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Interview: J P Morgan

>> australian stocks start trading in about 20 minutes. the futures of the s&p asx 200 stocks index point to another record. to see which stocks may be active, let’s go to david tweed, our australian companies editor in sydney. what are investors expecting to see today, david?

>> first of all, we’ll be looking at rio tinto. its earnings are due at at 5:00 in sydney. they will be released in london an hour after the close of trading in australia. we’re looking for a 56% increase in profit to 1.35 billion and perhaps some dividend increase. now, the stock looks as if it might actually open lower in australia. it’s up 11% already this year. there is some concern out there that was voiced by some traders yesterday, that rio tinto may make some sort of move on w.m.c. resources. now, xstrata yesterday increased its bid for w.m.c. resources to $7.20 from $6.35. w.m.c. resources shares finished yesterday at $7.65, 6% above xstrata’s bid. the speculation was that someone might make another bid there. the company, one of the companies which people are talking about, is rio tinto. we’ll have to wait and see what happens there after the market closes in australia. we’ve also got adelaide bank earnings coming up today and west australian newspaper earnings. we’re expecting to see those earnings rising. west australia is one of the fastest growing australian states at the moment, benefiting from the fact that it’s a location for some of the big mining companies and the mining companies have been helping the company because of chinese-related commodities boom we’re seeing at the moment here, cathy.

>> rupert murdoch’s news corp. says fiscal quarterly profit surged 80%. what’s the reaction and what’s expected in australia?

>> news corporation, although it’s announced its first results since it moved its domicile to the united states, it’s still an important australian stock. it represents 4.2% of the benchmark asx 200 index which makes it the sixth biggest australian company at the moment. so it’s still an important company for australia, although its index weighting will be reduced over time. the earnings were up 80%, although that was due to a restatement due to the accounting changes associated with its move to the u.s. sales rose 18%. and news corporation has increased its forecast for 2005 operating profit to the high teens to 20% from a previous forecast of mid teen growth. shares in the u.s. rose about .3% so probably not a big move here in australia. back to you, cathy.

>> thanks for that, david. we have more breaking news, here. the unit of singapore telecom, optus, has reported, as well. third-quarter net profit rises 34% to 168 million australian dollars and third-quarter sales rise 7.7%. we’ll have more on this with bernie lo in a few minutes. standard & poor’s raises india’s foreign currency rating to its highest non-investment grade, seeing prospects for sustained economic growth, rising foreign currency reserves and falling overseas debt. shobi pereira has more on the story from singapore. good morning, shobi.

>> good morning. s&p is saying that the rating is up one level,, a rating of bb plus from bb. and the long-term local currency rating was unchanged with a stable outlook. the rupee rose to its highest in more than five years. the upgrade may cut credit costs for companies like state bank of india. one fund manager with pen jab national bank based in new delhi, saying that india is a more acceptable risk for global investors as it approaches investment grade and indian companies borrowing overseas will be able to get finer rates. india’s rating from standard & poor’s is lower than the b-aa-3 assign bide moody’s investor service, the lowest investment grade. and standard & poor’s lowered the rating from bb to bb-plus on october 22, 1998. what mooted that was really after the country conducted four nuclear tests in may that year. cathy?
>> what does the ratings rise say about the state of indian banks?

>> let me just cite the rating company’s statement about the banks. s&p says the loan quality of india’s banks have improved since lenders were given greater powers to recover money from defaulters, there by cutting bad loans. standard & poor’s is saying stronger banks would support higher growth and reduce the strain on government finances. the rating companies are also saying―has also upgraded state bank of india and icici bank to the same level as india’s sovereign rating, the other two biggest lenders in india. still, standard & poor’s says india’s fiscal deficit remains a concern. the combined central and state government deficit amounts to 10% of the nation’s gross domestic product. and interest payments are likely to consume 1/3 of government revenue. that’s it for now, cathy, back to you.

>> thank you, shobi. coming up, most of singapore’s drinking water comes from malaysia. the water resources minister explains how it aims to change that.

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>> the fed makes good on its promise to raise interest rates at a measured pace and suggests it will do so in the future. in other headlines, amazon shares tumbled more than 10% in extended trading. the world’s number one online retailer reported fourth-quarter earnings more than quadrupled but that wasn’t enough to please investors who had higher expectations. two u.s. senators call on china to revalue its currency or else. the senate is scheduled to consider a proposal to impose trade sanctions on china’s imports if it doesn’t adjust the yuan within six months. google results propel the nasdaq higher. federal reserve policymakers raised the benchmark u.s. interest rate by a quarter point, as expected. chairman alan greenspan said they would keep inflation in check by adjusting policy at a measured pace. for more reaction, we’ll speak with henry willmore from barclays capital. what do you make of the fed’s statement compared with the last one in december?

>> the statement was virtually identical to the december statement. so it’s basically the same message. they’re going to keep tightening 25 basis points, probably, certainly, almost surely for the next two meetings. beyond that, it will depend on the data but our judgment is the economy will be strong enough so they’ll be tightening pretty much throughout 2005.

>> has today’s statement in any way changed your forecast for the fed funds rate for the full year?

>> no. given that there’s nothing new in the statement, our forecast is exactly the same as it was before.

>> what could possibly cause the fed to speed up its interest rate increases this year?

>> i think there are two possibilities for getting more aggressive fed tightening. one would be inflation rising a bit more than they’re currently anticipating. the other would be further easing in financial markets . that is, very strong performance by the bond and stock markets , weaker dollar, house prices continuing to soar. those developments, i think, would get them to more more aggressively.

>> do you sense a growing need among fed policymakers to consider setting an inflation target, given assumptions on the trend and consumer prices this year?

>> well, it is something that is being discussed at the fed. greenspan historically has opposed setting an inflation target and i think as long as he’s the chairman, that’s not going to happen.

>> the fed has indeed focused on the core rate as its main measure of inflation. do you think the fed should focus more on the trend in inflation, including food and energy prices, rather than the so-called core rate, which excludes those volatile items?

>> i think they look at a very broad array of measures of inflation. some of which include food and energy. but they do give greatest weight to the so-called core measures. i think that probably makes sense given that you can get unusual events that can cause spikes in food or energy prices. so i don’t think that will change any time soon.

>> is there a reason for the fed to be concerned about the bush administration’s proposed budget cuts and what effect might that have on the pace of interest rate increases?

>> well, the bush administration is proposing a nominal freeze on non-defense discretionary spending. if they manage to hold that line on spending for a few years, it would make a noticeable impact on the deficit. and i think this is something the fed would view favorably. but the fed’s decision making on rates really turns on sort of the broad macro economic picture of growth, inflation, financial markets . and the size of the deficit, you know, within the ranges we’re talking about, i don’t think it’s going to be one of the main factors pushing monetary policy.

>> what about for jobs? do you see tomorrow’s january payrolls report reinforcing the fed’s view on labor growth?

>> our forecast is for an increase of 200,000. that’s a bit above what the average was in 2004. there are some signs that we’re seeing modest improvement in the labor market so if we continue to see data like that, then over time, the odds of a more aggressive move would grow but it would take more than one or two strong data releases for job growth.

>> fed officials that have met today have also prepared a semi annual forecast that greenspan will present to congress on february 16. is there a chance greenspan might surprise with a shift? in statement and his testimony?

>> i think the testimony in two weeks is very important. there has been a bit of a shift in fed rhetoric since last november, november 2004, towards indicating more concern that there’s greater risk inflation could pick up, that financial conditions are too easy. so we are seeing the fed start to move in a more hawkish direction and it wouldn’t surprise me if, at the humphrey hawkens testimony, that greenspan came out with a message that is a bit more hawkish than what’s currently priced in the market .

>> thanks for that, henry. breaking news on singapore telecommunications. it says third-quarter profits come in at 760 million singapore dollars. economists we surveyed expected%  net income fell to 760 million singapore dollars. singapore telecommunications is southeast asia’s largest phone company and it also said third-quarter sales have come in at 3.2 billion singapore dollars. third-quarter profit has fallen 11%, in line with our analysts’ expectations. we’ll have more on the story as soon as it’s available on the bloomberg. still to come, india may soon pay less when it borrows money after s&p upgrades its rating on the nation.

Interview: J P Morgan
>> xstrata increases its offer for w.m.c. resources. david, are investors expecting a counter bid for the world’s fifth largest nickel producer, then?

>> that’s one of the questions people are asking and we’ll get a pretty good view about that when the market opens. the point is that xstrata increased its bid from $6.35 to $7.20. $7.20 is where the price for w.m.c. resources finished yesterday. exstraight -- - xstrata said the new offer takes into the views of the w.m.c. board and discussions with shareholders. we’ve spoken to tim barker with b.t. financial, he says he doesn’t see any reason at this stage why w.m.c. shouldn’t accept the offer, although there could always be a last-minute bid from someone else. the market has been waiting for rio tinto to report results tomorrow. the question there is, is rio tinto likely to come out with a bid for w.m.c. resources themselves or will they follow what b.h.p. billiton has been doing, returning money to shareholders. there is talk that they could have a capital return up to $2 billion australian. we’ll wait to see what happens there and how w.m.c. resources shares open in less than 20 minutes. citigroup has come out with a general report on the commodity prices and the mining companies. they’ve said they see a super cycle of prices, meaning they expect iron ore prices, thunderstormal coal, coke and coal prices to remain higher for longer and as such have increased their price forecasts for b.h.p. billiton. they see the share price rising 10% from now, and rio tinto, they see that share price rising 15%. cathy?

>> and apart from those stocks, what else will investors be looking at in australia?

>> could be a busy day coming up in australia. we’re expecting alumina to come out with its quarterly results. we expect to see a 42% increase there. that could come just before the market opens, certainly before the press conference at 11:00 in australia. we’re also looking at banks. banks should be fairly active today with the central bank deciding to keep interest rates unchanged, which always good news for banks. watch out for companies like westpac banking corporation. the flipside of higher metals and resource prices, we see that in companies like fisher and paykel appliances, new zealand appliance maker, lowering its profit forecast for 2005 because of the increased price for steel. back to you, cathy.

>> thank you. singapore telecommunications may say fiscal third-quarter profit fell 11%. earnings from investments and currency movements declined. southeast asia’s largest phone company is due to release earnings tomorrow. shobi pereira has more on that story from singapore. good morning.

>> good morning, cathy. singtel is counting on investments in india and southeast asia to counter a saturated domestic market . one concern is a slowdown in growth at the company’s australian unit, optus, which is cutting prices to compete with vodafone. brenda lee, analyst with daiwa institute of research in singapore, and she says in the second quarter, competition in australia was keen and they’ll look at how singtel plans to retain its margins this quarter. she points out that mobile one in singapore also said they see growth domestically and that they impact singtel’s domestic operations. last year’s results were lifted by a gain of 223 million singapore dollars related to loans to optus. singtel benefited from a stronger australian dollar, increasing the value of income repatriated to singapore. optus, australia’s second largest phone company, contributes about 25% of the parent’s profits. the unit accounted for 68% of sales in the second quarter. cathy?

>> singtel has also made investments in various asian countries. how are they doing so far?

>> singapore telecommunications has invested in mobile operators in india, indonesia, thailand and the philippines to tap rising demand for phone connections. profit from these accounted for 20% of operating earnings and the company raised its stake in global telecom, the second largest philippine mobile phone operator, to 45% in november. now, globe this week reported profit in the fourth quarter rising 9%. india’s second biggest mobile phone company, bharti tele, 16% owned by singapore telecommunications and it reported that fiscal third-quarter profit more than doubled. as for domestic demand, singapore telecommunications has forecast domestic sales will be little changed from last fiscal year. according to singapore government statistics, the number of cell phone subscriptions exceeds 90% of the population here in singapore. that’s all for now. back to you, cathy.

>> thank you, shobi. up next, g.m., ford, toyota and honda say u.s. sales fell last month. we’ll ask a fund manager who oversees $65 billion whether she expects further sales declines from these automakers.

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the reserve bank keeps its benchmark interest rate unchanged at 5.25%. 18 of the 19 economists we surveyed expected no change. australia last raised rates in 2003. australia’s economy has slowed since then. government reports last month showed retail sales rose less than expected and building approvals fell to a three-year low. we’ll discuss the r.b.a. rate decision in a bit. first, headlines with google shares setting new records with almost every trade in extended market action. shares of the world’s most popular search engine soared after reporting fourth-quarter profit surged more than sevenfold. u.s. auto sales slumped in january. nissan and chrysler managed sales gains. u.s. stocks rise for a second straight session with american express leading the dow higher. the financial company’s decision to spin off its brokerage unit sent amex shares 6% higher, their biggest gain in two years. our next guest expected no change in rates from the reserve bank of australia. stephen halmarick joins us from sydney, co-head of economics, citigroup global markets australia. what do you think led the central bank to keep rates steady today?

