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Focus: Economy

>> comments from anthony santomero. in a speech in philadelphia, he said the federal reserve can continue raising rates at a measured pace. also saying the economy will withstand the effects of hurricane katrina, rising fuel costs, along with a slowdown in home prices. and we spoke to him earlier on bloomberg television.

>> now, the question here is to what extent is there supply disruption and to what extent does oil price move up even more dramatically than it already has? now, i understand from your reports this morning that, in fact, oil has been moving down off of the $70 high. and this is a day-to-day, minute by minute thing. but clearly something we have to be aware of. at the end of the day, oil price movements are kind of like taxes on the ability of the consumer to spend.

>> in his speech, santomero said inflation will continue to be well behaved and while rising energy prices he says will ripple through the economy, higher inflation “should be a transitory phenomenon.” and the fallout from higher energy costs was reflected in economic reports today. one report showing manufacturing in the chicago area during august contracted for the first time since april, 2003. that does suggest record oil prices are slowing factory demand. the chicago purchasing manager index came in at 49.2 for august. below the previous month and also well short of what economists had been looking for. the dollar slumped in response against the euro. as well as the yen. today’s report does highlight tomorrow’s national manufacturing survey that comes your way from the institute of supply management. chicago often a precursor of how the national number will come in. economists surveyed by bloomberg estimaterring the national manufacturing number will rise to 57 in august. as you see on the screen. from 56.6 in july. in the meantime, economic growth in the u.s. last quarter was a bit slower than initially estimated. the economy expanded at a 3.3% annual pace. that is down .1% from the original estimate for second quarter g.d.p. this total u.s. output of goods and services limited by increased demand for imports and a slow joun in consumer spending. president bush’s top economic advisor ben bernanke says that hurricane katrina does raise some new question marks about growth.

>> the big issue for the u.s. economy as a whole is the effect on energy prices. that’s the gulf coast is a major source of production, refineries, the transmission. so we need to monitor the situation and see what impact it’s going to be on the energy situation. if the effects are modest, and we’re back up running within a few weeks, i think the overall effect of the economy will be fairly small.

>> bernanke also says consumer spending has shown resilience in the face of high energy prices. bernanke we should note is often mentioned as a possible successor to federal reserve chairman alan greenspan. as for treasuries today, take a look at this action. the 10-year treasury yield dropping. earlier touching 4% for the first time since july 1. you had prices jumping across the board today. as traders removed bets the fed will raise its interest rate target to 4.25% from the current level at 3.5%. as for the two-year, that price up 7/32. the yield down to 3.82%. so now let’s get the latest on the storm recovery efforts. with the mayor of new orleans saying it is possible that hurricane katrina left thousands of people dead in his city. mark crumpton joins us with the latest.

>> during an impromptu press conference at new orleans’ hyatt hotel, ray―mayor ray nagen said hundreds have been killed but the number is “most likely in the thousands.” he says authorities know there are a significant number of dead bodies in the water that now covers most of the city. and that others died in attics. the mayor said it will be at least two or three months before the electricity is returned. louisiana governor cath line blanco has―kathleen blanco has asked washington to free up national guardsmen to stop looters. a newspaper saying the gun section at a new wal-mart has been cleared out. as part of the ongoing relief effort, evacuees being housed in the superdome are being bused to the houston astrodome.
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we can start providing crude oil as soon as tomorrow. so it can happen very quickly. so within a couple of days of their request, they will start getting crude.

>> u.s. energy secretary samuel bodman telling us the u.s. government is opening the spigot on its emergency supply of crude oil in order to ease the shortages caused by hurricane katrina. hello. i’m ellen braitman. the bush administration has always maintained that the strategic petroleum reserve should be used only in the event of a supply disruption. well, bodman said hurricane katrina has met that test and as a result, the department of energy agrees to a request to lend oil to refining company which operates a refinery in port allen, louisiana.

>> we have made a decision which the president certainly strongly supports to tap into the strategic petroleum reserve in order to try to relieve any pressure on any refiners that are having difficulty getting access to crude oil.

>> bodman told us the crude oil can start moving as soon as tomorrow and that placid refinery could receive the crude oil within three days. three refiners have made requests for oil from the reserves. with the hurricane closing eight refineries in louisiana and mississippi over the weekend, one analyst says the real issue is gasoline, not crude oil. so he says the overall effect of the release of the oil will be limited.

>> the real story it seems is that the fact that we just can’t refine it fast enough so that’s a buildup. so the move to release reserves , it should help calm the market come.

>> we are standing by for president bush to speak live in the rose garden on the hurricane aftermath. while we wait let’s show you how the stock market settled on this last trading day of august. the dow ending the day up 69 points. the s&p rising just shy of 12 points. the nasdaq gaining 22. you had energy shares helping to lead those gains. and on this last trading day of august, keep in mind you had the s&p losing for the month, down 1.1%. nine of the 10 industry groups in the index traded down for the period. it was only energy shares that gained for august. up more than 4%. as for the dow and nasdaq, both losing 1.5% for august. as for the energy story, gas prices surged to another record. nymex gas futures gained more than 5.5%. at one point today, up 18% on concern refinery closures will hurt supply. oil prices, however, ended the day lower. crude futures down 1.3% to $68.94 due in part to the release of oil from the nation’s reserves. su keenan was at the nymex tracking that action and joins us now.

>> oil investors sum up their concerns in three words, refineries, power and electricity. mike fitzpatrick from fimat said without refineries and a way to power them there is not much you can do with crude oil. and for most of the day, at one point we saw oil retouching the record prices above $71 a barrel, this overshadowed news that generally supports lower prices. such as the release of oil reserves and the opening of a key gateway to oil imports. that’s louisiana offshore oil port. a spokesman said it may unload its first tanker since the storm later tonight. the group has already started making deliveries to baton rouge where exxonmobil has a refinery and is capable of producing nearly half a million barrels of oil per day. kerr-mcgee has resumed operations with some workers back on the job. the company says all major facilities are intact with no structural damage. kerr-mcgee expects to produce about a third of what it normally puts out. the storm damage gulf accounts for one third of all domestic oil production and 20% of natural gas output. once again, with refineries shut down, the big story was gasoline. legg mason’s george garo says the problem is you can’t just put crude oil in your gas tank. out of concern for massive shortages, some refiners and wholesalers are already restricting the amount of fuel retailers can buy. n.a.g. edwards’ billow grady is among analysts predicting that $3 a gallon prices in chicago will soon be nationwide.

>> the very short run, the constrained refining capacity is a big issue. that’s why you are seeing these really large increases in gasoline prices in front of the monthly day.

>> so far, katrina has shut down 91% of the gulf’s crude oil production capacity, 83% of its natural gas. that is the latest report and slightly lower than initial estimates from the mineral management service in washington. a achillesly followed report on the trading floor―a closely followed report on the trading floor.

>> we will tie that in to what happened in the stock market today. we had energy stocks leading the advance in trading. deborah kostroun filed this report from the big board.

>> the dow closed right near its best level of the day. and the reason for that, the market really gaining in the last hour and a half. after crude oil closed―crude oil, it was down 87 cents. closing at $68.94 a barrel. that after getting above $70 a barrel yesterday. we did kind of go through that point earlier in the session with crude oil. however, closing down 1.25%. and crude oil, that was the determining factor in today’s session. also nymex gasoline, it was higher, also reports of gasoline at the pump gaining 50 cents overnight in some areas like dayton, ohio. also parts of michigan. natural gas, that index closing at a record high. natural gas, however, it was down 18 cents to 1147. very unusual for the summer and natural gas stocks, many, 15 stocks in that natural gas index, were higher. we also saw integrated oil. oil refiners and oil services, these stocks all higher. this really led the market all day. of the 24 industry groups in the s&p 500. they were all higher. however, we did see some of the oil services, even the oil shippers, those were higher after rates for shipping refined oil from europe to the u.s. soared. and that causing many of the oil shippers to be higher as well. taking a look at insurance stocks, this was insurance stocks actually ended higher. and this was the worst performer of the industry groups that really made a turnaround last in the session. even though many of the insurance stocks actually a little bit lower. and a.i.r. worldwide, that’s a storm modeler estimated yesterday that insured losses from the storm could be anywhere from $17 billion to $25 billion. and so what we did see also retail stocks, like wal-mart, dropping to another three-year low. however, tiffany’s, second quarter profit coming in better than expected. so a little bit of a mixed market for retail. i’m deborah kostroun, at the new york stock exchange.

>> let’s get more right now on the stock trading today. you saw companies that could benefit in the aftermath of hurricane katrina. helping to lead the nasdaq higher. robert gray has that story from the nasdaq market site.

