertising of nearly 4%. knight-ridder’s profit fell 14% on relatively flat sales. at tribune, sales fell 2.3% to $1.46 billion. profit came in at 73 cents a share. excluding the investment gain that we mentioned earlier, earnings came out just 60 cents a share surpassing analyst estimates. tribune tempered the impact of lower ad revenue and higher newsprint costs by cutting 1,000 jobs. the publisher of the los angeles times and new york’s news day papers cut ad prices. that move was designed to keep advertisers after admiting to overstating circulation at some of its papers. circulation revenue sank at least 3% at both tribune and knight-ridder. one analyst says investor sentiment is so negative on the stocks we may be touching bottom. john miller at aerial capital says investors are looking for better returns next year because results are expected to improve. in fact, both companies were upbeat about the prospects for improvement today. knight-ridder indicated national ad sales may begin to turn around. ellen?

>> thanks so much. we take a break. we come back and preview g.e. earnings. those are due before the bell tomorrow morning. keep it here.

Market briefing --- Derek (slow)
Mcdonald's --- June (slow)
Taking stock --- Levi (slow)

i’m derek davis. recapping the day on wall street, markets ended the day higher with the dow jones industrial average up about 12 points to 10,640. s&p 500 index up 1 1/2 to 1227 and nasdaq composite up almost four points to 2156. welcome donald’s stock was the best performer on the dow after its second quarter earnings beat analyst estimates. june grasso has more on what’s behind the numbers.
>> derek, it wasn’t big mac that drove profits at mcdonald’s. it was healthy foods. shares of the world’s largest restaurant chain rose as much as 5%, the biggest jump for the stock in nine months. second quarter earnings, excluding some items were 53 cents a share. five cents above analyst estimates. the items were nine cents a share in taxes to bring home $2 billion from overseas profit. jim skinner extended mcdonald’s push into healthy foods. u.s. restaurants led the sales gain as skinner used $1 coupons to bring in customers for new fruit and walnut sal yade. mcdonald’s began the push beyond burger and fries in 2003 when salads and grilled chicken sandwich set off months of gains.

>> it is significant. if you break it down, one, they are continuing to have strong growth here in the united states. most encouragingly, they are picking up overseas that’s been an area that’s been slowing mcdonald’s growth really for the past 18 months or so.

>> the chain has not been as successful with menu change necessary europe. the company’s largest market after the u.s. where sales fell in the second quarter. sales in europe gained 1.3% in june, the first increase since march. peter jankovskis is optimistic about a turnaround there.

>> we hope to see some recovery in the economies there, and certainly economic weakness has been a major drag there holding results back. mcdonald’s has also been very aggressive in the past few months in terms of reshuffling management.

>> mcdonald shares gained 29% last year when its u.s. comparable store sales increased nearly 10%, their biggest increase in 30 years. this year is different. even with today’s rally the stock is down more than 3%. back to you, derek.

>> thank you, june. utility stocks may extend a 2 1/2 year rally. investors say takeovers, higher dividends and demand for alternative energy sources will lead the gains. year-to-date the group is the second best performer in the s&p 500, just behind energy shares. bloomberg news reporter harry levy is following the gains and he joins me now with this addition of taking stock. welcome to “bloomberg after the bell.”

>> thanks.

>> utilities are seen by many investors as a defensive, no?

>> sure, yeah.

>> how can you explain the group’s performance thus far?

>> there have been a few phases of this. this group was decimated when enron collapsed in 2001 to the point where investors really got out of the space all together and sent the group down along with the market to its low in 2002. then you have the following two years. 2003 and much of 2004 which was basically redevelopment a lot of investors found the stocks cheap. captains were going back to the basics. they were getting away from a lot of the energy trading and the overseas investments that got enron in trouble they were going back to providing the service people paid for, which is just a good solid utility. so along with that, investors were paying for the hopes that that’s what would happen. then really since late last year you had the consolidation phase. you had the two biggest takeovers in the history of the industry with exelon buying public service enterprise group and duke energy buying cinergy. that’s brought the gains this year.

>> are we going to see more consolidation in the industry?

>> some investors are hopeful. that could start with the repeal of the public utilities holding company act which is part of the energy bill bush sent to congress. it’s being debated right now. if that goes through you had investors such as warren buffet say they would be looking to invest more in the space.

>> how does this group continue to grow after the run it’s had?

>> growth is going to slow. they had quarterly profit growth of almost 40% in the fourth quarter that. came down and came down more in the second quarter. we’re getting those reports starting next week. what investors are going to be looking for is growing dividends from these companies that’s one of the reasons they’ve always been consider add tractive investments. also the redevelopment of this infrastructure.it’s not done. we had rolling blackouts a few summers ago in california. we had the blackout in new york city two summers ago. so there’s clearly some modernization that needs to be done still in the network of utility, of delivering energy this this country. so that’s where the further investment may be.

>> any other spaces investors looking to avoid?

>> well, part of the story here is that with the growth in this industry, you have this huge rally and these stocks are actually selling for much higher multiples. the price earnings ratio is much higher than it has been historically and is on par with the market now. these stocks are no longer selling for a discount. some investors are going to look at that and get out of it all together based on that.

>> how much are you hearing about alternative energy sources with oil and natural gas at the current levels?

>> because you’ve seen near record―you’ve seen record oil and natural gas prices, it’s going to make some of these alternative energy sources more attractive. some of the things that were more expensive are going to look less expensive when you see oil.

>> for instance?

>> wind power and nuclear power which are considered cleaner forms of energy. s.b.l. energy is one company in that space.

>> ari levy, thank you very much for joining us at bloomberg―at “bloomberg after the bell.” half sales of “harry potter” are outpacing even the previous installments in the series. we’ll find out what it means for the “harry potter” publisher. concerned about human

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Listen Market briefing --- Derek (slow)
Harry Potter --- Mike (slow)

>> well, one less hurdle for procter & gamble. the skp won european union anti-trust approval to buy gillette after agreeing to sell its battery toothbrush business. consumers had raised concerns that the merger may enable p&g to get a stranglehold on the number of product categories. p&g agreed to buy gillette back in january for $57 billion in order to add faster growing mach 3 razors, oral b toothbrushes and rite guard anti-perspirants. the deal needs u.s. approval. we were scheduled to talk with christopher probyn of state street global advisors. unfortunately we have to talk to him at another time. the world’s favorite young wizard is at it again. the latest “harry potter” book is on its way. sales are expected to boom as fans of the series count down to the weekend. how much revenue the u.s. publisher can expect? bloomberg’s mike schneider spoke to richard robinson, c.e.o. of scholastic corporation, about what demand he is seeing.