>> i think as you mentioned, there has been softness in retail spending numbers late last year but i think the case for a rate hike is building probably quickly given the higher-than-expected inflation reading last week so we expect that the reserve bank will retain its tightening bias at the statement regarding the policy on monday and perhaps harden that bias and over the next few months we should expect a rate rise.

>> december building approvals are out tomorrow and retail sales on thursday. do you expect the the data to reinforce the central bank’s outlook on inflation or do you expect surprises in the outcome?

>> on retail sales, we expect a strong number, up 1.5% on the month. the most recent monthly retail sales numbers have been disappointing. the anecdotal evidence for the end of last year and early this year is quite strong so we expect good rebound in retail sales and in the housing market , there is evidence that activity is stabilizing with the decline in the housing market perhaps ending and the reserve bank may be concerned about that. but the real focus, i think, for the bank, is on wage and price pressures coming through the system.

>> what about for exports? the trade deficit narrowed to $1.8 billion in december. what is your outlook for exports given the rally in the australian dollar and china’s efforts to cool economic growth?

>> i have to say that the export performance has been pretty disappointing through 2004 given the solid fundamentals with a strong china and big increases in australia’s trade. we expect improvement through 2005. china’s economy we don’t think will slow that much this year and the u.s. economy should remain robust and some of the capacity bottlenecks occurring in the retail sector should be alleviated.

>> unemployment is at its lowest in 28 years. is there any evidence of skill shortages and wage pressures that might force the central bank to raise rates earlier than your own forecasts?

>> there is evidence of wage and skill shortages in surveys and anecdotal evidence. it has yet to show up in the official wages data. it seemed to raise its head in the official inflation numbers recently. if it shows up in the official wages data, i think that will cause the r.b.a. to act quickly. there was evidence yesterday of a large increase in wages in the electricity sector because of labor shortages so i think that will begin to flow into the official data and we’ll see the r.b.a. act on the back of that.

>> how many rate increases do you expect from the reserve bank of australia this year?

>> we expect two 25-basis point moves so 50 basis points in total. when they act, they tend to move in more than one step at a time so we expect two steps quickly. at this stage, we expect around midyear but it could be earlier, taking the cash rate to 5.75%, which we think would be neutral for the economy.

>> what will be the effect on the australian dollar as well as bonds?

>> i think the changing interest rate expectations in australia has been supporting the aussie dollar recently and will likely see the aussie dollar move a little higher. we think the aussie dollar will trade up through 78 and 80 cents over the next few months against the u.s. although it could underperform on the cross rate against the euro and yen so bond markets , we continue to see bond yields move higher as they adjust from low yields last year which we were in fact pricing in rate cuts to pricing in rate increases this year so we expect to see 10-year bond yields trade up to the 5.5% to 6% range later this year.

>> stephen, thank you for your views, stephen halmarick with citigroup global markets . american express plans to spin off its brokerage unit to better compete against mastercard and visa. amex says divesting the unit will boost profits. american express gained nearly 6.5%, the biggest gain in two years. amex is the second financial services company to refocus its strategy this week. citigroup yesterday agreed to sell its insurance unit to metlife for $11.5 billion. s.b.c. communications says it will cut 13,000 jobs after buying at&t. s.b.c. says it will eliminate jobs in its sales, engineering and administrative divisions. they will take effect as soon as the at&t purchase closes and continue over three years. s.b.c. is buying its former parent for $16 billion and expects the purchase to close in the first half of next year, making s.b.c. the biggest u.s. phone company. singapore telecom will probably say third-quarter profit fell 11%. shobi pereira explains.

Interview: J P Morgan
>> economic reports to watch today, australia reports december trade figures at 11:30 a.m. in sydney. indonesia reveals imports and export numbers today. thailand reports january consumer prices this afternoon in bangkok and expect an index measureing economic activity. and the largest philippine mobile phone operator added customers. economists we surveyed estimate globe’s net income rose to $62 million in the three months to december. globe reports quarterly results today, so does japan’s sharp and chemoay opto electronics. metlife says the acquisition of citigroup’s travelers will boost earnings per share as much as 6% next year. for citigroup, the sale marks the end of the conglomerate combining insurance with commercial lending. marsh & mclennan agrees to pay $850 million to settle accusations it rigged bids and took kickbacks from insurers. the settlement is the largest ever secured by new york attorney general eliot spitzer. the agreement describes how bid-rigging by the world’s biggest insurance company raised costs for marsh clients. the settlement will be used to pay back marsh’s clients. spitzer is investigating aon, willis group and a.i.g. s.b.c. communications agrees to buy at&t for $16 billion in cash and stock, marking the end of a 130-year-old company that brought phones to american homes. at&t investors will receive $19.71 a share, including a special dividend. s.b.c. c.e.o. edward whitacre will be the c.e.o. a flurry of acquisitions on wall street, plus relief after the iraqi vote helped boost u.s. stocks, taking the s&p, dow and nasdaq all higher. the s&p 500 closing .8% higher. the dow jones ending higher .6% and the nasdaq rallying 1.3%. bloomberg’s julie hyman reports from the new york stock exchange.

>> stocks rallied on this last day of january and that really takes our losses down for the year a bit. we’ve been rallying more or less since last monday, a week ago. that’s cut down the loss for both the s&p and the dow to around 2.5% for the year to date. in today’s session, we had a number of factors that helped lift stocks. we also had fairly strong volume of 1.7 billion shares. looking at the different factors that helped stocks today, we are going to have a possible revision to gross domestic product for the fourth quarter because of an error made by canada in their statistics. that was relating to their trade numbers. g.d.p. could go higher by as much as .5%. the iraq election, of course, went over fairly somethingly, encouraging investors today. we had a lot of mergers and acquisitions activity, as well. that encouraged investors that corporations are seeing value in their competitors and that could be good for the market going forward. let’s not forget about earnings which are by and large coming in ahead of analysts’ estimates. looking at in ofme of the mergers and acquisitions today, citigroup rising after it agreed to sell its insurance business, life insurance business, to metlife. metlife will be the largest u.s. life insurer. the price of on that deal, $11.5 billion. and s.b.c. buying at&t for $16 billion. we saw s.b.c., acquirer in this case, gaining today, because we already had speculation in the market about this particular deal. also, exxon doing well in the session, out with record earnings in the fourth quarter, also for 2004, its profit, the second biggest ever for a u.s. company. so those shares gaining. also in today’s session, we had mattel doing well. its fourth-quarter profit up 33% on the strength of sales of barbie. i’m julie hyman, bloomberg news, at the new york stock exchange.

>> exxon-mobil’s fourth-quarter profit rising 27% to a record. the world’s largest publicly traded oil company benefitted from record oil prices and rising demand. net income climbed to $8.42 billion or $1.30 a share. chief executive officer raised full-year profit for the first time in several years. exxon saw total sales of $298 billion, exceeding the gross domestic product of economies like norway and taiwan. disney said first-quarter profits rose 5.1% because of strength at disney’s media networks. sales rose 1.4% to $8.67 billion. we’ll head to orlando, florida, where robert iger is with greg miles.

>> i’m here with bob iger, the president of disney. welcome.

>> thank you very much. welcome to walt disney world.

>> a quarter that beat expectations, espn, the sports channel, the sports network, major driver of the profits. talk a little bit more about what was behind espn’s growth this quarter?

>> some was the timing of distribution deals. but by and large, espn is doing extremely well, delivering great ratings so advertising is helping their bottom line. they’re managing costs well. they have a great distribution system. the deals are in place, distributors drive a lot of revenue. the quarter of largely driven by the strength of our media networks, led by espn.

>> let’s talk about abc media network, “lost” and “desperate housewives” doing well.

>> abc had a great quarter. they were number two in the number sweeps in adults 18 to 49, which is significant, as that drives advertising revenue. but because they sold a large percentage of their advertising in the up-front market , they couldn’t take as much advantage in the quarter just passed for the success of those ratings. they expect to do that in the current quarter we’re in and the rest of the year and basically they have ratings and they have inventory to sell and now the marketplace has to cooperate.

>> you told us you thought abc television network may be able to make a profit in fiscal 2005. are you any more certain you can hit that?

>> the environment has to cooperate. there is still a long time to go before the year ends and the advertising marketplace as to -- has to remain strong. if it does, i’m fairly certain abc can be profitable. if it doesn’t, it won’t be far off regardless.

>> where do you think you will hit profitable? as early as the second quarter, third quarter?

>> we’re not going to look at it on that basis as there are timing issues as to when program costs hit the books and they recognize revenue but it’s likely, as the advertising marketplace continues to progress, abc will be profitable this year.

>> let me return to espn. you’re negotiating with comcast for a new agreement, i believe, obviously, to provide sports programming. when do you hope to finalize that?

>> we’ve been negotiating with comcast with what we consider an omnibus deal for all of our services. they’re not nearing expiration so from a timing standpoint, there’s nothing urgent about this. we’re not going to comment specifically on when we expect to conclude the negotiations. but the talks are ongoing.

>> let’s get to a topic on everyone’s mind here in orlando. you stated clearly on bloomberg television that you’d like to be the next c.e.o. of walt disney. many people we speak to on wall street feel you’re the odds-on favorite to make it. are you as confident as they are?

>> i know i want the job and i’m confident i can do the job well but this is a decision the board will make and they’re going through a process that’s deliberate and thorough which it must be. i think the company will benefit from atprocess that’s unimpeachable in nature. i’m confident they’ll conduct a process that is mindful of all the issues that the board has to take into account and i’m not going to comment on my chances.

>> you indicated, you obviously had talked to members of the board about this, which is perfectly appropriate. i assume you have talked to all the members of the board about the situation?

>> i’m a member of the board so i have dialogue with them on a fairly regular basis but i don’t think it could be fair about the process itself or exactly how i’m engaged in it.

>> let’s look at the key challenges. whether you’re the c.e.o. or someone else is the c.e.o., what do you see as the key challenges facing the new c.e.o. over the next two or three years for disney? you’ve had 50%-plus profit growth in 2004, forecast by wall street of 14%-plus profit growth this year and next. what do you do to drive those results?

>> the good news here is that the company’s in great shape. we had great earnings growth in 2004. we certainly announced terrific earnings in the quarter just past. the earnings we announced today, there’s a fair amount of momentum. the good news is that all of our businesses are contributing so we don’t have major issues we have to deal with what that are considered emergency or impaired. the biggest issue for a company like ours is one, you have to maintain your creative spirit and creative health. the essence of this company is creativity and it’s the heart and soul of the company and we have to have a constant focus on that and be leaders in that regard. i think that will―we’ll stand tall and be in good position. the biggest issue is that we’re dealing in a world, thanks to technology, that is changing dramatically, particularly when it comes to consumer behavior and a company like ours needs to adopt new technology and adapt to new technology on an ongoing basis and that’s what we’re doing today. if there’s a challenge, it’s to continue to do that.

>> can you do it just with the theme parks? let’s say, with espn, which have been the main drivers in the past few years? isn’t it crucial to get abc television network going in a sustained basis? this year looks like you are turning it around with two new shows but don’t you need more new shows to hit those numbers?

>> abc is still a work in progress. there are still issues abc faces in terms of its turnaround. it’s not a complete turnaround, but is on its way and it’s a business that faces challenges because of the impact of technology. our goal is to have great creativity in all of our businesses, whether abc or consumer products, espn, the disney channel, the studio, obviously, extremely important in terms of our creative strength and direction.

>> if you were going to look at the number of additional hits or strong shows you need to sustain growth at the abc tv networks, what are we talking about? a bevy of six strong programs? eight, four?

>> i have never looked at it in terms of a specific number. three, which they have now, “lost” and “desperate housewives” and “extreme makeover, home edition” goes a long way in making the schedule healthy but they need a schedule that is balanced with strength on each night and those executives that run the businesses would be the first to admit this is an ongoing process and they’re not complacent with what they have today.

>> are you confident you can do it without pixar or a joint venture with pixar or someone like that to beef up animation?

>> our studio is hard at work developing its own three-d animation. all of the projects they have in development are three-d in nature. our confident our studio will deliver its own successful 3-d movies. pixar has been a great relationship for us. we have another movie to release. also, there’s a lot of value in making sequels to the movies that disney and pixar have released.