>> the nasdaq closing out the month of august with a 1% rally. pretty much across the board. all the industry groups participating after crude oil prices closing lower overall on the nymex. and we did see for the month of august, however, the nasdaq declining 1.5%. following a 6.2% gain in the month of july. in fact, it was the worst august for the nasdaq since 2001. as we head into september, which has historically since the nasdaq began in 1971, has been the worst month of trading for the nasdaq. so we will be keeping an eye on how the trend continues as we begin september tomorrow. and i talked to brett sanders of sanders, morris and harris in houston who oversee $10 billion and say the yatch math of katrina is a cat―say the aftermath of katrina is a catalyst for buying energy stocks. and we see in the aftermath of katrina, he said they were buying energy in support firms like caldive shares and those shares were rising on the session. we saw global industries which has an oil―does oil and platform construction, they gained. and abatix, a maker of helicopters to reach those rigs. and also maintenance and construction services for petroleum and imperial industries, they dispose hazardous waste and d.x.p. enterprises rising to a record and they provide industrial maintenance, repair and supply services. and we saw the tanker stocks, alexander and baldwin among those stocks gaining on nasdaq. and the biotech index, showing strength today. tercica, won approval for their first product for children with a growth disorder. u.s. regulators designating the drug and orphan drug which is a status for rare disease treatment extending market exclusivity for the drug’s maker. at the nasdaq, i’m robert gray.

>> and news after the bell today from freddie mac. saying profit fell 60% in the first half of the year. that was on a decline in the value of financial contracts. and to protect against swings in interest rates. net income, $1.6 billion or $2.22 a share. freddie mac, the second largest source of money for home loans in the u.s. this is just a third earnings report for the company. since an internal investigation in 2003 found the company understated net income by $5 billion. taking a quick break. we will come back and take a closer look at those oil and gas prices. continuing to rise in the aftermath of the hurricane. how is that playing out for investors? keep it here. “after the bell” continues after this quick break.

Interview: Analyst at Pickering Energy Partners

>> we return to today’s top story, hurricane katrina and its impact on crude prices. the concerns about oil supply persist and in response, president bush has said he could tap the strategic petroleum reserve to help combat hurricane-induced oil shortages. however, our next guest says the market may not need it. here to explain is an analyst at pickering energy partners. he joins us from houston, texas. welcome, david.

>> thoompings for having me.

>> once you find out the damage assessment you’ll obviously have to find out what needs to be fixed, how bad the damage is what are you telling your clients at this point, wait and see?

>> yeah. unfortunately that’s not a great answer for an energy analyst, but at this point, it’s a spectator sport. everyone everyone is watching tv, trying to figure out what’s going on. and the companies are just now starting to send out reconnaissance plane, either helicopters or fixed wing aircraft. but the majority of the companies won’t get information out until tornl afternoon sometime. so between now and then, it’s frustratingly long waiting game.

>> from a financial point of view, david, how will this impact gas and oil produce sners

>> right. the issue is commodity prices, this is going to elevate commodity prices like it did today. the issue is how much production impact is there? the gulf of mexico is responsible for 25% of u.s. production, both crude oil and natural gasms and that’s meaningful in a market that is tight in certain areas, and the commodity markets are jittery to these types of supply disruptions. who wirnings it’s really the energy strystri and who lose, it’s the consumers who are going to pay more to heat their homes and drive their cars.

>> word came today, david that the president is considering tapping the strategic petroleum reserve to help producers. you mentioned hurricane ivan. back then only 1 million barrels were released from the s.b.r.

>> i think it’s political cover. the only thing wra -- washington can do is say we have the reserves if needed. a year ago, oil inventories were scraping the bottom of the barrel. we were at minimum operating levels. so certain refineries needed oil, but it was only 1.5 million barrels or so that was needed from the reserve. it was a small amount. today we have 55 million barrels over the inventory levels with hurricane ivan. from we’re amply supplied. the real tightness comes from the product inventories. we don’t have that much gasoline. we’re 8 million barrels over historical minimum levels. and what we worry most about is refineries are going to be offline because of major flooding or significant and sustainable widespread power outages so that gasoline demand is still there, but gulf of mexico production is off because of refinery outages. you have more pressure on refined product inventories an the strategic petroleum reserves are all oil. that won’t help.

>> where do we go from here?

>> good question. i hate to put a number on it. if i could tell you why crude is at $67 or $68, i would feel more comfortable telling you where it’s going from here. if we wake up tomorrow or wednesday or thursday morning and find out there is sustainable production damage, commodity prices are going higher than they are today.

>> all right. thank you very much. david pursell, thank you for joining us, david.

>> kpmg, settling with federal investigators today. after the break, we will have the story. we continue our coverage with hurricane katrina, now a category one storm. that all comes up. next.
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>> here’s the close for oil. prices came off the highs after word president bush is considering tapping into the strategic petroleum reserve to help oil producers and refiners hobbled by the hurricane. let’s get you on the closing numbers. the dow jones industrial average, up 0.6%. s&p 500 index up 0.6% to 1212. and nasdaq up 078% to 2137. now back to the latest on energy prices. after hurricane katrina slammed into the gulf this morning, the storm packed winds of up to 150 miles an hour. we’ve already seen crude oil futures surge above the never-before-seen price of $70 a barrel. su keenan here with the latest.

>> $70.80 was the intraday high, actually achieved during electronic trading that’s 57% gain, the biggest one-day gain in 2 1/2 years. of course, a lot of the prices came off the highs. ivan caused future prices to soar 22% in the following month. katrina began―hit the mainland at daybreak and began losing stream from there. while it missed new orleans, the concern for oil trade serts effect of the fiercest storm to strike the gulf since 1969 would have on offshore platforms. tom o’connor listed to updates throughout the day and said key information won’t be known until tomorrow at the earliest.

>> when the workers will be on the r rigs and when crude oil will be back imported into the united states.

>> easterlyier, katrina caused record prices across the board. let’s take a look. natural gas was the biggest commodity mover at one point, up 23%, and in the session, up more than 10 prs. the contracts are expiring. the nymex invoked the act of god clause, saying a lot of the sup pliers don’t have to deliver on the current contract because of the storm and that caused prices to skyrocket. prices have more than doubled in the past year. major money managers are closely focused on what these new price levels could mean.

>> i do think we’re going to see higher oil prices from here on in. demand simply outstripped supply and we’re not producing, or finding enough oil to really take care of our needs at this point in time.

>> meanwhile, the latest word from louisiana port, the biggest facility in the gulf, is that the spokesman says they can’t say when operations will resume. on the offshore oil port and some staff may return tomorrow. it is the very question of long-term damage that would drive prices heeger from here.

>> if we have long-term damage, $80 could be optimistic. at this point, you know, we have to take it $1 or $2 at a time, $5 at a time. you know, i don’t want to start predicting $100 oil, but if we’ve had severe damage, particularly if we’ve had damage to any of the refineries, that’s going to take a while to fix, then you can pick almost any number and add it to what we’ve seen here.

>> $67.20, the closing price for oil, up roughly 55% year to date.

>> all right, thank you very much. hurricane katrina is adding to concerns high energy prices will slow the u.s. economy. peter cook is in our washington bureau with that. peter?

>> derek, even before hurricane katrina rolled on shore, some economists say they were seeing signs energy prices were finally forcing u.s. consumers to cut back their spending. now the question is could the economy take an even bigger hit because of this storm?

>> 46.54. i’ve never parade that much for gas.

>> filling her nissan s.u.v., patrice says rising fuel prices have already forced her to change her spending habits and limit her driving now she’s considering even more drastic actions. ‘

>> i’m hoping that something will change very soon or my vehicle is going to be parked for a long time.

>> bening’s comments bolster the view from some economists that high energy prices are finally slowing americans’ spending.

>> prices at these levels higher would take down growth next year. noy the arrival of hurricane katrina and its effect on energy prices could reduce growth even further err.

>> we were very optimistic going into the third quarter that growth rebounded to the second quarter to something closer to 4. you can take 0.2% off of that. and for katrina, you can probably take another 0.2%. so we’re going to be growing it close to the 3.5%, 3.6% this quarter.

>> wal-mart said high gasoline price wars major factor, come pyring its second quarter profit to the lowest in four years. still, not everyone is convinced consumers are cutting back. recent job growth are boosting wages. consumer spending increased 0.5% a monte on average. and facing record prices at the pump, aun auto analyst points out 65% of all vehicle sales in the last few months were not car bus instead some form of truck or s.u.v.

>> we aren’t going to see changes in consumer behavior until gasoline is at $3 a gallon for six months.

>> concerns sparking a rise in treasuries today. checking right now the yield on the 10-year on this day. you can see the yield there, 4.17%. on the shorter end of the yield curve, 4.05%. and the dollar strengthened today across the board against the―actually, unchanged against the yen and largely unchanged against the euro. was higher on the day. up again slightly against the british pound. i’ll send it back to you right now in new york.

>> let’s go to the big board. bob bowdon has a wrap-up of the turnaround in the markets . stpwhoob

>> there was an interesting bracket between where stocks start and where they ended. if you look at an intraday chart of the s&p, where we began, you see on the left side of that chart, 1201. we tested that 1200 round number and never below 1200. it would have been the first time in seven weeks we would have been below 1200. but no, in fact, 1201 is the lowest we got. on the right side, we equal to the year to date performance. meaning in 2004 we closed at 1211.9. and today we closed at 1212.02. basically unchanged for the year. well, oil stocks were a big contributor to the upward movement. all up around 2%. maybe 0e.2% on the day. oil tanker stocks rallying even more than that, with teekay, general maritime and overseas shipholding up 3.5%. oil drillers made up some of the best stocks in the s&p 500, burlington up 2%. chesapeake energy up almost 3% on the day. and there was some interesting specific names in the oil-related action that has to do with katrina, hurricane katrina today. like offshore logistics. the company provides helicopter transportation services to the oil and gas industry. very specific business. but you can imagine how their business might be benefited by increased use of helicopters to go out and fix some of these rigs that might have been damaged. so that stock up of% on the day.  6% on the day. some stocks suffering because of katrina, such as insurance storks particularly those with exposure to louisiana and mississippi. you see allstate shares down about 2%. and hartford financial shares down about 1.5%. there were some retailers, though, that benefited. like home depot and lowe’s. they rallied, 1.8% and 2.25%. as hurricanes tend to spur sale zeals of things like electric genere tors and batteries and other emergency supplies. home depot, in fact, was the best performing stock in the dow jones industrial average at one point during the day. also a big rally for steal stocks on the day like nucorp, u.s. steal and a.k. steel that all had rallies on the day. back to you at the news desk.