>> there’s a tremendous demand from retailers who have a good feeling for their customers. head of barnes & noble said he would sell 50,000 an hour in the next 24 hours. the arrhythmia a particular on that gets you far into selling the number of copies.

>> i would presume that a second printing is all but inevitable. how quickly would you expect to make that decision and how many more will be printed?

>> we have lots of books out there. if people want to buy more than we’ve got, we have to deal with that when it happens. there’s a wonderful feeling about this. you mentioned the different age levels. one of the great things is that as people get older they’re still reading harry potter. this has become 7 to 8 years old to any age with a lot of interest in 15 to 19-year-olds. bear in mind that harry potter is still only 8% of total sales even in this great year where book six is coming out. scholastic is a global raoegd and learning company with children’s book channels, education, international sales.

>> still a major, major significant aspect of your operation. have you talked to the author about possibly continuing the series? would you expect to get the rights or buy the rights to continue publishing?

>> she’s made it clears that seven-book program. we don’t know what will happen after that. we’re preparing the company for life without “harry potter” or a smaller portion of our total business.

>> can you look for a potter- substitute or replacement?

>> i don’t think that exists. this is one of the great phenomenons of publishing history and raoegd history. our company is about our core business which is children’s book publishing and distribution about educational technology, sales around the world in asia, latin america. “harry potter” is wonderful, kind of a symbol of the greatness of reading and the importance of an imaginative tale and importance of people focusing on literacy. it’s not --

>> sorry. only 30 seconds left. how much time will you anticipate between this one and the next and final one?

>> we really don’t know. they have been coming about two years apart. so we would assume sometime around two years from now there would be the final book. but we don’t know.

>> and that was richard robinson c.e.o. of scholastic corporation. china’s cnooc failed to persuade unocal’s board to accept a new takeover offer in part because the state-owned oil company didn’t raise its $18.5 billion cash offer. according to people familiar with the matter, cnooc promised to set aside $2.5 billion in an escrow account to cover unocal against possible shareholder lawsuits should a sale to cnooc fail. u.s. lawmakers threatened to block a c-nook-unocal deal because of national security concerns. california congressman will introduce an amendment to the energy policy that said it would block cnooc’s takeover.

>> what we’re trying to do is keep unocal within the u.s. i have serious concerns about a chinese nationally owned oil company buying a u.s. energy producer. that’s my concern with this. i want to move as quickly as it can to stop that from happening.

>> chevron’s offer for unocal received approval from u.s. regulators. they’re set to vote on the offer on august 10 if they approve, then chevron plans to close the deal on the same day. stock up more than 50%. all right. coming up, this week’s edition of “money & sports.” the end of a lockout. n.h.l. reached an agreement with the players union this week. question is, can the league revive its revenue? we have that story and more when we return.

Interview: Bernard Ebbers

>> welcome back. bernard ebbers, former chief executive of world come has been sentenced to 25 years in prison for accounting fraud. this 63-year-old ebbers was convicted in march of conspiracy, securities fraud and filing false documents with the securities and exchange commission in connection with the largest bankruptcy in u.s. history. allen?

>> bernard ebbers, the man prosecutors say was responsible, was the ringleader for the biggest securities fraud in history, was sentenced to 25 years in prison. his lawyers tried to convince the judge to go easy on him. they cited his heart ailments, his charitable donations which totaled nearly $100 million and the fact he had not sold world comstock. even after the judge sentenced him, his lawyer, who is appealing the case, maintained his client’s innocence.

>> bernard ebbers was transformed into a distorted picture of corporate corruption. the record is uncontradicted. this is a man who has lived a life unblemished, a life of unbelieveable charity and kindness and compassion.

>> in the end, the judge said she had considered ebbers’ health and his good works and that she had recused the sentence to 25 years from a guideline of 30 years or more. the judge said although this is likely to be a life sentence, i find to sentence him to anything less would not recognize the seriousness of the crime. ebbers did not speak in court. the judge gave him five years for conspiracy, 10 years for securities fraud and 10 years for files false statements with the s.e.c. the judge allowed a former employee who lost his life savings to talk about how he represented thousands of victims of the ebbers fraud.

>> he was one of the top sales people they had in the country, and i was making on average $180,000 a year. so all of that basically is gone.

>> after the hearing ended, bernard ebbers and his wife shared a long, tearful hug before he went off to prepare for prison. he’s scheduled to report there october 12. the judge said she could she would recommend a low-security prison near his home.

>> we have developments today as well on another legal story. the u.s. government dropped its plan to appeal the dismissal of perjury charges against richard scrushy, the c.e.o. of health south corps. he’s now free of any criminal charges in the case. a jury had found him innocent of the 36 charges that accused him of inflating profit from 1996 to 2002. however, he still faces investor lawsuits as well as a civil fraud suit filed by the securities and exchange commission. the bush administration cut its estimates to the budget estimate of $333 billion. comes as job and income growth boosted tax receipts faster than had been expected.

>> tax relief has had a positive effect on the economy and that stronger economy is the source of the tax receipts recorded today. to sustain growth, it is critical that congress make tax relief permanent.

>> the 2005 shortfall would represent 2.7% of u.s. growth domestic product. the figures do not include spending for the wars in iraq and afghanistan. note, sit the first such decline since president bush took office. however, congressional democrats say the improved deficit picture is likely to be temporary. now also for the latest on the bid to buy unical, the chairman of the house armed services committee, the proposed bid poses a security threat to the united states. after hearing the chairman, duncan hunter said he’ll consider legislation to block cnooc.

>> i believe, mr. chairman, the object of china’s strategy is to supplant the united states as the world’s premiere economic power and, if necessary, to defeat us militarily.

>> for anyone who believes that this is purely a commercial undertaking, unrelated to a national strategy of domination of energy markets and of the western pacific, i would suggest that that view is extraordinarily naive.