>> let me get one piece of criticism that has come across, the minority of investors on the street, bob iger has seen several years of losses at the abc networks, making you less qu

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NYSE --- Julie (slow)
P & G --- Tom (slow)10：47
welcome to “bloomberg live” from hong kong. i’m catherine yang. we have plenty in store for you on this edition of “bloomberg live.” in addition to breaking news and live market coverage, we’ve packed the next full hour with news makers. disney’s president bob iger will join us live from orlando, florida. we’ll ask him about disney’s executive succession and international expansion plans. then, the u.s. government agrees to extend the security probe into i.b.m.’s sale of its p.c. unit to china’s biggest computer maker, lenovo. we’ll talk to one of the republican congressman who triggered the investigation. later, australia’s central bank is expected to leave interest rates unchanged as the housing market cools. we’ll speak with the chief economist of australia’s largest home lender. u.s. stocks rose after a series of acquisitions by metlife and salomon smithc. communications. the nasdaq closed higher 1.3%. citigroup led financial stocks higher after it sold its travelers life and annuity unit to metlife for $11.5 billion. metlife will become the biggest seller of individual life insurance in the u.s. s.b.c. shares rose after it agreed to beat&t for $16 billion. at&t used to own s.b.c. the deal makes s.b.c. the biggest u.s. phone company by sales. and the bond market , two-year notes fell. also, separate reports on manufacturing and personal spending show the economy is expanding. the report comes two days before the fed is expected to raise rates by a quarter point to 2.5%. asian stocks rising in u.s. trading. shares of exporters, including sony and toyota gained after the u.s. government said it may have underestimated fourth-quarter economic growth. bank of new york indexes tracking asian stocks moved higher. nikkei futures point to a flat start for japanese stocks. the u.s. commerce department says fourth-quarter g.d.p. may have expanded half a percentage more than first reported. that would translate to 3.6% growth in the last three months of 2004. oil prices jumped in new york as traders speculate faster economic growth will boost fuel demand. speculation that opec may cut production also lifted oil. the group usually cuts output in the second quarter to prevent prices from dropping as demand weakens. opec meets in iran on march 16. the dollar runs a three-day winning streak against the euro in new york with its best monthly performance against the european currency in nearly four years. the dollar gained about 4% against the euro in january. the dollar also added 1% versus the japanese yen in january, as well. investors say rising u.s. interest rates are supporting the dollar. the federal reserve increased interest rates five straight times last year and is expected to raise its short-term lending rate again this week. australia’s central bank holds its first meeting of the year today at a time when consumer spending is slowing and building approvals are dropping. for more on this and a preview of the sydney market open, david tweed joins us live from sydney. good morning, david. what are economists expecting from the central bank to do about interest rates?

>> 18 out of the 19 economists surveyed by bloomberg expect the interest rate will be unchanged. the central bank is meeting today in sydney and will make its announcement at 9:30 a.m. tomorrow. there is growing expectation, however, that there may be an interest rate increase later in the year. there have been some signs of rekindling inflation. the consumer price index for the three months to the end of―to december 31, did, in fact, come out with a .8% increase. that was actually higher than expected so this is indeed an increasing expectation for a rise. today, actually, we we see that the australian dollar has risen against the u.s. dollar and that’s as the yield gap between the australian two-year bond has widened to about 2% against the similarly dated u.s. bond at a six-week high, as well.

>> and looking at the futures markets , the s&p 500 index pointing to a higher open, what are investors likely to focus on today?

>> we’ll probably see a follow through from the gains in the u.s., certainly following the seeming success of the iraqi election. we do see that the australian futures are higher even though there’s not a lot of australian company news out there today. but there could be some follow-on from some of the news we saw breaking yesterday afternoon. i’m thinking about the takeover offer of transurban, its offer to take over the hills motor group here in australia yesterday, sending both of the companies’ share prices soaring. transurban rose 22% and hills up 27%. also, keep your eye out on n.a.b., national australia bank, shares, after they forecast a rebound in profit in the second half of next year.

>> we’re also keeping an eye on south korean exports. they probably rose at their slowest pace in 17 months. economists we surveyed expect exports grew 14% in january after climbing 20% of the month before. a stronger currency is slowing shipments. the south korean won is asia’s best performing currency against the dollar over the past year and can make kirin goods more expensive to foreign markets . south korea reports january trade figures this morning in seoul. consumer prices probably rose at their fastest pace since january. fuel prices rose after freezing weather cut output from farms. economists we surveyed estimate south korea’s consumer price index rose .5% last month. we’ll have the c.p.i. numbers in about 20 minutes. in news outside the business world, the second phase of iraq’s election process begins following sunday’s national vote. ron madison has that story and more in world news.

>> an election official says the first phase of vote counting has wrapped up at iraq’s polling places. local centers will prepare tally sheets and send them to baghdad where they will be reviewed and compiled. an official says that process could take 10 days. iraqi interim prime minister iyad allawi is calling on iraqis to pull together now. in his first news conference since the elections, allawi called on the new government to work with sunni arabs to create a government and constitution. some sunni political parties boycotted the elections. u.s. opposition leaders say the bush administration needs to outline an exit strategy for iraq. u.s. senate minority leader harry reed says he hopes to hear what he called a real plan during the president’s state-of-the-union address last night.

>> on wednesday night, the president needs to spell out a real and understandable plan for the unfinished work ahead, defeat the growing insurgency, rebuild iraq, increase political participate by all parties, especially iraq’s moderates, and increase international involvement. but most of all, we need an exit strategy so that we know what victory is and how we can get there so that we know what we need to do and we know when the job is done.

>> reid warned against setting a deadline for withdrawing troops. he says that only empowers those who don’t want the u.s. in iraq. u.s. soldiers in iraq shoot and kill four inmates. a u.s. military spokesman says it happened during a riot that spread through a prison in the far south of the country. nearly 3,000 prisoners rioted after guards began a search for contraband there. no soldiers were hurt in the uprising. the camp houses 5,300 prisoners in efforts to contain an insurgency plaguing the country. that is the latest look at world news. i’ll have another update for you later in the show. back to you.

>> thanks, ron. after the break, we’ll take you live to disney world in orlando, florida, for our interview with walt disney president bob iger.

Interview: J P Morgan

>> another big story today is the 10-year treasury with its biggest one-day gain in seven weeks after the economy grew at a slower-than-forecast rate in the fourth quarter. g.d.p. officially coming in at 3.1% in the fourth quarter. the final three months of the year. slower than the growth rate in the fourth quarter. as you see, 4% there. what does this report mean going forward in terms of growth, in terms of the fed, how they’re going to perceive it? they’re scheduled, the federal open market committee, to meet on tuesday. jim glassman, senior economist with morgan stanley, joining -- with j.p. morgan, joining us to discuss his thoughts. g.d.p., was it a disappointment at 3.1%?

>> it was soft but not a disappointment for wait i don’t think we’ll know until the iraq election is behind and spring weather coming. folks got blasted with the frigid weather and nervous about oil. you keep hearing stories about opec, thinking maybe they’ll raise the price but they’re not doing anything to make you think they’re not doing their best to get oil on the markets . they’re pumping far beyond their quotas. and i think the world’s got plenty of oil. it’s just that we’re in the nervous zone right now and it’s related to iraq.

>> if you look at iraq and the elections on sunday and opec’s meeting. which is more important?

>> iraq is important for getting it behind us. i don’t think anyone expects a light to come on but i think it’s a huge step in a new direction and i think folks anticipate this might get some of this news off the front page, start moving them in a different direction and the worries about the middle east and the disruptions in the probability of civil war, those kinds of things, i think, start to die down. so i think iraq really has the potential to be more important in terms of how it affects sentiment. opec, doesn’t sound like they’re going to do much. although we’re very frigid here, spring is coming, oil demand will drop. i think folks are sensing where we’re going there, maybe why oil prices eased off today.

>> the market has done a nice job on behalf of the opec ministers in terms of pushing the price back up so arguably they don’t need to do anything with production right now.

>> what opec is worried about, this is a short-term thing, what opec is worried about is that come spring, world demand drops sharply. they’re acting as if they’re worried about a glut of oil which is hard to believe because oil prices are here but we got a break today and oil prices came down a fair amount.

>> if you were on the federal open market committee and gathering your notes for tuesday’s meeting and all the recent data and the proprietary reports they read, what would you forecast today?

>> i think i would be comfortable about where the economy is and where it’s going and i think that’s what they’ll tell us when we see the report next month, i think i’d be saying to myself, got to get the funds rate a little higher. what i would not be worrying about is inflation. that seems to bother some of them. they worry a little bit about the risks. they worry, if productivity slows down, that could be a problem related to labor costs. we got a report today showing labor costs extremely tepid. if anything, wage trends milder than they should be. there’s nothing coming from the labor sector that tells you there’s an inflation threat.

>> jim glassman, thank you for joining us, senior economist at j.p. morgan. january has not been a good month for stocks and the nasdaq has been hit particularly hard. after the break, we’ll look back at nasdaq in january and what it may mean for stocks for the rest of the year.
在线播报
Listen Market briefing --- Matt (slow)
NYSE --- Julie (slow)
P & G --- Tom (slow)
>> welcome back to “world financial report.”%  i am matt nesto.%  let’s walk you through wall street for the day and the week. the dow, s&p and nasdaq finishing lower today. big open then gave it all back there. that g.d.p. figure coming out. also today, we’re going to have the weekly gains to tell you about, the first one of these five-day advances we’ve seen this year after three back-to-back-to-back losing weeks. julie hyman always covering the nyse, joining us now with a wrap of some of the day’s action. julie?

>> hi, this, matt. we talked about merck at 4:00, one of the top market stories today behind p&g and gillette. wanted to give you more detail on that. the u.s. appeals court has ruled that its once a week―patent for once-a-week fosamax is invalid. tim anderson at citigroup saying that could take up to 35 cents out of the company’s earnings per share and cause flat earnings growth between 2007-2008. this drug accounts for 14% of the company’s revenue, at least it did in 2004. there was another piece of news on merck today, and that is that the securities and exchange commission opened a formal probe of merck’s recall of vioxx on september 30. this was widely expected by investors. nonetheless, that contributed to the decline we saw in the stock today. most analysts saying that fosamax ruling was more important for the stock reaction today. also in drug-related news, we had news from eli lilly. eli lilly, and a german partner, withdrew a u.s. election to sell one of their medicines as an incontinence drug because they thought regulators would not approve it and those shares are down, down a little more than throw.5% in today’s -- 3.5% in today’s session. we continued to have earnings-related news today, as well. halliburton down in today’s session, leading energy stocks down. halliburton saying its earnings are coming in behind expectations with a fourth-quarter net loss that narrowed but backing out items, it did worse than expected. energy stocks falling today. the price of crude down today. wanted to mention events to watch for this weekend and next week that investors have been looking for. first of all, the iraqi elections on sunday, an important focal point for so far. the opec meeting, as well. both of those items are more important probably for the price of oil. nonetheless, we see equity investors watching the price of oil, as well. the fed meeting as well as continued earnings. matt, back to you.

>> thank you very much. analysts beginning to rework their theses on procter & gamble tom keene, editor-at-large and latin expert.

>> not a latin expert. i’ll pass on that term.

>> a lot of praise after the fact, the monday morning quarterbacks, where were they 72 hours ago?

>> i kept score of that today.

>> what could go wrong in this deal, some are asking.

>> we’ll hear from that in that coming days and weeks. this is that day of glow, everyone’s happy and positive. i talked to a number of analysts and the one that got me attention is william schmitz of deutsche bank. i asked him what’s the emotion of a certain ratio and he turned that to operating margin. operating margin is sales and you take away the costs of doing business, the costs of goods sold and another thing, the cost of selling general and administrative costs, heats call it office costs. and that’s a margin before taxes. let’s go to the chart, except today it’s not a chart. this is from the bloomberg professional service. six charts that fundamental analysts use and the one i want to focus on is in the lower left corner. this is the 10-year success of procter & gamble. this is what they have done. they’ve moved from 8%, 9s and 10% here, nicely up. this is that big success and big shareholder return of procter & gamble. that’s great, matt, very good. now, they’ve moved up to 19 or 20%, which is a huge number, much like gillette. the magic of the deal, as we heard from the chief financial officer of procter & gamble in the interview this morning, they’re going to move that number up to 24% and that’s the real tension point here. how do you cut costs, how do you boost revenues to build up that operating margin from a wonderful 19% to 24%.

>> i asked an earlier guest if they paid too much. one of the things you look at, just the forward price-to-earnings ratio, gillette trading at 30 times the group, the household group trading on average 20. and p&g trading at about 20 times. so a 50% premium for the much smaller but faster-growing gillette. so they pay that fair price, as we heard the analyst say.

