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Interview: South Africa

>> the south african rand fell today on concern that slowing growth in the european union may erode demand for exports from africa’s biggest economy as oil prices climb. the rand’s 1.5% move was the biggest fluctuation of any primary currency in the world. south africa sells about 40% of its exports to the 12-nation euro region, its largest trading partner. south africa imports more than half the oil it consumes. every rise in the price of crude puts additional pressure on the south african economy. to see what’s happened with the rand over the past two years. the rand in white at the bottom of the screen, down 14% over the two-year period. oil, in the meantime, is the orange line. it has surged, more than doubled, up 103% over the past two years. recall, one of our top stories today, the surge in crude again today, closing above 59 barrels in new york trading, reaching a record high for a second straight day. turning our attention outside the markets where president bush says insurgents will not drive the u.s. out of iraq. mark crumpton joins us with more on the story. mark?

>> on a day when a car bombing at a police training center in irbil left over a dozen people dead, president bush promised that despite the violence, the united states will stay in iraq until the job is done. with more than 1,700 american troops dead in iraq, polls show voters have grown uneasy with the president’s policies and some in congress are pushing for a date certain when troops would begin withdrawing. following a white house meeting with european union leaders, the president said he hears and shares those concerns but that the u.s. will stay the course.

>> i think about iraq every day. every single
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Listen Interview: Senior currency trader

>> the dollar is headed for its biggest quarterly gain in four years and the u.s. dollar index, which measures the dollar’s value against a basket of six global currencies including the euro, yen and british pound, has gained 5.3% since the end of the first quarter, now up 9.5% so far this year. let’s take a closer look at where the dollar may be headed as we continue to look at the markets at midyear. we’re joined by brian taylor. brian is senior currency trader at manufacturers and traders trust in buffalo. we welcome you.

>> thank you very much for having me.

>> brian, do you think this is a new period of strength for the dollar, or is it a euro weakness story?

>> i believe this is a euro weakness story. if you look at the euro versus mostly all the other major currencies having their problems, also, against sterling. pound sterling is down. the yen is holding up―it’s hold willing against the yen. but against the canadian dollar, australian dollar, the euro is having its problems due to political, technical and fundamental and bad sentiment for the euro right now.

>> given that basket of news for the euro, how high are you forecasting the dollar can go against the euro?

>> it’s difficult to say right now, page because there -- mainly because there are a couple things pulling on the euro. obviously, structurally and politically, the e.u. was unable to reach a budget this weekend and given that bandwagon, you see also that the euro is having trouble economically where their numbers are coming in extremely poorly and technically speaking, the euro has turned the corner in that it’s developing technical pictures that are not positive for the euro right now.

>> in terms of the technicals, as you’ve mentioned that several times, what are the technical key triggers that could indicate further euro weak instance.

>> one thing we look at is the 200-day moving average which gives a very good indication of whether a currency is going to change the course it’s been going. right now, the 2 hand moving average with the euro―the 200 moving average with the euro is moving sideways. we moved sideways in 2001 to mid 2002 but we began another move up to 1.36. in addition, we saw well that move in 1999, 2000, when the euro did change from negative to positive and that 200-day moving average, that turn was the key indicator as to whether or not the euro had turned the corner.

>> what’s your top currency pick right now?

>> the commodity currency are doing extremely well. the australian dollar, new zealand dollar, canadian dollar, all doing well against the euro. and that’s what you have to look at, how are these currencies doing against the euro, not specifically the dollar. the relationships we’ve seen beforehand aren’t in play. we’ve seen the euro go down and canadian dollar strengthen against the u.s. dollar. the euro has gone down, also, but the australian dollar has held ground and the same can be said for the new zealand dollar. right now, the commodity currencies are doing well, but given the in fact we’ve reached a high in gold, copper and oil, it will be hard for that to sustain going forward.

>> are you still buying those plays?

>> we’re buying them against euros but in terms of against the dollar, the dollar is a hard play because everyone is trying to figure out what the federal reserve will do, when they’ll reach the end of their tightening cycle and because of these things going on in europe right now with the referendum and the e.u. this weekend and technical picture, i think the euro negative play is the play to make right now.

>> what did you make of warren buffett’s comments earlier today where he said longer term he anticipates the dollar will continue declining.

>> i think he’s looking at the very long term and the account t we still have imbalances with the current account, the trade balance, that is still extremely large. we had good news last week on the trade balance but all in all, we still need the dollar to decline to sustain our current account balance.

>> we are talking about the markets at midyear, looking ahead to the second half of the year. dollar-yen, what do you see in the second half?

>> we’re still looking at another retest of 110, 111 area with 105 being the level where i think the bank of japan draws their line in the sand again because we don’t want it to get down. last time i was on, we spoke about china and their revaluation so much will depend on what china does and the tone and the mood that the chinese government begins to give to the market .

>> brian, thanks so much for joining us.

>> thank you.

>> brian taylor, chief currency trader at manufacturers and traders trust. brian mentioned the federal reserve and its relationship to the dollar. fed chairman alan greenspan paying particularly close attention to prices at wal-mart. peter cook will explain coming up.

Interview: Morgan Stanley
>> morgan stanley’s discover credit card unit would need $7 billion of capital as a separate company. that word from david trone, an analyst with fox-pitt kelton. on tuesday, morgan stanley’s board plans to discuss the spinoff first proposed by philip purcell in april. joining us to talk about what the meeting means and what we can expect to hear is bloomberg news reporter margaret popper. margaret, what the reconsideration?

>> from what i hear from both investors, the investor at federated and analysts, such as the one at merrill lynch, there might be a consideration for the new c.e.o. they would have to choose but they would like him or her to make the decision themselves and not be saddled with something that was decided before they came in.

>> i asked if they would reconsider spinning it off, is that on the agenda?

>> that’s right. the company has said it was looking into what kind of capital it needs to allocate to a spinoff and that it hopes within three to six months from the time of the announcement, now about a month old, to have an answer for that. and what they’ve now said is that that answer should come at this tuesday’s board meeting.

>> there’s been a lot of talk, obviously, and dissatisfaction leading to phil purcell saying he would step down. much had to do with the fact that discover is part of the morgan stanley investment business. in terms of the figures you heard from david trone, how does that play into what people believe about the health of that business?

>> i think david trone is on the high end of what analysts expect discover would need in capital. he compares it to providian that has a portfolio of credit card loans that are not very healthy. he says it needs about $7 billion worth of capital. other people, like the analyst at federated believes it’s closer to $4 or $5 billion of capital because of the quality of their loans. the area where people disagree the most is that discover smoothed out earnings for morgan stanley in the downturn but right now it’s not adding new credit card loans although it’s spending a lot of money on marketing .

>> margaret, thanks so much. we’ll turn our attention, now, to more specifics having do with another part of the stock market and that has to do with multinationals that are very much affected by the u.s. dollar. you have shares of mcdonald’s and colgate palmolive that may trail the stock market as the dollar heads for its biggest quarterly gain since 2001. makers of food, beverages, household products get the majority of revenues overseas and as the dollar declines, the value of sales abroad decreases. that is the subject of “taking stock” with dune lawrence. what effect are we seeing already as the dollar has rallied?

>> you haven’t seen―you’ve seen announcements from zimmer holdings, a medical device maker, announce revenue this quarter will probably be $49 million lower than originally forecast. you could see things like that, companies announcing that the stronger dollar is hurting sales overseas.

>> a lot of investors, as the dollar was falling, rushed into the stocks of these companies, believing earnings would get a boost. is it playing out, yet, in the stock price? are investors leaving the stocks?

>> a lot of the companies, household products, food and beverage, tobacco makers, are stable growth companies that many investors have bought into with the thought that the economy is slowing and we want stable growth. so, no, those groups that outperformed the benchmarks this year, consumer staples one of only four groups in the s&p that have outperformed. you might look at mcdonald’s shares and say that’s feeding into the declines this year a little bit but it’s hard to tell. in the fourth quarter, last year, i was looking at mcdonald’s. they got a 4% boost in their sales from the currency translation. colgate palmolive with a 3% boost. now you’ll have the opposite.

>> dune, thank you very much for joining us. when we return, the latest world and national news.

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Listen World and national news --- Mark (slow)

>> i’m mark crumpton with the latest world news update. north korea says it’s willing to return to nuclear talks next month. north korean leader kim jong il told south korean communications minister, chung dong young, that the communist nation is willing to resume discussions that have been suspended for a year. mr. chung’s comments came after he and president kim met for five hours friday in pyongyang. when he arrived in seoul, chung quoted kim as saying that we believe the other side has the intention to accept and respect us, we could return to talks in july. chung said that kim said he didn’t “think ill of president bush” and that kim was willing to regard the united states as an ally. the associated press reports that the bush administration says the north’s statements are more rhetoric.

>> what we’re looking for, the real issue for us is, getting back to the talks but more than that, engaging seriously and substantively, on our proposal and on discussions to end the nuclear―north korea’s nuclear program and address the threat that faces the korean peninsula.

>> in iraq, u.s. fighter jets carried out air strikes friday as hundreds of marines battled insurgents in an assault near the syrian border to try to keep militants from using the region to sneak suicide attackers into iraq. diplomatic officials say the threat to the american consulate in lagos forced german officials to close their mission in the city as well as the u.s. consulate. officials say the closure of the

Interview: Former Economic Adviser to Bill Clinton
>> a report today showed improvement in consumer confidence and we learned the trade deficit widened to another record. what kind of news will come down the pike? we’ll ask bloomberg contributor, gene sperling, former economic adviser to president bill clinton, joining us from washington for a closer look at the economy. gene, wanted to start off with what seems to be the dichotomy in the bond market and stock market . bond investors concerned about economic growth. the stock side really saying everything seems to be looking ok. what’s your take?

>> i don’t think anybody can completely explain the lack of concern on the long bond right now. this is a subject of as much speculation as anything that we have seen. you look at current account deficit today, 6.4%. the oecb was projecting 900 billion in 2006 for the current account deficit and today we’re coming in at 195 billion, almost an 800 billion pace for this year alone. there are a lot of people deeply concerned about whether the global imbalance raises the risk of some form of hard landing and how much longer the interest rates can stay as low as they have been.

>> john snow saying today that the deficit highlights strength in the economy. what’s your reaction there?

>> i’m sorry, he said the deficit --

>> is highlighting strength in the economy.

>> i think what the secretary may be referring to is that the deficit was $412 billion last year, the administration was saying it would be over $400 billion. there has been some growth in revenues so we may see it now go under $400 billion but these are temporary fluctuations. the long-term projection is still quite negative. you have independent analysts at goldman sachs still looking at $4.5 to $5 trillion of deficits in the next 10 years. i think it’s the combination of the deficit with the trade deficit, the full current account imbalance making most people nervous even though we have not seen the kind of serious ramifications so far that some fear.

