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Interview: Adobe

>> in asia, investors wait for numbers on the nation’s trade surplus. we have a preview.

>> japanese exports probably slowed for a second month because demand for the nation’s flat-panel displays, computer chips and cars cooled. imports probably rose after rising oil prices lifted costs. that gain, combined with slowing exports, may mean japan’s trade surplus narrowed. economists surveyed by bloomberg expected surplus change to $9 billion last month. the philippines releases trade figures on tuesday. two of japan’s automakers gives sales forecasts this week. honda updates investors on monday followed by toyota on tuesday. the companies are taking market share from ford in the u.s. after introducing new models. china is the world’s number two oil consumer and reports oil import figures tuesday. new zealand reveals third-quarter current account figures tuesday followed by third-quarter gross domestic product wednesday. economic growth will probably slow in new zealand. on thursday, expect consumer prices from hong kong and singapore. japan’s markets are closed that day for the emporer’s birthday. those are the stories we’ll be following in the coming week in the asia-pacific region.

>> bloomberg’s gene otani in tokyo. now we go to europe for a preview of the week ahead there. mark barton from london.
>> starting with corporate news, travel group returns to the high court to have its 800 million pound debt restructuring scheme finalizing. the u.k.ytow operator which bought businesses before september 11, 2001, has shed businesses, cut jobs and overhauled debt after losing almost a billion pounds. last month, it disclosed its financial position was too weak to satisfy the ungr u.k. industry regulator and the company is in a legal battle with bondholders. the u.k. provider of software to the world’s largest bank, missies―misys, saying they have continued to rein in technology budgets, hurting companies like misys. they were also hurt in the past three years by lower demand from financial services. turning to economic matters, in the u.k., releases a slew of data, including money supply and mortgage lending figures, according to hbos, u.k. house prices declined in november for the third month in four and are likely to fall next year for the first time in a decade. house prices have more than doubled in the last five years, fueling economic growth and gating - allowing gordon brown to preside over the longest run of expansion. consumer price and wage inflation data led some economists to rethink their views on the next direction in the u.k. rate.

>> it doesn’t look like broadband―bankruptcy will save yukos. a u.s. judge issued a restraining order to stop the sale for 10 business days. the ruling blocks banks and bidders from participating in the auction. russian officials the auction will still take place on sunday. yukos had filed for bankruptcy protection earlier this week, hoping to prevent the sale. baker hughes says the u.s. sec securities and exchange commission has asked the company about its participation in the united nations oil-for-food program. the company is in the process of responding it said in a regulatory filing. the oil-for-food program has been marred by alleged fraud, kickbacks and diversion of more than $17 billion by deposed iraqi dictator saddam hussein. baker hughes says last month it received a subpoena from a federal grand jury in new york related to sales of equipment to iraq from 1995 through 2003. coming up on this week’s “money & sports,” the national football league. will espn and abc extend broadcast agreements with the league? mike buteau will join us.

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Listen Interview: NYSE & Nasdaq

>> welcome back to “world financial report,” i’m michael mckee. recapping the day on wall street, a down day for the major indexes. dow jones industrials finishing lower 56 points, s&p 500 nine lower and nasdaq down by 11. after 18 years in the senate and 10 years as the democratic leader, tom daschle spent his last day on capitol hill. he was defeated for re-election in november after a highly partisan race by republican john thune. i spoke with mr. daschle among moving boxes at his office in the capitol and we discussed major issues facing the next congress, such as tort reform and campaign finance reform, as well as a discussion about his career plans.

>> there is no doubt that this administration and both the republicans in the house and senate will push tort reform in many different iterations in the month ahead. i don’t know how it will turn out. it depends on their willingness to compromise.

>> campaign reform, 527, something you have a lot of experience with after this last year.

>> i think 527’s play a role. i’ve always felt that campaign finance will always take new forms but there is almost no way to limit the amount of money that is spent in campaigns without a constitutional amendment. it’s right of free speech as interpreted by the supreme court and that will have to be addressed at some point. but 527’s are only the latest iteration. you can close them down but there would be another way with which money could enter the system and we have to anticipate that.

>> the president’s domestic agenda going into the next term, particularly making his tax cuts permanent, reforming social security and overhauling the tax code―any of those have a chance?

>> oh, i think they all do. i don’t know the degree to which democrats are going to be in a position to fight some of these things if they go too far. the deficit is so large, the debt is growing by leaps and bounds. we’re more and more indebted to foreign countries as we finance that debt so to make the tax cuts permanent, which is about a trillion dollars in additional governmental costs, is something i think we have to be very wary about. same with privatization. not only am i concerned about the benefit, i’m concerned about the tremendous fiscal impact this could happen, $1 to $2 trillion in costs to the federal government. we have to be very concerned. there are ways to solve the issues involving social security% -but i think it will take consensus.

>> before i let you go, your plans. i know you haven’t decided on what you’re going to do, but you have said you might be interested in the financial services industry. what would you like to do there?

>> i’ve always been fascinated by the investment world, the financial services industry in particular in this country because it’s been really one of the giants of international community. and i’ve had the good fortune of serving on the finance committee as i have these many years to work with a lot of the private investment houses and i would enjoy very much, i think, having the chance to work on the investment side of the business.

>> i also asked senator daschle about any regrets he might have had during his tenure in congress and what he has to say to those americans who are disillusioned by politics.
>> in retrospect, do you regret not running for president?

>> i have no regrets. i feel life has been good and i’ve had the benefit of a tremendous opportunity in public life and so i don’t look back with any regrets whatsoever.

>> some people come up here and stay their whole lives, some people stay a term and leave. do you think now that you’ve had a chance to reflect that 18 years is enough?

>> absolutely. i’m not―i have no regrets about leaving. my regrets are only involving my relationships with my colleagues, my friends. but i expect those relationships to continue, just a different iteration but i’m looking forward to life ahead and the challenges life will present.

>> i assume―you have a house in south dakota, your wife has an important job here. are you planning to stay in the washington area?

>> we’ll probably go back and forth. i wouldn’t be surprised if i find myself in new york a little bit more. but south dakota will always be our home. we’ll have a home here, as well. our children and grandchildren, besides my wife’s position, will keep us here.

>> let me ask you one last question, a lot of people feel you can’t really expect much out of congress because special interests, special interest money purchases everything. what would you say to americans now that you’re leaving about that, people who are disillusioned by what they see up here?

>> i think that democracy has a lot of flaws and this republican, in particular, reflects those flaws in various ways. but it’s still the best system of governance we’ve ever developed and the only way it can be improved is if people participate. i was encouraged by the level of participation this year. but involvement, participation, not delegating the responsibility of governance to others, that’s the only panacea to whatever ills we may see in the system today.

>> senator tom daschle, outgoing minority leader. currency and fixed income markets have closed for the week. checking on how they finished, the 10-year note down about 1/8. stay with us on “world financial report.” we’ll have much more ahead. we’ll look at what’s going on in europe and asia in the coming week.

Interview: Adobe

>> adobe is one of the biggest drags on the nasdaq after the company reported earnings and issued its forecast for the next quarter. oppenheimer analyst said the forecast is good but the numbers aren’t good enough. for the previous quarter, net income jumped to 45 cents a share. chief financial officer murray demo discussed the performance with suzy assaad.

>> we had a record revenue quarter for the company, we grew 20% in the quarter and finished a record year for the company, as well, growing 29% in revenue and 69% in net income. the strength is driven by the creative suite and momentum of acrobat. we see strength in the u.s. and europe. as far as the stock price, that’s difficult for me to comment on.

>> for that particular period of sales, i understand creative suite made up 61% of your sales, is that correct?

>> over the course of the year, it actually grew 66% on a year-over-year basis. it saw tremendous results,. 38% of our total revenue coming from the creative professional segment.

>> how long do you think that momentum can continue for that package?

>> for 2005, the targets provided that we reaffirmed yesterday, 11% to 14% revenue growth in 2005. we’ve talked about the launch of another version in 2005, the creative suite, quite a bit of innovation we’ll have in that and we look forward to strong results in 2005 with that set of product.

>> your stock is off today by 3%, over the last two days is down 5%. what would you attribute that to, mr. demo?

>> again, that’s difficult for me to comment on. i can only comment on what we’re doing as a company and we’ll let the financial markets make decisions in terms of the value of our stock price.

>> maybe we can get you to comment on your balance sheet. you have $1.1 billion in cash sitting on the balance sheet. what will you do with that much liquidity?

>> we’ve generated a ton of cash this past year. we have a leveraged operating model, a strong cash flow generator. when we have excess cash, we have used that for stock repurchase and we’ve repurchased about 125 million of stock in the fourth quarter and we look to continue to do that in subsequent quarters.

>> any chance of increasing the dividend?

>> it’s something we continue to discuss, obviously, at a board level with the change in the tax rate, increase in the dividend is certainly something you see in the news. but right now we believe stock repurchase is the most efficient way to return excess cash to shareholders.

>> your balance sheet indicates significant sales growth, the stock is up significantly for the year. you’re relatively debt free. and notions of converting all of that into a strategic acquisition for adobe?