>> congressional objections work in favor of shev ron which says its lower bid is superior. shareholders are scheduled to vote on the bid on august 10. more congressional scrutiny of this issue however before then. another hearing scheduled in the house energy and commerce committee for next tuesday. unocal’s shares up 1.27% today. the white house cust its estimate for the budget estimate. our editor at large tom keen is going to explain after this break and join us with chart of the day.
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Listen Market briefing --- Ellen (slow)
Apple Computer --- Bob (fast)
NYSE --- Deb (fast)

our top story, apple computer releasing its third quarter earnings. bob bowden has been crunching those numbers and joins me now with more. certainly a very positive report from the company.

>> that’s right. we have a forecast that miss a little bit, but nevertheless, apple’s earnings exceeding estimates. let’s break it down and get the specifics and show you what i mean. apple reporting earnings of 38 cents a share. and a full seven cents a share over the 31-cent estimate. as for revenue, that jumped up 75% to 3.5 billion from about $2 billion last year. so apple exceeded that analyst figure by 5.4%. one of the big focuses was on i-pod shipments. they rose to a record 6.16 million i-pods were shipped. analysts were expecting 5.29 million. so apple beat that by 16%. and it’s over seven times more i-pods than were sold in the same quarter last year. moving on for the forecast, that’s where there’s a bit of a miss here. apple sees a profit of 32 cents a share for the current quarter and that misses the estimate by a penny a share. and also we have these quotes from the press release. “we are delighted to report apple’s best quarter ever in revenue and earnings.”

>> apple stock closed the regular session at 38.35 a share. it’s up 19% year to date. as of the close today i should say. now you see an extended hour’s trading, shares up 65 cents on the performance from last quarter, beating the estimates for earnings and revenues. the conference call should be starting right now, available on bloomberg live go or apple’s website. ellen, back to you.

>> and those shares a topper former in the s&p over the past 12 months. also after the bell, taco bell, out with earnings. net income rose 5%, beating estimates. young brown’s earned 62 cents a share. however, sales growth in china slowed to 2% after a link to cancer was found in five of the menu items back in march. well, talking about markets , let’s go to the stock market where stocks gained today. investors optimistic on signs the economy is going to suss pain its growth. also that profits are increasing. the gain in the dow led higher by i.b.m. the s&p, shy of one 10th of 1% higher. let’s get you those numbers. the dow up .41%, and the nasdaq little changed. in terms of trading volume today, it was down compared with yesterday, shy of 1 hnt 4 billion shares changing hands. and nasdaq, we don’t have that volume number but the decliners outpace the advancers. so let’s get some more perspective.

>> better than expected earnings results plus a report that showed trade gave a boost to the economy for the first time in two years gave investors reason to be optimistic. promise of higher earnings pushed i.b.m. stock up. the stock could rise to $95 within a year, buoyed by an increase in sales from the computer services business. harley davidson advanced as the world’s largest motorcycle maker reported better than expected earnings. some are optimistic about this earnings season.

>> there’s no reason to assume that the profit margins won’t be higher than last year or in the first quarter. we’re looking for earnings to be better than the analysts expectations in the second quarter.

>> there were a few companies that disapointed, though. h.c.a. finished the day down. admissions at hospitals over the year dropped. while the number of uninsured patients rose. universal health services and tenet health care closed lower.

>> apple going to influence trade tomorrow with its earnings results. back to you.

>> speaking of earnings, we bring in a report. here’s deb’s report from the big board.

>> the second quarter earnings season kind of getting underway. this week we only have 24 companies in the s&p 500 scheduled to report their earnings, but things start picking up next week. we have 121 scheduled earnings from companies in the s&p 500. the week after that, 127 earnings reports. so things going to be getting underway here. if you look at what is helping out this market , if you look at the s&p 500 earnings, the earnings growth for the second quarter, what we’re estimated 7.5% earnings growth. same thing for the third quarter. a big jump in earnings growth. 15.5%. however, back on july 1, it was 15.1%. so all of these numbers really being ratcheted up and it helps out this market as what we’ve been seeing here recently, this pretty good run. even though we’re in an environment where we’re seeing high oil prices and also an interest―the interest rate environment increasing. eastman kodak and hewlett packard. kodak rising on speculation that the company may be purchased by hewlett-packard. but these are some kind of things we’ve been hearing about for years, so a possible deal, we don’t know. but helping out both those stocks in today’s session. gainers in the dow jones industrial average, i.b.m. at the top of the list. biggest drags in the s&p 500, the health care and equipment stocks, retailed after seeing a good performance recently. and also the pharmaceutical stocks lower. abbott labs, the third biggest drag in the s&p 500 after they set third quarter profit will be less than expected. at the new york stock exchange for bloomberg news.

>> let’s turn now to the economy where the u.s. trade deficit narrowed in may. exports climbed to a record while falling oil prices cut the value of imports. the deficit was $55.3 billion, a drop of nearly 3%. economists note oil prices rebounded, however, in june.

>> well, i would expect that we’re going to see a bump up in the trade deficit again when we get the june numbers a month from today. and the final month in the quarter, so we have 2/3 of the information already. it’s going to take―this is taking a little bit of the enthusiasm.

>> still, the figures or april and may point to a narrower trade deficit in the second quarter, and that means trade has the potential to contribute to economic growth for the first time in two years. prices of imported goods declined in june by the moat we’ve seen in two years. including petroleum, import prices rose 1%. economists say the inflationary fact of higher oil prices remains limited and in terms of the treasury reaction, they did fall after the government’s action of $5.6 billion. and here are those numbers. that 10-year, down.

>> talking a lot about oil, while crude fell today after government report showed inventories rose more than analysts predicted. and a drop of just over 1%. among other energy movers today, declines for gasoline as well as heating oil futures, natural gas futures continuing to climb up .2 of 1%. and bernard ebbers ordered to surrender to federal prison authorities on october 12 for a term of 25 years. we’ll take a quick break and come back with all of the details.

Interview: Oil price

>> 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 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.

>> thras, 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.