>> if we tie it back to the markets , that dichotomy between the bond market and stock market , do you think the bond market is calling it right?

>> no. i really don’t. bob rubin was the other day quoting a very knowledgeable european investor. he said he thought every single thing was being well valued in the market right now except risk. there seems to be an enormous discounting of the potential for these current account imbalances, the 6.4% we’ve seen, $195 billion in the first quarter, to ever come home to roost. there is an academic and oecd, i.m.f. circles, people are very worried about the potential hard landing but you are not seeing it in the bond market . as the new homeowner, i went through the 30-year fixed great. at a personal level, i’m more worried about what’s going to happen to long-term rates in the future.

>> today you had oil reaching another record high. how great of a risk is this in terms of economic growth?

>> it was a funny day with the university of michigan consumer confidence numbers go up a little but we’ve lowered our standards. they went up but they went up to where they were in 2003 and they’re still below where they were, really, during the recession. so when it comes to consumer confidence, you always worry about energy prices because energy, particularly gas prices, they’re right in people’s face. they see them at the pump so in addition to the impact it has on their pocketbook directly, there’s usually a psychological impact particularly when you see gas prices go to new levels. $58 per barrel, will it get to $60, will it get to $70 and psychologically, will it start getting to the pump if we start seeing price per gallon at $2.40, $2.50, that’s the type of growth that has a psychological impact and at a period where healthcare costs are taking up wage growth, the last things we need are oil spikes.

>> what do you anticipate we’ll hear from the fed at the end of the month?

>> i think the fed will stay on the steady pace. i expect them to keep going up another 25 basis points. i don’t think that’s because they’re so confident about the pace of growth. i think it’s because they believe it’s still an accommodative stance, i think they may be more worried than they suggested about whether the low rates are fueling too much speculation in the housing market and when they’re balancing everything, i think they believe the steady-as-it-goes pace is the right place to be. i expect another 25-basis-point move up.

>> have a great weekend. taking a quick break, we’ll look at the effect of the dollar’s rally on corporate profits when we return and the “world’s biggest mover.”

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Listen Market briefing --- Ellen (slow)
TYCO --- Allan (slow)
>> as we’ve been talking about, the second trial of dennis kozlowski, former chairman and c.e.o. of tyco, did end today with a conviction. his co-defendant, mark swartz, tyco’s former finance chief, also convicted. allan dodds frank is at the courthouse with more. allan?

>> ellen, the jury of six men and six women deliberated for 11 days and found dennis kozlowski and mark swartz guilty of 22 of the 23 counts against them. prosecutors accused the men of stealing more than $137 million from tyco and of illegally making $405 million in improper stock sales of tyco’s stock. itose trades were not disclosed to shareholders. after the verdict, kozlowski and swartz were stunned while members of their families broke down. after meeting with the judge, who set sentencing for august 2, charles tillman, lawyer for mark swartz, told reporters that the money that was involved in the case is so staggering, so many millions of dollars, he thinks people couldn’t get their mind around that number and as a result, even though he contends his client never stole a dime from tyco, the jury obviously thought otherwise. the jury found the 58-year-old kozlowski and 44-year-old swartz guilty of all 12 counts of grand larceny against them, eight of the nine counts of falsifying business records and single counts of conspiracy and stock fraud under new york’s general business law. the verdict followed a 13-week trial featuring testimony from both defendants. the first trial ended in a mistrial in april 2004 when only mark swartz took the stand. the two men face as much as 25 years in prison for grand larceny and the other lesser offenses. the way the prosecutors say the gentlemen told the $137 million is by giving themselves unauthorized bonuses, cash, and forgiving company loans. prosecutors said kozlowski’s lavish lifestyle in the decade he ran the company included a $2 million birthday party for his wife, million dollar works of art and a $6,000 shower curtain. both kozlowski and swartz testified that they had no intention of stealing from the company and the bonuses were authorized by a company director who has since died. in her closing argument, the prosecutor called that part of the defense despicable. lawyers for both men say they will appeal the verdicts by the jury and more on that later. ellen?

>> allan, thanks so much. taking a break. when we return, consumer confidence rising, the trade deficit widening. we’ll speak with gene sperling, former economic adviser to bill clinton, about his views on the economy.

Interview: BP Capital

>> transportation stocks led a late-day rally to help push the nasdaq higher. robert gray has details with this report from the nasdaq marketsite.

>> the nasdaq composite rallying in the afternoon as crude oil came off their highs, settling below $56 a barrel and also with the 2:00 p.m. new york time release of the fed’s beige book showing the economy is expanding in all areas with only modest consumer price increases, borne out by this morning’s consumer price index which unexpectedly declined. i want to look at the groups within the trading, transports the strongest group, counter-intuitive with crude oil prices rising but the fed beige book helping with the economy expanding, transports will be transporting member goods. computer-related shares the weakest group throughout much of the session but turning around and adding to the gains. biotech, the only industry group weaker on the nasdaq. within reportorts, u.t.i. worldwide rising. elaine becker of benchmark company saying the company indicated margins would improve during the year and the company has little long-term debt and should be paid down by the end of the year. tech stocks moving, apple computer rising on a morgan stanley note saying inventory concerns from the past few months are overblown and the buildup was for expansion of the retail partnership with wal-mart, now stocking ipod minis, shuffles and classic versions. we saw intel shares turning around midday and silicon shares, w.r. hambrecht saying we’ll probably see rising third-quarter sales as demand for consumer electronics increases. also, looking at retailers, quickly, american eagle outfitters, urban outfitters and o’reilly auto motive moving to record highs in the session. sears holding also one of the strongest stocks on the nasdaq 100. at the nasdaq, i’m robert gray.

>> earlier this half hour, we showed you a snippet of energy investor boone pickens talking about opec’s decision to raise production levels. brian sullivan spoke at length with boone pickens today. here’s more of what he said about the outlook for energy.

>> the refineries are taking everything they can use and it’s―the available oil, about 84 million barrels a day worldwide, is all the refineries can use. and in the fourth quarter, your demand will be up to 86 million barrels a day and now you’re going to try to take care of 86 million barrels a day with 84 million production. you can’t raise that supply. your supplies―they’re doing everything they can and you’re barely making refinery requirements. on the other hand, that’s all the refineries can do. the whole thing, brian, is just tight everywhere.

>> is your hedge fund long oil or is it easier maybe to be a seller because there are a lot of willing buyers out there?

>> the last thing i would be in this market would be short. no, we are long. our hedge fund has performance of 60% this year. that’s the facts. it’s 60%.

>> didn’t get hurt at all when oil fell last month?

>> it went off. we dropped from 44 to 32 and we’ve come back up to 60% on our performance.

>> is heating oil a better play in distillates than just crude oil right now?

>> no kidding. heating oil has been very, very strong and―if i had the same money on oil and if i could go back and put it on heating oil, i’d make more than i did on oil but i never complain about a profit or where it came from. we have the market fundamentally analyzed and i think we’re doing good on it. there’s no question, our performance, up 400% in four years.

>> i want to ask you about the energy bill before congress, your position on it, and would you change your strategy on investing in oil however the energy bill comes out?

>> i don’t think so. what we’ve seen, it’s going to be constructive, it should be passed. all alternatives should be looked at now. the economics will drive a market one way or the other unless you have mandates or the government gives some kind of incentive and i think incentives should be given to the development of the shale oil on the western slope out in colorado, wyoming and utah. i think that would be important. people say, what about wind? wind’s fine. i think that wind will be used. solar’s ok. hydrogen, i think’s 30 years away and i think you’ll see natural gas probably pulled off at some point from power generation and will be used for transportation fuel.

>> that was boone pickens, chairman of b.t. capital. shares of autonation rose to a record before falling earlier today. coming up, we’ll hear from the chief executive. .
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Listen Market briefing --- Ellen (slow)
Market today --- Deirdre (slow)
NYSE --- Deb (fast)
Energy policy --- Bob (fast)
because of higher oil prices. in terms of trading volume today on the new york stock exchange -- what we saw for bonds maturing in five years or less, they declined after an index of manufacturing rose. also, the report showed foreigners bought less u.s. debt in april than the prior two months. that report definitely weighing on the currency market where the dollar fell against the euro, the first drop for the dollar in six days on the heels of that report showing foreign purchases of u.s. assets came in weaker than anticipated. stocks rebounded late in the session, finishing the session higher. deirdre bolton was tracking the activity throughout the day and joins us with the wrap-up.

>> optimism about the outlook for corporate earnings trumped concerns about oil prices. some money managers say the key components are there for the markets to move higher.

>> what we’d want to look at, again, is the three-legged stool, interest rates, corporate earnings and economic growth and right now those look pretty solid.

>> oil above $56 a barrel helped energy stocks. exxon, chevron and conoco advanced, sending the s&p energy index to close higher by 1%. this group has posted the largest gain than any other on the s&p 500 this year, jumping nearly 20%. financials rose on better than expected earnings from bear stearns, lehman brothers’ yesterday.

>> if you look at the manner in which bear stearns beat consensus estimates this quarter, it was in a rising, competitive environment. so even though there’s pressure on fees, they beat their numbers so that tells us that we’re seeing corporations with very strong balance sheets, a lot of cash on hand, looking pretty solid in this environment. so the earnings expectations of 8% to 10% currently, we think, is a reasonable one to hit.

>> goldman sachs reports earnings tomorrow and the world’s biggest investment bank, morgan stanley, out next week. among other financials, 28 companies in the s&p 500 banking index, almost 5% higher over the past year, still behind the s&p 500’s almost 6.5% gain during that time. ellen, back to you.

>> in terms of the day ending higher, certainly it took several attempts to get there. for more on the trading action, here’s a from the deborah kostroun.

>> the last hour of trading helping out stocks. stocks closed at a three-month high, the highest since march 8, as measured by the wilshire 5000. crude oil at the top of everyone’s mind on the day. we saw integrated oil performing well on a couple of things. crude oil, at one point, up 3%, but closed up only 1%. opec will increase production beginning july 1 and that couldn’t tumble not only crude oil but also integrated oil or oil services and other energy stocks performing well in today’s session. we’ve been talking about brokers all week mainly because lehman brothers reported earnings yesterday and bear stearns releasing better-than-expected earnings. lazard, although better than expected, however, that stock a little lower. and tomorrow we have goldman sachs releasing their earnings. something else that many stock traders talking about, treasury yields at the highest yield in five weeks at 4.11% and the dollar falling against the euro, the first day in six, after the dollar, which is actually trading near a nine-month high against the euro, and it looks like the moves in currency cutting zimmer holdings, their sales growth by 2/3. they see full-year sales of $20 million with growth of only 7%. only two months ago, they said sales would grow 2.3% to $69 million. one of the things they cited was the change in currency. dow gainers on the day, boeing at the top of the list and airbus and boeing have won half as many orders at the paris air show this week as they have all year, confirming a rise in demand, combined orders of $32 billion at that show. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> and certainly it was oil that was the backdrop for much of the trading action today in addition to the inventories report and opec. we also heard from president bush, a speech on energy policy. let’s find out what all of this news means from bob bowden. bob?