>> well, we continue to look in the marketplace. right now, what you’re seeing is the consolidation in the software industry primarily driven by customers. customers want fewer but broader relationships with software partners so we’ve looked at the market space and have done some small acquisitions this past year and we’ll continue to look at that. in terms of a larger transaction, we would have to be convinced it was truly strategic and we could be successful with the integration.

>> that was the chief financial officer of adobe, murray demo. turning to retailing, jo-ann’s stores has sewn up the leadership in the fabric marketplace. the company’s stock soaring nearly 200% in 2002 and has continued to rise in 2003 and 2004. alan rosskamm, c.e.o. of jo-ann stores, talked to us about sales going into christmas.

>> we had improved results in november, our problem to some degree has been traffic and we’ve hit that head on by increasing the circulation of direct mail promotions and extending our hours in the christmas season longer than last year. our stores are busy but it’s too early to say how christmas will come out.

>> shares of jo-ann stores are up 32% for the year. looking at the week ahead, the markets are closed on friday next, the 24th, christmas eve, as wall street begins an early christmas. before that, we get more earnings reports, including two big names on wall street, bear stearns and morgan stanley. this year, wall street’s top investment firms are expected to report record earnings. on the economic front, we get data on leading economic indicators, personal income and spending, durable goods orders and weekly jobless claims. most economists we surveyed say durables orders probably rose, which would mean there’s still strong demand for factory products. as consumers do their holiday shopping, we’ll get figures on retail sales. so far, sales growth slower than it was last year. later, we’ll look at what’s ahead next week in europe and asia. coming up, we’ll hear from new york attorney general eliot spitzer. vanity fair labeled spitzer public enemy number one on wall street.
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Listen Interview: NYSE & Nasdaq

welcome to the “world financial report,” i’m michael mckee. let’s get to the numbers as we close out this week. the dow jones industrials, s&p 500 and nasdaq all finishing lower for the week. the dow down today by 56 points, s&p 500 down by 9 and the nasdaq closing almost 11 points lower. pfizer was the most actively traded stock at the new york stock exchange today. also, the worst performing stock among both the dow industrials and the s&p 500. bob bowden has details from the new york stock exchange.

>> thank you, michael. after pfizer said the celebrex painkiller more than doubled the riv of heart attacks in a study, shares falling 11% in extremely heavy volume. 10% of the new york stock exchange volume on the day attributable to pfizer. mostly a generally upward trend to the intraday chart. eli lilly saying it added a safety warning to the label of its attention deficit drug, straterra, after two people taking the medicine suffered liver damage, and those shares down over 2%. astrazeneca, a.d.r.’s down almost 8% on the day. other drug stocks , generally selling across the board in the likes of novartis, bristol-myers and schering-plough. pfizer was the worst performer in the s&p 500 today and the second worst performer was leggett and plat, a missouri company that makes bedding furniture, forecasting earnings at the low end of previous forecasts and shares down 8%. this time of year, many investors are watching retail closely. sobering news from circuit city. the c.e.o. said he was disappointed with the company’s third-quarter sales and is cautious about the fourth quarter, adding this about last quarter. best buy shares down 2.5%, radioshack down over 2% on the day. while they may not be buying electronics at circuit city, they are buying shoes. nike reported fiscal second-quarter earnings higher than analysts’ estimates and nike shares up on the day. another winner on the day, las vegas sands. the stock began trading wednesday and rallied again today, finishing at the high of the session and high of its lifetime, up 8% on the day, rising 60% on wednesday in an i.p.o. of $29 a share, rose 60% on wednesday, its first day of trading. 5% rise yesterday and it rose 8% today. michael mckee, back to you.

>> bob bowden, thank you very much. computer shares, bank stocks , two of the industry groups leading the nasdaq lower today. june grasso has details from the nasdaq marketsite in times square.

>> computer shares are one of the groups leading the nasdaq lower today. let’s look at palmone, the world’s largest maker of handheld computers, had their largest percentage loss this year after the company forecast third-quarter profit and sales that may miss analysts’ estimates. palmone was downgraded at merrill lynch and cut to underperform at bear stearns. adobe systems also falling, world’s biggest maker of graphic design software, saying fourth-quarter net income was 45 cents a share, more than the 42-cent average analyst estimates. but oppenheimer and company analyst explained the drop by saying that adobe is already an expensive stock and they need to give numbers that are not only above where the street is, but a lot above where the street is. apple computer, yesterday it was one of the best performing members of the nasdaq 100 on news of the storage of ipods in the holiday shopping season, today, it was one of the worst performing members. the banking group was one of the worst performing groups led lower by hudson city bancorp. its majority shareholder is to be merged into the company. fifth third bank and northern trust also lower. northern trust cut to market perform at ryan beck after a recent runup. the nasdaq biotech index is the only group that has been consistently positive all day, led higher by o.s.i. pharmaceuticals, surging on news that its competitor, astrazeneca’s lung cancer medicine failed in a study. i’m june grasso, bloomberg news, at the nasdaq marketsite in%  times square.

>> checking oil prices, now, the almost 14% gain for the week is the biggest in almost five years. new york crude finishing up $5.57 for the week at $46.28. there’s speculation that below normal temperatures will boost demand for heating oil and supplies have fallen. other energy futures on the week -- more now on our top story, pfizer, world’s largest drugmaker, lost $24.3 billion in market cap in u.s. trading today as shares plunged to a six-year low as the federal government halted a study of pfizer’s celebrex after finding the painkiller caused an increased rescue to the―risk to the heart. in a conference call, executives at the cancer institute, the f.d.a. and the national institutes of health, said investigators would try to gather data on whether celebrex helped prevent colon cancer. in addition, they said no decision had been made on whether to recall celebrex or require a new warning label and advised doctors to consider using alternative drugs for patients on celebrex and decided to notify all researchers and get consent from all patients in other trials testing celebrex for various conditions. pfizer says it has no plans to withdraw celebrex. pfizer c.e.o. said the negative result was unexpected and inconsistent with other research. “we believe the ultimate value of celebrex and bextra will be proven by its use in millions of patients and the impressive record developed for both drugs surrounding efficacy and safety.” t. rowe price with/32 million pfizer shares, money manager kris jenner says the company could lose $1 billion in sales next year. the company sold $1.88 billion worth of celebrex in 2003.

>> there’s undoubtedly going to be sales declines in the pfizer world wild cox-2 franchise, the question is, to what extent. i just think that―we think there will probably be a billion or so less in sales in 2005 than in 2004 specifically related to this franchise.

>> regulators in the u.s. and europe were already looking harder at the class of cox-2 inhibitors. merck pulled vioxx off the market in september. investors may see today’s closing price as a blessing. pfizer stock fell as much as 24% on the news before ending the day down 11%, 25% for the year. moody’s cut its outlook to negative from stable on the news but kept its triple-a rating on pfizer. standard & poor’s confirmed its triple-a rating for pfizer. adobe was one of the biggest drags on the nasdaq today. when we come back, we’ll take a closer look at the company’s performance and hear from the chief financial officer.

Interview: Asia Pacific markets

>> 912 9:12 a.m. in sydney, a dry wednesday, sunny breaks increasing throughout the day with the high temperature of 23 degrees celsius. trials for those accused of war crimes in iraq tops world news. ron madison joins us from tokyo.

>> iraq’s interim prime minister says the war crimes trials will begin next week. in a televised address, iyad allawi says the trials will begin so justice can be done in iraq. he didn’t specify if saddam hussein would be among the baath party officials to be tried. despite allawi’s comments, government leaders have recently said the special tribunal is not ready to begin trials yet. elsewhere in iraq, a car bomb snrods explodes near a checkback that led to the green zone, leaving several dead, including a member of iraq’s national guard. the attack follows a blast yesterday at the same location. that blast killed 10 people. the green zone is a frequent target of militants. militants hoping to show that no part of iraq is safe, even the heavily fortified green zone. interim palestinian leader mucked mucked―mahmoud abbas calls for an end to the intifada, the uprising against israel. his most recent comments are his strongest since the death of long-time leader yasser arafat last month. abbas is the front runner to win january leadership elections. in turkey, a fire breaks out in a movie theater. rescuers fear some were trapped inside. it happened in istanbul. the associated press reports the theater was hosting an opening gala of a new film. rescuers say an unspecified number of people may have been trapped inside. that is the latest look at world news. back to you in hong kong.

>> thanks, ron. economists are already looking ahead to the fed’s next meeting in february. bloomberg’s latest poll of economists show most expect another quarter-point increase. su keenan has more from new york.

>> economists say they’re taking their cue from the fed’s latest statement that it’s keeping its plan to carry out future increases at a measured pace. alan blinder says the markets have come to define this as 25 basis points per meeting. the fed said in the latest statement “with underlying inflation expected to be relatively low, the committee believes policy accommodation can be removed at a pace that is likely to be measured.” william ford offers translation.

>> they’re saying stand by for more small increases as long as the economy continues to do well.

>> our latest bloomberg poll of economists in the u.s. shows agreement. the consensus is for another quarter-point increase at the fed’s february meeting. goldman sachs ed mckelvey says it’s too soon for the fed to stop tightening.