>> merck’s request to delay a second trial over the painkiller vioxx was rejected by a new jersey judge today. the superior court judge turned down a motion to postpone by 45 days the trial set to begin in atlantic city on september 12. back on august 19, jurors in texas ordered merck to pay $253 million in damages to the family of robert ernst who died in 2001 after taking vioxx for eight months. merck has set aside $675 million to fight vioxx cases. as hurricane datrin that makes its way through the gulf, it forces companies to displace workers from oil rigs. we’ll find out what happens once the damage is assessed.

Interview: Chief economist at the international monetary fund

>> welcome back. let’s head to jackson hole, wyoming. our mike mckee standing by with chief economist for the international monetary fund.

>> thank you very much. in his comments today, fed chairman alan greenspan warned that the housing boom and the current account deficit in the u.s. were economic imbalances that threatened growth here, and by extension, in the rest of the world. someone who certainly knows about the current account imbalance and difficulties it could pose for the u.s. in the world is the chief economist at the international monetary fund. thank you very much for joining us. what did you make of the chairman’s comments? is he very worried about these things right now or is it a standard warning?

>> i don’t think it’s a standard warning, but i do think that nobody knows whether these are risks that will materialize in a year or five years. i think he is offering caution that we should be worried about these things and we should take steps, particularly for the current account deficit. it could go on for a long time. we should start taking steps to narrow it because it is widening beyond the region that any large country has been in in recent times.

>> what would be the policy prescription?

>> one part would be narrowing the fiscal deficit. that will be important in the current account deficit. another part will be the steady, measured pace of increase of interest rates because that could eventually affect housing prices and affect savings in the united states, which will also contribute to the narrowing of the current account deficit. other countries have to play a part. asia has to import more and more flexibility needs in exchange rates will help in this. europe and japan have to grow faster and access u.s. imports. these are a bunch of things all countries have to come together to do. i think he is emphasizing this is something we should start paying more attention to

>> he also spoke about investors perhaps being a little too sanguine about the state of the economy in the u.s. and the world. interest rates are not particularly high anywhere. is this a global phenomenon now?

>> i think there is a certain worry that the world is awash in liquidity, and perhaps there is too little attention being paid to risks. he did mention the word low-risk premium. low-risk premium could end badly. i suspect that this is just, this is not a new warning. he has been talking about froth in the housing market . i think he is urging investors to pay caution at this point. he is saying prices are high enough that there’s not thatch margin for error.

>> one of the big risks facing the world right now, the rising price of oil. we have a new hurricane that may possibly threaten the oil platforms in the gulf where it is almost $70 oil now what happens then?

>> thus far we have managed the price rises. at some point, it is going to start impacting a number of issues like inflation and interest rates, long interest rates. it is a concern. i think it is a concern not just for the united states. most industrial companies have weathered it so far, but it’s becoming increasing concern for developing countries where the price of oil has much about bigger effects on their economy.

>> it is a question of whether and when people will react to it. do you think we get to a psychological tippingpoint first before we actually see the effects on commit?

>> that is well possible. thus far as you said, people have been absorbing the oil shock. hasn’t affected, for example, the expectations of inflation seriously. at some point, however, people are going to pay much more attention as it starts hurting them, and as the expectations start changing, at that point we could get what you call a psychological tippingpoint. the higher it goes, the sooner it will come.

>> your responsibility is global economics. how important is the federal reserve to economies elsewhere?

>> well, it’s the central player in the world economy. as a result, its action matter everywhere. both inside the u.s. economy and a lot of countries take their cue, a lot of markets take their cue from what the fed does. obviously markets have become much deeper over the last 20 years. so it matters less, but it still matters a lot.

>> how has alan greenspan been as a steward of this i
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headquarters in new york city, i’m lori rothman. this is “ after the bell.” let’s get you right to the numbers. the dow jones industrial average closes down over .5%, 10,397. s&p off over .5% and the nasdaq down .6%. we start with what’s been a volatile day for oil prices as investors focus on the changing path of hurricane katrina. nymex crude oil futures dropped 2%, ending the session above $66 a barrel after reaching nearly $68 in today’s trading session. the storm is now heading for the florida panhandle and workers are avackyathe oil platforms in the gulf of mexico. bloomberg’s su keenan has more.

>> katrina is now a category two hurricane on its way to being upgraded to category three. winds packing up to 100 miles per hour at this point. the key question for investors, will the storm head directly for the gulf of mexico where 30% of u.s. oil is produced? katrina already swept across southern florida, killing four people and leaving thousands without power. as it heads toward the gulf, it now looks likely to miss the bulk of the actual rigs. those are located off the coast of louisiana and texas. even so, a number of company are evacuating nonessential workers as a precaution. those include ritch dutch shell, b.p. and transocean. fimat’s mike fitzpatrick says the hurricane can still change directions and pick up strength.

>> certainly it seems as though we’ve been on an unbroken track toward the $82 high that was inflation-adjusted high scored right after the iranian crisis in 1980. even though it’s not smorted by market fundamentals, it seems they want to keep pushing the prices there. until there is overwhelming fundamental evidence of the economy weakening and eating into energy demand, this could continue unabated.

>> they thinks we are going high frer here. last year nymex oil futures surged 22% in the month after hurricane ivan hit the gulf of mexico. concern that future storms could do similar damage will likely drive prices higher next week that’s the result of our latest bloomberg survey. you are looking at it. 51% of analysts and traders predict higher prices for next week. only 29% think prices will back off current levels. as you can see, the remaining 20% predict little change. hurricane katrina is the 11th storm of the year. lore yirks hurricane season is far from over.

>> thank you for that. now for the latest on the storm’s direction we turn to meteorologist buzz lopez of the weather service international.

>> good afternoon, lori. while we are talking about a very strong storm here, it’s a strong category two storm. katrina has winds sustained about 100 miles per hour we saw winds gusting to 74 miles per hour in key west. as we zoom on the satellite picture, you can see it is a well defined storm in fact, every once in a while you good et to see a hint of that eye as it continues to pass just to the west-northwest of key west. in fact, at the present time it is about 65 to 70 miles west-northwest of key west itself at vermont tip here of the keys. what we are going to see is some good winds along the southwestern shores of the state of florida. as the storm system continues to move out onto the open waters, it’s going toen continues guy. we are looking for winds probably about 72 hours or so by monday morning to be about 125 to 130 miles per hour. that would be about a very strong category three, perhaps even just under category four status. on the radar picture, very intense rainfall. lots of yellows and reds indicating rain that’s come down at some good rates. we’ve been talking about rainfall about eight inches officially at key west. in some areas picking up considerably more than that. there is where the storm is right now. it’s going to move out over those warmer waters again. looks like by monday morning we could be talking about laundfall number two. that would occur on the northern portions of the gulf of mexico. there the corner on this screen you can see the current stats, winds about 100 miles per hour, moving very lowly west-northwest at eight miles per hour. as we head through the weekend, it is going to take that turn up to the north. some of the latest model indications are now stating this system could maybe make a little bit more of a westerly jog. that means interest from around the delta of the mississippi, around new orleans out towards panama city. noo ed to watch this closely. take those preparations right now. a little bit further to the east, you are probably talking about less of an impact. nonetheless, you want to keep your guard up.

>> buzz lopez of w.s.i. weather center. even though the dow closed lower, markets made some big moves in the afternoon session. for more, here is a report from deborah kostroun at the big board.

>> all the major averages closing out the session lower. however what we did see, the dow jones industrial average bouncing around and actually bouncing off those lows as oil retreated. it closed down $1.36 a barrel, $66.13. that as hurricane katrina likely to miss the oil platforms in the gulf of mexico. that sent oil moving around and sent stocks moving, as well. consumer confidence coming out weaker than expected. that sent retail stocks lower. also we saw the financials lower and that was really tied to alan greenspan’s comments that the increase in the value of assets such as homes and stocks can readily disappear and what he said posing a risk for commit. those comments having an impact. you take a look at the laggards on the s&p 500, oil impacting the energy. bank stocks being impacted by greenspan. oil services within the energy industry, those were some of the worst performers along with the integrated oil. bank stocks lagging on the day. bloomberg home building index was down a little more than 1% on date, 1.5%. the bloomberg home bidding index for the month down 13% in fact, a little bit surprising we even saw the home builders lower in thursday’s session, even though toll brothers said profit doubled in their third quarter as p sales surged and prices of homes surged. home builders not able to homed a rally at this point. retail stocks getting hit by that consumer confidence report. those were some big drags on the market . for the week, it was a down week. dow was down 1.3%. s&p was down more than 1% for the month. dow and s&p both down 2% for the month of august. isle not looking all that good. the nasdaq for the week, it was also down .5%. we should mention however some of the biggest gainers for the week. that was really coming from utilities. remember utility stocks, very interest-rate sensitive. i’m deborah kostroun.