>> a big day for oil, ellen, yes, innerdeed. the u.s. is using up oil inventories faster than analysts thought. the energy department said oil supplies fell 1.8 million barrels last week, almost double the 1-million-barrel drop analysts expected. part of the reason for lower inventories, u.s. refineries operated last week at 96.7% capacity, using up the oil, the highest capacity since july of last year.

>> it would appear to me that we have refineries running 24/7 and the import system strained at 24/7 and we still have to grow output by maybe a million, a million and a half barrels and that calls for a stock draw.

>> president bush talked about refinery capacity today, pointing out that the u.s. has not opened a new refinery since 1976 and that now the country’s importing over 10% of its gasoline needs.

>> i’ve directed federal agencies to work with states to encourage the construction of new refineries on closed military facilities and to simplify the permitting process for these new refineries.

>> there was also news from opec. opec announcing it would raise output quotas by half a million barrels a day to 28 million a day, an increase of 2%, 1.8%. many, like boon pickens said the new opec quotas will not lower prices because the highest quality crude oil is already being pumped out of the ground and the added increment is the least desirable oil.

>> that is low gravity, high sulfur, undesirable oil that the refineries don’t want so it’s unlikely that oil will even go into the market . does it bring the price of oil down? no. the oil fluctuates daily but the trend is up and you’ll see $60 oil in the next three, four months.

>> today we saw $56 oil and change before it fell back off the highs, closing floor trading at $55.57. 28% year to date. oil had been up 3% intraday, finishing up 1% for the day.

>> certainly this has had a major effect in terms of the inflation data because crude rose to the highest in more than two months today. energy prices, if you recall, declined last month and government reports out today show the u.s. economy is growing without creating inflation. june grasso is here with that part of the story. june, specifically, right, the possible effect on the fed interest rate policy?

>> absolutely, ellen. lower energy costs drove down the prices consumers paid for goods and services last month. prices paid by consumers fell .1% in may, the first decline in almost a year led by a drop in energy prices, a sign inflation is not an immediate threat to the economy.

>> they’re right in line. every month there’s a little up tick or down tick and energy is the volatile number so i think what the bond markets care about is that inflation is contained and that we don’t get huge surprises so basically, very good number for the bond market long term and short term.

>> the cost of all goods, including apparel, cars and food, fell .4% last month. core consumer prices, which are less volatile as they exclude energy and food, rose .1% in may. there were surprises in industrial production and manufacturing reports. industrial production at factories, mines and utilities rose .4% last month, twice as much as expected. an index of new york state manufacturing rose to 11.7 this month from minus 11.1 in may, the biggest increase in two years so inflation is still tame, but some economists warn it will accelerate. 65 of 67 economists surveyed by bloomberg news expect the central bank to raise the rate to 3.25% at its next meeting in two weeks.

>> thanks so much for that report. we mentioned boone pickens and his views on energy. coming up, we’ll hear how high he thinks oil prices will go.

Interview: Northrop Grmman

>> welcome back to “after hours.” northrop grumman is in talk with the national aeronautics and space administration about creating a tanker, competing with a similar aircraft made by boeing.

>> the united states government does need to replenish its air re-fueling tankers and the current plan that we understand is there will be a fair and open competition in the united states. this has been the policy of the united states government, a statement made by the deputy secretary of defense. as a result, we’re exploring our options with the a.d.s. and others to determine whether or not we might have an offering that might be of interest to the government. at this point in time, we’re exploring our options and haven’t made final decisions.

>> you must have a time frame, though, in mind.

>> i think we’re watching the progression of the requirements, definition, and requests for proposal coming out of the united states air force and we’re monitoring that closely. it is moving along, but we’re not anticipating it just instantly yet. >> exploratory stage but you must be attaching value to this by now?

>> it’s a very large program that will involve tens of billions of dollars, perhaps 100 billion dollars over time and it’s possible it may be a split buy with more than one type of tanker selected, depending upon th retirements. the united states air force is examining the requirements and until we see the requirements they’ll have, it’s early to decide how we might play.

>> you have been critical of the process that the u.s. government’s employed, really, with regard to the tanker deal. and indeed, many other aspects of defense procurement, as well. do you see this as an open, fair way of doing things or would you see changes to it?

>> we haven’t been critical particularly of this program or any other program but are watching to see how it develops. if there’s going to be a full, fair and open competition, a corporation like ours will clearly look at its options.

>> this comes against a backdrop where some are suggesting we could see defense spending in the u.s. decline. is that something you’re preparing for?

>> we don’t see a decline, we see a slowing of the rate of growth. we’re also mindful that the quadrennial defense review will be underway through the summer and as a result of that, that will set a tone for the force structure of the country in the future and ultimately what equipment will be purchased. i think the issue is not so much decline in defense spending but reduction of rate of growth and what exactly will receive priority and what will be minimized.

>> what that in mind, what does that imply for your business plan as a company?

>> we’re looking very hard at the kind of programs we think involve net rick centric warfare, intelligence surveillance reconnaissance. those are the programs we think going forward will be emphasized and continue to be important for the united states defense posture and as a result we like the hand we’re playing and are working hard on those programs going forward.

>> do you see, because of the rate of growth slowing, more consolidation within the u.s. and perhaps across the border?

>> we might see additional consolidation at the second tier level. i don’t think you’ll see much at the first tier level. we have three major defense companies in the united states, five if you add a couple of almost first tiers. that’s probably the right number. i don’t think the department of defense or department of justice would be amenable to further consolidation unless there’s a dramatic reduction in the market and we don’t see that in the near term.

>> what about abroad?

>> clearly, there will be continuing efforts abroad to make combinations that make sense. many of our european colleagues are very much interested in acquiring businesses in the united states because the market in the united states is substantially larger than it is in europe and elsewhere in the world. perhaps it’s less of interest for american firms to be acquiring businesses in europe.

>> one big hole, i guess, would be china. the arms embargo in place since 1989, the tiananmen square massacre, are you calling on the united states government to lift that embargo because perhaps you’re at a disadvantage vis-a-vis european countries?

>> that’s a matter for the government to work out, a government issue. obviously, we’ll follow the law. we follow the law in all regards in terms of the way we sell or position ourselves in the world. that’s not a matter we’re putting a lot of energy into.

>> you’re missings out in what is, actually, the fastest growing major economy. surely it must be a hole you need to fill in terms of finances.

>> selling military equipment to china is not high on our list of priorities because we’re following the export rules and china is not a country we’re focused on at the moment.

>> what is higher on your list of priorities?

>> the netric centric war far, the global hawk, e-2 hawkeye world, airborne warning and control. we have a number of programs in europe including the awax whole life support program. so there’s a lot going on in the company around the world. those are the things we are focused on.

>> that was chief executive of northrop grumman, ronald sugar. breaking news on the michael jackson trial. we’re getting acquittals, michael jackson found not guilty of counts one through nine in the child molestation trial, in particular, lewd conduct was an acquittal. conspiracy charge, acquittal. not guilty of giving alcohol to a minor, et cetera. nine different counts, so far, we have all acquittals from the michael jackson trial. when we return after the break, we’ll have more business news.
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Market today --- Deirdre
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crude oil jumping more than $2 a barrel on concern refiners will not meet demand. the closing price forud crude for august delivery in new york trading on monday, up almost 4%, at $56.82. that’s an increase of $2.14. checking stocks on the day, rallying although finishing off the highs. on the intraday chart, the dow, s&p and nasdaq, we had an early-morning surge and somewhat of a softening throughout the day once we did that. but the dow up 10 points by the close of trading, 10,522 -- stock markets closed higher on optimism reports this week will show the u.s. economy is growing fast enough to keep a seven-week rally moving. deirdre bolton has more on the stock market story.

>> we did see 17 of the 24 industry groups we track on the s&p 500 close higher. technology stocks led the gains. we had stocks like textronics, select ron, xerox, all advancing. some say technology is benefiting from a shift in sentiment.

>> when people are more optimistic and start buying stocks, the tech group will be a leader.

>> kugel says technology companies’ earnings are expanding and combined with historically attractive valuation, the group will move higher faster than others in the market . in the past year, semiconductor and semiconductor equipment stocks have dropped more than 5%, more than any other group other than auto and auto parts makers. makers of machinery and equipment, such as g.e., 3m and united closed mixed. business at these cyclicals get better depending on the performance of the economy.

>> the fundamentals for the economy are getting better and better after we had a rather weak period there in march and a little bit soft in may. i think june is back on track and my guess is that we’re going to see some upward revisions in some of the past economic data streams and we’ll see pretty good numbers when the second quarter comes out.

>> transportation stocks were pretty much the only group that did not benefit from a better economic outlook. northwest airlines down more than 11.5%. chairman disclosing sale of close to 60% of his stock over the past month, reported in the “wall street journal.” the journal also saying the airline company may be near bankruptcy. over the past year, northwest airlines has dropped more than any other stock on the amex airlines index, the stock down 43% compared to a 3.5% drop for that index. bob, back to you.

>> thank you very much. markets had a difficult time holding to early gains. for more on the day’s trading action, here’s a report from our deborah kostroun at the new york stock exchange.

>> the dow ended monday’s session with a nine-point gain, a far cry from the 77-point gain seen earlier in the session. couldn’t hold on to the gains. one of the reasons, the increase in oil. crude oil rose $2.08 a barrel on concern about global demand. we also have the opec meeting this week in vienna to discuss production quotas. so oil services, a mixed market and mixed across many of those stocks although crude oil performed well. financials, second worst performer of the 10 industry groups in the s&p 500. however, morgan stanley performing well after chief executive philip purcell saying he will step down following a two-month campaign by former executives to oust him. morgan stanley saying their fiscal second-quarter earnings dropping as much as 20% as the firm’s earnings continue to trail competitors. we also have a lot of earnings coming up on tuesday with lehman brothers releasing their earnings. on wednesday, we have bear stearns. lazard’s first public quarterly earnings will be released on wednesday, as well. on thursday, goldman sachs releases their earnings. we’ll be talking quite a bit about those brokers this week. retail sales will be released tomorrow. economists tell bloomberg that sales at u.s. retail sales probably fell in may for the first time in eight months as consumers bought fewer cars and less gasoline. a powm of retail earnings coming out tomorrow including pier 1 imports and best buy. materials, one of the better performers in the s&p 500 and paper stocks, within the materials, some of the better performing stocks within materials. gold stocks putting in an impressive performance as gold rose to a five-week high as investors bought the precious metal as an alternative to the euro and u.s. dollar. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> as we said, morgan stanley chairman and c.e.o. philip purcell will be leaving his job at the world’s largest securities firm. mr. purcell is being pushed out by the board of directors following the departure of three more managing directors on friday. purcell discussed his exit on a conference call today with analysts.