Interview: R.B.C. Capital Markets

>> genentech out after the bell with profit and sales that topped analyst expectations, reporting 30 cents a share for the second quarter. if you exclude certain items, that’s four cents better than analysts had been looking for. the company report ago 35% boost in sales to $1.53 billion. analysts looking for $1.49 billion. let’s get some analysis of this and what is good. jason kantor of r.b.c. capital markets joins us from san francisco. what do you make of the numbers?

>> you got to think this is a good quarter. pretty much excluding some one- time things that came in fairly in line with our expectations. clearly strength from avastin, herceptin, tarceva.

>> let’s talk about avastin. that’s one of the major focuses for investors when they look at company. second quarter sales of avastin up 85%. what had you been looking for and what do you forecast from here?

>> we were looking for $220 million in the quarter. it was about $246 million in the quarter. this is going to be over a $2 billion drug in the u.s. next year. clearly when used for all of its projected aprofited indications, it’s well over a $3 billion a year drug.

>> i aou mentioned projected. give us a time frame thaw as an analyst anticipate in terms of when the company may file for and receive approval for some of those other use. currently really colon cancer the main use.

>> currently approved for metastatic colorectal cancer. they have positive data in metastatic lung cancer and metastatic breast cancer. they have not given additional indications. but clearly sometime by early next year at latest we expect those to be filed. we could see approval for both of those new indications in 2006. i think the important thing that we see from this earnings release and the projections going forward is there’s a favorable shift in product mix towards proprietary drugs. avastin is solely owned in the u.s. by genentech so is herceptin. these are the new drivers of growth for the company. it helps to improve margins as well going forward.

>> the company saying in today’s earnings release that it says nine products will receive f.d.a. filings. is that in line with what you had been anticipating? any surprises there?

>> no. that’s pretty much what we’re looking at. we’re looking at six of them as major drivers, either new products altogether or existing products moving into major new indications. some of them are a little more subtle. there are six major drivers which together we say have visibility on at least three billion and closer to five billion in incremental revenue over the next three to five years.

>> is that in line with what the company said in terms of its forecast? it said 2005 earnings per share if you exclude certain items should be up more than 35%. how does that strike you?

>> i think―the company intended to be even conservative in their estimates. for this year we’re looking at e up 43% from last year. that without factoring in the up side today and any changes to the model. so they’re in a period of very robust earnings growth driven by the top line and like i said the improving margin. there was also in this quarter what appears to be a one-time tax benefit. the tax rate was significantly lower in the second quarter. i think that drove a sense of the up side from our number.

>> what is interesting is the stock today reached a record high. you recently boosted your price target by $7 to $97 a share. pointing out for our viewers about 55 times your earnings forecast. what makes you so optimistic that the stock will continue to climb from a record high?

>> well, i think there are several things that aren’t fully appreciated in the model. there are―the number of blockbuster drugs and blockbuster indications that the company will launch in 2006 is unprecedented. looking at just some of the new drugs and new indications that are coming out, revenue growth and the expansion of profits is going to be very robust in 2006 and 2007 and 2008. some things we look for, rheumatoid arthritis is underappreciated. we have yet to seat data for lucentis. all indications are it will be very robust when presented later this month. that’s for macular degeneration. that should be on the market next year as well. so there’s a lot of big revenue drivers that we have yet to see hit the top line.

>> jason, thank you for joining us. we appreciate it.

>> thank you.

>> jason kantor of r.b.c. capital markets . we take a quick break. when we come back, we talk about some economists who say investors should pay close attention to canada’s petro. we’ll explain in our chart of the day.
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Listen Market briefing --- Ellen (slow)
H.P. --- Bob (fast)

>>also making news today, a federal judge has given preliminary approval to a settlement that will leave former chief executive bernie ebbers with $50,000 as well as the home in jackson, mississippi. ebbers was once worth $1 billion. he will pay $5 million in cash and forfeit up to $40 million in assets. final approval of the settlement may come next month after the judge has a chance to hear objections. investor vs. previously won more than $6 billion from worldcom’s accountants, directors and banks in the biggest securities fraud settlement in u.s. history. worldcom investors lost $11 billion. well, hewlett-packard calling its new line of printers designed for digital photographs the fastest home printing system. bob bowdon following this story. he joins us with more on this initiative. h.p. trying to double printing revenue.

>> that’s the goal for h.p. while digital cameras have all but killed traditional photography, consumers still like a printed picture but don’t like waiting for them. new photo printers can produce a four by six-inch picture in 14 seconds, much faster than a 34 to 100 hundred seconds that other home photo printers take. the new technology can also be applied to other products.

>> this platform is radically changing platform. it will not only be applied to photo printing but we’re also introducing office printers which is two times faster than the color laser jet. in the next few months we’ll introduce retail photofinishing and industrial printing you can print using this platform. this investment will go to multiple markets .

>> competition forced h.p. to cut prices last quarter. printing profits fell 14% despite the fact that shipments rose 12%. the company expects the revenue slide to turn around. h.p.’s goal is to increase printing sales by $2 billion every year doubling them in 10 years from the $24 billion last year. technology analysts are not convinced the market will deliver the growth rates that h. expects.

>> in h.p.’s scheme of things, they have a lot of little things but that market will not grow very fast. i’m not sure that market will do much of anything over the next three to four years. it doesn’t seem like something that is convenient enough for people. we have to make things convenient. if we want to sell to six billion people, it has to be convenient and easy. i don’t think those products and products like it are ones that will do it.

>> if we want to sell to six billion people, he says. that’s a high order, too. checking other printing stocks, lexmark down a fraction. brother down over 2.36%.

>> we stick with telecom for another moment. sprint saoeul epbsing a critic. sprint agrees to buy u.s. unwired. $6.25 a share in cash is expected. it is a company that sells wireless services under the sprint brand. it asked a federal court to block the sprint-nextel deal. the agreement for the purchase ends that litigation. it paves the way for sprint’s $35 billion purchase of nextel. taking a quick break. when we come back, genentech beating second quarter earnings estimates thanks to higher sales of its cancer drug avastin. we get reaction from jason kidder with r.b.c. capital markets . he joins us straight ahead.

Money & Sports

>> here to give us “money & sports” is alan.

>> nbc has rights to the game through 2012. they spent $2 billion to get the rights a couple of years ago. they found out this week that london will host the 2012 games. g.e. is such a major player in the olympics. they respond sort games and broadcast the games. their interests are beyond who wins or loses. they’ll have a greater interest in the redevelopment of london’s east end. they’ll have a great interest in beijing 2008 selling refrigerators and turbine engines and everything that g.e. has marketed .