>> we can all say that gillette’s a premier name. i think that’s understood out there, that a premium is expected in these deals. what’s fascinating is there is uncertainty. you don’t know how the deals will work out until the quarter is out and even the year is out. some work out, many do not. certainly in the first day of merger, that glow is there and with an $8 billion premium, time will tell.

>> 20 seconds left, this is the chart of the who knew what, somebody knew something yesterday. 4200 contracts of the gillette, 45 calls trading ahead of the news. what do you think of that?

>> you see it in every deal. they’ll look into it. but i think it’s a very good observation of how information leaks out.

>> forty-fold increase of average volume on that particular options contract. tom keene, thank you very much. on we go, the economy expanded slower than economists had been forecasting. we’ll talk about the g.d.p. numbers for the fourth quarter, full year and what the fed will do next year.

Nasdaq --- Robert (slow)
Interview: P & G

>> we talked about the nasdaq, whether it can squeeze out a weekly gain, appears to have done it. robert gray with a wrap.

>> the nasdaq closing lower on the day at 2035. calling to the desks, into the pits. traders and investors telling me all day long there weren’t enough buyers to extend the first three-day rally we saw this year. they said it was more or less a technical trade. at the highest point, the nasdaq composite trading at 2055, hitting resistance, dropping to the support line around 2027 and trading around that range for most of the afternoon before bouncing off the lows to 2035. you can see on this chart, as matt mentioned, squeaking out a small gain for the week, a point higher than where we were last friday. decliners did outpace advancers 10 to seven but that gap narrowed during the day. microsoft was in focus today, investors watching for reaction today after thursday after the close when it reported better than the average estimate for revenue and earnings. it did close up slightly. apple computer, talking about internals, looking at the nasdaq 100 stocks and apple is the best performer closing at another record high close for apple at 7388, the best performer, only 11 of the 100 stocks in that index are higher for the year. back to you.

>> thanks very much. more on our top story. consumers could soon be able to purchase everything from diapers to razorblades from one company, extraordinary one-stop shopping once that $57 billion thai -- tie-up between procter & gamble and gillette are finalize. zack schrader is an analyst with bb&t asset management and joins us from raleigh, north carolina, with an in-depth look at the deal and the industry. zack, thank you very much for joining us today. a lot has been said about this deal over the last few hours, if you will. do you think it will give procter & gamble the scale it craves to actually demand better pricing from retailers that buy its products?

>> that’s a possibility. we don’t see that being the primary impetus of the combination of the two companies. we actually see it as driven by the combination of two companies that innovate quite well. what we consider two of the best innovators in the consumer category. so that appears to be a tangenal benefit but not the primary driver of the deal.

>> what is the primary driver of the deal?

>> you have of the companies whom we consider as really getting it. they have new products flow coming out, innovative new products that drive higher sales, that drive more money into r&d and creates a virtuous cycle. you have, again, the top two in the consumer category. merging, taking themselves out of the game, and making the market just that much more difficult for competitors.

>> so you have two companies that get it, clearly, in your estimation, but why now? why are they going to get it better together and why are they getting it together better now?

>> it’s pretty interesting. the timing was, again, we found out, kind of neat. typically you see companies getting together, pressured into it from weakness. here you have two companies at the top of their game getting together. so, again, interesting timing. but it gives you a combined company that’s hitting on all cylinders and really strengthens their hand.

>> already talking about what’s going to be disposed if these two companies are allowed to clear the regulatory hurdles and some point to duracell as the least of the good fits. what are your thoughts on that?

>> we don’t necessarily see them as having to sell duracell. the antitrust concern seem to be more focused on the oral care, the crest toothbrush and oral b franchises. duracell is a franchise that has struggled in the past. we think it’s an attractive brand and is sold through the same channels and the rationale with gillette buying a few years ago, still holds. is it a divestiture candidate, certainly as you combine two companies of this scale, everything’s on the table. right now we see them trying to keep the brand and driving that further.

>> gillette’s trading at 15% premium to the average in the household group. it’s expensive, i think most would say, for a typically stayed and recession-proof industry. is p&g overpaying?

>> we feel it’s a pretty fair price. while certainly investors have always liked gillette, it’s been a warren buffett favorite and people have followed him on that, if you look at the ebitda multiple they’re paying, that’s 16 times, roughly in the range of what household product companies have sold for in the last few year, usually 15 to 19 times. if you take the cost savings they expect. it should be about 14 times ebitda sort of price which we feel is pretty attractive. are they overpaying? no. are they paying a reasonable price? we feel yes but they’re getting a really good property for that value.

>> our thanks to you. we’ll take a quick break. when we return, national security investigation of i.b.m.’s planned sale of its personal computer business to len lenovo in china is underway. what it means, next.
在线播报
Listen Market briefing --- Matt (slow)
NYSE --- Julie (slow)
P & G --- Allan (slow)
Gillette --- Su (fast)
i am matt nesto. procter & gamble buying gillette, $57 billion. it’s a colossal move that analysts say will shake up several industries, but mostly the household products group. the move will add to gillette’s best-selling line of men’s razor blades and caps the biggest four months of takeover since 2000. gillette shares rallying on the news, still a few dollars short of the full offered price. stocks fell as the government report showed fourth-quarter economic growth slowed more than forecast. the final numbers on the friday session look like this. .3% lower, 40 points down for the dow. s&p, .27% lower and the nasdaq down a full .5%. stocks did rise, though, for the first week in four. but they didn’t have a winning session. drugmakers leading the way lower today. here’s a report from bloomberg’s julie hyman from the big board.

>> besides procter & gamble and gillette today, the other top market story was merck. merck shares hit in today’s session. one of the pieces of news more important than other, according to analysts. a u.s. appeals court said the company’s patent for the once a week version of the osteoporosis drug fosamax was invalid. that means the company should see generic competition for the drug as early as 2008. fosamax accounted for 14% of the company’s 2004 sales so this could be a significant loss for the company. tim anderson, analyst with citigroup, saying in a note today that it could cost the company about 35 cents in earnings per share and that earnings growth between 2007 and 2008 could be flat. the other piece of news today, the securities and exchange commission opening a formal probe into merck’s handling of the recall of the drug vioxx. that was, however, widely expected by investors. a note, merck shares are down 31% before today’s session. since they did recall that drug, vioxx. in other drug-related news today, eli lilly shares taking a hit after that company and a german partner withdrew a u.s. application to sell the same medicine in their antidepressant, cymbalta, as an incontinence treatment. those shares falling. and drugmakers, pharmaceuticals, the general group, the biggest drop within the s&p 500 today. some of the other movers we saw today, however, were energy-related. halliburton falling after that company’s earnings missed estimates. the company said their fourth-quarter loss narrowed. however, excluding items, they came in behind what folks expected. wanted to note events we’ll watch this weekend and the week to come that investors have been talking about. first of all, the iraqi elections will happen on sunday as well as the peak meeting, important for oil investors and equity investors and also the fed meeting and earnings will continue with earnings from exxon-mobil and boeing, among others. i’m julie hyman, bloomberg news, at the new york stock exchange.

>> we know the headline, $57 billion thai up between procter & gamble and gillette. let’s talk about the details. bloomberg’s allan dodds frank was there when the two companies announced the deal and he joins us now with details. allan?

>> the c.e.o.’s of these two old, main-line companies, say the integration of procter & gamble and gillette should go smoothly. they note that gillette and procter & gamble are both global companies with similar cultures, similar distribution chains and the same software systems. this deal was initiated last november by james kilt, c.e.o. of gillette, who said today that he believes in scale and consolidating the consumer products industry. kilts said he could not think of a better way than to join forces with gillette’s best competitor, procter & gamble. remember, five years ago, procter & gamble wanted to buy gillette but was rebuffed. today, gillette’s revenue growth is 10% while procter & gamble’s is 8%. procter & gamble’s c.e.o., a.g. lafley, agreed with kilts and added that together the new company will be a juggernaut. after the analysts’ meeting, procter & gamble chief financial officer, clayton daley jr., sat down to talk about the deal. daley said the company. will probably cut about 6,000 employees and will have about 140,000 employees, not to mention annual sales of $60 billion.

>> if we can dove tail gillette’s product lines into our developing market infrastructure, we think we can get them better distribution, better reach, better presence in the marketplace and i’m hopeful that that will probably be the growth opportunity that has an opportunity to occur the fastest.

>> the executives say the company expects to grow fastest oversea, especially in china, russia and eastern europe. both companies have global distribution, although the executives say they expect gillette’s teams in india and brazil to boost p&g while p&g’s strength in japan and china should help gillette’s product lines there. the companies do not expect hurdles from regulators since most of their product lines are complementary, rather than competitive.

>> appreciate it. of course, procter & gamble’s offer, 18% higher than where gillette shares closed on thursday. it’s a banner day by almost any measure for shareholders of gillette. su keenan has more on the investor perspective.

>> matt, one gillette shareholder told me that as he watched his stock rally on the merger news this morning, he wouldn’t help but yell out, yipee! the shares of the razor maker shot up as much as 13% at the open, closed just above 12.5%, making it the biggest one-day gain for the stock in almost half a decade, october 2000. among the most enthusiastic investors, warren buffett, as berkshire hathaway is gillette’s largest shareholder. he plans to add four million p&g shares to his holdings and will own 100 million shares by the time the transaction is complete.

>> this merger will create the greatest consumer products company in the world with a market cap close to $200 billion, combining two companies that already had outstanding records, outstanding managements, outstanding products. it’s a dream deal.

>> also happy about the deal, marvin rothman who manages roughly $300 million in assets.

>> while it may be dilutive to procter & gamble over perhaps the next three years, it will substantially increase their sales targets from 4-6% to 5.  7% per year and it gives them tremendous clout with retailers.

>> the combined company will have greater leverage in getting shelf space with wal-mart, for instance. in this environment with slowing earnings growth and rising interest rates, northstar’s henry asher sees the merger boosting shareholder value for years to come. the combined company will have annual sales of more than $60 billion.

>> i think it’s a very, very attractive transaction and i think that there’s no reason to expect that this company won’t, going forward, the merged company, procter & gamble, won’t be able to deliver market returns orb better over the long haul.

>> like warren buffett, asher says he’s held his shares since 1999 when they traded above $64 a share. it’s been a tough go since then but he said it started to feel like 1999 all over again today.

>> appreciate it very much. analysts saying 2005 could be one of the biggest years for mergers and acquisitions. june grasso tracking more on the market reaction to the latest in a string of m&a deals.

>> that’s right, matt. some of the world’s best known brands are getting swallowed up in these consolidations. and morgan stanley president stephen newhouse says competitors will have to start looking at their own xornt strategy.

>> you combine two very large companies that cover, as the press release says, the largest and most effective producer of personal care products for women with the largest personal care products for men suppliers so it’s a very important accommodation and people are going to have to look at the implications for their strategies.

>> gillette competes against energizer which makes schick razors and energizer batteries. energizer stock gained 10% since tuesday when it announced first-quarter earnings rose 23% over last year. prudential raised the took to overweight, calling it an attractive takeover candidate. other consumer stocks moving higher in reaction, rayovac upgraded to overweight by prudential because of the potential new wave of consolidation in consumer products. clorox, avon, unilever, which some analysts saying it puts pressure on the dutch company to make a deal of its own. many analysts agree the p&g deal is a negative for colgate because it combines two ino vators in the key oral care category and the pressure is also on colgate.

>> it’s merger mania. colgate palmolive has to do a deal now, they have to do something over the next six months. unilever can’t just sit back and let this deal happen. when you have deals that happen at the top of sectors, which this is, it forces the hands of all the other players.

>> he’s not sure what company colgate might buy but a financial serious company is -- financial services company is a possibility.

>> we’ll look at the ripple effects from the deal of the day and learn what it means for the consumer products industry. that and more next.

Interview: G.E.
Nasdaq --- Robert (slow)

>> cove giant starbucks reported first-quarter earnings today.% -ellen braitman is in new york talking with the company’s chairman.% 

>> thanks, catherine. shares of starbucks fell as much as 3% in after-hours trading. the company reported first-quarter earnings of 35 cents a share. it was up from 27 cents a year earlier. analysts surveyed by thomson financial estimated earnings per shareearnings per share of 34 cents. starbucks saying 2005 full-year earnings will be between $1.17 and $1.17 a share, higher than the company’s earlier forecast but analysts forecasting $1.17 per share for the full fiscal year. joining us is howard schultz, chairman and chief executive of starbucks, joining us from seattle. howard, you beat analysts’ estimates and raised your forecast but some investors had higher expectations. what do you say to them?