>> phil purcell told the morgan stanley board he no longer wanted to be the lightning road. in a video statement to morgan stanley’s employees, purcell said he thought it was best for the firm if he left.

>> i believe this is the best thing i can do for you, our clients and our shareholders. what matters is not one person, but the over 50,000 people of morgan stanley and our many clients and shareholders.

>> during the call with analysts, purcell again defended his eight-year reign at morgan stanley, blaming the firm’s disappointing results on the market environment rather than on his management and the performance of the world’s largest securities firm. board member miles marsh put purcell’s departure this way.

>> in the last week or so, phil came to the board with his conclusion, which was basically that things would not settle down so he removed himself as a lightning rod. the board considered this. we’d obviously been thinking about it and regretfully, we had to accept that conclusion.

>> today, as the firm announced purcell would leave no later than next march, it also said its second-quarter earnings fell 15% to 20% from last year. no successor has been named by the board for the 61-year-old c.e.o. purcell said the lack of immediate successor does not mean he expects the board to consider a possible merger or sale. he said departures from the firm this year were about average, the difference being that this time each one is reported in the newspapers. bob?

>> thank you, allan dodds frank. we take a closer look at the past three months of infighting and the significant events leading up to purcell’s resignation. su keenan has that story.

>> it’s been mainly in the last three months that growing concerns over morgan stanley’s lagging performance in terms of revenue, profit, stock gains, started grabbing the headlines. it was late march, c.e.o. philip purcell replaced president stephen newhouse with two co-presidents, zo cruz and steven crawford. the next day, two key resignations. the head of sales, banking and deputy in equities both left. at this point, the dissident group of eight former executives released its letter to the board saying purcell must go. two days later, the group took out full-page newspaper ads saying his management changes caused “the worst kind of crisis.” they criticized purcell for stifling profit and while he defended his actions, enjoying the board’s support until late may, he also called the attacks unfair. by last week, at least 55 executives and staffers had left the firm. early today, the financial services analyst called the resignation overdue. >> there were dissident actions and employee defections and all kinds of distractions so i think it is a good move. the stock is looking higher in the premarket so i think it avoids the big, ugly proxy fight we would have seen next spring.

>> by the end of the session, the stock was up 2%. analysts say, when the board changed rules in late april on what it would take to vote purcell out, the writing was on the wall. sandler o’neill’s jeff harte has reason to believe that the board wants an outsider as c.e.o.

>> i think the fear might be, if you promote someone from inside, and that further the civil war, some of the power struggle across the entities. i think it makes sense to look outside of the firm.

>> the board indicates that is what it will be doing. for today’s gain, morgan stanley’s stock had dropped 10% since the late march management change.

>> thank you. when we return after the break, northrop grumman is talking about stepping up competition with boeing. we’ll hear from the company’s chief executive coming up next.

Interview: State Street Global Advisors

>> the u.s. trade deficit widened in april with record oil prices and demand for foreign goods pushing the gap between imports and exports of goods and services almost 16% wider. investors will have more economic data to consider next week, including wholesale and consumer prices in may. chris probyn is chief economist with state street global advisors, joining me from boston with a closer look at economy. welcome to the program. let’s begin with the consumer price data for may and pursuer price―producer price data.

>> i think we’re likely to get positive news on inflation next week because we know that gasoline prices fell between the survey weeks, both the p.p.i. and c.p.i., helping to drag down the headline numbers assuming a modest uptick in the core, i think we’ll probably get some quite positive news on both p.p.i. and c.p.i. next week.

>> what―where is inflation right now?

>> i think inflation is probably stabilizing? i think it can go a little higher from here. it has certainly trended up from its lows. i don’t think tell continue to trend up. i think it may go a little higher and stabilize and perhaps come down a bit. that’s, of course, referring to the core. i think the headline, of course, will depend a lot upon the path of oil prices.

>> the core meaning excluding food and energy and right now we have a bloomberg survey showing 2.2% is the expected number according to economists we surveyed.%  is that where you are? 2.2% inflation cutting out food and energy?% 

>> yes, above .2 on the month, putting it at 2.2 year over year.

>> you said the fed may increase the pace of rate hikes in the second half of 2005. aren’t the low yields we’ve seen in treasuries, close to 4% yield on the 10-year, suggesting that bond traders aren’t so convinced we’ll have inflation or heating up economy? doesn’t that contradict the idea that the fed may be aggressive in the second half?

>> absolutely. there certainly is, as chairman greenspan said, a conundrum between the economic data we’re seeing, the rhetoric out of the federal reserve, most recently, of course, this week from the chairman himself.

>> just yesterday.

>> yes, just yesterday. and what the bond market is doing. there’s clearly a disconnect there. i think there’s a little upside risk to both growth and inflation over the remainder of this year and therefore the idea that the fed may in fact go a little quicker should not be discounted so readily by the bond market .

>> i see. so it’s the bond market that has this wrong? or is it that the fed is going to raise no matter whether there’s signs of inflation or economic growth or not, that they’re dead set on raising and will?

>> no, i don’t think they’re dead set on raising but i do believe that it’s quite likely the economy will stay in what i call the goldie locks zone, where growth, no inflation, are either too hot or too cold, like the current level of inflation we see now and growth between 3% and 4%. in that zone, i think the fed will be quite―will decide to keep raising rates at a measured pace. if we start to move outside of that, they’ll go faster.

>> i guess what i’m trying to understand is whether you think the fed has been too aggressive, not aggressive enough or appropriate.

>> appropriate.% 

>> the goldie locks scenario, yes. indeed, where will the fed funds rate be at the end of the year?

>> 4.25%.

>> ok. now, let me ask you about the measured language. is that likely to be dropped soon?

>> well, it’s been watered down by the minutes. it was always taken by the market to mean 25 basis points a meeting but the minutes a few months ago suggested it means something broader than that to the fed so i’m not sure it will matter if it’s removed or not. i tend to think it will stay in for the time being.

>> for our viewers. i’ve charted a six-month graph of the euro against the dollar and it’s dropped like a rock since its all-time high against the dollar on december 30, 2004. it has moved very much downwards now at $1.21 and change per euro now. will this trend continue?

>> no, i don’t think so. clearly, there have been two developments. rates have continued to rise in this country against the backdrop of solid economic performance while rates have been steady in the euro zone, increasingly speculated to be on their way down against a backdrop of very disappointing economic performance so it’s not too surprising that the currencies would have moved in this direction.

>> the big risk you hear in the economy, people talk about a real estate bubble that may burst, everyone with a.r.m.’s and interest-only mortgages. do you see this as a threat?

>> no. i don’t believe there is a national real estate bubble. it valid to be a very large price correction to have a macro economic effect.

>> we’re out of time. our thanks to chris probyn, chief economist with state street global advisors, joining us from boston. coming up, “money & sports.” what could be the most popular segment here at bloomberg television. a collector looking for an item connected with the curse of the bambino shells out a chunk of change.
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Chart of the day --- Tom (slow)

see about .1% at 10,512, while the s&p 500 fell about .25% at 1198, just below the 1200 level it crossed down through during the day. the nasdaq down .67 % the biggest mover, the move to the downside. stocks up, the s&p up for three of the last four weeks on a weekly basis and eight of the last 11 weeks. the yield on the 10-year treasury note is once again above 4% after falling to a low of 3.88% on june 1. for a look at where the yield may be heading, we turn to our “chart of the day” segment and joining me now, as always, with that segment, news editor-at-large, tom keene, here on my left, joining me on set.

>> we’ve had week after week after week of tumultuous news and this is finally almost a normal week. but we come into friday sort of quiet, which is a nice change. i thought we’d look at the 10-year note, here it is, 2002 to 2005. excuse me. big yield down. the yellow line is 4%. what the big debate here is, we came down, touched just under 4%. that’s right, bob, right there. we come up today to, rounded up, 4.5%. there’s a titanic debate going on, do we go lower, do we sustain to a lower yield, or the optimists of the economy saying, look at this channel going back two years, three years, will we revert back into that channel and that’s the polarity heading into midyear 2005.

>> is it generally the fed comments yesterday to congress―the fed chairman’s comments yesterday to congress where he expressed it’s not historical for the fed to be raising rates and the long-term treat stay low. did that push yields higher?

>> clearly the chairman’s testimony moved the markets . the futures market lifted up a little anticipating more fed increases away from president richard fisher of the dallas fed suggested herer in the week, remember, the eighth inning idea, just four or five days ago. but certainly the chairman’s testimony moved the future pricing up to higher yields.

>> the chart you talked about, i see the red lines and the upward trend in yield, which is not -- people lately have been talking about, we can’t believe 3.88. your point is in some regards an upward trend. what is the distinction between those that believe we are looking at higher yieldsversus 3.75, maybe?

>> the tension is always inflation, price change. simply put, if you believe in higher inflation, yields will run higher. but something else is going on here. what we see more and more in the notes by economists is discussion of growth. david lynch reit raiting a low-growth environment while john ryding saying, look for high growth. that’s the distinction with inflation.% 

>> moving on, looking at the rally in shares of u.s. retailers. the s&p 500 retailing index climbed 11% in the past seven weeks but discounters like wall art are trailing luxury retailers or higher-end will sellers of good and some investors say that gap in performance is growing, the subject of today’s “gating stock―“taking stock” segment with ari levy. tell me how people are explaining the divide between luxury and discount retailers?

>> what we’ve seen is that you’ve had a 5% rally in the s&p 500. you’ve had a 10% rally in the retailing group. wal-mart not part of that group, only up about 1%. they’re saying the high oil prices we see between $50 and $55 a barrel are having an inordinate effect on the lower end retailers, the wal-marts and dollar stores, saying that higher oil and gas prices are a tax for all consumers but a relative tax. the―when you look at incomes on the higher income earners, they’re actually seeing―their wages going up and the hourly wage earners are relatively flat, doing a battle with inflation in terms of growth so it’s a relative tax.

>> the gap between have’s and have not’s, if you will, is expanding?

>> right.

>> we’re getting c.p.i. and producer price index next week. what kind of data might give further insight into the distinction?

>> investors i spoke with on the retail side are looking more at the retail sales numbers. we’re looking for monthly retail sales numbers, expected to decline for the first time since august.%  also, consumer confidence numbers. consumer confidence probably dropped or rose but less than the previous month and so, again, what this is saying, wal-mart, the world’s biggest retailer, has an inordinate impact on those numbers so if you break them out, it’s the lower-end retailers hurt the most.
>> that said, wal-mart has underperformed target. we’ve done stories about target and other discounters have done better than wal-mart lately. let me also ask you about signs that higher end retailers are getting too pricey. they’ve done so well, but do people believe they’re too expensive to buy?