>> inflation is getting towards the spot where they would like to keep it. so at some point they’ll probably have to send the signal that says no more. as the growth rate slows, we think the fed will continue to tighten for that reason.
>> kirk cart with swiss re says the fed is less concerned about inflation and believes the fed will continue on its current path.

>> it’s not a big factor but i have it at a little bit higher than they do, 2% next year instead of 1.7. nevertheless, that just means the fed doesn’t have to go quickly to a neutral rate. and a measured pace is 25 basis points per meeting and that’s what i expect them to continue to do.

>> michael rosenburg, marvard management’s currency strategist, says the effects will be offset by the weakening dollar.

>> the weaker dollar helped the fed out and helped them nudge short-term rates higher today and going ahead into 2005. higher short-term rates, obviously, acts as a constraining force on the u.s. economy. but if you have a weaker dollar offsetting, the overall level of monetary conditions in the united states won’t be as tight.

>> another specialist disagrees and predicts the federal reserve will do nothing at the next meeting so it can see how the past five increases are affecting the economy. i’m su keenan, back to you.

>> thank you. general electric expects profit growth as much as 17% next year as new businesses spur sales. chief executive jeffrey immelt says the world’s biggest company by market value will return to 10% annual profit growth for the foreseeable future. immelt expanded g.e.’s business into healthcare and consumer finance while selling lower return units like insurance. immelt expects earnings of as much as $1.83 a share next year, up 17%. we’ll have more on currencies and how the dollar has performed after the break.

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Listen Interview: The Tankay Survey

welcome to “ live” from hong kong. i’m catherine yang. the fed in washington and the b.o.j. in japan top our coverage today. full fed coverage is coming your way, including a live report from new york, what it means for asian markets and live discussions with a currency strategist and u.s. investment strategist. we’re gearing up for the bank of japan’s influential tankan report and preview the quarterly survey of business confidence in a moment and bring you the numbers when they break in just under two hours, including reaction from two guests in tokyo. the federal reserve indicates more rate increases to come after raising its benchmark interest rate by a quarter point for the fifth straight time to 2.25%. alan greenspan and the rest of the fed governors kept the same wording in their statement that more increases will be at a measured pace and signaled inflation is under control. several fed members pointed out earlier this month higher oil prices, improving labor market and weaker u.s. dollar were inflationary concerns. we’ll have more details from new york in 10 minutes. the dollar’s rally against the euro stalled, reversing course after the fed signaled inflation is contained, an indication it won’t get aggressive on interest rates. the dollar held on to gains against the yen. a report indicating the u.s. trade deficit widened to a record $55 billion in october failed to weaken the dollar, even though it came in bigger than expected. the 10-month total topped half a trillion dollars, also a record. on wall street, stocks extend gains after the fed rate increase. technology shares lifted the market. the dow and s&p 500 closed .4% higher, the nasdaq rose .5%. investors were encouraged by m&a news. shares of veritas rallied on reports that symantec may purchase veritas. the 10-year note rises after the fed says inflation remains tame. asia stocks rising in u.s. trading, the bank of new york indexes tracking asian stocks rose, nikkei futures pointing to a higher start when the tokyo stock exchange opens in two hours. the bank of japan tankan survey may add to concerns that the economy is faltering. economists expect the tankan survey to show japan’s largest manufacturers are becoming less optimistic. gene otani is standing by with a preview.

>> the tankan means short term economic outlook and is the most closely watched index of business confidence in japan and asks companies like toyota, sony and canon about outlooks for sales and profits and spending. economists we surveyed say japanese businesses may be less confident partly because of the stronger yen. companies like mitsubishi gas chemical may say further yen -- gains in the yen against the dollar may hurt earnings. bank of japan governor toshihiko fukui adds that oil prices are also a risk. fukui predicts growth to be sustainable. some economists agree, saying business investment may pick up as companies improve finances.

>> companies are minimizing debt. that process is ending. it’s not over yet but and companies came out april last year and now the balance sheet problems are over, that stimulates all the other companies to follow suit because you cannot just pay down debt when other companies are already out of the tunnel, grabbing for new market. so that part of the recovery will continue.

>> investors will also watch out for a report on confidence from banks, retailers and non-manufacturers to gauge where the domestic economy is heading. some economists say a record number of typhoons may hurt retail sales. wages have declined four of the past 44 months as companies replace full-time workers with part-time workers.

>> while the economic environment got better, when you look at the customers in stores and how they’re spending money, there isn’t a sense that conditions have improved.

>> we’ve been speaking to investors ahead of the tankan and money managers saying the economy is at an important crossroad. the ad said today’s tankan survey may provide evidence pointing to a rebound in domestic spending and consumer confidence. i’ll be speaking with the president of one retail outlet company. i’ll ask him about his assessment of japanese consumer spending.

>> thailand’s central bank will probably leave interest rates unchanged. economists we surveyed expect the bank to keep the interest rate at 1.75%. thailand raised rates in october. the bank’s decision is expected this afternoon in bangkok. also today, australia’s westpac banking corporation releases its index of leading economic indicators. singapore reports october retails. malaysia reveals inflation figures and the philippines report jobless figures. air china starts trading today, debuting on the hong kong stock exchange this morning and opened on the london stock exchange later today. air china will use the money to buy planes and cut debt. the airline sold more than 2.8 billion shares at $2.98 hong kong each. we’ll go to david tweed, our stock market editor in sydney. how are japanese stocks likely to react to the tankan survey.

>> we’ll have to wait to see what the number is. we expect a decline. but what’s important is whether the survey comes out better or worse than expected. the number we expect is 22. i think it’s useful to go back and see how the markets reacted last time. last time, october 1, we saw that the tankan survey number came in better than expected by about three points. and you could see that the topix and nikkei increased with a 3% increase in the banking index. today, depending on whether we’re better or worse, watch out for mitsubishi tokyo, mizuho financial. real estate companies did well last time because it’s about a reading for the domestic economy. another to watch is mitsubishi estate company, companies to watch depending on whether we’re better or worse when the market opens in japan.

>> what about the u.s. interest rate decision? what effect might that have on stock trading in the rest of asia?

>> we’re seeing an indication that the―if it wasn’t the tankan survey coming out today, that the nikkei would probably rise. the australian market is indicating higher. the key thing here is the comments about inflation remaining relatively low and the economist with prudential retirement saying he’s willing to bet inflation will remain low and thinks there’s a high probability there may be a pause. also in australia, glenn stevens from the reserve bank of australia, gave indications that maybe in australia there won’t be interest rate rises to come for the time being, that most of the work has been done in australia in terms of interest rates and the australian dollar has fallen on the back of that one, cathy.

>> thank you. after the break, more on the fed’s latest interest rate decision and a preview of what’s in store next year. our reporter is standing by in new york.

Interview: State Street Global Adviser --- Ned Riley

>> u.s. stocks rise after the fed raised rates by a quarter point. traders say the market sees the decision as confirmation the economy is improving. the careful wording of the fed’s statement indicates greenspan and colleagues will not surprise the market. for more on what that means globally, i’m joined by ned riley, chief investment strategist with state street global advisers. u.s. stocks rose on the fed’s decision, the nasdaq at a three-year high. why do you think markets reacted that way?

>> because of the predictability factor. clearly, the federal reserve met the expectation of the street. they raised 25 basis points in the federal funds rate. interestingly enough, that’s a substantial reduction from where we were in 1999 of 7%. the other factor had to do with the fed alluding to the moderate growth in the economy, almost the goldie locks scenario, and quiescence of inflation in the shorter and longer term. the real positive was the fact that the 10-year treasury bond declined in yield, substantially lower today, 4.2%, than it was in may at 4.9. so the market liked the predictability of it.

>> state street more or less anticipated the fed move. how have you tweaked your portfolio before the rate increase?

>> it’s interesting. if you look at the portfolio overall, what we’ve been investing in are stocks that actually are somewhat interest sensitive. the financial stocks , in particular, those that are dependent upon the rise in market value, are clearly one area we’re focused on. the other has to do with technology. we believe strongly that technology needs to lead the market and despite wall street’s opinion and negative opinion prevailing about technology stocks , we feel we’ve had good support so far and as long as the nasdaq keeps ahead of the s&p and dow jones, i think we’ll have a stronger market in 2005, as well.

>> where do you see the fed funds rate headed next year and which sectors would like to benefit given the trend in interest rates?

>> i think basically the federal reserve needs to curtail its activity in the first half. i look at the economy as being moderate in growth, no question about it, but it’s not speeding up sufficiently to generate 200,000 jobs. i think the fed has to focus on the fact that globally things are slowing down, that the u.s. economy is growing at maybe 3%, that payrolls growth in the united states is only between 100,000 and 125,000 jobs and the bottom line is we’re lacking the stimulus we had a year and two years ago. we don’t have tax cuts, rebates, margin brackets down anymore. we’re losing the stimulus we had to get the economy afoot. i think the federal reserve has to be careful in terms of how far it goes in terms of raising interest rates and creating a hurdle to growth in the economy.

>> which sectors would like to benefit given the trend in interest rates?