>> banking and retail stocks led the nasdaq lower. robert gray has details from the nasdaq market site in times square.

>> nasdaq composite close -- closing lower in friday’s session and lower for the week. the fourth consecutive weekly decline. that is the first time we’ve seen a month straight of decline since april. nasdaq falling in friday’s session even as crude oil prices closed lower. still staying above $66 a barrel there. was a decline in consumer sentiment from the university of michigan’s monthly report. it was bigger drop than expected for that. also weighing on markets today, chairman alan greenspan making comments out in jackson hole, wyoming, saying the fed is going to pay closer attention to the rising values of assets such as stocks and houses. do want to look within friday’s trading. we saw interest-rate sensitive stocks such as the banking stocks the biggest decliners. transports were the biggest decliners. they eased off paring those losses as crude closed lower in the session. one of the biggest losers as far as the group go friday. industrials losing. that’s where the retail stocks are and computer-related shares were weak, as well. within retail we saw petco animal supplies. falling on its forecast. also bed bath and beyond. sears holding, costco we saw declines a cross the board in a lot of the retail names. weakness in pixar shares falling. the company being investigated by the securities and exchange commission. pixar saying it’s complied with their request. spokesman declining further comment, but the company may not have given enough information to investments soon enough about slowdown of sales of the d.v.d. “the incredibles.” credence systems plunging on their forecast. saw those shares falling. take a look at the philadelphia semiconductor index. weakness in the sox. we did see one exception of course, omni vision technology surging. captain’s micro chips run digital and mobile phone cameras. they are rising on their forecast. at the nasdaq, i’m robert gray.

>> very good. thank you. the food and drug administration has put off making a decision on nonprescription sales of morning-after birth control pill. the f.d.a. cites questions how to deal with teenagers’ use of the pills and plans to hold a public comment period.

>> rather than putting into place such sweeping policy in the context of a decision on a single drug we need to have an open process to solicit public comment on this policy change before we embark on it.

>> barr labs, maker of the drug hoping for approval of this emergency contraceptive which is intended for use within 24 hours of unproketted sex. barr labs has been seeking aprofessional to sell the product without a prescription since 2003. where do crude oil prices go from here? michael lynch is next on “bloomberg after the bell.”

Interview: Barr Pharmaceuticals

>> we had news after the close of regular trading from barr pharmaceuticals. peter cook is standing by with more on that. peter?

>> thank you very much. the food and drug administration announcing late this afternoon that it is delay ago decision on barr pharmaceuticals’ application to sell the plan b contraception over the counter. they want more public comment he on issues related to the possibility of approving a drug for over the counter use for women 17 and over and require ago prescription for those under 17. we he have barr pharmaceuticals’ chief executive bruce downing joining us for reaction to this news. thank you for joining us.

>> you’re welcome.

>> you filed this application in 2003. your reaction to this statement from the f.d.a.?

>> my reaction is disappointment. i thought we made a very strong case for the product, one that would be otc for older women and remain rx for 15 and younger. the f.d.a. determined in its letter to us that evidence supported the status for women 17 and older. we wish they had gone ahead and approved it for that age group. i think it would be a great thing for barr and for women that need the product.

>> the f.d.a. commissioner at the news conference suggested this is a unique case and imposes issues that the agency has not yet confronted before, perhaps with other drugs. do you disagree with that?

>> i really do. it’s similar to the nicotine gum and other smoking cessation products that are available with an age limit. the only nuance is to preserve access to women 16 and under that needed the product. it would be available to them rx only. there is clear precedent that our judgment supported an approval of the dual label. we’ll make the argument in the proceedings that the f.d.a. is now initiating.

>> now what is your understanding of this public comment period? what is it the f.d.a. is asking for in the public comment period?

>> well, i think―i didn’t hear the commissioner’s press conference at aufplt the only information i have is in the letter that we received about their decision. so i really don’t note details. but it’s sort of an understanding that they’ll publish a request for comments in the federal register which is a journal where they give notice to people about government action an then invite the public to comment on the specific questions which they’ll outline in the notice. and we’ll respond to that and again press our arguments for approval of the product.

>> as you know there have been groups on both sides of the abortion debate interested in this decision, waiting for this decision. more than 17,000 comments filed by june at the f.d.a. on this decision. do you think politics played a role in this?

>> let me just say anyone that opposes abortion―almost all americans do―would be squarely behyped this product. it provides the opportunity to reduce the number of abortions by eliminating the number of unwanted pregnancies. i want to make that perfectly clear up front. whether politics played a role or not, i’d leave that to others to decide. all i can say is i thought we made our scientific case. the f.d.a. seems to agree we made our scientific case. and we have yet to get approval.

>> all right. mr. downing, we have to leave it there. thank you for your time. chief executive of barr farm constitute cals. back to you in new york.

>> thank you very much. well, the u.s. open starts monday. a preview from the c.e.o. of the women’s tennis association who joins me next for this week’s edition of “money & sports.”
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Listen Market briefing --- Lori (slow)
Specifics of the trading day --- Suzanne (slow)
Week ahead --- Brett (slow)

recapping the day on wall street stocks fell after the university of michigan’s consumer confidence declined more than expected. even though oil prices fell, the stock market failed to advance. let’s check your closing numbers. dow jones industrial average down 53 points to 2,397. s&p 500 down seven points. that’s over .5% loss. nasdaq composite also closing lower for the friday afternoon session, down 13 points. a warning from federal reserve chairman alan greenspan contributed to a losing day and losing week for the major u.s. market averages. our suzanne has more on the specifics of the trading day.

>> thank you very much. stocks finished the day and week lower. the s&p 500 has declined nearly 3% from the four-year high reached on august 2. as for today’s decline, several factors at work. among them, that warning from federal reserve chairman alan greenspan about the rising price of assets including stocks. investors also dealt with a weaker than expected report on consumer confidence from the university of michigan. as you mentioned, that index showed its first drop since may and largest decline since february of 2004. although oil retreated to the $66 level, one investor is concerned that higher energy prices have already begun to curb consumer spending.

>> up over 50% in the last 12 months. on a per barrel basis, gasoline is approaching $3. it’s been a slow, steady climb. we think consumers at least looking backwards have adjusted to the slow rise in oil. there will be plenty of time where it will have a huge impact and will weigh heavy on discretionary spending. we think we’re reaching that point.

>> greenspan’s comments hurt homebuilding stocks as well. the s&p index which measures the group sells more than 1% bringing a slide in august to 14%. toll brothers, d.r.horton and m/i homes were the decliners. higher interest rates could crimp demand for mortgages and loans. fund phurg greg church says the weakness in bank stocks today should be used as a buying opportunity.

>> it’s up over 50% in the last 12 months. gasoline is approaching $3. but it’s been a slow, steady climb. we think consumers at least looking backwards have adjusted to the slow rise in oil. there will be a point in time where it will have a huge impact and will weigh heavy on discretionary spending. we think we’re reaching that point.

>> we apologize. that was not greg church. even with today’s declines there were some bright spots, particularly in technology. the dow jones industrial average hewlett-packard finished the session higher. h.p. announced thursday they’ll buy back an additional $4 billion in stock. novell was the best performer in the s&p. symantec the third best performer. that’s a recap of today’s trading activity. back to you.

>> thank you. a report out this friday is expected to show the u.s. economy shows steady job growth in august. bloomberg’s brett gering has a look at week ahead.

>> u.s. employers expected to haved a an additional 190,000 jobs to their payrolls. that’s in line with the average monthly increase for 2005. the unemployment rate is expected to have held steady at 5%. but the nation’s factories probably saw no new jobsed aed to their payrolls. according to the bloomberg survey of economists. speaking of factories, orders at the nation’s manufacturing facilities declined 2.2% in july according to economist forecasts. that report out on tuesday. also on tuesday, general motors holds its mid-year meeting for analysts and investors. the world’s largest automaker is trying to rebuild u.s. inventories of some cars and trucks after employee pricing offers helped clear dealer lots in june and july. all automakers release august sales figures on thursday. that same day the federal reserve releases minutes from its august 9 meeting when it raised the benchmark interest rate to 3.5%. on wednesday revised data for growth in the second quarter is released that. expected to show the u.s. economy grew 3.4%, unchanged from the first estimate. investors also get a look at a measure of manufacturing activity in the chicago area during the months of august. that report followed by the national index on thursday. the international council of shopping centers releases its monthly report on sales at retail chains. august data includes back to school shopping activity but rising energy prices may have made shoppers less inclined to spend. thursday also brings figures showing income and spending growth among u.s. households in july. the personal consumption expenditure index a favored measure of inflation among federal reserve officials is also released. that’s your look at week ahead, lori. back to you.