>> if you look at the nordstrom and coach’s, nordstrom shares have more than tripled and coach shares have more than doubled so certainly investors may take a pause before buying those shares but if you look at price-to-earnings ratios, they’re about where they have been over the past five years so if you really focus in that space, these shares may still not look too expensive.

>> thank you for joining us. when we come back, more business news.

Interview: Wachovia Securities

>> Welcome back. stocks finished the day mixed with the dow up, s&p and nasdaq down. today’s retreat pared the benchmark index gains for the week if you look at the s&p 500. doug sandler is chief equity strategist with wachovia securities joining us from richmond, virginia, on this friday afternoon. welcome to the program.

>> thank you.

>> i wanted to begin by showing our viewers a six-month chart of the s&p 500 on the bloomberg terminal that i’ve drawn. and have you react to this. basically, we had stocks falling in march and the first half of april, turning around, then, the second half of april and in may, but really, the last three weeks here we’ve kind of been running sideways in the s&p 500 and i’m wondering what your sense is of what will drive markets higher or lower from here?

>> well, i think we’re in a very important shifting time for the market right now. the last 18 months we could say was a cyclical market . the economy was strong, the companies that were impacted by a strong economy did very well. the metal companies, machinery companies, steel companies, chemical companies. that gain, in my opinion, is over. going forward, we think the excitement of the market is the secular companies, those kind of companies that can grow regardless of what the economy’s doing. that’s because we’re seeing a slowing economy, and a slowing economy is almost never good for cyclical stocks so the exciting part from our perspective and although it seems like the market is going back and forth for investors and it’s hard to discern a real trend, the exciting part from my perspective is it’s very rare that the good secular companies are priced not that much more expensively than the cyclical companies. cyclicals should trade at a very big discount and they don’t right now so that’s a great opportunity.

>> what sectors do you like, meaning those that are non-cyclical? are you talking healthcare, h.m.o.’s and hospitals, pharmaceuticals?

>> right. well, i think it’s more of a stock-picker’s game. ultimately, a lot more secular games fall in the healthcare, technology, consumer discretionary area. but in the end, it really is a stock-picker’s game. i can look at industrial companies and say, clearly, caterpillar, for example, is a cyclical stock. they do well only when the economy is strong. on the other hand, in the same sector, a company like general electric, which i should note, we own, is a lot more secular. they have their arms in many different businesses, healthcare being one of them, water, et cetera and they can grow regardless of where the economy is going. they are impacted somewhat but they don’t have the same cyclical headwind that caterpillar might have.

>> to be devil’s advocate for a moment. i see names like u.s. steel down 26% year to date and steel dynamics, 28%, a.k. steel down 52% year to date. some of those stocks have gotten awful cheap, no?

>> well, no, no. the answer is no. the thing you have to be wary about on the cyclical names is the earnings number that you see is very cyclical, as well. so you may have a stock that earns $3 when times are good and they actually lose money when times are bad and what happens is people start to say, well, they’re earning $2.50 now so it’s cheap on a p.e. basis. you can’t do that with cyclical stocks. you have to normalize the p.e. and in many cases you’ll see these stocks are still not cheap here, still up 200% to 400% over the last couple of years.

>> i wanted to show the chart of oil over the last six months and get reaction to that impact on the market . you see oil around here at the $56, $57 level in march, coming down a bit and back again at end of may and now hovering at $54. if we stay at these levels, what does that mean for energy stocks and companies in general that are affected by the high prices?

>> for the energy stocks, it means the cash register will be ringing. for these kind of companies, $50 oil, i mean, that’s like pigs in slop. it’s as good as it gets. i don’t know how long it stays at these levels. we like energy stocks. it’s nice to see the bulls pick their head up out of the sand. we had a lot of people bullish on energy over the last couple of weeks. we are overweight in every one of the portfolios weeingage in energy. i can’t tell you a better theme than buying energy stocks right now. you may be buying them short term at a wrong time but long term, we like energy. we like energy drilling stocks, energy service stocks.

>> everything?

>> across the board.

>> anywhere you go. in our remaining seconds, i have a report from monday of this week you put out called “out of the block, the elephant in the room.” tell our viewers what is the elephant in the room.

>> the elephant in the room is the single stock position, one company that most investors own that accounts for 15% or 20% of their portfolio. we think that’s a big mistake, an issue that has to be addressed. it’s the elephant in the room because everybody ignores it. they want to pick a great company but ignore the huge position they hold. too many tombstones have been written in investment portfolios about people who ignore the big positions.

>> we are out of time but our thanks to doug sandler, chief investment strategist at wachovia securities. the u.s. trade deficit widened less than expected in april and americans paid record prices at the pump. a lot more goods from china. no surprise there. june grasso joins me with the story after the break.
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services almost 16% wider. at the same time the commerce department said the gaps for the previous four months were smaller than previously reported. one major factor in the april report was increased buying from china. america’s gap with china grew 14% and its textile shipments to the u.s. jumped 11%. u.s. imports rose 4% to a record in april. exports were up almost 3%. also, to a record. 10-year treasuries fell for a third day, the longest slide since march, on speculation yields, near their lowest in 13 months, did not odquattle reflect prospects for a healthy economic growth and further federal reserve interest rate increase. the five-year with 3.83%, the yield there, down 13/32 in price -- citigroup agreed to pay $2 billion to settle a class-action suit related to enron’s collapse. the largest settlement to result from lawsuits accusing wall street firms of helping the energy trader commit fraud. su keenan has more on the citigroup settlement.

>> the agreement sets the stage for other banks, including j.p. morganchase, to reach settlements in the $30 billion class-action suit resulting from enron’s bankruptcy four years ago. citigroup says it will pay the $2 billion settlement from its legal reserves set aside last year. the bank was accused of letting enron hide billions of dollars in debt and off-the-book partnerships. attorney stephen ryan says the charges would have been difficult to fight.

>> the bank was essentially a satellite of the enron criminal conspiracy. and the bank to have to pay this very large amount of money directly to the shareholders, obviously puts some money back in the shareholders’ hands because their shares are worth nothing and keeps it out of the hands of the enron bankruptcy, which would benefit, frankly, a number of the banks themselves.

>> enron shareholders are still pressing claims against other banks which lent to the former energy trader. those banks include j.p. morganchase and merrill lynch. citigroup’s chief executive, charles prince, said the agreement brings the company closer to resolving a scandal-ridden era in the bank’s history. altennes investment’s nicholas jones views the settlement as a positive for the stock.

>> it came in at a good price. $2 billion is obviously a lot of money but when you look at the total case as it is, it’s essentially pennies on the dollar. >> the settlement is 2% of citigroup’s last year’s revenue. the bank has faced three years of regulatory and legal hurdles. last year, the bank paid more than $2.5 billion to settle claims related to the worldcom bankruptcy.

>> thank you very much. shares of general motors were strong all day. for more, here’s a report from deborah kostroun from the new york stock exchange.

>> the dow ended friday’s session higher, but it was higher sales from intel that failed to jumpstart the market . intel was the worst performer in the dow jones industrial average on on the day. the best performer, however, in the s&p 500, was the auto straempt general motors, biggest gainer in the dow jones industrial average.%  and shares of g.m. rose on expectations that the united auto workers union may agree to negotiate on healthcare cost cuts. united auto workers gave authority to the union’s vice president to negotiate with g.m. on cost cuts linked to the contract that expires in 2007. in fact,, a morgan stanley analyst said that the union’s willingness to negotiate is an incremental positive. nortel networks down on the day, number one north american telephone equipment maker. president gary daichendt resigned after only three months on the job because his business views differ with the chief executive, bill owens and chief technology officer also left the company. it was a record price for wendy’s. wendy’s up in thursday’s session, about 3% higher in friday’s session. volume for the past past couple of days about four times the average daily volume that we typically see in this stock. the news is that gating square capital management, a hedge fund, actually wendy’s biggest shareholder, hired blackstone group for advice on spinning off or selling assets of the hamburger chain. wendy’s shares have risen 22% so far this year on talk of that spinoff. krispy kreme donuts rising on the day. this company has had concerns regarding cash flow. it hooks like the donut chain maker’s canadian franchise is selling the operator’s donut making equipment, store leases and assets, according to the “wall street journal,” citing papers filed by ernst and young. and chevron evacuating workers in the gulf of mexico ahead of tropical storm arlene.

>> intel shares led the nasdaq lower after their mid quarter update thursday. robert gray has details from the nasdaq marketsite in times square.

>> the nasdaq composite closing lower in friday’s session and lower for the week, as well. semiconductor stocks had helped lead the rally over the past six to eight weeks and in fact, it was the semiconductor stocks that led stocks lower in friday’s session. intel leading the way there, disappointing investors after its mid quarter update thursday after the close. investors had bid up intel stock by 25%. coming into friday’s session, off of its april 15 recent lows and of course, the nasdaq having a recent low on april 28 so chip stocks had been rising in advance of the broader nasdaq composite and intel one of the biggest drags on the nasdaq 100, the s&p 500, broader market as well as the dow industrials. intel stocks with its biggest drop in three months on friday’s session. we want to look at the semiconductor index because sentiment was negative throughout the index and most of the members fell after intel’s disappointment. also, one-two combination, microsoft weighing on the nasdaq, as well. you call it the net microsoft effect. microsoft shares didn’t rise but a lot of news surrounding the software company. their cnet reporting that microsoft moving into the music subscription business later this year to compete directly with apple’s itunes music store. msn trying to get copyright holders a free copy of any tune purchased on apple so they would have a copy. microsoft also started public testing of a new graphics program to compete directly with adobe’s photoshop and illustrator product, sending adobe shares lower. so the microsoft effect sending other technology stocks lower in friday’s session. at the nasdaq, i’m robert gray.

>> checking oil prices on friday, oil fell for the first time in three has higher-than-normal u.s. supplies reduced concerns that refineries will not be able to meet peak u.s. demand later this year. here’s friday’s close, you see on the one-day, down 1.36%, $53.54 is where we are. red arrows also with gasoline down almost 2% on the day, natural gas down 1.6% and heating oil down a little over 1% on the day. the international energy agency raised its forecast for worldwide demand in the second half of the year. global oil use will reach 86.4 million barrels a day in the fourth quarter, the group said, up 200,000 barrels a day from the prediction given a month ago. that means opec will need to pump more than 29 million barrels a day in the final quarter, an increase of 300,000. traders and analysts surveyed by bloomberg are fluid on where prices will go next week. 19 predicting a rise in oil prices, 17 predicting a decrease and eight seeing little change. a second executive of warren buffett’s general re pleaded guilty today to criminal charges over accounting practices at a.i.g. senior vice president richard napier appeared at a plea agreement hearing in general court. former general re executive john houldsworth entered a guilty plea yesterday, admitting he helped a.i.g. distort finances with a reinsurance transaction. in court papers, the government says his co-conspirators included several senior level executives from both companies. bernard ebbers facing life in prison for directing the largest securities fraud in u.s. history cited his charitable work and ill health in a bid for leniency. ebbers’ lawyer asked the judge to use her discretion to impose a prison term substantially below the life sentence recommended in a court-ordered recent investigation. ebbers was convicted of directing $11 billion accounting fraud at worldcom, once the second largest long-distance phone company, between 2000 and 2002. when we return after the break, stocks bounce between gains and losses in friday’s session. we’ll look at where stocks may be headed with doug sandler of wachovia securities.