>> i think we’ll rotate into more defensive areas of the marketplace. i like the pharmaceuticals simply because they’re at the bottom of the list, the worst performers the last two years. all of the negatives are known about the group in particular. when you start to look at the prevailing opinion on wall street, it’s clearly negative. a contrarian by nature would say maybe pharmaceuticals will have a good chance in 2005. then there’s personal products, things like procter & gamble and household products that grow with the rate of the economy but still have earnings growth two or three times of the economy. that area looks pretty good. third, i like technology. i think we’re still in the midst of enhancing productivity, buying equipment for productivity gains and companies are learning that labor costs are rising too fast to put their money in labor and i think the bottom line is we are going to see a substitution of labor for capital.

>> ned, we have half a minute, how do you think global markets will react to the fed’s decision when they open for trade?

>> i think they’ll be on the up side. i think the predictability factor is there and the fed is clearly probably the only active central bank that will be raising interest rates for a while. if anybody else does, i think it’s catastrophic in that clearly global growth is not up to what everybody had anticipated. clearly, the e.c.b. needs to hold off in terms of raising rates. if not anything, i would suggest they may have to lower them. and the central bank interventions are going to continue because our trade deficit is still wide. we have a $55 billion monthly trade deficit, much due to goods coming into the country.

>> we have to leave it there, thank you, ned. ned riley of state street global advisers. jetstar began its first commercial flights this week. jetstar’s chief operating officer when we return.
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Listen Interview: The U.S. interest rate decision --- David Tweed
limo and he and the rest of the fed policymakers raise the benchmark interest rate at a quarter point and say they will continue to do so at a measured pace. japan’s manufacturers are becoming less optimistic about the country’s economic prospects for the first time in 18 months. the tankan survey is due out. investors speculate the fed’s comments on inflation mean the fed won’t take a more aggressive stance on interest rates. for more on the fed’s monetary policy and how it may affect the trading in asia, let’s go to david tweed in sydney. will the u.s. interest rate decision have much of an effect on stock trading in asia?

>> any indication that the u.s. may pause raising rates might be good for the rest of the market. we’re already seeing that the nikkei futures traded in chicago are indicating a higher open there and also australian futures are indicating the same thing here. robert daluchia with prudential, summed it up by saying he’s willing to say inflation is likely to surprise on the low side and there’s a high probability that either in february or march they pause and the australian central bank indicates they’re a step ahead.

>> it’s a situation we’re facing is not the same as the fed is facing. they’re coming from the lowest interest rate in living memory and needing to get back to normal. we’ve done most of that work, certainly, if not pretty close to all of it.

>> that partly explains why we’re seeing a decline in the australian dollar against the u.s. currency this morning, cathy.

>> in less than two hours we will have the tankan survey of business confidence in japan. how are japanese stocks likely to react to that report?

>> the key, when we’re looking at the tankan survey, is whether the number comes in better or worse than the expectations of economists who are expecting 22. last time, on october 1, when the tankan survey was person than expected, we saw japanese stocks rise led mainly by domestically tied companies. the bank’s index was up around 3% on that day. watch out for mitsubishi tokyo financial or mizuho financial, both could react high or low depending on whether the number is better or worse than expected when it comes out.

>> the u.s. federal reserve raised its benchmark interest rate by a quarter point. the vote to raise the overnight lending rate to 2.25% was unanimous. the statement said inflation is expected to be relatively low. for more on the fed’s decision, i’m joined by ken goldstien in new york, an economist with the conference board. what does the fed’s statement today tell you about the outlook for the u.s. economy?

>> it tells tells us more about where we’ve been than where we’re going. given the relatively weak employment report, i felt they must have needed to temper some of the language but given what’s happened to the p.p.i. and c.p.i. in october and november, it is clear that inflation is moving up and let’s keep in mind, one of the things that the fed is most charged to do is to fight inflation, not inflation right now, but inflation down the road. if these p.p.i. and c.p.i. numbers continue to edge up month after month in 2005, that could well be the big story in 2005.

>> given these concerns, what about the pace of interest rate increases next year? where do you see them headed?

>> i think they’ll continue on this road. i don’t think they will raise interest rates every single six-week interval by a quarter point but they will be busy and we could see interest rates a full point to point and a half or more higher this time next year than where we are. so in addition to the 125 point, already five interest rate increases in 2004, we could see still more, more than five in 2005.

>> the fed mentioned the labor market conditions are continuing to improve gradually. you said last month, labor demand going forward is relatively flat. has your view changed?

>> no, because the numbers haven’t changed, not in terms of job advertising in print or on the internet or even in terms of the unemployment insurance claims or announced layoffs so that some of the forward indicators of where employment is going certainly haven’t changed. what we could see is relatively weak employment conditions like what we saw in november. not that weak, but certainly less than people have been anticipating. if the labor market in the united states is going to turn up, that’s likely to happen starting in the spring and summer, not this winter.

>> is there any chance the fed may turn aggressive in raising interest rates next year?

>> well, you know, what we’ll do is more what happens on the inflation front than on the employment front so the pig question and not just for the fed, but across the board in terms of profit and employment and economic growth, is what happens to price in 2005.

>> where do you see the yields for the 10-year note by the first half of next year, then?

>> that’s one of the big concerns here because the fed has raised five times going from 1% to 2.25% while the bond market has bid the yield on 10-year notes down from 4.7 to 4.1, moving in absolutely opposite directions. that can’t continue. so if the fed is to continue to raise rates or even if they slow that down a little bit, that suggests that what’s going to happen in the bond market at some point in 2005 is that they’ll reverse course and bond yields will start to rise. that combined with what happens in the real estate market here as well as with respect to the exchange rate, could be good news, better news than otherwise would be the case, for stocks in 2005.

>> kenneth, greenspan’s made it clear that a weak dollar is necessary to cut the current account deficit. do you see the fed raising interest rates to close the current account gap, and if so, is there risk of recession?

>> there’s not a risk of recession in 2005. i think there’s more of a long-term consideration with respect to the current account and where interest rates have to go given what’s going on with the dollar so i think that’s not so much a consideration for what happens in 2005. certainly not in the first half of 2005. that’s more of a longer term consideration going south into 2006 -- going out into 2006 to 2008.

>> thank you, kenneth. after the break, i’ll speak with the chief investment strategist at state street global advisers.

Interview: Building materials stocks

It is approaching 13 past the hour in the city. the market open for 13 minutes and asx 200 up 22.3 points at 3929 and change. we did have the report earlier this morning regarding retail sales in the united states, an unexpected jump for the third straight month. u.s. retail sales, .1% gains aided by purchases of electronics and building materials, abating concerns that the christmas holiday season may be a depressed one. david tweed is in sydney this morning. how are the building materials stocks in that market reacting to that retail report?

>> australia has quite a lot of building materials companies that sell into the united states market. rinker gets about 80% of its sales in the u.s. market and its shares are reacting, up around about .3%. james hardie up nearly 1%, boral up .6%. boral makes home sidings in the u.s. bluescope steel up 1.4%. a gain of 2% for b.h.p. billiton. this is one of the world’s biggest copper producers. copper prices in new york up 2.2%. i might add, watch out for dana e.d.i. share, the big australian engineering company. a hong kong company, i.d.c. construction group, announced it will sell a stake of the e.d.i. shares. those shares halted at the moment and should start later today.

>> we’ll keep an eye on that one, too, paul-y i.d.c. one of the goals of the howard administration has been to lob off the rest of telstra on to the open market. is there any reaction in those shares this morning as the government invites banks to conduct a study into how to sell the stake.

>> just up around .4%. we wouldn’t expect a big reaction from telstra shares at this stage. what we do have is the government setting the stage for that share sale coming up towards the end of next year.
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Listen Interview: Oracle
fernando poe jr. dies after suffering a stroke. also coming up on this tuesday edition of the program, japanese bonds gain for the fourth straight section. heading into the government auction, we’ll speak with a strategist in tokyo whether he recommend into buying the offering ahead of the b.o.j. tankan report on business sentiment tomorrow. later, hong kong stocks come down from a four-year high earlier this month. we’ll speak with a brokerage manager for whether he’s advising clients to buy shares in the link reit, now embroiled in a legal battle. the other top stories this tuesday from cathy.

>> oracle wins the battle to take over peoplesoft. oracle’s chief executive larry ellison had to raise the offer to $26.50 to persuade peoplesoft to accept the bid. shares of both companies rose more than 10% on the deal. the deal puts oracle in the number two spot behind germany’s s.a.p. for software programs in business applications. the s&p rises to a three-year high on the oracle-peoplesoft news. investors were encouraged by a government report showing retail sales rose more than expected last month. economists we surveyed expected a drop. investor confidence on wall street is improving as more companies announce acquisitions. sprint and nextel shares gained after the “wall street journal” reported the two may finalize plans to merge wednesday in the u.s. the two parties agreed last friday to go ahead with the deal which analysts say is worth at least $thrive billion.  $35 billion. we heard honeywell may bee novar in the u.k. signs consumers are spending more may boost speculation the federal reserve will continue to raise rates. the fed is expected to raise rates for the fifth time tomorrow. the dollar ended three days of gains fell back to 105 yen. investors sold dollars on speculation a report will show the u.s. current account deficit widening. economists we surveyed estimate the deficit grew to a record in the third quarter, $170 billion. the dollar’s down 4.5% against the euro and 1.6% versus the yen since president bush’s re-election on november 2. oil is higher by almost .5%, mainly because of weather forecasts for lower temperatures in the northeastern u.s. that region consumes about 80% of heating oil used by homeowners. the oil market is skeptical opec will stick to its production quota. the last time opec kept its promise was in january 2001. oil prices have fallen 27% from a record $55.67. those are the top stories this morning.