>> it’s not just a boost to the nbc bottom line and what it gets from ad revenue but promoting another product? have other companies seen that it translates and pays off?

>> absolutely. especially for g.e. they can put it on light bulbs, have it on refrigerators. they can put the rings almost anywhere as the lead sponsor. bottom line, the president and chairman of nbc sports says we don’t make any decisions on sports issues unless it reflects g.e.’s bottom line.

>> some decisions made on sports being eliminated and sports being added or not added. roller blading not making it in. some surprises. were they surprises in terms of what was cut?

>> baseball and softball were cut. it made an entry in the 1980’s. it never really caught on. they won the gold medal a couple of times, the u.s. did. as an olympic sport it didn’t catch on. they decided to cut those two bringing the total to 26 for 2012.

>> let’s talk about o hockey for a few moments. l.a. times said there was an agreement reached between the two sides but that seems not to be the case. how far along are the negotiations?

>> eupgmentally slow. they’re getting there. the draft is apparently being done. the deal is very close. any one thing from either side could tip it one way or the other. the document i have heard is close to 600 pages long. there’s a lot of dotted i’s and crossed t’s.

>> are the efforts starting to win back fans? how much of a challenge will that be?

>> it will be a challenge for sponsors, advertisers. how do you sell something that hasn’t been around for a year? sponsors an advertisers are waiting to find out what it will be,’ schedule will be complete. the nhl has a national deal with nbc. they don’t have a cable deal. espn dropped their option a few weeks ago. there’s a gaping hole in what the nhl has nationally tv-wise. that will be filled if there’s enough time after a deal is established.

>> we can’t head into the weekend without talking about michelle. tell us what is happening here. are sponsors paying attention?
　
>> she’s only 15 years old. 16 in october. no woman has made the cut on a men’s tour event since 1945. michelle wie has a chance to do that at the john deere classic in illinois. in the running in day two. could be the next tiger woods. if she gets some acclaim on the men’s tour. she’s only 15 so she has a lot more time to develop her talent. could be the next sensation in golf, in sports.

>> does that translate to tv viewership? is she the next it that people have to watch?

>> sure. a player like michael jordan or tiger woods. they bring that fame to the tv set. they’ll have someone stop what they’re doing to watch them play. tiger woods is one of the few athletes to do that. michelle has the goods to do that next.

>> we love talking “money & sports.” see you back next week. thanks so much. we are going to take a quick break. when we come back, president bush has returned from the g-8 summit in scotland. he is at andrews air force base. we’ll wait to see if he has anything to say. in the meantime, latest world and national headlines. also the “world’s biggest movers segment. it’s tied to oil. keep it here.

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Listen Market briefing --- Ellen (slow)
Interview: Chief Investment Officer at Stone Bridge Investment Partners

>> today’s jobs report gave a boost toke ‘tis. joining us from philadelphia is the chief investment officer at stone bridge investment partners. he helps oversee $600 million in assets. joe, i want to start as i did with susan philips a few moments ago and talking about the fed. curious in terms of reaction to today’s jobs report. are you surprised and were you thinking that stocks would end the day higher?

>> i was surprised because we’re in the range where things are not too strong or too weak. that gives the ability to look ahead to a point where the fed may stop raising rates. i think that’s positive for equity investors overall. we’re within that range of not too strong and not too weak.

>> the s&p erasing its decline for the year. where does it go from here?

>> i think the trend will be higher with some volatility. i think we’ll have pretty good earnings. as i said, the fed will probably stop raising rates in the not too distant future. that creates a positive environment overall for equities.

>> as we get into that earnings season, the thick of earnings season, tell us more about your thoughts here. 6.6 is the average estimate for gains in the s&p profit. what are you looking for?

>> i would say along with that maybe a little higher. i don’t expect dramatic gains. i’m not looking for double digit gains. i think nice solid gains.

>> any particular groups you are looking for to come out stronger than forecasted results?

>> i believe information technology should begin to do relatively well as we have capital spending picking up. corporate profits have been doing well for a couple of years. we have seen nice improvements. that should flow through in terms of increase in capital spending on information technology. we could see pretty good earnings reports in that area.

>> any particular pockets within the computer-related arena that you look for strength?

>> i think we’ll probably see relatively broad-based improvement. i think that we’ll see improvement, as i said, in terms of capital spending but also probably in terms of the consumer side as well. i think it should be fairly broad.

>> what do you think the catalyst will be for the gains in the stock market that you are anticipate stphg

>> i think a combination of continued improvement in corporate profit as we stalked about. plus interest rates probably peaking in terms of the fed funds rate. i think long rates are down at a fairly low level. competition from the fixed income side will not be too significant. so i think as corporate profits come through we’ll see equity prices advance along with the corporate profit gains.

>> what about areas that you are avoiding or think investors should avoid during earnings season?

>> we have been paring back somewhat in the consumer area. the consumer has really driven the economies for the past couple of years. i think it’s time to pass the baton to the information technology or the capital spending side.

>> it’s interesting. we just had retail sales numbers come out yesterday. stronger than people anticipated do you think that’s the tail end?

>> i think that we still see a strong consumer overall but the consumer has been spending a fairly high level. savings rates have been fairly low. i don’t think there’s a lot left that the consumer can do in terms of increases going forward.

>> in terms of what you have been doing, what changes have you been making recently?

>> we have been paring back somewhat in the consumer area and focusing more on things like information technology.

>> let’s tie it into the fed. we have that jobs data today. you have alan greenspan speaking july 20. a lot of anticipation that the fed will continue to raise rates. how are you setting up? do you think the fed will continue and how much?

>> i think the fed will probably go for another one or two quarter point increase notice fed funds rate and then probably pause. i think the slowness we saw in terms of jobs numbers gives the fed the ability to pause wpbt next few months. i think that they’ll probably take a look at additional economic data and decide another one or two increases are enough for the time being.

>> given that, joe, what will happen to the financial stocks in that environment?