Interview: RBC Researcher

>> stocks today reversed direction, giving up earlier gains. this month, the benchmark stock indexes have failed to hold on to earlier dwaynes in―gains in four of the six trading sessions. we’ll get peris spect -- perspective from phil dow with rbc dain rauscher. we have to start with the reversal, it seems to be a trend. what you do make of this? why the selloff into the close?

>> my guess is that everybody and most of the action in the market has been trading oriented but most of the traders are probably waiting until tomorrow to see what chairman greenspan has to say. yesterday, the interruption in the rally was due to mr. guynn’s comments, the federal reserve of atlanta president, saying there would be more rate hikes so my guess whoever speaks most recently is the one people listen to and tomorrow you have the grand master speak.

>> does greenspan become an excuse, given that people have known this testimony was coming up, meaning stocks were higher today although people anticipated the speech? are there other concerns out there?

>> what you hear is the white house lowered their g.d.p. estimate and raised their inflation guidance going forward. that may have tripped the market up. but my guess is the excuses are that the market does whatever it will do and has taken the cue from traders. you talk to people that understand hedge funds and they’ll tell you domestic hedge funds were probably short every domestic asset class with the exception of commodities and explain the recent rally as short covering by those people in the last three or four weeks. my guess, the most important thing for us to focus on now, those of us who are mortal and individual investors, is a bright opportunity on the horizon, when the fed stops hiking. this is the first positive catalyst i can think of in about five years’ time and i would bet it’s going to be hard to react to that. once the news is out, i think you have to anticipate it so you may see something that’s been gone for a long time. you may see anticipation. you may even see investment activity in the market and i think things could get better over the summer here.
>> phil, if you are anticipating that the fed will soon say it’s going to stop and then indeed stop raising rates, how are you positioning for that? what do you recommend to investors?

>> soon for me is within the next six months and it’s not too soon if it is within the next six months to begin positioning. i think quality is the main thing. there’s a great article in the journal today that focused on growths for value. i think if you focus on quality companies, those rated a or b by s&p on the stock rating with dividend payments, you find the earnings yields are greater than you get from the t-note.

>> i find it interesting that you like the dividend payers, as that’s been a recommendation for some time now. we had seen a lot of those stocks bump up on their stock price. is there still room to grow for dividend payers?

>> i think so. the last 10 or 20 years you’ve had c.f.o.’s favor share buybacks or mergers and acquisitions. it’s only been the last couple of years that dividend growth has become predominant. having said that, you want a relatively low current dividend, 2% to 3%, but one that can grow dramatically and i think a lot of people miss, if you look at the yield in cash on the 10-year investment in pfizer or citigroup, you’ll see yields that are double-digit and you want to buy these attractive franchises at what i think are reasonable prices and hold on for powerful dividend increases.

>> pfizer, citigroup, what other names are in the category?

>> i used them as historic examples and i didn’t go through compliance to clear recommendations so please don’t take them as recommendations, but the key is, high quality companies.

>> one of the concerns in the market today was that if in fact alan greenspan tomorrow talks about the fact that inflation is still around, according to the jack guynn comments yesterday that, rates will rise for the near term, perhaps six months, what does that mean for profit growth?

>> my guess is profit growth is robust. if you―look at g.d.p., the revenue line, the anticipation is 3.5%. the historical average is 3.1%. so looking forward at the coming six months or year, my guess is the revenue line will be good. the earnings line has been underestimated for 13 straight quarters. my bet this year is you will see double-digit earnings growth on the s&p.

>> what crind kind of growth for the index itself?

>> my guess is you’ll see positive 10% when all is said and done and the year is over.

>> do you think the nasdaq will erase its decline?


>> i do. i don’t think the game is over for small caps. my guess is there are still attractive smaller cap companies on nasdaq that will do quite well this year.

>> phil, thanks so much for joining us.

>> my pleasure, ellen.

>> phil dow is director of equity strategy at rbc dain rauscher. alan greenspan a focus for investors as they wait for his testimony tomorrow. we’ll preview what we may hear from the chairman.

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Listen Market briefing --- Ellen (slow)
Healthsouth --- Chicago Securities Attorney (slow)
NYSE --- Deb (fast)
NYMEX --- Su (fast)

fuel rose last week. su keenan has details. first, let’s check other energy movers as well as the broader market . gasoline and natural gas futures declining by at least 1%. that drop in oil, however, failing to give a sustained lift to stocks. here are the settling numbers, how the market closed -- healthsouth will pay $100 million to settle an s.e.c. lawsuit that accused the company of accounting fraud under former chief executive richard scrushy. healthsouth is the largest u.s. operator of rehabilitation hospitals. the s.e.c. had sued the company in march, 2003, claiming it overstated earnings by at least $1.4 billion. for reaction and analysis, we have chicago securities attorney joining us from telephone. i-want to start with your reaction. how much of a surprise there’s a settlement here?

>> it’s not too surprising. the s.e.c., generally, when they file these types of civil claims, make it a high priority to settle the case. the only thing that surprises me is the number of $100 million. most analysts were thinking the settlement would be two to three times that amount.

>> any insight you can give us? why do you think that’s the figure?

>> i think we’re seeing the beginning of a sea change at the s.e.c., kind kind of the emphasis is now becoming, go real hard against the individual people responsible for the fraud but not quite as hard against the company because shareholders that had nothing to do with the fraud are impacted to the extent you have a very large settlement.

>> what about the timing of it? it’s about the jurors and 12 days of deliberations with the individual case against richard scrushy. in terms of the timing, is that significant?

>> i don’t think so. the s.e.c. dances to its own beat and it’s difficult to say whether the criminal deliberations for mr. scrushy would have any impact on the release date but i highly doubt it.

>> what about what kind of cloud this lifts, how much does this lift the clouds that have remained over the company?% -

>> in the last year and a half to two years, there’s been the cloud with respect to regulators and cloud number two is the cloud with respect to class action attorneys. the good news is that this settlement basically removes the cloud with the regulators, providing more certainty going forward with respect to the company.

>> the company expected to, in the next three weeks or so, release its restated financial accounts. how much of a cloud double that will lift?

>> that will open up a new avenue with respect to the class-action attorneys am anything that the company itself or s.e.c. can provide to the class-action taerns or to the public as a whole will be used in the class-action suit against the company.

>> i also want to talk about another legal development. bernie ebbers, former chief executive of worldcom, may settle investors’ suit as well as u.s. claims against him. what reaction do you have to this development?

>> it’s good to see. the individuals that lost an extensive amount of money due to the fraud engaged in by mr. ebbers, obviously, they want their pound of flesh but more than anything, compensation and to the extent bernie ebbers can take some of the ill-gotten gains and provide them to investors, it’s a good thing.

>> our latest developments are that he may pay an undetermined amount to settle restitution claims by prosecutors and investors. give us some guidelines, what numbers can we anticipate?

>> that’s difficult to estimate because bernie ebbers still has sizable assets but over $300 million in debt with respect to loans he owes to worldcom so any money that either the government or investors can get from him, it’s better than nothing, but i would be shocked if we were talking about any real money left.

>> andrew, thank you very much, we appreciate it. keep in mind, richard scrushy awaiting a decision in a birmingham criminal trial on related charges. jurors are deliberating for the 12th day. turning our attention from the legal cases to the stock market . a lot of movement in the afternoon session for stocks. deb kostroun is standing by at big board.

>> the market started higher but the last two hours of the trading session, a lot of weakness developed in stocks in that last two hours and in fact stocks really retreating ahead of alan greenspan’s tomorrow. he’s going to be giving testimony on the state of the economy. a lot of concern that he’ll be suggesting interest rates will keep rising, and, of course, higher interest rates means slower economic growth and slower earnings growth. if you look at what went on today, by the close of trading, gainers in the s&p 500, the autos, semiconductors and real estate. if you look at the dow gainer, mimics the gainers we saw in the s&p 500. that would be general motors, caterpillar, altria and also intel. general motors said yesterday they planned to cut 25,000 jobs and billionaire kirk kerkorian saying that he’s been boosting his stake of g.m. to 7.2%, short of his goal of 8.8% and j.p. morgan analyst saying the failure of him to get all of those shares may prompt him to raise his offer for the company. and caterpillar raising its dividend by 22% to 50 cents a share. this is a year-to-date chart, higher on the day. they’re going to split the stock two for one after sales jumped by a third last year. prudential upgrading that stock. semiconductors, really led by texas instruments. generally higher. and this after texas instruments saying second-quarter earnings will be 27 to 30 cents a share as consumers buy new phones to surf the internet. the earlier profit forecast was 25 to 29 cents of the laggards in the s&p 500 including transports, healthcare and equipment and retail. energy was lower, starting the day positive but ending lower. this is really the reversal seen in crude oil. crude oil was down $1.22 a barrel at $52.54, having an impact on the integrated oil stocks.

>> we did get an upgrade having to do with google. they started with a buy at smith barney, a price forecast of $360 per share, the analyst citing exposure to the search market and growth in online advertising. turning our attention to the energy rally. we did see, today, that faded by noon. prices fell after the latest government report showed a gain in national supplies of heating oil. nymex crude oil ending the session down after rising earlier in the day. su keenan has details.

>> big turnaround in oil prices. the latest energy department survey of oil, gas and distillate fuel supplies kicked off the rally we saw this morning. none of the 16 analysts surveyed by bloomberg predicted we would see the biggest drop in crude inventories since the start of the year. this was a surprise. crude oil inventories falling by just over three million barrels last week. gasoline inventories in the u.s. also falling last week. analysts such as a.g. edwards and bill o’grady said we should be used to seeing these supply declines with “incredible demand out there.” fimat’s john kilduff said the fact that there was a surprise, pushed prices higher.

>> most were looking for crude oil inventories to have risen this past week but they declined on a robust refinery environment that chewed through available crude oil inventories but the good news is, it was turned into much-needed dist lal inventories which rose so we see a fade off the highs and i think we might end up negative on the day.