>> asian stocks rose in new york trading, as well. some of the gaining issues included consumer products makers like sony and hitachi. we saw u.s. retail sales unexpectedly up for the third straight month in november. the bank of new york indexes that monitor the asian stock action all rose there. japan a.d.r.’s up 1%. nikkei futures pointing to a start close to 10,900 judging by the chicago mercantile exchange futures contracts, ahead of the asian derivative markets. a report says that canon is expecting at least 10% profit growth next year. “nikkei english news” says the world’s biggest maker of copiers expects to earn as much as $3.5 billion in 2005, marking the sixth straight year of record profits at canon. reported that toyota will start production of the prius hybrid car in china next year. the largest carmaker will work with china and the government to build the hybrid vehicle. australian business confidence likely fell in the month of november, coming as steel costs climb and the rising value of the australian dollar cut into exports. the reserve bank kept interest rates unchanged after reports showed slowing growth in australia. the confidence survey conducted by national australian bank is due this morning. the trading launch of hong kong’s property trust may be delayed. a government lawyer blames the hold up on a legal challenge. the government’s right to conduct the i.p.o. in the city’s high court is challenged, disputing the sale that drew $76 billion in demand by investors. the high court will make a decision on whether to approve the initial review of the government plan. if there is no decision this afternoon, it will impact the time frame of the launch. we’ll be watching this. steve engle will have more on story shortly. the philippine actor and presidential challenger fernando poe jr. is dead at the age of 65. a spokesperson says he died after suffering a stroke on december 11. he was known as the king in philippine movies and was persuaded to challenge gloria macapagal-arroyo in the presidential election earlier this year. he accused the president of cheating. fernando poe jr. dead at 65. a chilean judge indicts augusto pinochet, taking part in a plot to capture opponents, a plan known as operation condor. condor was a coordinated drive by governments in argentina, paraguay, brazil and other countries to silence opposition leaders. pinochet took power in 1973 and ruled until 1990. the judge decided the 99-year-old former dictator is healthy enough to face trial. in the united states, president george w. bush has named his choice to head the u.s. department of health and human services. bush named michael leavitt to head the agency. levitt has been head of the e.p.a. if leavitt is confirmed, he’ll replace tommy thompson, who announced his resignation on december 3. department of health and human services accounts for 1/4 of all government spending. a california jury has decided scott peterson should be executed for killing his wife and underborn son. the decision came from the same jury that convicted peterson of murder last month. juries deliberated for the third day today. the judge will sentence peterson on february 25. saddam hussein is not likely to be tried before the beginning of 2006. it emerges, saddam was captured a year ago. a security adviser saying the trial is too important and the court must get right the first time. a.p. says charge against him include the gassing of thousands of kurds and the invasion of kuwait. u.s. retail sales unexpectedly up for a third month in november. we’ll speak with our market editor in sydney about asian stocks likely to move.

Interview: Nasdaq marketsite

>>ukraine’s opposition leader calls for a national strike after the country’s disputed presidential election. paul gordon has details on that story. paul?

>> cathy, yes, viktor yushchenko and supporters say rail lines and airports should be blocked and schools and universities closed in the ukraine. yushchenko alleges fraud in the election board’s decision that prime minister viktor yanukovich won the presidential election. the authorities will not stop at anything, anything illegal to complete their ultimate goal, a political coup. i want to swear to you that my actions to combat the current regime will be more consistent and powerful.

>> the united states and germany also rejected the results. u.s. secretary of state colin powell warned of consequences for u.s.-ukraine relations if the vote count is not reviewed. gerhard schroeder says there has been massive electoral fraud. the election standoff as u.s. president george w. bush in opposition to russian president vladimir putin. putin spoke out in favor of yanukovich and said the official election results are valid. former central bank governor yushchenko wants closer ties with the european union. prime minister yanukovich wants closer ties with russia. he was picked as candidate by the ukraine’s former president. the united nations says the security council panel should be increased, recommended to be divided into the americas, europe, africa and asia. each group would have six members. the proposals do not dilute the veto power of the five permanent members of the security council, china, france, russia, the u.k. and u.s. the u.n.’s principal policy making body was last expanded in 1963. in the middle east, syria’s president says he’s ready to reopen talks with israel over the golan heights. the press says the united nations envoy met the syrian president in damascus to discuss piece peace in the region. the president reiterated he is willing to go to the table with israel without continues. syrian peace talks with israel collapsed four years ago. that’s world news.

>> thank you, paul. back to business. the nasdaq closes higher led by shares of apple computer. june grasso has that report from the nasdaq marketsite.

>> apple computer was one of the leading gainers by percentage on the nasdaq 100. it led the nasdaq 100 higher today. apple shares have almost tripled this year with the popularity of the ipod. the computer index has been one of the leading economic groups here at the nasdaq today. some of the top advancers there, in addition to apple -- microsoft, yahoo and intel. internet stocks in general have been advancing today on news of google. goldman sachs advised investors to buy the owner of the the world’s most used internet search engine, rating shares of% -the stock outperform in new coverage. the analyst wrote that the company will generate 25% growth in earnings per share from 2006 to 2009. internet stocks higher today in general. yahoo, ask jeeves, ebay, amazon. to the ongoing saga of oracle’s $8.8 billion hostile takeover bid for peoplesoft. a delaware cancery court judge said oracle must submit written briefs as well as peoplesoft and return to court for two days of testimony in december before deciding whether to invalidate peoplesoft’s anti-takeover defense. this comes five days after oracle won the backing of 60% of peoplesoft shareholders, contingent on the removal of the poison pill. some of the stocks leading the nasdaq 100 were education companies including career education, apollo group on news that devry adopted a shareholder rights plan in response to a possible takeover, allowing shareholders to buy shares at half price if 15% of the company is acquired. education stocks tend to advance and decline as a group. i’m june grasso, bloomberg news, at the nasdaq marketsite in times square.

>> after the break, the head of australia’s monopoly wheat exporter discusses its business strategy.
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Listen Interview: Retail forecasting
the f.b.i. investigates a.i.g.’s chief, hank greenberg. a person familiar with the situation says the fed is checking whether he improperly influenced the company’s stock price. u.s. stocks rise the day before thanksgiving. better-than-expected jobless numbers supported the market . u.s. retailers officially kick off the holiday shopping season friday, the day after thanksgiving, one of the biggest shopping days of the year. u.s. stores call it black friday. many of the products on the store shelves are made in asia but prices may not be as low as they were a year ago. for more on the outlook for u.s. retailers during this holiday shopping season, i’m joined by the president of retail forecasting in new jersey. how are sales shaping up for retailers in the holiday shopping season?

>> the holiday shopping season will be fairly decent, from decent to good. certainly a lot better than we anticipated, say, two or three months ago.

>> many of the biggest discounts will be offered the day after thanksgiving, known as black friday, as retailers try to get shoppers into stores early in the season. what sort of sales turnout do you expect?

>> we expect some sales and we expect quite a few sales but not as deep as we saw last year. and there’s good reason for that. when last spring and summer when retailers were building up their inventories, they proceeded cautiously in anticipation of a very grim economic climate towards the end of the year in the united states. this, of course, is now proving to be not the case. as a matter of fact, the labor market , the employment market seems to be very much on the mend and while it is not exactly robust as yet, it is―it does create the perception that jobs are far easier to obtain and far easier to keep than was the case only recently. and that is what will propel a very decent consumer spending pattern.

>> what kind of consumer goods will consumers spend on for holiday presents and which will they cut back on?

>> almost everything related to the home will go very well. consumer electronics will do very well. as a matter of fact, we are already seeing things such as the ipods and plasma tv literally flying out of stores. and very upscale stores will also do very well simply because the customers who buy in those stores have decent―fairly decent incomes and are prepared to spend money. you know, we have to keep one thing in mind and that is, in retailing and consumer spending, everything is driven by one thing and that is what we call a four-letter word, jobs. when jobs are perceived to be plentiful, consumers are willing to spend. and jobs are now perceived to be more plentiful than they have been in a long time. so this augers very well for the shopping season this year.

>> is it still likely that retailers will have to resort to clearance sales near the end of the holiday season to move unsold goods?

>> very unlikely, although there is always something left over after the holidays but i think this time around, if i had to give advice to a consumer, today, i would say, when you see that sale, go and you like the product, go and buy it because if you wait for another sale, you’ll come back next week and it will be gone forever.

>> what performance are you seeing among discounters, kurt, compared to those serving the high-end consumer?