>> a busy week indeed. thank you very much. the united auto workers still conducting its financial review of general motors. that is the word from u.a.w. president. they’re trying to determine if g.m. needs concession to reduce health care expenses. last month the union hired bankers including lazard to study the automaker’s finances. he is unconvinced they’re in serious enough financial trouble to justify union cuts. the two sides need to renegotiate a contract that expires in 2007. a footnote here. the union may be waiting to see if rising sales boost profit and retkaougs the need for concessions. rio digital music players will stop being made because of competition from the ipod. rios were the first on the market when released in 1998. d & m will focus on high end theater and professional products. since the rio was tkraosd, the market for digital music has ballooned to a $7 billion business. apple ipod has grabbed 75% of the u.s. market share. stocks fell again today. the dow fell for a fourth week in five. looks like the bears are alive and well. how are short sellers playing the market ? we ask david tice of prudent bear fund which stocks he sees as vulnerable and what opportunities they present. that’s next.

Interview: Portfolio manager with Univest Trust Services

>> the federal reserve bank of new york invited 14 of the major participants in a credit derivatives market to a meeting next month. it is amid concern the $8 trillion industry is rife with unconfirmed trades which critics say could undermine investor confidence. the meeting at the fed’s new york office on september 15 will focus on market practices. that’s according to a letter sent to bank chief executives by the president of the new york federal reserve timothy githner. the credit derivatives market doubled in the last year giving companies, investors and government the ability to bet on or protect against changes in credit quality. and as we’ve been reporting this afternoon, oil prices reached a record price, $67.40 per barrel. that did help send stocks lower today. and our next guest says in this environment, investors need to be defensive. here to explain is gary wolfer, portfolio manager with univest trust services. he helps oversee about $1 billion in assets. and he’s joining us from allentown, pennsylvania. gary, good afternoon to you.

>> great to be here, ellen.

>> gf we talk about being --

>> before we talk about being defensive, let’s talk about ford. we had news after the close that moody’s was cutting ford senior debt rating to junk status. how significant is this?

>> it’s reflective of the bad news that’s already intrinsic in ford. we have been out of ford bonds for quite some time and quite frankly never held g.m. or ford. we stay away from the domestic auto producers. it’s a very tough area given the overhang of pension costs, etc. it’s an area that really needs to be restructured. this is reflective of the restructuring that ford will be undergoing in the next year or two.

>> that very much in the news today as we get these hints of how ford will restructure. in the short term, i here what you’re saying long term. you don’t want to be there. for some investors, there are these restructuring plays to be had perhaps with the bonds or with the stocks?

>> i would stay away clearly from the bonds as well as the stock. basically at this point, i don’t think there’s any reason to stick your chin out. and literally get clobbered. specifically on quality of that low. so basically what we’re recommending is to take more of a defensive posture. at least in the near term. we’re still very positive on the domestic economy but basically the dual hit of both record energy prices as well as the fed continuing its campaign to raise the fed funds target rate, we will be comfortable once one of those negatives is removed. and we believe that basically the fed is nearing the end of its raising interest rates.

>> what are good picks then for investors under this defensive scenario?

>> basically, we were looking at two more increases by the fed. and again, high energy prices would keep us away from the basic materials, the packaging companies, the papers, those type of companies we would definitely away―stay away from. what we are looking for are more of the consumer staple type companies and health care. we feel there is good value to be had in those areas.

>> noye one of the stocks you think ex--- i know one of the stocks you think exemplifies this is walgreen. tell us why you think it fits the scenario that you’re talking about.

>> they just―they’re just a well-run company. excellent management. 30% of their stores are basically three years or younger. just very well-run. we feel that they can grow earnings by 20% per year over the next several years. and in essence, the p.e., although high, ex-trap lathe forward as far as e. -- extrapolating forward as far as earnings are concerned, it is reasonable at a 28 p.e. given earnings.

>> given the stock is up 21%, about 25% over the past year, do you think other investors have caught on to what you’re talking about?

>> i think that’s possible. but we still feel that there’s more room in the stock. and specifically if―just by example, what happened today. even though the consumer staples area did not do that well, we still feel it’s a good haven at this point. until things are resolved. if not, as far as energy prices are concerned, as far as the fed is concerned.

>> gary, we had news after the bell as well that guidant is receiving f.d.a. approval to expand the u.s. drug-eluding stents, getting the ok to expand the stent trial. i know you like johnson&johnson so tie this together for us.

>> basically we feel that johnson&johnson is a tremendous play. very well diversified company. about the closest i would get to big pharma at this time. the guidant news just is the icing on the cake. we still love johnson&johnson even if there had been a little bit of a difficulty passing that aspect of the stent. we feel that’s just a very big plus for j&j going forward. we actually have a 12-month price target on j&j of about $70 a share. and it could even go higher. we feel that $62, it’s extreme had i undervalued.  it’s extremely undervalued. not only a value play but growth play and can generate earnings in excess of 12% going forward coupled with a 2% dividend yield.

>> garyer thanks for joining us.
>> -- gary, thanks for joining us.

>> thank you for having me.

>> that was gary wolfer of univest. we will be looking at bonds and updates on world and national news. a lot of news after the bell. keep it here, developments straight ahead.

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Listen Market briefing --- Ellen (slow)
Storm watch --- Su (fast)
Zigzagging action --- Deirdre (slow)

i’m ellen braitman. and this is “ after the bell.” let’s take you through the settling numbers. let me bring them up on the bloomberg. the dow down .8%. the s&p losing .7%. the nasdaq down .4%. as for the s&p, nine of 10 broad economic groups making up the index traded lower. only energy stocks on the rise with those record oil prices. and we’ll have more on the oil story in a moment. but first up, our top story. general motors and ford, the two biggest u.s. automakers, lowered to junk status by moody’s investor service. moody’s lowered g.m.’s rating two levels and the rating on its finance unit lowered as well. in the meantime, ford lowered one level to junk status. which is one step below investment grade. that current rating now, ba-1. that is an assignment from the company. moody’s also lowering its rating on ford motor credit company to the lowest investment grade. the cuts affect $150 billion in debt limit. let me also point this is the second jumping rating for ford. it comes after s&p lowered the company to noninvestment grade back on may 5. what that does mean is it’s going to push the automaker out of the most widely followed investment grade bond index. by lehman brothers. and may spark selling of those bonds. so a story that will continue to develop. in the meantime, energy futures were up for a fifth day. nymex oil futures surging to the never before seen price of $67.40 a barrel. the gains coming on concern about potential storm damage to oil platforms in the gulf of mexico. forecasters saying that tropical storm katrina could become a hurricane by monday. so let’s get the latest from su keenan.

>> storm watch. that’s the story here for oil. even though the latest government report on energy supplies shows gains in crude oil stockpiles. in fact, the fourth straight weekly gain which would be bearish for price. investors say they are focused on the storm and its direction. the direction of oil prices is higher. 2.5% higher on the day. as you see the close back above $67 a barrel. and take a look at natural gas futures. rallied more than 3% to their highest price in 2 1/2 years. prices have surged 87% in the past 12 months. now, platforms in the gulf account for roughly a quarter of u.s. gas production. 30% of oil production. katrina is the 11th named storm after storm-packed year and it’s forecast across florida this week to move into the gulf. while it’s currently a tropical depression, the national hurricane center says it could strengthen the hurricane force by monday. refco’s jim seal says without fear, it abounds right now, prices would be lower.

>> there’s just simply a lot of worry in the market . there is i think also, although inventory is very high, we do keem more on a daily basis -- we do consume more on a daily basis than a year ago so perhaps the amount is not quite as high as it used to be. but there’s no inadequacy of supply anywhere.

>> let’s look at supply. the latest government report shows the boost in the nation’s supplies of crude oil last week, diesel and home heating oil also rose. the nation’s gasoline supplies, however, plunged twice as much as analyst expectations for last week. it is the eighth straight weekly decline and analysts say this inventory report created only a brief pause in today’s rally.

>> a larenl-than-expected crude stock build―a larger-than-expected crude stock build and a distillate stock build. but a larger-than-expected gasoline stock draw so they sort of cancel each other out. the most bullish component being the eighth consecutive gasoline stock draw. and an indication that demand  gasoline demand recovered a bit last week.

>> meanwhile, the latest word from opec, the oil cartel, spokesperson says oil prices probably will not fall in the fourth quarter and that’s because of instability in the mideast and difficulties among nonopec countries in raising production. ellen, another record-setting day.

>> another record. su, thank you very much. let’s tie it into the stock market where those record prices wiped out early gains for stocks. deirdre bolton is following the action and joins us. i should call it the zigzagging action.

>> it certainly was. a very zigzag and rocky ride for stocks today. the markets opened lower and investors became bullish on the july new home sales record but concerns on oil won out and markets sold off. a mixed bag of economic data pulled investors in opposite directions. the july durable goods number saw its biggest decline in 18 months. bringing out the bears. but new home sales in july hit a record, giving the bulls the upper hand.

>> equity investors are really torn. on the one hand, they want to believe that the economy can continue to grow despite fed tightening. despite high oil prices. because let’s face it, that’s what the economy has done all year. on the other hand they know that eventually we’re going to get some kind of response. some kind of slowing in growth.