>> i think that financial stocks will be somewhat niped this this environment. we have a yield curve that is relatively flat. that makes it tougher for banks to do well in this environment. not as easy as before where they could lend out at higher rates. i think it will be a tougher environment. overall it should be easy for them.

>> what allocation are you recommending currently to investors in terms of stocks, cash, bonds?

>> i would lean towards the equity side at the present time. as i said, i think the fixed income side is not presenting a strong current at present time with interest rates at relatively low levels. i think it is time to look more towards the equity side.

>> joe, thank you for joining us.

>> you’re welcome.

>> joe stocke of stone ridge investment partners. a quick[. when we come back, the 2012 olympics opens up a number of opportunities for one u.s. company. in this week’s addition of “money & sports,” we’ll bring you the details.

Interview: G.M.
>> discussions between general motors and its largest union, united auto workers. at the heart of the attack, how to bring down rising healthcare costs. u.a.w. president discussed the healthcare issue.

>> it’s the $5.6 billion problem that won’t go away. g.m.’s chief executive, rick wagoner, trying to deal directly with the issue. a month ago, u.a.w. officials said g.m. threatened to cut healthcare benefits if the union didn’t agree to concessions by june 30. the deadline passed without incident. now, the president of the united auto workers union says g.m. can’t touch healthcare benefits without union agreement.

> general motors cannot unilaterally make those changes and as to what would happen, i’ll just leave that for them to think about. but obviously that is an area that is a permissive subject of bargaining. they did bargain these healthcare benefits. they are part of our contract and certainly i don’t believe that general motors wants to violate their contract.

>> a g.m. spokesman responded to the comments saying “we’re in discussions and i wouldn’t want to go into any detail about what’s being discussed.” you may recall that wagoner said in april that healthcare spending made the automaker uncompetitive and he couldn’t forecast the earnings for the year until the healthcare cost crisis was resolved. the union president today said the problem goes beyond healthcare costs.

>> well, i don’t think the auto industry is in crisis right now, it’s just a matter of adjusting inventories and getting their market share back.

>> the company and the union have been in discussions since april. after g.m. reported a first-quarter loss topping $1 billion. the union president did not say if the two sides were closer to resolution. ellen?

>> brett, thanks so much. certainly, another major story for investors has been the fallout, reaction to the terrorist attacks in london and the market ‘s resilience in the face of the attacks. that was the discussion today with laszlo birinyi, president of brina associates. bob bowden has more of what he had to say. everyone looking closely to what he had to say.

>> indeed. certainly today no exception to that. birinyi always draws attention. he was the head trading strategist at deutsche bank and salomon smith barney. to explain yesterday’s robust response to the london bombings, birinyi told bloomberg that the market is callous and unemotional, part of why the acts of terrorism did not hurt stocks.

>> the critical issue is whether the glass is half empty or half full and i think it’s half full. all we need is a catalyst or trigger to get people to stop looking into the rear-view mirror for all the concerns and i don’t think of yesterday had any effect on that so our attitude is positive going forward.

>> birinyi still likes homebuilders and energy stocks. despite energy stocks having rallied over 40% in the last 12 months as you see on the one-year chart. and home building stocks nearly doubling compared to a year ago. laszlo says they are good places to put new money.

>> if you look at fundamentals of home building and energy, they really haven’t changed. prices have gone up a lot but so have earnings. on a valuation basis, many are almost where they were four, five years ago. so, i think looking at it objectively, both areas are poised to go higher.

>> energy stocks he likes include exxon-mobil, conocophilips and valero. speaking of liking stocks that have enjoyed large gains, birinyi expressed enthusiasm for google shares, explaining the signs that will tell him when it’s time to sell google.

>> i’m looking for the last analyst upgraded, i’m looking for at some point when somebody comes out with an outrageous prediction when the market responds to. that’s one of those stocks where you use your experience rather than your quantitative and fundamental inputs.

>> google shares up 54% year to date, more than tripling since going public a year ago. back to you.

>> in addition, certainly, to the fallout from the terror attacks, investors focused on the jobs report out this morning. the mon ser.com index points that online job postings at 1500 websites across the country, according to the president of monster.com, north america, the recovery in the labor market , he says, will continue.

>> i think combined with the may and june numbers and what we’ve seen with payroll claims dipping in our index, we’ll see gradual strengthening of the labor market economy. there are strong industries and occupations and regions around the country and we see momentum throughout the summer months.

>> he says job growth is strongest in the mountain states and new england and that finance and insurance are the hottest industries at the moment owing to the passage of sarbanes-oxley, also contributing to labor market activity, he says, is higher wages.

>> another key factor is turnover. we surveyed 5,000 employers, asking them why the jobs were posted and 50% of the jobs were posted because of turnover and having to replace it. people have the opportunity to go across the street for more money.

>> he says the index shows strong hiring will continue for at least the next six months. when we return wharf the break, more about job growth. economists saying it’s proof the fed was right when the fed said job growth would be gradual.

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Listen Market briefing --- Ellen (slow)
NYSE --- Deb (fast)
Deloitte & Touche --- Allan (slow)
Interview: Law Professor with Columbia University

the prior two months that were revised higher. the jobless rate falling to 5%, the lowest since the september 2001 terrorist attacks. economists say the data will prompt the federal reserve to continue raising interest rates gradually to head off faster inflation. we’ll talk about this and much more with former fed governor susan phillips in a few moments. first off, showing you how the stock markets settled on this friday with a surge of 147 points for the dow. that’s a gain of 1.4%. the s&p ending higher by just about 1.2%, erasing its decline for 2005. and the nasdaq, a gain of 1.8%. in the treasury market , prices were lower today on the heels of the jobs report. also, treasuries reached their lows of the day as stocks continued to climb. as for currencies, the dollar recorded its third straight weekly gain against the yen. in commodities, crude oil fell after flirting with a record. there was speculation hurricane dennis may miss the majority of oil rigs and platforms in the gulf of mexico. prices, keep in mind, had been climbing in anticipation of the hurricane’s effect on production. pointing out that natural gas futures did rise 1%. in terms of stocks, quite a rally on wall street today. let’s get details on the rally from deborah kostroun.