>> the discounters will feel the impact of the high price of gasoline and home heating oil. and for them, a dime difference in the gallon will make a major difference. while a dime difference for those people who go to the upscale stores is not going to be very important at all. so we are going to see a divergence between the upscale consumer and the more modest income consumer. but that is inevitable in companies.

>> ok. kurt, we have to leave it there. thank you very much for joining us. kurt barnard of retail forecasting on the phone. let’s get a preview of the start of the u.s. shopping season on friday with greg miles.

>> friday, the shopping day after thanksgiving, will give investors a glimpse of how much american consumers may spend in the holiday season. last year, shoppers spent $7.3 billion, making it the biggest sales day of the year. retailers in recent years have slashed prices and offered eye-popping promotions to lure customers including discounts as much as 70%. analysts say that stores such as wal-mart will have to have a more balanced approach this year. marketing executive says retailers over time have taken potentially one of the best-selling days of the year and turned it into a financial disaster. -- he says hopefully retailers are taking a more rational approach to the day. nordstrom is ordering fewer goods this year to keep inventories low and limit clearance discounts to protect margins. u.s. retail sales at stores open at least a year are projected to increase 3% to 4%. record oil prices could hurt consumers and retailers now facing higher shipping costs.

>> we’ve had a challenging year but at the same time our volume is increasing and we’re getting smarter about where we place the goods. we have a distributed network of a lot of places we ship from and have kept costs down.

>> the good news is that not every retailer is doing away with promotions. j.c. penney will give away free disney snow gloves with each purchase. sears is tripling the number of items on sale compared to last year. thomson financial forecasts this will add up to profit growth of 11% in the fourth quarter compared to a year ago. pretty strong. back to you.

>> here’s how retail stocks closed in the u.s. markets overnight -- general electric agrees to purchase ionics for $1.1 billion in cash to tap rising demand for water treatment in developing countries. the purchase will add salination and filtration to g.e.’s industrial water business. g.e. says it will expand financing for ionics customers in china and the middle east. coming up, ukraine’s opposition leader calls for a national strike after the country’s disputed election.

Interview: Energy

>> australia’s pacific hydro says potential bids from the company may come from electricity utilities in japan. australia’s biggest listed renewable energy company adds the interest of japanese companies are seeking to gain carbon credits. the company has renewable energy projects in the philippines, p.g. and chile. the managing director joins us. you’ve made initial approaches to potential bidders on the company throughout asia, north america and europe. how much interest has there been and from where?

>> is interest is wide, there has been interest from japan, interest from trading companies and utilities in japan. also, utilities in southeast asia. there have been a number of institutional investors, as well. some merchant banking groups and out of europe there’s a large number of renewable energy funds established as we speak because renewable energy is seen as a major new potential market in the fight against global warming internationally.

>> and what feedback have you been getting from existing shareholder american electric power? are they a likely seller of their 16% stake in pacific hydro?

>> i think it’s fair to say that the major shareholders are not sellers at current market prices. i’m not sure what their exact position will be in the long term. you’d have to really talk to them about that. american electric power has been a strong long-term shareholder as have the other major shareholder developers in australia.

>> have they given any indication at what price they might consider selling shares?

>> no. they have indicated they’re happy to remain as a shareholder at the current time and they have been a shareholder since 1996 and have seen the company grow from being capitalide from $5 million australian in 1996 to close to $600 million today.

>> given the level of interest in the company, do you think the likely outcome of the review will be a sale?

>> it’s quite possible, cathy. it really depends upon what position international businesses take with regard to the future value of carbon credits. now that kyoto has been signed by the russians and will come into force, the market for carbon credit starts in europe and initial trading has been at around 11 euro per ton with projections it could go above 40 euros per ton, clearly the carbon market in the future will be enormous and i think a lot of international businesses have started to focus in on companies that can secure for them a long-term reliable flow of carbon credits which will be of very high value which today have zero value on the balance sheets of companies with that asset.

>> what is the timing for completing a strategic review for a potential bid?

>> discussions have commenced with some parties. i understand confidentiality agreements are being exchanged. there will be a process of looking at indicative bids and proposals and in a short list there will be detailed discussions with the short-listed companies. it’s expected it will be wrapped up by the end of the first quarter next calendar year.

>> you said last month the government’s position last june would result in the company shifting more of its overseas investments in other markets . what sort of overseas investments are planning and in which markets ?

>> pacific hydro has a major position in the chilean electrical market . chile is a wonderful market for investment, rated a by moody’s, currently higher than new zealand and japan. it has a very strong economy. electricity demand has been growing through the 1990’s and throughout the current decade at 8% to 9% pernum so it’s a professional market for hydro electricity. we’ve secured the rights of two rivers adjacent to santiago. we’ve estimated that from chile alone we’ll be able to generate not far from three million tons of carbon credits per anum once the hydros under development at the moment are in operation. beyond chile, we have initial discussions in canada. canada is a strong market for renewable energy and europe is terribly strong for renewable energy and we’ve started to take our first steps with regard to investing in europe.

>> good to speak with you, thank you, jeff, jeff harding of pacific hydro in sydney. coming up, south korea’s biggest steelmaker, posco, says it may require only half of the steel requested by nissan motor after the automaker cut output plans because of the lack of metal.
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Listen Interview: The dollar's slide
from china, japan and korea at a two-day summit in laos. learn if the asean nations can compete with china in the race to attract foreign investment. learn if australia’s market can make it five for five. the australian stock exchange opens in 30 minutes, running a string of four straight record highs. our reporter stands by in sydney. spider-man drops in on the new york stock exchange. u.s. stocks drop, as well. disappointing holiday sales from wal-mart sent the dow and s&p 500 lower. the nasdaq finished higher. the dollar halts its slide against the euro and yen in new york. traders say the u.s. currency has fallen too far, too fast, after setting eight record lows this month. asian leaders took on the subject of the dollar’s decline at this week’s asean summit in laos. the head of the u.s.-asean council says the dollar’s slide won’t hurt trade with asia. he says he doesn’t think the u.s. is pursuing a weak dollar policy but officials are not doing enough to stop the slide.

>> in terms of exporters, i think it’s a good thing. i don’t sense a lot of concern in the united states for that policy. i think that the u.s.g. is probably allowing the dollar to sink in order to support exports.

>> having said that, do you expect the dollar to continue to decline? >> it’s hard to say. but i think that it’s good for our companies if they can export more to china% -and good for them if china can export more here as we have a large investment in china. >> are there concerns?

>> the only concerns are that we keep pace. so far, i think we are. but we have to keep pace with the chinese and about what they’re doing so as not to lose the advantage we already have.

>> when you say keep pace, what needs to be done?

>> we need to stay involved in the markets , stay involved in dialogue with the governments. we need to move forward on our own f.t.a. strategy. we have a strategy of engaging asean on a one-to-one basis with a.f.a―f.t.a.’s. we’ve done one with singapore and have one with thailand under way so we have to stay engaged with the economic ministers in the region and show commitment to the market .

>> what are some of the challenges the companies you represent are facing at this point in time?

>> i think there’s a number of issues, challenges we face. corruption is always an issue for american companies working in the region. slverl of the countries in the region rank the lowest in terms of attractiveness due to the problem with corruption. attractive markets otherwise but they rank low in terms of transparency. that’s a problem, consistent tax structure is another issue we watch carefully.

>> how serious is the threat of china replacing the u.s. as the top destination for asian exports?

>> i don’t think it’s―i don’t think it’s that big of a concern right now. they are growing at a very fast pace. china, asean trade has grown probably 30% a year but they’re starting from a low base. the u.s. trading position is much larger and so i don’t see any concern there at the outset. but as china increases its trade, that’s good. we’re glad for that. we just want to keep our companies involved, as well.

>> how about in terms of the yuan policy? to what extent or have your members, member companies, done anything to put pressure on china to reconsider the yuan policy?

>> u.s.-china, on that end of the equation, i think there has been discussion about that. back in the states, the u.s. chamber of commerce, for instance, has been very much involved in currency policy. they see as an export issue as we were talking about. our members, we deal primarily with asean and asean runs a trade surplus with china. i don’t see aseans and companies in their region for their regional interests, our companies, i don’t see them complaining about the value.

>> walter lohman of the u.s.-asean business council. there’s half an hour before the markets open. we’ll speak with david tweed in sydney.

>> retailers led the australian market to its fourth record consecutive high yesterday and retailers coles myer, woolworth, might do it again today. we also had the busiest ever month in terms of value yesterday so far and we have another day to go according to goldman sachs. 72.3 billion dollars worth of australian shares traded in november, that’s the record. national banks chairman graham cray is going to give a speech and they indicate how they’re going with the sale of the irish banks and southpaw will brief analysts, number two winemaker in australia.

>> what are investors looking for in the rest of asia?

>> one is the reaction to the halt in the slide of the dollar. the second thing to watch for is the reaction to the drop in u.s. retail stocks so there could be quite a mixed picture there for asia’s exporters. look out for the reaction to companies like toyota, nissan and in south korea, samsung electronics. back to you, cathy.

>> you got that right, thanks for that, david. after the break, australia’s biggest listed renewable energy company says it’s receiving approaches from companies that may lead to a takeover bid. the managing director of pacific hydro will join us. .