>> fears of slowing growth sent cyclical stocks down, a slower economy means leaner profits for companies including caterpillar and united technology. basic material stocks, newmont mining, phelps dodge and monsanto also moved lower. not surprisingly, home builder stocks rallied on the housing figure. d.r. horton and lennar and pulte were some of the stocks that helped a key housing index break a six-day losing streak. g.m. also rallied. the world’ largest automaker led gains on the dow jones industrial average. “the wall street journal” reported the united auto workers union is considering helping the car maker by―cut costs. one strategy says corporate cost cutting is here to stay thanks to higher energy costs and the increasing costs of borrowing money.

>> the economy may not yet be slowing. but costs are rising. and you can see the evidence of that in companies taking all sorts of steps to try to cut costs. part of it is the little bit of a merger wave that we’ve been having which to me is all about cost cutting. another part of it is we’ve had a rise in layoff announcements.

>> one company extending contracts for a few of its key employees, coach. the luxury goods retailer renewed its agreements with its chief executive, executive creative director, and chief operating officer, after boosting first quarter earnings forecasts and saying sales will come in at the high end of its range. that stock closed up more than 4% today. ellen, back to you.

>> deirdre, thank you so much. deirdre talking about the automakers and after-the-bell announcement on automakers, johnson controls, the world’s largest maker of automotive parts, also out with news saying it will buy york international for $2.4 billion to double its heating and cooling system system business. and with york under its umbrella, they are less reliant on auto interiors. johnson controls will pay $56.50 a cash. johnson controls says that includes the $800 million of york’s debt. it will assume the purchase valued at $3.2 billion. treasuries, little changed today as the report on new home sales provided investors with little reason to buy government debt. given the fact yields are at the lowest levels we’ve seen in a month. as for that two-year note, take a look at that yield. 3.97%. the government today sold $20 billion of those notes at a yield of $4.01%. as for currencies today, the dollar was up against the yen. there is concern oil prices will limit growth in japan. you see little change right now. that’s the current trade but durk the day, that had been the -- but during the day, that had been the trading action. and brokerage firms credit suisse, city group and lehman brothers will join fidelity’s brokerage unit in creating b.s.x. group. this group will together operate the new market called beck. the deal may help buoy the money-losing boston exchange at a time when larger rivals, including the new york stock exchange, are expanding into electronic trading. for fidelity and its partners, the investments may help lower trading costs and that would be by increasing competition among stock exchanges. beverly enterprises says it has accepted an increased takeover bid of $13 a share. the buyer is investor group north american senior care. and the transaction is valued at more than $1.9 billion. it is subject to the approval of beverly shareholders. north american senior care beat out a group of hedge funds that last week offered $1.64 billion for beverly. and some analysts say this may not sh the end of the bidding war―may not be the end of the bidding war. america online settled an investigation by new york attorney general eliot spitzer. the biggest u.s. internet service agreed to stop giving bonuses to employees who persuaded customers not to cancel subscriptions. a.o.l. was fined $1.2 million and it agreed to pay $50,000 for costs of an investigation. about 300 customers had complained that their requests to cancel the internet service were ignored and that the company continued to bill them. a lot more on those record oil prices. one factor at that, putting pressure on stocks, has the summer course run its rally? we will ask gary wolfer, portfolio manager with univest trust services. we will also ask him about that junk status from moody’s for g.m. as well as ford.

Interview: Head of fixed income trading and research with deutsche bank private wealth management

>> are you looking for that inversion, meaning the yield on the 10-year to be move lower versus the two-year.

>> i’m not necessarily looking to it but it could take place or close to it today the yield on the two-year is 3.98. and the yield on the 10-year is only 4.18. that’s narrow. so we’re close to narrow and we could get more narrow.

>> let’s talk about how you want to position. how are you dealing with this?

>> well now we’re somewhat short our benchmark in terms of duration position.

>> put that into english for people who don’t understand that.

>> generally i’ll use average maturity. normally we invest in the five-year part of the curve. if we were neutral relative to our outlook for interest rates, or average matureties would be five years. right now they’re closer to 4 1/2, to 4 3/4 years because we think rates could trend higher over the next three to six months. given the outlook for inflation.

>> and what about outside the treasury market . how much are you finding a p.l. outside the treasury market ?

>> when rates are low, spreads on other products like corporates, agencies, mortgage banks, tighten as people go for yield so. there’s not a lot of value or interest outside of treasuries from our point of view.

>> what does it mean in terms of how fully invested you are in terms of the fixed income porm of the portfolios that you at deutsche bank are managing?

>> 95% of average maturity, not duration, we like the cash or the short end of the yield curve, because we think the fed is going to continue to tighten. and the short end of the yield curve, anywhere from let’s say six months to two years, will benefit if higher yield. the 10-year, we don’t see moving much. if not, yields may go higher on the 10-year note.

>> what does it mean for you as an investor and the strategist, that more folks these days are talking about the appeal of cash as the fed has continued to raise rates? we’ve had the 10 straight interest rate series. does it make cash more competitive? more difficult to find places to park for the short-term investment?

>> no, i’m glad that cash is getting more of a focus. because i think it’s one of the few values in the treasury market right now. given our narrow forecast for the trending range of the 10-year, i think people have to be careful about buying 10-year bonds at these levels. therefore the best place for them to be or even for me to be is at the short end of the yield curve, six months out to two years at the max. i would like to see the two-year note, which we get an option of two-year notes tomorrow, when it starts to go above 4% that’s a signal to start buying two’s.

>> you’ve been talking about the three to six-month time period. you i know looking to 2006, you have a lot of interesting thoughts. and the word “stagflation” is included in the 2006 thoughts. is that a possibility?

>> i think so. given the outlook for the economy, which is slower growth in 2006, but with higher energy prices, i think eventually they’re going to have to creep into the c.p.i. and when that happens, you can get slower growth, a little bit more inflation. and all of a sudden the word stagflation will come back into the forefront. and that’s generally a negative time for the bond market .

>> what would you do ahead of that?

>> i would buy short-term treasuries, six months to two years, i think that’s the best place to be right now.

>> gary, thanks so much. gary pollack of deutsche bank private wealth management. with that conversation we’ll head into a quick break and come back with the daily chart of the day. quiet time for volatility in the yield curve. we’ll continue to look at the treasuries in the yield curve. and we’ll be back.
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Listen Market briefing --- Ellen (slow)
Housing boom --- Bret (slow)
Light truck sector --- Peter (slow)

i’m ellen brateman, after the bell. 30 after the hour. let’s recap the day on wall street. where stock decent kleined. the dow ending down 50 points. the s&p losing four. the nasdaq losing four points as well. intel today unveiling a personal computer chip that combines elements of processors for desk top and notebook machines. chief executive paul autolini touted the qualities. zp we’re combining the best of the two architectures into one, to create a next generation power-optimized architecture, designed from the bottom up for performance per watt. without compromising on the requirements of performance for the given tasks at hand.

>> he’s speaking to mirror the success of intel seven tureeno notebook chips which have delivered $5.in revenue since their introduction in 2003. also looking to future chip development. and at the close, the shares down 1.3%. home sales still hot in july they ran at their third-fastest pace ever. yet, at the same time, the report showing more cracks in the housing boom. sales of previouslyly-owned homes last month falling 2.6%, to an annual rate of 7.16 million. bret bearing is following the story. and interesting to balance the fact that you’ve got such strength but coming in weaker than expected?

>> we should keep in mind that purchases were still the third heaviest on record. but the volume more remarkable when you consider the median price of a home rose to an all-time high of $218,000. that’s keeping some industry leaders optimistic.

>> price appreciation still quite smart. you know, 14% year over year for single-family homes, about 11% for condos. i would say no sign of any kind of fundamental weakening in the market yet.

>> low mortgage rates and job gains are expected to keep the housing market growing. but there’s another element 0 to the report. the main limit price appreciation may signal a slowing market . the supply of homes for sale rose to the highest level since 1988.

>> the sales base begins to slow further, we could have a building of inventories. and we could rise above or at least get to a five-month supply. in my opinion, that is a better balanced marketplace for housing.

>> now some economists say that that supply catches up with demand, people may have difficulty selling houses. because buyers have more options. which brings us back to home prices. goldman sachs says if home sellers can’t get the prices here asking for, those homeowners are likely to rein in spending. and less spend something sure to cause a slowdown in the economy. a report on new home sales is due out tomorrow morning. that report is also expected to show a slowdown from june’s record pace. ellen?

>> thanks. and also near record high is the gas prices. and with that level, what you have is the government now requiring auto makers to boost fuel economy standards for light trucks by about 8% in time for 2011 models. the government also proposing to break the light truck sector into six separate categories. lets get the latest on story from peter cook, from washington.

>> well, ellen more than half of vehicles sold in the u.s. through july of this year, fall into the light truck category, which includes sport utility vehicles, pickup trucks and minivans. for the first time since corporate average fuel economy, or cafe standards were proposed, the government is proposing rewriting the cafe rules to reflect the growth in the light truck sector.

>> this is a plan that will save gas and result in less pain at the pump for motorists without sacrificing safety.

>> now currently a car makers 2006 fleet of light trucks must average 21.6 miles per gallon. and passenger cars must average 27.5 miles per gallon. under the proposal, passenger cars would remain unchanged. but by 2011, the entire light truck sector would be divided into six categories. the smallest light trucks will have to reach 28.4 miles per gallon for 2011 models. while the biggest trucks will have to reach 21.3. they say the changes will save consumerers $10 million gallons of fuel in the first year.