>> gains today and of course, remember, it was a shortened trading week. most of the gains we saw this week in all the major averages coming in today’s session with the major indices having gains over 1%. the rally started late in the day yesterday. one of the things that helped things out was the jobs report. the jobless rate falling to 5%, the lowest since september 2001 terrorist attacks. although we added a smaller number of jobs than expected, the market took that as positive. alcoa’s earnings helped material and cyclical stocks to perform well. the dow jones industrial average had its second largest gain so far this year. if you look at the gainers, what really led the market , a little bit surprising. we saw a little bit of a change in leadership. semiconductors, we typically don’t see them, but they performed well. teradyne had positive comments. also texas instruments hit a 52-week high today. transports did well as oil prices fell and material stocks did well as alcoa reported earnings better than expected. among the 24 industry groups in the s&p 500, the laggards, only a couple of laggards, only one laggard, energy stocks. these are the best performers so far this year. so a little bit of a change in leadership there, as well. and of course, energy stocks lower as crude oil actually ended out the day lower. the russell 2000 closing at a record high today. other notables that we want to look at. small cap stocks also hitting a record high. you can look at some of the small cap stocks. also, the midcap stocks hitting a record high, as well. many of the midcap stocks like raymond james, upgraded by wachovia securities. so midcap stocks also performing well. in the dow jones industrial average, alcoa leading the way. second quarter profit was better than expected despite higher energy prices and alcoa said they had a rise in the sale of alumina, the main ingredient to make aluminum. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> deloitte & touche is being investigated by federal regulators over a 2003 audit of the truck maker navistar international. the formal investigation is the first one to target one of the so-called big four accounting firms. our allan dodds frank has the story.

>> the investigation is being handled by the public company accounting oversight board. an a.u. shoot of the securities and exchange commission. the investigation became public inadvertently when a document was misfiled at the s.e.c. that document, authorizing the investigation, and not explain what deloitte may have done wrong but focusing on the audit of navistar’s fiscal unit in 2003. the problems may include checking for fraud, performing work in a professional manner and preparing reports for financial statements. navistar restated results for 2002 and 2003 and the first three quarters of 2004. as for deloitte, this is not the first time its audit practices have come under scrutiny. in april, the accounting firm paid $50 million to settle s.e.c. charges that its audit should have detected fraud at adelphia communications. allan dodds frank, bloomberg news.

>> for more insight into the federal probe of deloitte & touche, we’re joined by john coffee, law professor with columbia university, joining us from columbia’s campus in new york city. professor coffee, welcome. thanks for taking time.

>> my pleasure.

>> how serious is this investigation?

>> it may be serious but i would caution anyone from putting great weight on it at this point. we really can’t know that the p.c.a.o.b. has singled out deloitte in any respect. they’re probably investigating most or all of the big four and the other major accounting firms. this one story has leaked out because the s.e.c. stumbled. if we knew everything what the pcaob was doing right now, we might find that they were less skeptical and less critical of deloitte than of other firms so it’s not a fair comparison. all we really do know is that the pcaob seems to be doing their job because this is exactly what they were suppose to do, go through audit results turned in by major audit firms and see if they approved of how the accounting decisions were made.

>> in terms of the investigation and then we’ll get into the fact that it came out inadvertently in a moment. but in terms of the investigation, what happens from here? >> they will look at these audit results and say we don’t think you made a right decision here, this was a poor accounting judgment. that will lead to a response from the accounting firm. there will be a proceeding by which an administrative law judge may hear charges and make a determination. ultimately, the pcaob is entitled to impose sanctions and penalties and all of those determinations could be appealed to the s.e.c. and possibly on to the courts.

>> what kind of time frame is involved?

>> i think you would get a decision from the pcaob. their investigation probably could be completed by, let’s say, the end of this year and first quarter of next year. it depends on how many cases they have and whether this is given priority treatment. we really don’t know.

>> in terms of the fact that this did come out inadvertently, that the public was not suppose to know about the investigation, you’re saying that we don’t know if other investigations are underway, what’s your sense in terms of how much activity, how much investigating there will be of this in terms of the companies?

>> i’m sure there is more than one case. and i would suspect that the pcaob wants to come forward with a broad range of investigations against a number of accounting firms rather than singling out one. their real focus is on the accounting judge judgments that have been made. that’s something that the s.e.c. in the past couldn’t do. they were more of an anti-fraud agency and this was a judgment call deferred to the profession. pcob can say this was a poor professional judgment and based on that, we’re going to censure you, for example.

>> how effective do you think the oversight board will be able to be?

>> i think at the present time they look like an aggressive, strong body that is well led and that i think will have impact on the industry. i think accountants in the past didn’t believe professional judgments could be second guessed by the s.e.c. but they can be second guessed by a body of professional accounting experts and that’s what the pcaob really is.

>> give us one or two areas you think are ripe for improvement in this industry?

>> the area they’ve come up with already and the s.e.c. has also come up with is the old area of professional independence. within the last year, the s.e.c. joined one major firm, ernst and young, from taking on any new clients for six months, an extraordinary sanction because they had a variety of conflicts in which they were engaging in joint ventures with the clients they were auditing. with navistar, it looks like it’s based upon accounting judge thements. did you have a basis for using this principle, was there adequate documentation for these costs being deferred. there are always questions about soft judgments and what is involved in navistar, we don’t know. i looked across all of accounting america right now, i would suspect that the kind of issue they’re finding coming up the most is premature revenue recognition, either because of booking of income what are only handshake deals that aren’t binding or channel stuffing where you sell much more product than you ever expect will get passed through the distribution stream in order to book revenue early. that’s been the major problem over, say, the last two or three years.

>> professor coffee, thanks so much for joining us this friday afternoon. john coffee with columbia university. taking a quick break and returning with comments from laszlo birinyi. we’ll learn what he makes of the fallout from the terrorist attacks.

Chart of the day

>> the saudi prince is partnering with hsbc holdings to invest as much as $400 million in africa that. is amid talks by world leaders on rescuing the continent’s economies. hsbc kingdom africa investment will focus on sub-saharan africa though it will invest throughout the continent. it is a sign of mounting investment in africa by financial companies. governments of the world’s biggest economies are meeting to cut debt owed by african nations and lift trade restrictions that hamper growth in the world’s poorest continents. the prince has a fortune of $24 billion that. according to “forbes” magazine. let’s get more on this. the head of the g-8 summit in scotland and economists at the bank of scotland are taking an active growth. they’re calling for debt relief and aid in the short term. this is the subject of our “chart of the day.” here with details is editor-at-large tom keene. a lot of focus this week on africa. tell us specifically what you those to focus on in the chart.