>> i think in this environment it’s almost whatever you do or how well you do, it doesn’t seem to be enough. we can’t manage the company for that. what we have to manage the company to do is to do everything we can to exceed the expectations of our customers and as we have throughout our public life, in doing so, we believe we can hopefully meet and exceed expectations of our shareholders. we had a stunning quarter. when you look at the numbers compared to other retailers, starbucks is an an nomly in this market and i think it bodes well for the future, demonstrates the trust, confidence and loyalty of our customer base and the enduring way in which we’ll build our company around the world.

>> how are january sales looking so far?% 

>> we’re in the middle of the month so i can’t comment on january. we gave guidance today consistent with the guidance we’ve given for many years and that is 3% to 7% comps and we expect to be at the high end of the range. the problem, i think, in many ways, is that we’re a function of the disappointment at times of the fact that we’ve been so successful, the comps for the quarter were at 10% and whenever you have double-digit comps and you post a number slightly lower, people are disappointed but you need to look at the backdrop of the rest of the environment where most of retail in america averages 1% to 2% and starbucks is well above.

>> that another issue investors seem to react to then the earnings release is the fact as expenses are rising as you open new stores and increase marketing . what effect is this having on profitability?

>> the profit for the quarter sup30%, which is outstanding. what we did say is that this year alone we will open up approximately 1500 stores, the most in our history. in the years ahead, we expect that number to increase. in order to sustain our level of growth and most important, execution, we have to invest ahead of the curve. in doing so, we gave guidance above the original range so, in a way, what we’re really trying do is invest ahead of the curve and at the same time sustain the level of shareholder value we have in the past and in a sense, we want to continue to under promise and over deliver and we’ve done that throughout our public life.

>> sales have been growing even with the price increasings -- increases in october. any plans to raise prices again?

>> we have no plans whatsoever to raise prices but the most encouraging aspect of that is that there are very few retailers and consumer brands that have the pricing power starbucks has had and the most encouraging thing for our investors today was that we demonstrated zero attrition in terms of the response we had to the price increase. so really, that demonstrates the relationship we have with our customers and the staying power to build a great, enduring company throughout the world.

>> briefly, but obviously an important story has been the tsunami. your company and you personally donated. on the business side, how is the tsunami affecting coffee supplies and pricing?

>> we said today we can’t see any short-term or long-term problem with coffee supplies. we did learn one store in phuket. but we’re more concerned about the families of our people and the company stated today that our contribution over the next couple of months will exceed $1 million and i thank you for mentioning the fact that my family did contribute a million dollars, as well.
>> howard, thank you very much are for your time. i appreciate it.

>> thank you very much for having us on.

>> howard schultz, chairman and chief global strategist at starbucks. have a great night.

>> thank you, ellen. tony blair says the u.s. must cooperate with the rest of the world on a number of issues if if it expects other countries to spread democracy. blair says he will push that theme during his presidency of the g-8 this year. he made those comments during his opening comments at the world economic forum in dav davos. guy collins is there and tells us what’s on the agenda.

>> growth is one of the biggest issues on discussion here in das avos, what kind of growth companies can. xpect in 2005 and the growth they’ll be able to deliver to investors. according to a survey of chief executive, more than 90% of chief executive are confident in revenue growth and the ones we have spoken with are saying broadly they expect growth in their businesses. morten sorrell of w.p.p., the advertising company, says he expect advertising industry growth of 2% to 3% during the course of this year, a touch slower than 2004, but still growth. others say they exclusive technology to help drive growth in terms of innovation. we spoke with the chief executive of sim been, the mobile phone software company. he said demand is driven essentially by new functionality on phones and rising consumer expectations of what technology companies can deliver and we’ll hear more about that from michael dell of dell and bill gates and software technology executives who will be in davos in the next couple of days. the constraints on growth are also an issue and oil prices are a major issue for chief executives here. the oil executives here, including the executive from shell, will be under scrutiny in terms of what they can say about where the oil market may be headed and more broadly, development an issue. tony blair, the ucprime minister  u.k. prime minister, is in davos talking about what the g-8 countries can do for africa. i’m guy collins in davos for bloomberg news.

>> tokyo markets open in about two hours. we’re keeping an eye on shares of n.e.c. electronics. the country’s third largest chipmaker cut its full-year forecast yesterday. it expects net income of $179 million for this fiscal year, 34% lower than its previous forecast. for a closer look, we’ll speak with robert howe. n.e.c. electronics joins nintendo and sony in the list of japanese stocks that have cut forecasts. what does that tell you about the outlook for tech stocks?

>> tech stocks have rallied in december with―following on the tech rally and the fall in the united states. but it had been running into the headwinds of a stronger yen and price pressures in a lot of electronic products that they sell. n.e.c. electronics sells chips used in l.c.d. displays and pricing pressures that have been terrible is the diffusion of flat-panel tv’s have hit a pricing point coming down and the pressure throughout that chain is enormous. we’ll hear more from n.e.c. corp. after the market close in tokyo today along with advantest and kyocera, all those companies reporting earnings. are you expecting the numbers to disappoint or could they offer positive surprises?% 

>> we’re not―we’re underweight in our new horizons fund and offshore fund and all of our domestic accounts here in the electronics sector. not terribly so. we see the pricing pressure and there isn’t a definitive cycle. there are a few hot products and at christmas, everyone knows about the ipod’s success. that actually, perdocksically, except for parts makers, would be a negative for sony which has seen its share of the walk-around music market fall. you see pressure in electronics products. we think there could be a bounce? in―in some of these stocks because the yen, after peaking at 102 yen to the dollar, is actually weakening or the dollar is strengthening again and a lot of analysts, if you saw the press coverage in magazines last december, they were talking about the dollar in free-fall and we could see the dollar recovering to, say, 106, in which case you get a bounce in these stocks so you wouldn’t want to be very underweight but stock by stock, we don’t hold sony or netcom electronics or -- n.e.c. electronics or nintendo.

>> but you hold matsushita electric and denso. what are your reasons?

>> we think matsushita is slowly restructuring, an osaka-based giant, slowly cutting back its work force and has products, with the digitalization of consumer electronics, its product cycle is more attractive than some of the others. it’s a very cheap stock. the other you mention side denso?

>> that’s right.

>> that’s actually an auto parts company and we’re permanent bulls on the japanese automakers and particularly the auto parts companies. that’s one of our largest overweights and has been a long timet. didn’t particularly help our performance last year. we just see the japanese in this sector continuing to gain share relentlessly. not just in the united states, but starting in europe and elsewhere in asia. toyota looks on track to be the largest automaker in the world in the next five to seven years.

>> let’s stick to autos. honda is releasing earnings tomorrow. what are you expecting from honda and how will that outlook change your weighting on automakers?% 

>> we’re getting more bullish on honda. we hadn’t held it for a long time. we see it, after losing some share overseas, gaining back share. its sales in asia have been picking up and it’s very good at hedging its currency exposure. nevertheless, the stock’s move with the currency, if the yen strengthens, the stock tends to be weak and we feel the yen had peaked and dollar had bottomed at under 102. we like that stock, we like toyota and denso, a toyota group auto parts company that sells to other automakers.

>> what about those japanese stocks that have china placed in them, bob? do you favor them this year given government measures to slow growth and expectations of higher interest rates?

>> i’m going to try to move you a little bit. you keep talking about japanese stocks with external exposure -- electronics, automobiles, china plays. really, japan right now in this year is not about china and not about the united states. it’s about japan. and if you look at what’s moving in the market and when you’re in the market , like i am, you have to look at what’s actually moving. all the domestic stocks in japan are really moving. the banking sector. look at the regional banks in the past one one week with phenomenal moves, construction stocks. some of the old, boring companies that your viewers have probably tuned out of for 14 years, are in some interesting uptrends and have been for a year. we really see a lot of the action shifting to some of the domestic sectors and has been.

>> so, can i take it, then, that you’ll be increasing your domestic-related stocks in your portfolio this year and that would be the ongoing theme for 2005, domestic-related companies?

>> we continue to see the asset sector. there are four broad sectors in japan, the yen-sensitive, an area of almost obsessive interest by foreign investors, stocks that are family names, honda and sony. there is the other major sector is what i would call credit-sensitive or interest-rate-sensitive in japan. these would be the banks, construction companies, anyone with real estate exposure. and these were just in steady uptrends since the bottom of the market in april 2003 and, yes, we have grudgingly dragged ourselves to overweight there. it’s been hard after these stocks have been in a 14-year bear market .

>> good to talk to you. thanks for that, bob. robert howe of a.i.g. and global investment management in tokyo. mitsubishiui―mitsui trust holdings plans to lend to smaller risk companies. it says it will boost revenue from loans. it will lend to companies that have had a business history of more than three years in

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with a familiar strategy to fend off discount carriers, if you can’t beat them, join them. with the nearly dozen low-cost airlines out there, is the field getting too crowded? we’ll hear from the head of singapore airlines’ discount carriers, tiger airways. u.s. stocks advance for the second day. the dow, s&p and nasdaq all finish higher, lifted by stronger-than-expected earnings from companies, including texas instruments and eli lilly. the dollar falls against the euro and yen. rising german business confidence and speculation china may revalue its currency helped send the dollar lower. starbucks shares fall in extended trading. the coffee shop chain’s earnings jumped 31% and it boosted its full-year outlook. investors sold the stock after starbucks’s smallest profit gain in more than a yearr. we’ll speak with starbucks’ chairman live in 15 minutes. tiger airways says it aims toaur offer the lowest fares to all routes. its chief executive, tony davis, told shobi pereira the company is in no rush to raise funds.

>> there’s no media plans. the airline has only been operating three months now and are financed through existing shareholders.%  but clearly as we grow and get bigger, we have to keep the options open for future investments so we’ll dress the―address the extra investment when we need to.

>> any time frame as to when you’ll revisit that issue?

>> the priority is to make sure the business model, the airline, proves to be the success we think it will be and really demonstrate that the model can work effectively here in asia and as soon as we can do that and with the shareholders’ consent, we would look at other funding opportunities but it’s premature. we’ve only been operating three months.

>> your competitors include value air as well as jetstar asia. how has the competition affected pricing and margins? i know you’ve also reduced prices to phuket as low as $998. tell us about your strategy right now.

> the market in asia is early in its development. aboutwe’re starting to see is perhaps a polarization and differentiation of product. we certainly believe that that the really successful low-cost airlines in asia are the ones that can really differentiate themselves from the traditional full-service airlines. that’s why we’ve taken a very aggressive pricing policy and we intend to offer consistently lower fares so we can differentiate ourselves from the legacy carriers. talking about being mid frills in the middle ground are the competitors that will struggle as the market develops.

>> for which routes do you want to be the lowest priced?

>> for all routes that we intend to operate we intend to be the lowest priced operator in the market . we have three routes operating into thailand at the moment and hope to operate into other countries in the near future such as indonesia. we’re looking around the region for new opportunities. in each market , the tiger airways’ policy will be to be the lowest cost.

>> the question arises, how low will you go down in price? there is a point where you have to stop and then what are the options that tiger will look at in terms―once you’ve hit that point?

>> that really explains why we have to have the lowest cost base. certainly in europe, people at ryanair have the lowest cost base and they can consistently offer the lowest fares and that’s the model we’re looking to emulate in asia, that we have the lowest cost base of any of our competitors and we can outprice anyone in any route we compete on and if we can do that successfully, we will emulate the success of ryanair in europe.

>> if price cuts are no longer an option, what other factors will you compete on?

>> consumers primarily are looking for low prices and we’ve seen with the phuket promotion, people will travel if the price is low enough. the, factor that we’ll concentrate on is making sure our punctuality is as good as we can make it rochester. we have brand new a-3 20’s which make it reliable and our flights are on time and also make sure that we offer a quality service without the frills and that would set us apart from our competitors, if we consistently offer low fares and meet people’s extensions, we will be successful.

>> are there new routes tiger airways is looking at?

>> we’ve taken delivery of two aircraft in the last two days so we have four aircraft in singapore and we will announce new routes shortly but we’re finalizing the paperwork and we’ll be ready to go in the next few days.

>> an indication of which country, which city?

>> we’ll announce that shortly.

>> that was tony davis of tiger airways. the company competes with local rivals like value air, jetstar asia and thai asia. stocks in australia start in about 20 minutes after yesterday’s national holiday . t’s return to david tweed in sydney. how is the stock market expected to hope?

>> -- expected to open?