>> it’s so dependant upon the details of what comes out. and also it dependant upon the consumer. you know, the consumer is always the unknown factor here.

>> spokesman for ford, g.m., daimler-chrysler and honda say they want it study the proposal first. the head of the alliance of automobile manufacturers say the new regulations pose a challenge for the industry, but one auto makers will meet.

>> the key here is, are we going to preserve customer choice? and that’s really what we’re talking about here. i think nitsa is trying to walk the tightrope, trying to do the right thing. and amongst other things, preserve customer choice while adding new requirements.

>> environmental groups say the proposal doesn’t even include the worst gas guzzlers. s.u.v.’s like the hummer. they say it’s a missed opportunity to improve the environment and make u.s. car makers more competitive.
>> unfortunately, the bush administration might have given a shovel to the big three today, which they’re going to dig their own grave with. this gives them another opportunity to exploit loopholes and not invest in technology. the rule changes open to public comment a final rule is due by april. ellen?

>> ok, peter, thanks. also making news, canada may impose tariffs on some u.s. goods. and the move may come in retaliation for the u.s. decision to ignore a trade panel ruling that is linked to a lumber dispute. canada’s lumber industry executive says canada is looking for the product that would fit that bill. with that, we’ll head into a quick break. coming up, yeeds on 10-year treasuries at their lowest in a month. our guest, gary pollack, head of fixed income trading and research at deutsche bank will tell us where he’s finding value.

Interview: Changes to the federal tax code

>> a presidential commission nearing a september 30 deadline to propose changes to the federal tax code and those changes could spur savings and boost economic growth. steve reports from washington.

>> the market has enjoyed a tax advantage over other investments since 1997. that’s when congress effectively made most sales of primary residences tax-free. now a presidential panel is considering lower taxes on all sorts of investments which would erode the edge owned by real estate. since 1997 congress aloud couples to sell homes where they lived for two years and take up to $500,000 in gains tax-free. taxes on the sale of second homes also were reduced twice since 1997 to rates as low as 5%.

>> i believe that that 1997 tax cut was the most important driving force behind the boom we have seen in housing.

>> the median home price has increased by almost 70% since 1997 buoyed by low mortgage interest rates. mortgage interest is deductible for taxpayers that itemize. only a third of americans itemize. the panel may consider replacing the mortgage interest deduction with a tax credit. that would be more beneficial to lower income americans who do not have enough deductions to itemize.

>> we have never assumed it would be a given that, of course, they won’t do anything to the mortgage interest deduction because they’re always saying that could be changed at the margin. but change is a more likely outcome than scrapping.

>> gould says the panel may consider repealing the deduction for interest on home equity loans and reducing the $1 billion cap on mortgages that can qualify for tax incentives. whatever the panel proposes, some oerbs expect congress to retain some of the corner stones of the current tax code.

>> i just really do look at the charitable contributions, state and local tax deduction, mortgage deduction as sacred cows. unless we have a major wholesale reform, i expect them to still be in tact at end of tax reform.

>> the tax panel must weigh any changes that reduce the tax edge for housing against president bush’s instruction that the panel recognize the importance of homeownership.

>> and with all that in mind, let’s now look ahead to the housing data we have coming out this week. existing home sales figuress due out tomorrow expect to show homes in july sold at 7.25 million annual rate t.would be down but still close to the record pace of existing home sales we saw in june. that was when low interest rates helped bolster the housing boom. those interest rates mean that home mortgage rates remain near a four-decade low. sales have been boosted by the fact that the economy has been creating jobs and incomes have been growing. put it together and early summer sales sent prices on existing homes to an all-time high. we’ll watch the price points as well. then on thursday, we get data on new home sales. the report forecast to show homes built at an annual rate of 1.3 million in july and like existing homes, new homes have been selling at a record pace. in june, new single family houses were sold at an annual rate of 1.374 million. the median price of those new homes was down 5.5% to more than 214,000. the latest round of housing information comes as some economists and realtors say the housing market may be nearing a peak and that many buyers are having to stretch too far in order to pay inflated home prices. the national association of realtors, for example, earlier this month said housing affordability is at a 14-year low and real estate brokers and some markets say houses are staying on the markets longer and the number of unsold homes has been increasing. heading into the final time-out of the hour and then we’ll come back and get you caught up on world and national headlines. and today’s “biggest mover.” a look at the rise in natural gas prices. that and much more next on “after the bell.”
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Listen Market briefing --- Ellen (slow)
Interview: Portfolio Manager

>> news after the bell from the insurance company marsh & mclennan. they’re saying the chief financial officer, senior vice president will leave the company. she plans to step down as chief financial officer of marsh and will resign in march 2006. the company will begin searching for her successor. again, marsh losing the chief financial officer in march 2006. the company saying that she’ll step down march 2006. as for the shares, keep in mind, down about 16% so far this year. so that story breaking for us after the bell today. in the meantime, intel is preparing for its developers forum. that event begins tomorrow. it will include product news, new chip design, launch dates, all of which could help set the tone for the company’s third quarter profit outlook. so far this year, intel shares have gained more than 11%. is this the time to buy or would investors be paying a premium? let’s ask tim allen, portfolio manager. he helps oversee more than $5 billion including shares of intel. he joins us from seattle. tim, good afternoon.

>> good afternoon, ellen.

>> are you anticipating hearing from intel tomorrow?

>> i don’t think i have peculiar expectations. i’m curious to see if they’ll pull a rabbit out of the hat. there’s been speculation because apple made a decision to switch to the intel architecture that intel has some special secret sauce that hasn’t been divulged yet. i have no particular insight into whether that will happen. i’m curious to see what will happen.

>> in terms of your current view about intel, share vs. been moving higher. up 11.4% so far this year. have you been sitting tight, have you been adding? what have you been doing with the shares?

>> i think it depends on price quite frankly. the stock began the year in the low 20’s. they delivered a good first quarter. and expectations began to increase and stock got as high as 28 or so at which point we are less enthusiastic. so second quarter earnings, which i thought were pretty good the stock backed off and got below $26. the market misread that. the market expected acceleration for growth in the second half. it was a little overblown. but look at intel, if they earn 1.50 this year, that’s something less―just about a market multiple. the stock probably grows faster than the s&p 500. at the current price it’s moderately attractive. if it were $22, we would describe it as extremely attractive. high 20’s toward 30 it would be much less attractive. depends on the price given that the company’s position in the world is pretty well defined. go ahead.

>> i was going to ask in terms of the current c.e.o. how that is working out for you as an investor. have you been happy with the progress you have seen so far?

>> i have been happy with the company recently. i don’t know if it is peculiar to the new c.e.o. like a lot of technology companies, microsoft included, intel made a decision to recognize the fact that its growth rate isn’t what it once was while return on capital is extraordinarily high. the company’s decision to accelerate the stock repurchase, they bought $5 billion in stock so far through june 30 this year. so i don’t know if that’s a decision that the c.e.o. made or whether board level but i am happy that intel, among other technology companies, has recognized it has a great core business and generates an awesome a.cash and that given the growth rate is lower, one of the best ways to put it to use is buy back stock.

>> when you look at your entire portfolio, how does technology play into that right now, meaning how attractive is technology in general as an investment?

>> well, we’re market weight in our large cap product. at times we go sometimes overweight and sometimes underweight. it seems like the market overall for the large technology stock is doing a decent job of discounting the growth prospects. there was disappointment in second quarter earnings announcement. it didn’t show acceleration and guidance wasn’t increased. that reflects a fact that going forward the growth rate in the technology sector may be more like 7%, 8%, 9%. it will not revert to the 1990’s. sometimes investors become disenchanted with that and maybe the stocks fall off and that’s when you buy them. when people believe those growth rates are attainable and valuations reflect them, we tend to go below market weight. soy think right now on average the market is doing a pretty accurate job of discounting what the growth prospects are in the technology business. and discounting the fact that these companies, a lot of the largest companies have extraordinary core business which generate awesome returns. it’s a recognition that for a lot of the large companies, the growth rates are not what they once were.

>> tim allen of wentworth as we look ahead to tomorrow when intel has the developers forekwreupl. we’ll have headlines as they become available tomorrow. in the meantime, housing and tax investment in the united states. it may soon change. we have details straight ahead.

Interview: Money & Sports

>> pakistan’s benchmark stock index rising 3% today, making for the biggest fluctuation among world equity markets . the pakistan telecommunications company helped lead gains on news of a meeting between pakistan’s prime minister and local brokerages. there is optimism that the government may raise its limit on how much money investors can borrow in order to finance stock purchases. now the head of research at ivescap securities says “talk of improving liquidity is boosting confidence of investors.” the system in question allows investors to buy shares in seven different companies that borrow cash and defer final payment as long as they pay a daily financing cost. let’s go to the bloomberg terminal right now. what i brought up is a price chart of the karachi stock exchange index. you can see it down almost 30% since the high. that was reached back in mid march. today’s gain is now the largest we have seen in two months. well, less than two years after being bought by nine business men, the atlanta hawks lost one of their own. steve belkin agreed to sell his 30% share to other owners. this move cleared the way for joe johnson to join the team from phoenix. let’s get more of this edition of “money & sports.” a lot of players and money involved in this. tell us how it is playing out. what does it mean?