Interview: Paul Gordon on Homeland security resigns
>> president george w. bush’s cabinet changes again as the man responsible for homeland security resigns. paul gordon has more.

>> yes, u.s. homeland security secretary tom ridge resigns after two years in the job. ridge was the first person person to hold the post created by president george w. bush following the terror attacks of september 11, 2001. ridge integrated 20 federal agencies with 180,000 employees and set up the color-coded terror alert system and started fingerprinting foreign visitors to the u.s. he says he wants to spend more time with his family. ukraine’s parliament may try again today to pass a no confidence vote on prime minister viktor yanukovich. legislators were unable to force the vote yesterday. the lawmakers last week rejected the results of the presidential election which showed yanukovich winning. observers say there was evidence of voter fraud. opposition candidate viktor yushchenko says there is a crisis forming and it’s only a matter of time before it explodes. yushchenko’s supporters say talks with yanukovich over a compromise have broken down and say they’ll resume blocking government buildings. poland’s president leads european union delegation to the ukraine today.

>> i came with the same spirit that i came on friday. i think it’s very important that the dialogue take place. that the agreement that we reached on friday that are implemented and i hope very much that everybody will be able to overcome the difficulty.

>> ukraine handles 1/4 of the gas exported by russia to central and western europe. in iraq, a car bomb kills four civilians and injuries three others, including three u.s. soldiers. november is one of the deadliest months for the u.s. military since the launch. of the invasion.

>> the u.s. commerce department is slapping duties on some seafood from asia. the increased costs will be as much as 113% of shrimp imported from china and a similar amount on shrimp imported from vietnam. they claim the shrimp is being sold below market prices in the u.s. l.m.v.h., burberry and other luxury brands are getting a boost in china. goldman sachs estimates sales of upscale consumer brands in china are growing as much as 60% a year. louis viutton has 13 stores in 13 cities in china. lucketsurey goods makers must compete against cheap copy cats. a fake louis viutton or chanel bag can be purchased in beijing for $20. after the complaint, the beijing government changed its mind about buying microsoft software. the decision underscores the challenge microsoft faces in building a profitable basis in china. in addition to local favoritism, microsoft must cope with widespread piracy. a report by the business alliance says 92% of software in china is illegally copied. taiwan’s ratings outlook is downgraded by standard & poor’s, citing the record budget deficit and tense relations with china. taiwan is selling assets to help plug a budget deficit that’s forecast to reach a record $9.4 billion and pay interest in national debt. s&p says taiwan’s president chen shui-bian to bolster the military would keep the frilved reaching its goal by 2010.

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Listen Interview: Hank Morris on Asian Economy
in a moment, an investment vist in seoul will react to the latest figures in south korea. south korean consumer prices fall for the first time in six months. retailers including dow components wal-mart and home depot lead the market lower as rising oil prices lead the u.s. consumer to be more pessimistic. the head of the european central bank says financial conditions in europe are favorable. jean-claude trichet’s words sundays―sends the dollar to a new low against euro. china’s top bank regulator prepares to outline reforms for the new year to help local banks compete with foreign lenders as china opens financial markets to competition from hsbc and citibank. as i mentioned earlier, south korea november consumer prices fall for the first time in six months, it’s declined .6% from october. economists we surveyed expected the nation’s consumer price index to fall .2% since october. oil prices climbed last month after reaching a record $50 a barrel in october and the rising south korean won is making imports cheaper in the asian economy. i’m joined by hank morris on the phone from seoul, director of industrial research and consultancy. what you do make of the results?

>> i think it confirms what we’re seeing in other stats that have come out recently. for example, in terms of inflation adjusted consumption expenditure, third quarter last year, that rose nearly 3% but third quarter this year, 1.8%. so consumption is definitely not rising in this economy and that’s being reflected in the results of manufacturers. you’re seeing people like hyundai motor adjusting their sales target, domestic target, from 1.5 million sales this year to 1.1. that’s a huge come down.

>> given your assumptions of crude oil prices and the korean won, where do you see consumer prices next month into 2005?

>> i think they will moderate. the oecd is calling for prices to rise 3.5% in 2005 and that’s probably about right. they might even fall somewhat lower than that if the won continues the current pace of strengthening we’ve seen.

>> what do you think is the next direction on interest rates and when will they make that move?

>> the government is worried about the strength of the won so as we see dollar interest rates rising, i think they’ll be temped to continue cutting local rates and they might cut another quarter percent, particularly since we’re not seeing any significant increases in domestic consumption here. we might see the next quarter percent cut sooner rather than later.

>> the nation also releases november export data in about two hours with economists we surveyed expecting exports probably rose at the fastest pace in three months. what are you expecting?

>> it looks like the electronics exports are holding up pretty well so i think i would agree with most of the analysts that we’re probably going to see a pretty good result here.

>> what do you advise clients wanting to invest in the nation’s markets given slowing domestic demand as well as rising interest rates in the u.s. and rising oil prices?

>> i’d like to see them go into solid manufacturing companies showing good investment in product design and technical improvement, companies like hyundai motor which are enjoying exceptionally good export sales and could benefit hugely if we do get some consumption turnaround next year. i think it’s too early for banks

>> hank morris of industrial research and consulting in seoul. u.s. consumer confidence unexpectedly fell in november. we’ll find out how it may affect asian markets today. we have david tweed, our stock market editor in sydney joining us. how are the consumer confidence confidence figures in the u.s. likely to play out in australia today?

>> you need to look at the exporters to the u.s. they’ll be affected by a decline in u.s. consumer confidence. first of all, you think about china which counts the u.s. as its biggest investment market . look at the exporters in japan―honda, toyota motor, nissan. all of these stocks may be affected. but also look behind the reason for the drop in consumer confidence. the economists with the conference board in new york said it was low income families who are being hit by or hurt by the fact that the fuel prices have risen, new york oil futures have risen 64% in the past year and that’s beginning to -- that’s beginning to make these lower salaried people feel the crunch in the back pocket so as well as looking at what happened to the u.s. stores like wal-mart, look also to retailers across asia. we saw ito-yokada falling yesterday in japan. we saw 7-eleven also falling, the biggest convenience store in japan. in australia, his retail sales fell for the same reason yesterday because of high fuel prices and companies like coles myer and woolworths declining.

>> australian futures are indicating a higher open. what are investors looking at?

>> one of the things that’s been happening in australia is we’ve been having record amounts of dividends paid back to investors after booming record profits in australia and that money is helping to support the market . today marks the day that b.h.p. finishes depositing the 2.2 billion it’s paid back to investors in a share buyback and so investors here are speculating that money may be reinvested back into b.h.p. stock or the rest of the market .

>> thanks for that, david. coming up, u.s. homeland security secretary tom ridge resigns as a leader of the government department created to protect the nation from terrorists.

Interview: China Aviation Oil
>> china aviation oil’s trading losses raise concern about corporate governance. the supplier of 1/3 of china’s jet fuel said yesterday it will ask the hicourt for protection from creditors. it lost can $550 million on bad derivative trades on oil prices. one fund manager joins us from new york. the stock is suspended in singapore. what do you plan to do with those shares?

>> at the present time there’s nothing i can do. although you call us the 10th largest shareholder, it’s a small position in terms of our overall portfolio, it’s actually less than 1% at cost, now it’s even less.

>> is there anything that would change your mind? would you consider buying more shares and under what conditions?

>> we now believe strongly that the senior management was in collusion, if you will, to hide what was actually going on which was a series of very poor derivative positions. this company evidently felt they were smarter than the market and had been shorting oil all year and hiding those positions. at this point, with losses of $550 million u.s., which is a fair bit over 900 million singapore, that is about equal to the total value of the company so there’s basically nothing left. it seems to me the only way out of this for the company is for somebody to come in and cover those losses. to cover those losses, you’re basically taking over the company so no matter what happens, the shareholders are hung out to dry. my guess is there will be a number of lawsuits filed in coming weeks.

>> is it an attractive acquisition target if someone were to buy china aviation oil?

>> with 900-plus million sing dollars in losses against an asset back of a billion one, a billion two, very few people will show interest in biological the company. buying the company. if is the company goes into bankruptcy, somebody will come in and buy the assets at bargain prices but that will not benefit the shareholders.

>> there is speculation that singapore is attracting so-called second tier chinese companies while bigger chinese companies are choosing to list in new york and hong kong. do you agree with this?

>> i’ve been asked that a couple of times, cathy. i think the situation is that a number of singapore brokerage firms, investment banks, have gone to china, to the provincial governments looking for underwriters, underwritings of good quality companies. most of the major companies are looking to hong kong and new york for listing. that does not imply that the companies that list in singapore are poor companies or companies with spotty track records or companies that just don’t measure up to list in either new york or hong kong. i think what you find in singapore are a group of companies, whether they’re in the shipping business or power business or in the food business, which are perhaps smaller companies, maybe with market caps of, say, 100 million to 500 million dollars and those companies have found that this is a vibrant market in singapore and they find that an attractive market with good following by the brokerage community in singapore.

>> will china aviation’s trading losses depress the market or slow plans for initial public offerings from chinese state-owned companies?