>> futures indicate up .2s. record iron ore production, record coke and coal production and record manganese production reported by b.h.p. billiton. shares indicate that they will open higher. also might add that csfb came out with price forecasts for b.h.p. and rio tinte. they see b.h.p. shares rising 10% from here and rio tinto shares rising 8% from its last close. we have rinker coming up with its third-quarter report coming up before the market opens. we’re also waiting for woolworth’s to report its second-quarter sales. those sales are expected to slow. there has been a lot of discounting in the australian retail scene, certainly in the lead up to christmas. coles myer, a report in the “australian financial review” says it will review all of its retail brands, including the myer department stores and those results will be reported in the second week of march. we’ve also had a production report and expect newcrest mining, gold producer in australia, to put out a gold report. an analyst strategy report from david cassidy at u.b.s., a report saying they’re favoring stocks with low earnings risks. the areas which they’re favoring at the moment are general insurance, diversified resources and gaming and they’re underweight retail, media and small caps. these are the areas where they see uncertainty over earnings. that’s a strategy report, at least to have a look at today. back to you, cathy.

>> thank you, david. coming up, executives for major companies from around the world are getting together at the world economic fornum davos, switzerland. we’ll tell you what’s on their agenda.

Interview: G.E.
Nasdaq --- Robert (slow)

>> in world news, iraq’s interim president says this sunday’s elections will be the first step towards a pullout of u.s. forces. president iyad allawi says the withdrawal of u.s.-led troops will take place in stages over an unspecified period of time. and he says the removal of all u.s. forces will depend on the ability of the iraqi security forces to destroy terrorist cells throughout the country. allawi’s comments come amid fresh violence in iraq. the associated press says 11 policemen were killed in baghdad. the a.p. says in one incident, fighting erupted when iraqi police fired on insurgents handing out leaflets warning people not to vote in sunday’s elections. in the united states, senate democrats are using the nomination of condoleezza rice as secretary of state to blast the bush administration’s iraq war policy. senator edwards kennedy says rice failed to acknowledge mistakes in planning and carrying out the iraq war.
>> had dr. rice and others in the administration shared all the information, it might have changed the course of history. we might have discovereded that there were no weapons of mass destruction. the rush to war might have been stopped. we would have stayed focused on the real threat, kept faith with our allies and would be safer today.

>> senate majority leader bill frist defendsed rice, saying the nation needs a leader of her caliber. the senate will vote tomorrow on rise’s nomination and her confirmation is not in doubt. the u.s. scraps plans to spray opium crops in afghanistan after oppositions from the country’s president. afghanistan is the world’s largest producer of the raw ingredient for heroin. the associated press quotes the state department’s top anti-drug official as saying president hamid karzai wants to try alternate approaches to reduce cultivation. afghan officials say their efforts are already making progress and estimates this year’s crop will fall between 30% 2070%. disney’s movie “the aviator” tops the number of nominations for this year’s oscars. the biography of howard hughes has been put forward in 11 categories. the movie’s makers, disney, are the leading studio with 24 nominations. disney’s “finding neverland” got seven, including best picture. the other nominees are time warner’s “million dollar baby,” general electric’s “ray” and news corp’s “sideways “. and in india, national thermal power says net income rose 67% ensuring demand for the country’s biggest producer producer. shobi pereira has more.

>> good morning. national thermal actually becomes the fourth indian company, cathy to earn more than 10 billion rupees in the quarter and it gets the money it needs to invest and make up for the reduction in the return on assets assured by the government. now a fund manager with a.s.k. raymond jameses in mumbai says that the robust earnings puts the company on a stronger footing to add new capacity and enter new businesses, including trading and power distribution. now last april, the government lowered the rate of return state-run generators run on fixed assets. now the cut followed a decline in india’s benchmark interest rates to a 31-year low. according to a survey by ibes, a units of thomson financial, a lower rate of return will slow nationaler this ma’am’s earnings per share growth this year. cathy?

>> and if demand is the reason that’s going to help companies like national thermal?

>> that’s right, cathy. national thermal may boost sales. they’re helped out, as you point out, by rising demand and rising out put at factories owned by companies. industrial production in india is growing at an 8.4% clip, and that is one-third faster than a year ago. now the prime minister says to keep pace with this growth, india needs to spend $75 billion in five years, building new plants and upgradesing aging lines to curb blackouts. now one analyst of sahara asset management says given scale of investments planned by the government to plug the energy shortage, the company and industry leader will benefit the most. now in terms of scale, just looking at national thermal, it is the world’s sixth bigest thermal pow producer and the state boards in turn generate 60% of india’s power. now the analyst saying no other utility in yainl has the scale or resources of national thermal. better leave it on that note. back to you, cathy.

>> thank you for that, shobi. still to come, sony’s already warned investors its profits will be below previous expectations. is that a dangerous sign or a buying opportunity? we’ll ask a fund manager from overseas about $600 million in international stocks including sony, whether he’s buying, selling or holding. we’ll be right back.

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revenue surges to its highest level in nine years as demand for handsets during the holidays boosted sales. the dow has its biggest rally of the year as u.s. stocks rise for the first day in five. earnings from johnson & johnson and dupont beat forecasts and consumer confidence rose more than expected. consumer confidences encouraged investors to buy the dollar. that helps the u.s. currency to rise the most in three weeks against the yen and gain versus the euro. three companies in the dow jones industrial average report lower profits. johnson & johnson said fourth quarter net income fell 34% to $1.2 billion because of tax costs. merck’s fourth quarter net income fell 21% to $1.1 billion, this after the drugmaker set aside more than $600 million to cover legal costs associated with the withdrawal of its painkiller, vioxx. the dupont’s fourth quarter net income 52% from a year ago when a tax gain boosted earnings. shares of johnson & johnson and merck rose more than 3.5%, dupont gained more than 1%. stocks rallied after four days of declines, lead by drug and transport shares. looking at how the index is closed, the s&p 500 rallied .4%, the dow jones closed up .9% and the nasdaq up more than half a percent. bloomberg’s julie hyman reports from the new york stock exchange.

>> the dow had its biggest gain since december 21 in today’s session. so, a good rally for both the dow and the s&p. although if you look at the chart of the day, you’ll see we had this typical sell-off in the last hour or so of trading. in fact, as you look at the last 15 sessions and nouse 16 sessions of 2005, 11 of those 16 are now―now 12 of those 16 and counting in today’s session, we’ve seen stocks close closer to their lows of the day than their highs of the day. we have seen this typical sell-off in the last hour of trading and in talking to traders today, they say that is due in part to the fact that we’re seeing lower fund flows in the market this month. so, the presence of fund manager, some of whom tend to sell their stocks in the last half hour of trading is being felt more heavily. we also had a lot of fundamental news helping stocks in today’s session. we had a consumer confidence number better than expected and also earnings that came in and beat estimates in many cases. pharmaceutical stocks helping lead the pack in today’s session, although it was a broad-based rally. but that particular group helped in part by johnson & johnson and merck. of course, johnson & johnson much more than a drugmaker, also medical device maker, for instance. both companies beating estimates. merck beating estimates on the sales front, although profit at both companies did decline, came in for johnson & johnson ahead of what analysts had been looking for. also transportation, the other big winner in today’s session. this has been a loser for year to date, down about 6% as a group. today it was up 2%, helped by a couple of different subsets of transportation stocks. on the one hand, railroads stocks doing well, saying santa fe northern came in ahead of analyst estimates and other railroad stocks did well also in today’s session. union pacific had disappointing earnings yesterday and airlines rebounding. they’ve had about a 25% drop this year. but air-tran came out with earnings today that beat estimates. continental added to the focus list at j.p. morgan. that also helped matters within that particular group. i’m jew lie hyman, bloomberg news at the new york stock exchange.

>> flextronics says profit more than quadrupled in the most recent quarter. sales increased 3% to $4.28 billion. flextronics is the world’s largest maker of electronics that are sold under other company brand names benefiting from increased demand for phones and printers from companies like sony ericsson and hewlett-packard. it has been transferring manufacturing from smaller factories to seven larger cities to cut costs. still, the company’s u.s.-listed shares are down 30% in the past year. new zealand stocks rise led by telecom corp. investors speculating the nation’s biggest phone company boosted second quarter earnings. more to ron madison for more on that and a check at what else might move around the region today.
>> about an hour and a half into new zealand’s trading day. higher by half a percent. it is telecom new zealand rising today up by 1.1%. as you mentioned, expectations at the nation’s biggest phone company boosted second quarter earnings. we’ll find out more about that, though, when the company does report earnings on february 4. meantime, though, that stock is up ahead of that. pretty limited day of trading so far in the region and it will be today with australia off, celebrating australia day today. let’s move on and see what happened in the u.s. overnight with regardses to asian traded shares. the bank of new york asia a.d.r. index pretty much down overall by about quarter of a percent. china coming out the big gainer. you can see they’re up by 2%. the bank of new york taiwan index also up by 1.7%. china rising after it came out with g.d.p. figures showing the economy grew 9.5% in the second quarter. got shares of aluminum corp were up in u.s. trading up by 2.5%. also some of the hong kong-listed shares including china mobile up by more than 3.5%. our 3.3% in the u.s. also chip shares, we saw those advancing in the u.s. after texas instruments came out with its earnings after the end of regular trading and those earnings did beat analyst estimates, helping to push a.d.r.’s of taiwan semiconductor higher. that company does count texas instruments as one of its clients. taiwan semiconductor higher by 1.7%. well, japan’s a.d.r.’s did finish mostly lower led by nomura. it reported its brokerage commission slumped to 46.3 billion yen. seeing nomura holdings down 1.25% in the u.s. japan does get started in about an hour and a half. one stock we’ll be watching today is mitsubishi motors. one newspaper saying on its website that japan’s only unprofitable car maker may report a record loss of more than 4.3 billion in the current business year through march 31, more than double the company’s forecast. cathy, we’ll be watching that today throughout the day. back to you for now.

>> i’ll see you later. thank you, ron. up next, india’s biggest power producer says third quarter net income rose almost 70%. details on national thermal earnings come after the break. stay with us.

Interview: Tokyo market
>> violence linked to al qaeda targets, of iraq’s prime minister. ron madison has that story and more in tokyo.

>> cathy, a group led by al qaeda operative abu musab al zarqawi has claimed responsibility now for a suicide car bombing that took place near the prime minister’s party headquarters. the press reports at least two people were killed, 10 others were hurt. now it is the second time this month the offices have been targeted by suicide bombers. the last attack left four people dead. now after the blast, the interim government issued an e-mail statement announcing the arrest of two of al zarqawi’s top aides. one was cited as telling interrogators that he plotted 75% of baghdad’s car bombings. ukraine’s president viktor yushchenko traveled to russia, one day after taking office. the associated press says the trip is aimed at smoothing over relations with the kremlin. the a.p. says the russian government feared he would move his country out of moscow’s sphere of influence and they openly support it. yushchenko’s opponent in ukraine’s presidential election. russian president vladamir putin is calling on the new president now to strengthen ukraine’s economic ties with russia by joining an economic union. yushchenko is the ukraine’s third president since the fall of the soviet union. now the northeast is struggling to recover from a blizzard that dumped more than a meter of know in some places. schools, government offices and courthouses are closed in many states now. boston’s airport finally has one runway open after being shut down for more than a day. and chicago’s airport had only one cancellation today after canceling nearly 1300 over the weekend. the storm is now being blamed for at least 15 deaths. cathy, that is the latest look at world news. back to you.

>> thank you for that, ron. and back to business. china aviation oil is asking creditors to write off 59% of the $530 million they owe as part of a bailout. the creditors include mitsubishi banking. shobi pereira is in singapore with the latest on this story. what is the latest?

>> in a statement, c.a.o. says it’s offered creditors 45.1 -- 41.5 cents per dollar of debt. now china aviation is a singapore-listed company. the units bejing-based parent, china aviation oil holding would convert $118 million loan into equity. now the parent company will also invest $100 million in total with an unnamed investor. now david gerald is president of the securities investors association of singapore and the association represents more than 63,000 individual shareholders. now he says given the circumstances, this is a reasonable offer and easy way, he says, would have been for the parent company to just walk away from this whole thing. now the background to all this is singapore’s high court ordering china aviation oil to submit a restructuring plan and that’s after the company lost $550 million betting on oil prices. now investors says the offer may help reduce the damage to singapore’s reputation as a financial center. cathy in

>> in terms of speculative trading, though, is there some concern from investors about that in general?