>> there’s been focus for the past couple of years and it’s been building, building. the u.s. not as enthusiastic. a brill janet eight-page report that looks at bigger picture of the african economy and what his main message is things are not as bad as you think. he says doom and bloom isn’t justified. if we go to the chart, it’s a five-year rate of change. i smoothed it out to a bigger, broader picture. back 40 years. 1960 to 2003. here’s the success of the african economic experiment. then we come down and it really gets grim in the 1980’s and early 1990’s. minimal, minimal growth. we rebounded up.

>> that’s what this is right here?

>> things are tough. we need debt relief, we need aid says one african economist. the 30 year ago message is not the same as the last five to 10 years.

>> can you quantify how much improvement? when you look back long term, this tail end improvement looksed dwarfed. is that the right time frame?

>> the time frame they’re use something a shorter term time frame. they think the doom and gloom of what we had in the 1960’s and 1970’s isn’t applicable now given the real challenges within sub-saharan africa. they make no bones about it. debt relief is needed and aid is desperately needed.

>> some issues have to do with the african nations’ ability to absorb the aid. tell us about this.

>> the jar gone is absorbing capacity. that means throwing billions of aid at any set of nations that can only take so much of that. this is something we have learned with other i.m.f. and world bank experiments through the years. the message is we have to be persistent about our aid, planned about it and not just throwing it all to them in 2006 and 2007.

>> tie it into moral has e hazardss. that’s one issue and controversy that has come up.

>> they bring up moral hazard. that’s an economic phrase from insurance economics which is if you allow somebody a solution to a risk, they’ll take advantage of it. what standard charter is saying is if you have a real moral hazard of debt relief, those nations knowing that it will be solved for them will continue with processes that are not that productive to their social well-being. they’ll continue to do things -- corruption one idea that would not be good. so that moral hazard is a key issue and something every economist is thinking about, whether they’re for lots of aid going there now. i think of jeff sax of columbia saying give the money now or bill easterly saying we need to build up interior incentives to make that aid used better or more efficiently.

>> ok. certainly we’ll watch for headlines outs of the g-8. thank you for giving us that template as we head into that meeting and see what needs to come out of thrfplt we take a quick break. when we come back, the world’s biggest mover. also the latest on world and national news. “after the bell” continues straight ahead.
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Listen Interview: Synthetic Petroleum

>> as we have been talking about crude oil climbing near $60 a barrel. prices now up 55% from a year ago. syntroleum may stand to benefit. it makes a technology to convert natural gas into synthetic petroleum products such as jet fuel as well as gasoline. even though the company is not profitable, share vs. jumped 35% so far this year. here to tell us more is the chief executive officer, jack holmes. he joins us from tul sarbgs oklahoma. we welcome you to the show.

>> ellen, thank you. it’s a real pleasure to be with you today.

>> lay the groundwork for us. how much is the synthetic hydrocarbon are you already producing?

>> actually very little, ellen. our company is 20 years old. we have been developing this technology, this patented technology that we have. we are currently running a demonstration plant in tulsa, oklahoma, making approximately 70 barrels a day of ultra clean diesel fuel. as of yet we do not have a commercial plant operating.

>> what is the potential? how much can you eventually produce?

>> well, ellen, the sky is the limit for our process. we have identified over 2,500 trillion cubic feet of stranded natural gas around the world. this is gas that has been discovered but doesn’t have a market because of its remote location. if all that gas were converted into our product, into this product, ultra clean diesel fuel it would be over 250 billion barrels or approximately reserves of saudi arabia.

>> let’s make it a little more manageable and touchable for our viewers which is what kind of timeline are you talking about and how much realistically?

>> well, let’s talk about the industry first. in the nation of qatar there are several very large projects underway now that should be able to produce somewhere between 800,000 and one million barrels per day probably over the next five to six years. one of our allies, marathon oil, is active in qatar and negotiating to build one of those plants.

>> kerr-mcgee an marathon license your technology. how much interest are you seeing from the large companies?

>> well, ellen, the very large companies such as exxon, shell and others have their own technology. but the companies we tend to work with are the very large independents and some of the international companies who do not have access to that technology. we are getting quite a bit of interest.

>> give us more sense of that. certainly the context here, we have been talking today and have been talking for weeks about these record high prices for crude. what companies are approaching you now?

>> well, repsol, the spanish company, is a licensee. we’re in contact with some companies in the far east also. one point i’d like to make that people may not realize is one of the problems with high prices today is the lack of refining capacity. our process turns thet aeupb gas into finished diesel fuel or jet fuel, whichever, at the gas field and we’ll not impact the shortage of refining capacity of the world. in other words, we make the finished product right at the field and don’t need refining capacity.

>> let’s switch and talk about your company as an investment. now your company is not profitable, has not been profitable. what kind of timeline are you looking at, are you forecasting in terms of when you may become profitable?

>> we have a very exciting project in nigeria that we’re involved in that includes upstream as well as downstream investment. we’ll have a well drilled this summer there and if it confirms the reserves that we believe are there, we can expect to have positive cash flow as early as 2007 and significant revenue by 2008, 2009. that’s not our only project. we have a number of other projects around the world that we’re working on. that would be the first.

>> what do you mean by significant? what is significant?

>> well, our cash flow could be over $50 million a year by 2007 from our interest in this one project alone. that would come from the early production of crude oil while we’re building and designing and installing our gas and liquids plant that we expect to come online sometime in 2009, 2010.

>> you recently sold shares to legg mason opportunity trust. will you do ordeals like this?

>> ellen, we think we have enough cash in the bank right now to get us through the year 2007 given our current rate of expenditures. once our revenue comes in from the nigeria project we should be in good shape cash-wise. if opportunities come up where we need other capital, we might do that. we’re not actively looking to do that right now. >> thank you for joining us. very interesting.

>> thank you.

>> jack holmes of syntroleum. some economists think conditions have improved in africa over the past decade. that is the subject of “chart of the day.” joining taos discuss this will be bloomberg editor-at-large tom keene.