>> probably will temporarily. it is a shock. it was a favored stock of a number of investment firms in singapore as recently as two or three weeks ago so obviously those brokerage firms have egg on their face and people like myself who have owned the company for a long time feel as though a burglar snuck in the back door, so, yeah, i think we’ll be just as careful as we were when we looked at this company when we first went in. you can’t protect yourself against crooks. i mean, the bottom line is, if a guy’s going to be a crook, you’re going to lose. we’ve seen that with any number of companies in the united states from worldcom and enron on down to companies in asia and in every other part of the world. parmalat in italy, these are big companies, small companies, if crooked people are running them, there’s no way out and this is a small example of that.

>> don, it’s good to talk with you, as always, thanks for that. and up next, searching for gold in one of asia’s poorest countries. an executive from australia’s pan australian resources will tell us about expansion plans for laos.

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Listen Interview: Liu Mingkang
our exclusive interview with liu mingkang is coming up. u.s. stocks climb, falling oil prices helped boost the s&p 500 to its highest close in more than three years. oil has its biggest drop in more than three years. the dollar falls to a record against the euro and 12-year low versus the british pound. investors speculate the bush administration favors a weaker dollar to cut the nation’s record trade deficit. china’s allowing foreign banks access to five more cities effective immediately. 18 chinese cities are now open for foreign banks to do business. china is easing restrictions on overseas banks expansion ahead of its full open bank disclosure in 2006. the head of china’s regulatory commission, liu mingkang, tells stephen engle why it’s taking longer to reform industrial bank and agricultural bank.

>> i think the big four banks share the same challenges and the province that, in the meantime, if you look at the four banks individually, you will find a huge gap among them in terms of the stock on non-performing loans and the causes to why they could get there and so for design, effective and efficient, tailor-made reform package for icbc and agricultural bank of china, it takes a long time. it’s still in the careful design and discussion and debate o.i think at least we need some time to go and get over there. we’ll keep you well informed where we are.

>> you have a rough time table as far as what “a little more time” is? is it six months, a year?

>> it depends on how fast and howl they―how well they prepare their home work, then we will do the due diligence and assessment and report to the state council.

>> how would you assess the $45 billion capital injection in the other two banks, the progress there in the profitability of the banks, disposal of n.p.l.’s some?

>> what we can see in the previous three quarters, bank of china’s revenue has been increased by more than 23% and the construction bank of china, more than 21%. their coverage ratio, the loan loss provision coverage ratio for bank of china is approaching 70% and the construction bank of china approaching 90%. our standard is about―the international standard is about 100%. so they are approaching the international targets and also we are very pleased to see the costs on the revenue ratio which would control the costs during the process of reform is very satisfactory because both of them are 35% so even with the asian standards, which is the best one, the worldwide, they are on the top. and also today we can see the n.p.l. n.p.l―nonperformance loans ratio for bank of china is still 5.4% and 3.88% for construction bank of china. it’s within the range of control. so, so far so good, i should say, but it’s a long way to go and we will monitor the progress because we have a benchmark for year 2006 and year 2007 but definitely i’m convinced and optimistic about the progress in the near future.

>> i do have to ask about the accelerated time table of opening up chinese banks to foreign players. you opened up two more cities, including shown yang―shen yang. can you explain why?

>> we witness a huge wave of investment going towards the western and north sea china. a lot of foreign banks approaching us to talk about options of development there so we think we have to match the demands and needs and boost the inland provinces across the northeast areas and there is potential and there’s no reason why we say no for their presence there and that’s the reason we put forward the time table in saying these two cities should open now, instead of one year later.

>> that’s china’s top banking regulator, liu mingkang, speaking with bloomberg’s stephen engle. state bank of india raises its first bond sale by a third, increased to $400 million on higher demand. hsbc holdings said they priced the bond to yield 117 basis points more than u.s. treasuries of similar maturity. new rules have encouraged indian companies to take advantage of cheaper debt abroad. general electric wants to settle a dispute with the indian government over the da-- dabhol power plant. the government was a guarantor to the company that was founded by the now-failed enron corporation. nokia extends its lead in the mobile phone market for the second straight quarter. gartner says new models and price cuts boosted the market share to 39%. samsung electronics overtook motorola as number two handset maker, gaining ground by selling camera phones with the flip of up design. gartner said sales rose in the third quarter. coming up, china aviation oil is under investigation by the singapore stock exchange. we’ll speak to a fund manager whose company holds of aiation oil shares.

NHL Lockout --- Mike (slow)

>> today marks the 78th day of the national hockey league players lockout. the union is holding a meeting next weak and hopes to end the lockout by presenting a new proposal to gary bettman. we now go to “money & sports” segment where we’re joined by bloomberg news reporter mike buteau from our atlanta newsroom. is there any chance there will be a solution to the nhl lockout?
>> for the record, i, for one, have been counting. chances of next week’s meeting producing a solution are not very good. when you listen to both sides of the argument, here. the fact that they’re sitting down for the first time in three months is positive. the players, the few players that seem to think this will give them a starting block and the league may accept this proposal. the league itself says, probably not, this might give us something to discuss but i don’t think there’s anybody out there that thinks the union will say, here’s our proposal and gary bettman of the nhl will say, great idea, let the games begin. i don’t think that’s going to happen and not many people do.

>> loyal viewers of this “money & sports” segment have seen you in the past come on and talk about lousy hockey ratings on television. i remember you’re saying at some point they were lower than televised bowling tv ratings. seems like a weak negotiating position for the players to negotiate a better deal. no?

>> absolutely. the players don’t exactly have the fans in their court. this isn’t like baseball where people were up in arms and complained they couldn’t see their teams. there aren’t many people, unless you go up to canada, but in the u.s. where 24 of the 30 teams are based, this isn’t the subject that leads the evening news and front page of the newspapers so the players really are in a tough spot here and the owners kind of―and the league has it where they want and they want to get the system right. they want to fix it for a language time.

>> this next story meets the title of our segment, “money & sports,” about gambling on sports. the dallas mavericks’ owner says he wants to venture into the hedge fund industry based on gambling and i thought, aren’t they all? but that’s just a little joke. tell me, how will this work?

>> details, as you might suspect, are not all that clear right now. he says he wants to start a hedge fund based on gambling because he figures that a hedge fund where you’re betting on games is just as safe and just as likely to produce results as the equity markets which he says, right now―this is mark cuban speaking, according to the regulatory system right now, betting on a sporting event is no different than betting on a stock.

>> instead of picking a guy who can pick the best stock, in this case you’ll pick a guy whom you think will pick the winning team.

>> right. he’s not looking for sports geeks but people who analyze statistics and numbers and can crunch things like that, not just somebody who likes the dallas mavericks to beat the miami heat and shaquille o’neal one night but he wants someone who can tell you why they’re going to win and how many points they’ll win by.

>> the last one i want to get to is that espn2 will carry a high school basketball game.

>> next week, 16-year-old center, seven-foot-tall 16-year-old center, a high school junior, will be on espn2. this is a game that espn2 looked at a couple of years ago. it’s a similar situation where lebron james was on except lebron james was a senior at the time. this is the first time they’ve highlighted a high school junior. the lebron james show had the highest ratings on espn2 ever. next thursday this game will be on if you’re interested in seeing a high school junior.

>> we may see a 16-year-old with endorsement deals. thank you. when we come back, palestine palestine―plil plil is looking forward to the holiday season.

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Listen Satellite radio
>> satellite radio may not have expanded its audience into as many homes and cars as broadcasters want them, but their shares look likely to be included in a benchmark index soon.

>> x.m. satellite radio and sirius satellite radio are among the 100 biggest non-financial companies on the nasdaq stock market this year. x.m. has climbed 42% and shares of sirius have more than doubled. that might not have happened without the recruitment of mel karmazin. there are doubters, such as karmazin’s former boss, sumner redstone, who said karmazin formerly thought little of pay radio’s chances for success.

>> as for satellite radio, all i know is, when mel was with it, he denigrated it all the time. he has the right to change his mind. maybe it will work. from our standpoint, the economic model, right now does to the work. but maybe it will.

>> viacom owns the cbs radio network as well as 185 radio stations through infinity broadcasting. sirius has also hired another big name from viacom, radio shock jock howard stern, the contract starting in 2006. that move is expected to boost subscribers.this week, sirius announced it has acquired the rights to the ncaa college basketball tournaments and british premiere soccer championships. sirius expects to have a million subscribers by year’s end, x.m. forecasting more than three million. neither is expected to turn an annual profit until 2008 at the earliest. they are backed by fund managers, including the calamos growth fund. meighan harahan says funds that track the nasdaq 100 would have to buy these stocks. analysts at several wall street firms say x.m. and sirius are among the leading candidates for inclusion. the changes are expected to be announced within a couple of weeks.

>> speaking with the media, abc is gaining ground in the ratings battle for younger viewers. two new shows helped the network climb to the number two spot among the 18 to 49-year-old audience. abc was the only network to gain viewers in november thanks to “desperate housewives” and “lost.” cbs had the highest ratings among households, followed by nbc, abc and fox. disney shares down 1% on the day. general electric share, owner of nbc, down .31% on the day