>> cathy, let me just quote here , one analyst that oversees $40 million of equities in asia, excluding japan base in london. what he is saying is that china aviation is just the tip of the iceberg. now he says as long as investors are having a love affair with everything chinese, the list of scandals, he says, is only going to get longer. now china aviation oil’s parent is the biggest creditor among 99 listed in a filing to singapore’s high court yesterday by the units. a senior investment strategist at c.f.c. securities says creditors may try to negotiate better terms and he says this is an opening proposal. and he thinks there will be negotiations because the creditors will want to bargain to get more. now the chinese government, he says, will be willing to improve the offer to the point where the market will be happy. now china aviation oil holdings spokesman said in a telephone interview that china aviation oil’s parent invited singapore’s holdings to invest in the reorganization. now they say it is still in discussions with the parent company and a spokeswoman says, in their words, we will make our decision to participate based on commercial considerations and whether the plan is acceptable to all parties concerned. that’s where they’re leaving it for now. back to you, cathy.

>> thank you for that, shobi. and coming up next, we’ll hear what john snow has to say about currency exchange rates and how the bush administration plans to tackle the twin deficits.

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Listen Interview: Oil trade
here are the headlines. oil trade hits an eight-week high as opec has followed through on promises to cut production. freezing temperatures in the northeast united states also boosted prices. the dollar falls against the euro after a report shows central banks boosted their euro holdings at the expense of the dollar. china’s expected to report today growth slowed in the fourth quarter after government lending curbs kicked in to reduce investment 6789 china expects an additional 35,000 to 40,000 more chinese to visit canada every year now that bejing has put it on an approved list of tourist destination, in addition to the more than 100,000 business deals lead by a trade delegation that wraps up an eight-day trip to china and hong kong today. canadian minister for international trade jim peterson tells bloomberg’s steven engel in hong kong that the mission was a success, even though he would not disclose the value of contracts signed by the canadian companies.

>> there were over 100 commercial signings. but the main purpose was not the contract so much as it was to establish relationships. we believe that in order to get into the chinese market , that relationships are very important . this may involve investment. we wanted to open up those relationships to the canadian businesses and that’s why we went there.

>> now the w.t.o. ministerial meetings will be held right here in―at the end of this year and the focus will be, of course, china. in the run-up to that, what is canada doing as far as striking bilateral trade agreements with this part of the world, be it south korea, be it china, and how does that position it against the w.t.o. framework, which, you know, targets more multilateral trade agreements?

>> our most important priority, of course, is the w.t.o. and it’s so significant to canada and the rest of world because it has the potential for eliminating or vastly reducing the high subsidies for agriculture in the e.u. and the u.s. and this is why the development has to be successle and i talked with my counterparts about that and mr. chang and i are committed to a very vigorous and optimistic round.

>> what was discussed in particular, though, with china as far as striking bilateral trade agreements, of course, with china?

>> we have undertaken, and this is reconfirmed, that we will be working this year on a foreign investment protection agreement with tchine, which is important for canadian investors and chinese investors in canada.

>> now one of the hotly debated topics at home in canada right now is the perception that state controlled companies, be it in china or elsewhere, are looking at purchasing a natural resource of companies in canada. how much of a concern is that and where do you draw the line between being open to foreign investments, but also not sacrificing national sovereignty?

>> welsh let me be very clear. we will not be discriminating against china. we have a law, called the investment canada act, whereby any foreign investment in canada of over about $250 million, has to demonstrate that it is to the net benefit of canada. so, this is a law which applies to all countries, including the united states.

>> another debated issue is canadian beef exports and whether the asian countries will resume importing of canadian beef. any movement on that? because we did have another case of b.s.e. at the beginning of this month. has that set canadian beef exports back?

>> it hand because the three asian companies that have opened up to canadian beef already have indicated that they will continue to determine the market . they have not indicated that they’re going to close their markets to canada and i’m very pleased that hong kong opened up its market to canadian beef on november 30, and we’ve had huge and very successful sales of beef into hong kong, for example.

>> will there be movement on china resuming?

>> we’re hoping. we’ve asked them to look at us and we’ve asked them to, like other countries, look at the risk.

>> on the currency exchange issue, how badly does an artificially m.m.b. negatively impact the trade imbalance between canada and china?

>> the thing that really affects it is the lower dollar itself and because our biggest trading partner, of course, is the united states. and in spite of an appreciation of over 35%, over a two and a half year-period, canadian trade figures have held up very well and the canadian economy has been very vigorous. we’re still creating more jobs than any other of the g-7 countries and so i think it is a real credit to the resilience of our canadian economy.

>> that’s canadian minister for international trade, jim peterson. australian consumer prices may have risen in the fourth quarter of last year. the government report is due at 11:30 a.m. in sydney. let’s go to david tweed in sydney for more on this report. what are investors expecting?

>> well, they’re looking for an increase of about .6% for the fourth quarter, consumer prices, c.p.i. index, which is coming out at 11:30 in sydney and here’s what a currency strategist at westbancorp ration in new york had to say about it. people have been quite sharply moving towards the idea of rate hikes in australia and a reasonably firm number will sustain that momentum. now remember, of course, last week we did have the home loan approvals which came out. they were the highests in two years. so, there has been some movement towards speculation that the australian reserve bank might indeed increase interest rates in australia. that would have, of course, an impact on the australian dollar and could, if we saw the australian dollar rise could be bad for our exers and look at our retail-related stocks, consumer-related stocks such as wol worths. also would likely quick to raise a story in the australian newspapers today, quite a speculative story, but they were talking about what coles mier might do in terms of capital management or returning money to shareholders and one of the options they might look at is returning much as australian dollars, one billion australian dollars to shareholders. cathy?

>> david, thank you for that. and coming up, china aviation oil asks creditors to write off more than half of the $530 million they are owed. our reporter in singapore is standing by with more on the bailout plan for the oil trading company.

Interview: Asia & European markets
>> speaking of asia, our tokyo bureau has a preview of what might move market there is next week.

>> some of asia’s leading technology companies report earnings in the coming week with the overriding theme likely to be rising inventories and falling prices. sony reports fiscal third quarter earnings thursday and it’s already given investors an idea of what to expect. the world’s second biggest consumer electronics maker says full-year profit will be about 31% lower than its initial estimate. sony says prices of its audio players and tvs have been falling. liquid crystal display maker l.g. phillips has also seen flat screen prices drop after overestimating demand. it send l. c.d. prices down 29% in december from a year earlier. analysts surveyed by bloomberg say l.t. phillips probably lost 2.9 billion won in the fourth quarter. and the following day, l.t. electronics reports earnings. south korea’s second largest he can maker may say profits rose after it sold more mobile phones . japan’s biggest mobile phone operate to has been wooing subscribers with handsets that work as an electronic wallet. users of ntt docomo phones can buy goods in convenience stores, and increasing profit in the fiscal third quarter. slowing chip demand caused profit gains to taiwan semiconductor manufacturing. they may say on thursday that net income rose 37.5% in the fourth quarter. third quarter profits rose 84%, still the slowest growth since 2003. customers have been reducing inventory and chip prices have been falling. china’s economy probably grew at its sloast pace in 1.5 years in the last three months of 2004. gross domestic product likely grew 8.9% after a 9.1% in the third quarter. figures which were expected last thursday are now set for release on tuesday. and japanese manufacturers may have raised out put for a second month in december. industrial production probably rose 1.7% from a year earlier as overseas and domestic demand increased. figures are out on friday. and those are some of the stories we’ll be following here in asia. back to you.

>> and to find out what they’re going to be following in london, mark barton put together this preview on european action next week.

>> now earnings will again set the tone for the markets as some of the world’s biggest companies are expected to release quarterly results both here in europe and in the u.s. a string of disappointing numbers from companies like sony, novartis, ebay, ford and motorola raising concerns corporate profits are slowing down more than anticipated. to kick the week off on monday, we’ll get more details from infineon after earlier this month the chipmaker warned that profit and sales for the last quarter missed estimates. it’s likely to say it will cut costs and reorganize to cope with high inventory and the falling u.s. currency. quarterly earnings due from s.a.p., the business software maker, spanish bank bbva on wednesday, see men, phillips, notebook yarks astrazeneca will have to wait until thursday. european stocks have been outperforming their u.s. counterparts over the last five months. thomson financial says earnings growth in the final three months of 2004 probably slowed to 16.2%, compared with 16.8% in the previous quarter. prospects for higher revenue are less. the chief executive of many of the companies reporting will be in davos this week and we’ll try to get a sense of whether there’s a consensus among them about the outlook for this year. and a speech in frankfurt, european central bank president is expected to say falling oil prices have improved the out look for economic growth and inflation this year. that’s in the 12 countries that use the euro. only significant data on monday comes from italy with retail sales for november and from the where we have the latest on car sales and the ernst & young report on the u.k. economic and u.b.s. may tell investors in a conference call that costs will rise this year. that’s’ all coming up next week.

>> a dramatic finish from mark barton in our london bureau. well, in this week’s “money and sports,” the biggest, baddest bowl of them all, the super bowl. we’ll tell you why futures traders, sports futures traders are changing their bets on who’s going to win. all that and more in “money and sports.” that is a good catch. you have to give it to him.

在线播报
Listen Interview: Medicare & Medicaid services
>> welcome back to the “world financial report.” i’m matt nesto. let’s show you what happened on wall street today. three losers for the dow, the s&p and the nasdaq. in fact, three weekly losses as well. we’ll focus on today. your seven, six, and five tents of a percent lower respectively. and social security reform may whether getting all the headlines, but analysts say that medicare and medicaid are an even bigger and costlier problem. medicare truss tees say it could be brunt in less than 15 years. yet just starting up. there is a new medicare drug benefit that will add billions in costs. michael mckee spoke with mark mcclellan, the administrator for the centers for medicare and medicaid services.

>> we’re really focused on getting the drug benefit and the other improvements in medicare implemented successfully this year. medicare spent the last 40 years getting behind modern medicine. it has been behind on preventive care, it has been behind on coordinating care with people with chronic illnesses and has been behind on drug coverage. you can’t have a long-term sustainable coverage that’s not delivering care that reflects modern medicine. so, why we have medicare benefits up to date and that will help us make the program more sustainable for the long run. and that is our first focus for the year. i do want to emphasize that the medicare law has provisions in it to get congress and the president to work together on steps on making sure the program is sustainable. but the first thing we need to do is get those benefits up to date. so, it is a truly modern program.

>> one of the things that has been proposed is testing. they say that people that have money don’t necessaryly need the government to pay for their prescriptions. do you think that’s fair?

>> we can’t afford to pay for first dollar coverage for everyone. we want to make sure we have access to modern medical care for all seniors and all people with disabilities, but increasingly that means that we need to work with the beneficiaries themselves who have means in order to get the coverage that they need. the new law includes provisions for an income-related premium in medicare. that’s going to start in 2007 and the new medicare drug benefit is much more comprehensive for low-income beneficiaries. all beneficiaries are going to get access to drug coverage, but the higher income beneficiaries can use it to wrap around or coordinate with their employer coverage or use it to coordinate with crixes they’re making themselves. we’re already taking steps in this direction to get seniors access to comprehensive coverage but rely more on help from the seniors themselves as the means to do so to help pay for that coverage.

>> we’ve seen in the past that when medicare offers a new benefit, companies sometimes cut back on what they offer in their pension programs for retirees. what are you doing to try to prevent that?

>> what we’ve seen over the last decade or so, mike, is companies cutting back on retirement benefits generally and one of the key goals of the medicare law is to provide some support for a partnership with employers to continue high-quality retiree coverage. in the new medicare ruleses that we’re issuing today, we provide a lot of details on how we can work with companies in many ways to help them continue high-quality coverage that has been on its way out. and we project that many millions of medicare beneficiaries are going to be able to take advantage of some new subsidies for more affordable comprehensive care, coverage that has been threat nnled recent years.

>> the regulations you put out today essentially set the stage for companies to start participating in the program. one of the questions that’s come up, though, is would you reject companies that don’t offer big enough discounts?

>> we are looking for companies that offer big discounts on the medicines that beneficiaries need. they provide access to a comprehensive set of brand name drugs and generic medicines. we’re setting up a competitive system, one that works very much like the federal employees health system does today and we think that the competition is going to drive down the prices. not just our view, it is the view of independent analysts at the congressional budget office, our actuaries’ view, many others who look at this program, it is the best way to get low prices t. companies that are going to succeed in offering these drug benefits will be the ones that give seniors the medicines they need at the lowest possible cost.

>> just have less than a minute here. some people have said that the president can’t do anything on social security unless he makes this program work. are you confident going into it?

>> we are confident. we met every milestone in just the 13 months that this law was passed. we now have a clear pathway in place for getting the drug benefit delivered in 2006. we’re getting preventive benefits, we’re getting a new prevention-oriented medicare program in place in january 2006. it’s a great foundation to build on with social security benefits that are up to date and coverage that’s up to date generally for seniors.