>> that was his midday call and he turned out to be correct and he says prices will continue to fall in the coming weeks. looking at the distillate inventories, including heating oil and diesel fuel, coming in higher than analysts’ forecasts. many in the market focused on opec which meets next week, planning to increase production quotas by half a million barrels a day, set for discussion by the oil ministers. rick mueller, an analyst with energy security analysis, says says that could send prices lower.

>> there’s rumbling from opec about raising the official quotas but that’s just talk. they are pumping out a great deal of oil. opec production is near record highs and that’s reflected in the high inventories. high inventories, mueller says, will ultimately result in prices in the mid to high $40-a-barrel range. that’s his current prediction.

>> in terms of other predictions, let’s return to the story having do with google. we have smith barney starting google shares with a buy rating. you see the shares trading higher .6% in extended trade emp. mark mahaney with smith barney forecasting a 29% gain on the stock.

Interview: Chief Executive Of Mcmillan Analysis on comments from Greenspan

>> comments from fed chairman alan greenspan driving stocks much of today’s session. let’s get insight from larry mcmillan, chief executive of mcmillan analysis, joining us with a look at indicators he’s watching. starting with the rally today, i know you were surprised it fizzled. does that comment, then, suggest that in fact signs are pointing up for stocks?

>> yeah, we’ve been positive. it is a little bit overbought so any small thing can set off a short-term, very short-term correction. we have a down day or down afternoon, but i think overall we’re still―from what we’ve seen from options indicators, things are still fairly positive.

>> let me jump in to break these down, what are the signs, first off, that perhaps stocks are overbought, therefore set to decline?

>> what i’m saying by they’re overbought, they’re susceptible to a short-term pullback. but the advance-decline ratio is what i’m looking at there and it’s been very strong, which is overall, good, but when it gets too stretched, people are looking to take profits on the tropof drop of a hat.

>> earlier, they had 29 of 30 stocks in the dow trading higher and the broadest rally we have seen in three weeks so early in the day, the signs of the rally were still there.

>> that abates in a day or two so that’s not a sell signal and you revert to more positive sentiment indicators like put-call ratios, which are definitely on a buy signal.

>> could you explain what those are indicating?

>> when we bottomed out in april and may, the last spike downwards,, a lot of people were buying puts, too many people buying puts. so when there are too many people on one side of the equation, it usually goes as a contrary indicator so those gave us buy signals near the may bottom, the last serious decline we’ve had. those are remaining on buy signals right now, the put-call ratio and that’s probably the most bullish sentiment indicator we have. the other is volatility and it’s just hanging around at low levels.

>> before we talk about volatility, in terms of the put-call ratio, what sense are you getting, what extension of this rally do you anticipate seeing?

>> eventually, you expect it to swing the other way where too many people will buy call options and then we have trouble. but that hasn’t happened yet. as we’ve come up, we’re still seeing more on the put side than call side, obviously not as much as before but to me it has a ways to go perfect that ratio would turn bearish.

>> in terms of volatility, it’s interesting to me that you’re looking at the v.i.x. because it seems some people don’t look at it very much anymore given that it’s at historically low levels for months on end so what is the v.i.x. telling you and how seriously do you take that?

>> at this point it’s what it’s not telling us. it gave us a buy signal in april when it spiked to 18 and came down again. that’s how it gives us a buy signal. now we’re floating around the 13 level on v.i.x. and that’s ok, that’s not going to harm the rally. if v.i.x. were to start to put together an uptrend, then we’d be a little worried but like today, for example, it really was only up like 12 cents, nothing. so it’s not worth―even last week when the dow was down 90 that one day, v.i.x. was only up, like, 30 cents so that is not worrisome behavior in the v.i.x.

>> what about ranges? when we were in the middle of the rally today and s&p was up, on track to have a three-month high but closed unchanged, what kind of ranges are you seeing in the s&p?

>> near-term support at 1190 and below that, 1185. as long as those hold, it’s a positive picture. we expect to challenge the yearly highs around 1221 or 1222, in fairly short order. today was a negative reversal day, and that’s not a positive thing, but can be worked off quickly.

>> in terms of the nasdaq, a tremendous rally in may but still the percentage loser year to date.

>> right. it’s sort of―it’s good for nasdaq to lead. when that leads, everybody feels better and rallies have more oomph to them. so it led, actually, on the downside today, indicating the overbought situation. but that can be worked out fairly quickly. i don’t see thats as a major sell signal.

>> larry, thanks so much for joining us. looking at what happened in the stock market today. coming up, u.s. treasuries gained today. we’ve been talking about the comments from fed chairman alan greenspan. he suggested yields may not rise soon, taking a specific look at the treasury market . coming up, su keenan has more on the bond rally as well as the chairman’s comments and comments from the atlanta fed president, that also swaying investors and standing by for the texas instruments update.
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Listen Market briefing --- Ellen (slow)
Texas Instrument --- Bob (fast)
G.M --- Greg (slow)
NYSE --- Deb (fast)

i’m ellen braitman. wagoner also said g.m. will close additional assembly and parts plants in order to reduce costs. greg miles was at the stockholder meeting in delaware and has a live report coming up. first off, the market picture. stocks ended mixed. all three indexes had been higher much of the day and fell off midday. that came after atlanta fed president jack guynn said labor costs are rising in some sectors and the direction of each inflation measure is “certainly up.” more on the trading action as well as g.m. in a few minutes. first up, our top story. texas instruments released its much-awaited mid quarter update. bob bowden has the details.

>> thank you. the headline for texas instruments, a new earnings forecast range with the company saying the minimum profit they’ll make in the second quarter is what analysts expect. let’s get to the numbers. t.i. saying profits in the second quarter will be in the range of 27 to 30 cents a share, higher than the previous forecasts of 25 to 29. they raised both the bottom and top ends of the previous forecasts and if you look at analysts’ estimates of 27 cents a share, it is the bottom of the new estimate range so the worst they’ll do is what analysts expect. texas instruments sees second-quarter sales in a range of $throw.12 billion to $3.24 billion, with the midpoint of $3.18, exceeding the average analyst estimates of $3.14 billion. low end of the new range is below the analysts’ figure. checking t.i. shares right now, the reaction is they are up and it’s not a surprise when they boost both the bottom and top ends of their previous range of earnings. t.i. shares up 45 cents since the close of trading, currently $27.73. checking reaction to texas instruments in other stocks, intel shares, since the close of regular trade, up 14 cents. broadcom up 18 cents and xilinx shares up 16 cents. there was not a lot of elaboration in the press release. no quotes giving descriptions of where they see demand. they did break down specifically semiconductor revenue apart from general revenue. it’s on the bloomberg terminal now. that is $2.6 billion to -- $2.65 billion to $2.75 billion, the semiconductor revenue range and that is a raising of the low end of the previous forecast for that and the high end today is the same. in general, it appears to be good news for t.i. and the market is liking it.

>> all the business units coming in at the high end of forecasts. bob, thanks so much for that. the other top story is general motors. bonds and shares gained after the chief executive announced the job cuts. he made the announcement at a shareholder meeting in wilmington, delaware. investors demanded to know what wagoner plans to do to turn the company around. greg miles was at the meeting and is standing by live.

>> investors have been demanding for months that c.e.o. rick wagoner, head of general motors for the past five years, take dramatic steps to try to revive the automaker. he took some of those steps today, announcing he will shut a number of plants in north america. the north american operation, the eyesore of general motors, what caused the $1.1 billion loss in the fiscal first quarter that accounts for 60% of revenues where you have enormously high healthcare costs and pension costs burdening the company. the latest restructuring moves will produce jobs by―reduce jobs by 25,000 and reduce costs, producing savings of $2.5 billion per year between 2005 and 2008. wagoner stressed this is just the beginning, that the company has tried to reduce healthcare costs by going to the federal government, working on the consumer side of healthcare spending, it hasn’t worked. as a last resort, he is going to the united auto workers.

>> it’s clear to us that these efforts are not yielding the progress that we need fast just and that the healthcare crisis is putting our future at stake so we must act now. in recent weeks, we’ve been in intense discussions with the u.a.w. and other unions, focused on a cooperative approach to significantly reduce our healthcare costs disadvantage. we’ve not yet reached agreement at this time and to be honest, i’m not 100% certain that we will. but all parties are working hard on it.

>> wagoner wouldn’t predict when he will be able to make north american operations profitable or when he’ll be able to turn around general motors as a whole. he responded to calls from shareholders at the annual meeting today that he step down. let’s listen to what mr. wagoner had to say.

>> no one’s job security is forever and that applies to me but i’m very confident that we have the right plans, that i have the full support of the board and the full support of the key constituents in the company―whether the employees, dealers or unions.

>> wagoner may get additional pressure from kirk kerkorian, c.e.o. and owner of tracinda corp., the company that owens 3.9% of g.m. shares. the company announced several weeks ago a tender offer to boost their stake another 4.9%. that tender offer ends today and the company could come out, tracinda, and announce at any time. mr. kerkorian says he’s only a passive investor in general motors but the concern is he could be an active investor if the company does not accelerate its restructuring plan.

>> those headlines not out yet so of course, when we have them, we’ll bring them to your attention. in the meantime, president george bush as well as u.k. prime minister tony blair are holding a press conference in the white house, following a meeting where the two officials met to discuss, among other issues, african nations and their debt status as part of a push to sign up leaders of the g-8 industrial nations to double aid to african nations. tony blair is saying africans must commit to democracy as well as to fighting corruption. the press conference currently being held in the white house following the meeting of president george bush and u.k. prime minister tony blair. although the dow closed off the highs of the day, g.m., a big contributor to gains in the dow. let’s get more on how the day settled. deb kostroun filed this report from the big board. >> at the best level, the dow jones industrial average was up 111 points. closing well off that best level of the day. but still, you did see the gainers like real estate. also autos and consumer durables, general motors, one of the biggest gainers in the dow jones industrial average with all the news from the shareholder meeting. looking at the dow gainers, american express, then general motors, altria. the closing arguments with altria going on in a civil racketeering lawsuit in washington against the tobacco industry and altrgating. you notice american express and american international group among the biggest gainers. take a look at financials and how they performed. they ended lower, started out well and you can look at all the different areas of financials like insurance and brokers and this is after federal reserve chairman alan greenspan suggested he doesn’t expect bond yields to increase soon, sparking optimism that borrowing costs will remain low. you did see a mixed market as many financials waned by the close of trading, especially the bank stocks. electric and gas utilities gaining as you talk about falling bond yields, it makes dividend-paying stocks attractive to investors. looking at conagra, second worst performance in the s&p 500 on the day. this is the third largest food company, saying the first-quarter profit was lower than forecast, without releasing a specific figure, because of high costs and inadequate pricing management in packing meats and the company plans to cut jobs and slash expenses. monsanto rallying on the day, the biggest jump in the s&p 500, saying third-quarter profit was $1.05 a share, higher than the company’s april forecast of a dollar a share. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> and making news after the bell, walt disney president robert iger saying the company is in talks with pixar about distributing films made by the computer animation movie studio. at a deutsche bank conference in new york, iger said, “we’ve opened up talks again with pixar which has produced mega-hits like “incredibles,” similar to comments he made recently. the agreement with pixar and disney ends with the movie “cars” coming out in 2006. we’ll be right back.

Interview: Chief Executive Juergen Schrempp on North American factories

>> we looked at the decline in oil prices and impact on stocks. let’s look at the specific trade. keep in mind, the decline of 1% takes crude oil from a six-week high, again, down 1% to 54.49. there is speculation there will be enough oil to meet demand from refineries dealing with surging fuel consumption. this is particularly closely watched as we are in the summer driving season. among the other energy movers, gas futures down 1.8% today. however, heating oil as well as natural gas futures on the rise. heating oil up 1% and natural gas futures up 3.5%. daimlerchrysler said it will invest $40 billion in north american factories in the next five years. chief executive juergen schrempp spoke in washington today, saying the move was designed to promote its commitment to america.

>> now and most importantly as chrysler succeeds and it is reinvesting tens of billions of dollars to update plans in existing communities across industrial america from which it will produce a virtual avalanche of exciting new product.

>> schrempp did not disclose specific details but the investment will include improvements and training for the chrysler, freight liner and mercedes-benz unit. schrempp is trying to shore up earnings after the first-quarter profit fell. the shears at the close show little change. coming in extended hours were earnings from bob evans, the restaurant company saying fourth-quarter earnings per% -share were 16 cents.%  saying earnings may improve later in the year. however, the company did say it sees first-quarter earnings down significantly, it sees reducing to 20 the new bob evans’ unit openings for fiscal year 2006. those shares down 7.6%. also in extended hours, we did get earnings from cmgi. the company said third-quarter profit came in at four cents a share, third-quarter operating loss, $1.9 million and the company saying third-quarter profit, if you exclude items, $4.4 million. banc of america securities chief investment strategist tom mcmanus recommended investors reduce u.s. stock holdings, giving two reasons. he expects pressure on earnings and anticipates interest rates will rise. he lowered his weighting of stocks to 55% from 60%. the increase of allocation for cash was to 30% and his weighting on bonds is unchanged. fed chairman alan greenspan takes centerstage this week, speaking tonight via satellite to a brookings institution panel about chinese banking and then greenspan heads to capitol hill on thursday to testify on the state of the economy. he will likely suggest the 10-year yield is much lower than it should be. the last time he testified to congress, he called the low 10-year yield a conundrum. that was back in february when the yield was about 4.1%. by the end of march, yields climbed to nearly 4.7%. however, look at what we have now, below 4%, 3.95% is the yield on the 10-year treasury, trading near one-year lows. some investors saying they’re reluctant to buy this week when greenspan testify it’s economy. taking a check of currencies right now, if we can bring it up for you. we’ll bring you an update instead on the european union’s constitutional vote. the u.k. has defended its referendum on the european union constitution. foreign secretary jack straw telling members of parliament in london today he would not press ahead with planned legislation to hold a referendum. the u.k. defying calls from germany and france for the ratification process to continue after boat french and dutch voters rejected the treaty. here’s that check of currencies. the dollar traded lower today. the yen, in fact, now up about 1.7% against the dollar since june 1. it does come on speculation japanese economic growth is picking up. also making news, the securities and exchange commission may have belt tightening ahead. the agency’s budget shortfall will force the agency to cut back on hiring by 10%. that is according to the head of the securities and exchange commission’s los angeles office. the commission expects to be underfunded by $48 million this year. it comes after it misjudged security as well as construction costs. its budget will also be reduced 3% next year. the s.e.c. also looking to save money by limiting travel. in the meantime, mutual investors will foot the bill for following rules, prompted by the trading scanned scandal in the industry. many funds are passing on compliance costs to shareholders. p.n.c. financial services itid the survey found this to be the case with small and mid sized companies. 29% of fund companies have passed on the new compliance bills to customers and another 30% are considering toing the same. the rules came after the s.e.c. uncovered improper trades at a number of firms. steve jobs switching to intel chips for apple. june grasso has the story coming up.
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the move is made so washington mutual can enter the credit card business. first, let’s bring you the closing numbers for the stock market where the day ended with gains, bouncing between gains and losses before rebounding to end higher as oil prices retreated in the final two hours of trading. more details in a few moments. an executive at berkshire hathaway’s general re unit will plead guilty to charges stemming from a reinsurance transaction with american international group. according to his attorney, john holds worth reached an agreement with the department of justice and securities and exchange commission admitting to one count of conspiring to misstate a.i.g.’s financial statements. houldsworth is the first to face criminal charges in the federal and state probe of a.i.g. the plea may increase pressure on other individuals involved in the 4-year-old deal which triggered the ouster of a.i.g.’s chief executive hank greenberg back in march. for more on the stock market , deborah kostroun at the big board.

>> a lot of questions about where the economy is right now, specific given friday’s weaker-than-expected payroll report. a.g. edwards strategist scott wren saying investors seeking clarity on growth. he says growth is slowing and inflation is higher. he says typically there is a lot of confusion about the outlook for stocks at each stage of the economic cycle and seeing confusion there and actually, in fact, we don’t have a lot of economic reports this week. however, we have greenspan testimony before that congressional committee on the state of the economy. looking at oil, in fact, oil, what we did see, integrated oil stocks generally higher. kerr-mcgee a little lower but we did see a reversal on oil on the day, closing down at $53.47 a barrel. oil services generally higher, a few laggards, though in the session. best performers in the s&p 500 on the day, that was retail. also, wal-mart, one of the biggest leaders in the dow jones industrial average. dow laggards on the day, general motors, i.b.m. and hewlett-packard. of course, general motors, that was lower ahead of tomorrow’s meeting. in fact, they are holding their annual investor meeting tomorrow, biggest drop in the dow jones industrial average. also, i.b.m. falling on reports that apple computer, which has used i.b.m. microchips for 21 years, will start using chips made by intel. ford motor company, their offer to bail out visteon, was approved by employees represented by the united auto workers. ford to take over 21 plants from visteon. pfizer looking at a new use for viagra. pfizer won u.s. approval to sell viagra to treat pulmonary arterial hypertension. i’m deborah kostroun at the new york stock exchange.

>> and over at the nasdaq, google shares rose to yet another record and that helped lift the composite in today’s session. robert gray is standing by at the nasdaq marketsite with the report.

>> google shares rising to a new record in today’s session. r.b.c. capital markets raising their 12-month forecast to $330 per share for google. the previous forecast had been $280 a share. google has already eclipsed. that google trading to a new intraday high and closing at a new record, as well, in the session. u.s. web ad spending rose 26% in the first quarter according to a study by pricewaterhousecoopers and the interactive advertising bureau. staying in the internet group, ebay rising on a “barron’s” cover story, saying shares of the world’s largest internet auctioneer may rebound as the company reinvagueerates growth by earning more from electronic payments and drawing more shoppers online. that stock is down 30% year to date but up more than 20% from its lows on april 26. one of the big stories today, apple computer. apple changing from i.b.m. and freescale chips over to intel. the switch to intel for its macintosh computers may lead to cheaper laptops and extend gains in market share. also announcing today, c.e.o. steve jobs at their developers conference said they would be adding pod casting audio reports that users download into ipod from the itunes website. you see the effect on i.b.m. and freescale, as well. staying in the chip group, a.t.i. technologies falling on its forecast. it’s a graphic chips maker used in the xbox 360, cutting the third-quarter revenue forecast 5% below the low end of its revenue range and those shares falling. sandisk shares also falling. world’s biggest maker of flash memory cards for consumer electronics. merrill lynch cutting it to neutral from a buy on concerns oversupply will lead to a “sharper-than-expected price decline” and those shares falling on the day, as well. teva pharmaceutical falling. the world’s biggest maker of generic drugs said in an email statement it was reducing its second-quarter profit forecast four cents a share after an illinois court barred it from selling a slow-release version of abbott labs antibiotics, i haveaxin.

>> details in the banking industry, washington mutual buying providian financial for $6.45 billion in cash and stock, a 4% premium from providian’s closing price on friday. washington mutual, getting into the credit card business, but raising concerns.

>> not everyone in love with the deal. analysts say the nation’s biggest savings and loan is looking into the credit card business to reverse its year-long decline in profit. rising interest rates have hurt demand for mortgages which are washington mutual’s primary source of income. providian shareholders will get the equivalent of $18.71 a share, roughly 90% in stock with the rest in cash. credit card interest payments helped boost providian’s return on equity by more than 50% last year and that stock is up 20% in the last 12 months as a result. still, as you can see in the five-year chart, providian shares are far below the record highs from 2000 after its profits plunged. it’s also trading lower on the news of today’s deal, down from 2.5%. richard bove says there’s good reason for shareholder concern.

>> this is not a riskless acquisition. clearly, providian is a lower quality credit card company with a history of bad loans and you have to imagine that companies like citigroup, wachovia, j.p. morgan, looked at this deal and didn’t do it and therefore that’s the reason for the small premium on the acquisition because this is not, if you will, a high-quality purchase at this moment.

>> this is the biggest purchase for washington mutual in seven years, almost doubling its customer base, adding an additional 9.5 million households. the new york-based analyst at creditsights was also critical of the combination, saying “we don’t think washington mutual has the capital strength and liquidity strength to fight the credit card worse.” what asset management’s robert stovall, however, has a different view, he owns shares of washington mutual and likes the deal.

>> the consumer is now 70% of the u.s. economy, most of my career has been 60% and 65% and now the consumer is 70% and they do deal with credit-risk prone people on the side but i think it will add to volume and earnings.

>> shares down on the day. the merger to be completed by the fourth quarter.

>> that chart you brought up showed shares down 63% over the past five years. we want to bring in the bloomberg terminal to illustrate how that compares to competitors as well as the broader market . this is a five-year chart. the line in the middle is the s&p 500 down 18% over the past five years. credit cards caps the day -- capital one up 52% over the past five years, seen in green. mbna shares, in yellow, also up. but the line on the bottom of the screen with a 63% decline is providian. the company’s former chief executive failed to anticipate how many of the company’s lower income consumers would be affected by the slowing economy in 2001. his replacement, chief executive, joseph saunders, fought off federal regulators in early 2002 by signing an agreement to sell proceeds from $8.2 billion in credit card loans. while the move revived the company’s profit, the loans represented about 1/4 of the business and with the most credit-worthy customers and one% -of the concerns today among analysts and investors. we also have the biggest real estate deal of the year. prologis buying catellus development in a deal worth $4.9 billion, representing a 16% premium to friday’s closing price. as you see, prologis shares down 3%. coming up, as far as oil is concerned, all about inventories and demand from refineries. we will have details.