>> all right. that was, of course, the administrator, mark mcclellan of medicare, speaking to mike mckee. well, one earnings―in fact, two earnings stories combined into one here. sovereign bancorp and wilmington trust both reporting better than expected profits as the regional banks benefited from rising interest rates, which allowed them to charge more for loans.

>> we exceeded our net interest margin goals, grew net interest income about $24 million from third quarter level and that certainly helped us make our earnings numbers for the fourth quarter.

>> rising stocks also helped them earn more from their investment portfolios.

>> our investment portfolio is designed to produce liquidity for our organization and about one third of it rolls over every 12 months. so, if you get into a rising rate environment, you have the ability to reinvest those maturities at higher yields.

>> he forecasts that rising rates will increase the profitability of loans even more this year. well, labranche company turned in a profit in the fourth quarter thanks to 57% increase in trading volume at the new york stock exchange. labranche, of course, the biggest market maker or specialist firm at the big board. official lynette income, 15 cents a share, double―more than doubled expectations. in fact, went up from a huge loss a year ago that was sparked from writing down goodwill and settling a regulatory probe. revenue up 18% to $83 million. well, earnings season is gathering steam here. we’re going to have a preview of what’s likely to move markets in the asia pacific region. they watch us, we watch them. details on that next.

Interview: G.E.
Nasdaq --- Robert (slow)

>> all right, folks. we’re back. general electric poses a rise as fourth quarter profits, acquisitions and demand helping to drive the biggest sales gain since jeffery immelt took over as chief executive. greg miles has this report.

>> a very optimistic c.e.o. jeff immelt on the conference call today saying we enter 2005 with a lot of momentum. he sees a broad-based recovery for many of g.e.’s businesses in the year 2 thoid 5 and much of that based on what we’re seeing here in the fourth quarter, the latest announcement this morning. earnings per share came out at a penny ahead of expectations, at 51 cents a share. revenues quite impressive at $43.7 billion, that was $800 million better than analyst forecasts, up 18% in the fourth quarter. now most analysts were forecasting a gain in revenues of only 14%. we must keep in mind that this includes a lot of acquisitions in 2004 to help the company in 2005. now let’s look at the specific businesses, how they did in the quarter. by the way, orders up 19% during the period. very strong. advanced materials, essentially plastics, profit gain of 2%. commercial finance up 12%. consumer finance reflecting the strength of the consumer across the u.s. and the world, profits up 26% and consumer and industrials, a grab bag, including the appliance business, washing machines, etc., profits up 32%. much higher than many analysts forecast. now let’s look at two business lines or segments that are benefiting from acquisitions. health care, profits up 50% from that amersham acquisition, helped by that acquisition. nbc universal, profits up 60%, again benefiting from that vivendi acquisition early last year. now let’s take a look again at two businesses that really had problems in the past few years, which hurt g.e.’s business. this is transportation and energy. transportation up 22%, as far as profits. but energy, that’s powers turbines for utilities, their profits are down 21% for the quarter, reflecting continuing problems with that business. but a number of analysts and also mr. immelt forecast that this business is going to have earnings gains of more than 10% in the year 2005. also mr. immelt confirming today his forecast of 10% to 15% per share profit growth for 2005 and also continuing progress in 2006. greg miles, bloomberg news.

>> there’s g.e. today. you’re down 24 cents, works out to .7 of 1% the past 12 months. the stock is up about 3.5%. if you stir in dividends, that brings the total return up to 6.5%. the nasdaq fell to its loast level since november 4. robert grey has details on the trading today with this report from the nasdaq market site.

>> it was earnings concern and higher crude oil prices that sent the nasdaq to that lowest level since early november, finishing the session on friday afternoon at just about the lows of the day and, of course, for the week as well. talking to the strategist over at cantor fitzgerald telling me that there’s just not enough excitement about earnings forecast for the first quarter to lift stocks and send them on a rally. says that even with microsoft coming up, that microsoft just doesn’t have the will to carry the market on its back. it’s just not enough recovery of exex spending late last year and early this year, they’re not pointing to enough capital spending to send tech stocks higher, particularly here on the nasdaq. we did see crude oil prices rising on friday and that send the transports down lower, almost in direct correlation, as crude gained the transports here on the nasdaq falling. some of the airline stocks getting hit the worst. you had jetblue, northwest airlines, also frontier airlines falling. we did see ebay was a big sorry this week, had disappointing earnings out this week, getting downgraded by six different analysts on thursday. by friday, the stock turning around, bouncing off the lows off one of its worst sessionings ever as a publicly traded stock and raised to a buy at legg mason with a $100 price target on it. if you think about it on thursday, it opened above $100 a share. so, there you have that. and sirius satellite radio also rising, one of the biggest gainers in the nasdaq00 on friday, extending its nonexclusive contract to air nba games and the stock rising on that news. there are also a couple of i.p.o.’s on friday. c. bryant insurance holdings began trading. gaining 15% in tide’s trading and viacell, gaining 24% on its first day of trading on the nasdaq. i’m robert gray.

>> lam research out with some mixed results. they had better-than-expected earnings, but the revenue was a little bit light. the chief executive says he expects orders to be down 15% to 20% this quarter as well.

>> i think that’s a reasonable assumption that we’ll be weaker in the first two quarters of this year than we were, say, the last two quarters of 2004 then we’ll begin to see strength in the last half of 2005.

>> he says companies will have to spend for new technology later in the year and he says lam continues to have pricing power.

>> i think we’re in a pretty good position. our products are in a leadership position. they are providing capabilities that our customers can’t get from our competitors. so, i think that we’ll be able to price reasonably.

>> the stock up 1.5% today, over the past year up―excuse me, down 20%. well, oil prices on the rise again. you can blame a lot of things -- freezing cold weather in the northeast, elections approaching in iraq, supply concerns. we’re going to wrap up the commodity prices and see how we end it next.
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Listen Market briefing --- Matt (slow)
NYSE --- Julie (slow)
Earnings report --- Su (fast)
Powell's decision --- Peter (fast)

>> this is “world financial report.” i’m matt nesto. thanks for tuning in here. let’s talk about wall street and how we did this friday, shortened week of trade. just four days because of the holiday. monday, martin luther king day. you see the dow down three quarters of a percent. 765, we’ll call it that. volume at the nyse, 1.6 billion shares and to the nasdaq we go. they did just about two billion there. pretty much evenly split there in terms of rising stocks versus those on the slide. university of michigan’s gauge of consumer sentiment slipped this month. a preliminary survey has the index down more than a point from december’s reading. it is the first drop in three months. it is alsos the 15th month, though, with a reading above 90. that pushed treasuries higher today. bonds, check it out. 4.4 -- 4.14% of debt, up 5/32. in the middle, you are up 6/32 on the five-year note and the shorter end of the curve, two years of debt now at 3.14%, up 3/32. that consumer confidence number weighed on the dollar, plus technical indicator, a signal a rise in the euro. how does it play out? you bought less yen for your dollar, in fact less than 103. you see the euro and the pounds both up versus the dollar. sox dropped for a third week in a row this week. for more on the trading today, let’s get this report from julie hyman at the big board.

>> a losing session for stocks today to cap off a losing week. let’s talk about some of the statistics to describe today’s session and also 2005 to date. first of all, the s&p 500 and the dow jones both closing at their lowest since november 10. the dow with its declines for the year-to-date now has wiped out all of its gains from 2004. it is down 3.6% for the year. only five stocks in the dow rose in today’s session. also want to note that this is the third weekly decline for both the dow and the s&p. we haven’t seen a start to a year like this since 1982 for the dow and 1990 for the s&p. although the dow did end up finishing 1982 higher where the s&p finished 1990 lower. i’ve been talking to investors to try to figure out what’s going on? why have we seen so much selling? ? and there is a lot of confusion, people scratching their heads why this is happening. i talked to edgar peters and he says it is a bit of a mystery what is going on here. people seem to be waiting for a catalyst to come into the market . it’s not clear what that catalyst might be. however, he and other folks i talked to caution that three years does not a year make. we shouldn’t necessarily take this three-week decline to be a precursor of what we could see for the year overall. also in today’s session, another factor for the drop we saw was the rise in price of oil. because of airline stocks hit hard today, the amex airline index down more than 3.5% and earnings that reported their earnings this week said the fuel costs hurt their bottom line. we saw all of those stocks depe declining in today’s session along with the group. some of the other declines in today’s session, if you look at the groups doing the worst, household makers, auto stocks and hotel restaurant and leisure, spread across various industries and the biggest decline we saw in the dow today, again only five stocks higher, 3m, pfizer, procter & gamble, and boeing leading that list. i’m julie hyman, bloomberg news at the new york stock exchange.

>> well, earnings season going to get really going next week. investorses will hear from about one-third of the s&p 500 companies next week. that means by this time next week we will have heard from about half of the s&p 500 companies. what is it looking like so far?

>> so far we have 15% of the companies reporting and while it’s still early in the season, two trends are emerging. a great than average number of companies are exceeding estimates and yet many of the same companies are sowning more cautious than expected on outlook. motorola kicked off the week on a bullish note saying profit surged by more than one third and then disappointed analysts and investors with a more conservative forecast. ebay will likely remain one of the biggest earnings stories of the quarter. remember after fourth quarter profit rose less than expected, it cut its first quarter forecast. today’s shares rebounded from yesterday’s 19% plunge. that’s the second biggest one-datummable in the history of the stock. now according to analysts surveyed by thomson financial, earnings growth in the final three months of last year probably slowed to an average of 16.5%. that’s down .3% from the previous quarter and in the view of r.b.c. dane rarbger’s analyst it sounds a theme for 2005 -- falling growth. >> we’ve had four out of the last five quarters at 20% year-over-year earnings growth and what we’re running into right now is that companies are starting to have a tougher hurdle compared to the fourth quarter of 2003.

>> well, let’s go to the score card of the 114 s&p 500 companies that have so far reported first quarter results, about 66% beat analyst estimates. 17% missed and 18%, they matched. well, for comparison on an average basis over the past decade, 59% of companies typically exceed expectations, while 20% trail and 21% are in line. again, that is according to figures from thomson financial. same company also projects first quarter earnings will rise 7.8%, compared with last year and that’s a boost from their new year’s day projection. estimates come down as the quarter progresses. the president of merrill lynch investment expects the overall earnings performance to be a plus for the market .

>> our view is profits will be good enough, but not as good as the consensus. long-term earnings growth in the u.s., seven. if we get a 7% growth rate on top of two 20% years, that would be great news.

>> he’ll take it. here’s news for you. among the earnings out next week, merck, american express, procter & gamble, merrill lynch. you can probably come up with 100 names, but gotta go.

>> time is tight. thank you, su. appreciate it. here’s news for you. after four years atop the federal communications commission, michael powell is stepping down as chairman. officially in a statement this afternoon, powell confirmed a widely speculated resignation, saying he’ll leave effective some time in march. bloomberg’s peter cook is in washington with more on powell’s decision and possible replacements. peter?

>> and michael powell’s four years as chairman of the f.c.c. will be remembered for his not always successful effort to further deregulate the communications industry. in his statement, powell thanked the president for the opportunity to serve, adding, quote, having completed a bold and aggressive agenda, it is time for me to pursue other opportunities. let someone else take the reigns of the agency. now powell said the seeds of his policies are starting to blossom. his statement cites the expansion of broadband from 5.1 million homes in 2000 to 34.1 in 2004. and advances in digittal technology and the create of the do-not-call list. support s say he never strayed from his push for deregulation.

>> michael powell was the rarest of species. he was a rational regulator who really did believe in free markets . he stressed capitalism over central planning and he pushed that vision in all of the things he did for the most part while he was at the f.c.c.

>> now powell, however, sometimes faced resistance within the f.c.c. on occasion. also within congress and the courts. most notably he failed to overcome legal challenges to rules he advocated that would have allowed more media consolidation. one commission democrat says powell accomplished a lot, but concedes they did not always see eye to eye.

>> i certainly enjoyed working together. we didn’t always agree on everything. media ownership was an area that we had a major division, as to whether or not we should allow large media companies to grow even larger. we agreed on some thing, like wireless. we made progress on making spectrum available.

>> now the two republicans remaining on the commission, kathleen aber nah thi and kevin martin are possible replace. s. michael gallagher and rebecca klein will also get consideration. one person not upset with powell’s departure? howard stern who called today a great day for broadcast. powell’s policies cost viacom a record $3.5 million in november. matt?

>> thank you. appreciate it very much. also out today, we have results from general electric. the profits surged nine of 11 of their main business units showed increases of at least 10%. we’re going to break down general electric’s numbers when we return.