>> it essentially means like you said, they got rid of one owner who was against the trade and brought in the man they sought to get all along, joe johnson. they introduced him at a press conference in atlanta. brought a lot of attention to the team. not all publicity is good publicity if the hawks. for years they have been basically the doormat of the nba. they tried to bring in a big free agent and spend a lot of money to get the big free agent and one of their owners said i don’t like the trade. in the end they had to oust him, that being steve belkin. mostly talk wgt owners they’re happy they have joe johnson on the stage and introduce him as an atlanta hawk. a bit of an embarrassment.

>> why did belkin ultimately sell?

>> well, he essentially didn’t like the trade, thought they were spending too much money on a guy who in phoenix was third or fourth best on the team. they were giving up draft picks to get him. they didn’t have to. they could have offered him a contract. most likely phoenix would have matched that contract. they upped it and put in first round draft picks to go with it. ownership will essentially absorb that 30% among the owners now. they won’t bring in any new owners. they’ll bring in joe johnson.

>> let’s talk a little about the gambling company sponsoring professional soccer league. what are the details here 4?

>> bet―betandwin.com. this is the name of the league now. they’re sponsoring all the teams. tried to get in with other leagues around the world and promote betandwin.com as an internet gaming site. the entire league will be known as betandwin.com league. it will be on the field, on the jerseys of the team. interesting sponsorship. you have all kinds of sponsorship throughout north america but none by a gaming company.

>> do you think we’d ever see something like this in the u.s.?

>> essentially no. you look at attitude towards gambling and sports in the u.s. and unless it is in las vegas or unless a minor, minor league team i don’t think you will see this. you have seen goldenpalace.com. you have put the ads on the end of boxers and boxer shoes. knowing the attitude towards gambling in the u.s., i doubt you’d see something like this.

>> have a great weekend.

>> mike joins us every week for our edition of “money & sports.” with that a quick break. more “after the bell” after this quick break.
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Listen Market briefing --- Ellen (slow)
Merck --- Su (fast)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)

>> welcome, from world headquarters in new york city, imellen braitman, this is “after the bell.” before we get you details on merck, we’ll show you the closing numbers for the stock market , the dow up four points, the s&p, less than 1 and nasdaq losing less than 1. the index little changed, the surge in oil prices and ruling on merck in the first trial over the vioxx painkiller, sparking an afternoon selloff. on the week, benchmark indexes fell. first up, news on merck. that jury in angleton, texas, found merck liable for causing the death in 2001 of a 59-year-old man. the jury decided merck must pay more than $250 million to that man’s family. shares of merck down 7.7%, wiping out almost $5 billion in market value. su keenan has the details.

>> the news is significant because it’s first verdicts in the more than 4,000 lawsuits filed over merck’s vioxx painkiller. juries deliberated more than 10 hours before making the decision to award damages, actual and punitive, to the family of robert ernst. the.

>> i just know that it was a road that i had to run and i had to finish and i’m glad it’s finished and i’m glad it ended the way it did.

>> it is likely there will be adjustments made to the $253 million verdict.

>> it will probably be cut back. i’m not sure how the law works in all of that. but drug companies must tell us the good, the bad and the ugly about the drug. they cannot hide behind the profit in an effort to get the money in the bank and not tell us the research.

>> merck withdrew the drug in 2004 after research linked the drug to improved risk of heart attack and stroke. the family for mr. ernst argued that the drug caused his death.

>> i think the evidence did not exist to link mr. ernst’s death with vioxx . it does not exist without a cardiac arrhythmia secondary to atherosclerosis. part of our appeal will be the admission of unreliable scientific evidence on which the jury probably did base their decision.

>> the trial began july 14 of this year. the jury began deliberating yesterday. the stock has fallen about 1/3 since merck withdraw the drug in september of last year. the drug generates $2.5 billion in sales, or that was the amount last year, or 11% of the company’s total.

>> certainly what we saw in trading today with merck weighing on the dow and s&p, major stock indexes ending little changed. deirdre bolton has the market story.

>> the markets did pare earlier gains after the news from merck. energy stocks, still the best gating. the s&p 500 energy index still gained more than 1% on the session.

>> exxon-mobil, conocophillips and chevron all advanced. drilling companies, including devon, burlington resources and apache also saw stocks trade higher. at least one strategist says that even with the group’s recent gains, stocks still have further room to rise.

>> certainly, with oil prices in the mid 60’s, it appears the opportunities for drillers remains very strong. we are overweight in the other energy sector of the russell 1000.

>> threat of higher oil prices did not stop investors from buying coca-cola shares after u.b.s. upgraded the soft drink maker’s stock, citing increasing sales growth driven by marketing and better execution. better-than-expected second-quarter earnings drove autodesk stock higher. the building design software company reported second-quarter profit that almost doubled and said earnings this period may top predictions. autodesk makes software used to create movie effects. some strategists say earnings will continue to propel stocks in the second half of the year.

>> the economy has good momentum to it, likely to sustain economic growth in the 3.5% to 4% range up through 2007 so that means earnings will be heading higher.

>> the earnings outlook at the gap disappointed investors. the largest u.s. clothing chain cut its annual earnings forecast by 10%. the owner of banana republic and old navy stores made wrong fashion calls on denim, according to analysts. gap close down, its fourth consecutive drop, losing over 8% this week.

>> thanks so much. let’s get more on the day’s trading action that ended in a late-day fizzle on the dow. deborah kostroun has this report from the big board.

>> the dow jones industrial average and s&p 500 barely eking out a gain on the day. for the week, it was a different story. the dow and s&p and also the nasdaq, you can say, all saw weekly losses. in friday’s session, we really didn’t have economic reports. so no economic reports to guide us through the day. below-average volume plaguing us all week and usually august indicative of that below-average volume as people get in their last round of vacations before the labor day holiday. the big story developing in the last hour of trading, that was merck. merck falling after that verdict in texas. merck ended up being the biggest drag in the s&p 500. merck’s market capitalization dropped $4.8 billion on the day, most active day for merck stocks since february 18. we did see merck down 7.7. you look at the laggards in the s&p 500, merck led pharmaceuticals lower. also, retail were lower. food and staple retail lower. looking at other pharmaceuticals lower, merck having an impact on other pharmaceuticals on the day. retail, a mixed bag, although it was the biggest―second biggest drag in the s&p 500, gap and foot locker cut their forecasts and those stocks were lower but dillard’s had good news. same-store sales at dillard’s increased 1%, the first gain in five quarters. ann taylor, although profit dropped 76% and revenue rose 7.6%, they affirmed their annual profit forecast so ann taylor ending the day higher. it’s a tough week for retailers as wal-mart said higher gas prices are eating into their earnings. the gainers in the dow jones industrial average, coca-cola raised to a buy at u.b.s. i.b.m., positive comments from prudential on the day, as well. i’m deborah kostroun at the new york stock exchange.

>> as for the nasdaq, the third straight weekly decline. robert gray with details.

>> the nasdaq composite closing at the lows of the session on friday, the second consecutive downgrade, down .5, including the eighth consecutive session of directionally different closes, losses and gains on the day. it was the slowest day volume-wise at the nasdaq this year, slower than the friday before the july 4 weekend. weakness in retail all week long. bebe stores disappointing on forecasts and similar story at hibbett sporting goods. american eagle outfitter also lower and sears holdings, one of the worst performers on the nasdaq 100. vertex pharmaceuticals, developer of medicine for cancer , raised at j.p. morgan. i.d. biomedical raised to strong buy. and new river pharmaceutical, an article in “business week” saying the pharmaceutical maker developing a drug for some say may be the lead remedy for attention deficit hyperactivity disorder. tech stocks on the session -- autodesk shares one of the best performers. rising on their forecasts. marvell technology boosting its forecast and intel shares moving lower as well as apple computer declining on friday. google shares rose a penny a day after announcing the follow-on offering, 50 million additional shares being sold, that announcement coming on thursday. shares moving up, slightly higher. at the nasdaq, robert gray.

Interview: An attorney with Merck

>> we return to our top story, a verdict in the merck case with vioxx. an attorney with merck is joining us right now. thank you for joining us.

>> thank you for having me on your show.

>> strong words from colleagues of yours after that verdict was announced today. let us get your reaction and catch our viewers up, how merck is responding.

>> well, we are disappointed in the jury’s decision. we believe it was not a sufficient basis in the evidence to support the verdict and we plan to appeal.

>> what will the basis of the appeal be?

>> we are exploring the basis of the appeal. this just happened. among them are the fact that there was no reliable scientific basis for a lot of the expert testimony that was given including the testimony of that mr. ernst suffered a heart attack at all, the fact that there were unqualified expert testimony was admitted into evidence, the fact that a lot of irrelevant testimony as to time period, as to marketing matters that had nothing to do with mr. ernst prescription. other grounds as well.

>> how quickly can we expect you to appeal?

>> well, we’ll take the appeal at a time that the rules allow. first the judge has to accept the verdict and there are caps in texas on the punitive portion of the award that should reduce that before appeal to a level of $10 million if the judge applies the law correctly.

>> currently the award was $24.4 million in actual damages. $229 million in punitive damages to mr. ernst’s family. what you say is application of the law should bring the punitive down to $2 million, is that correct?

>> that’s correct. we don’t think it is a punitive damage case at all. we believe the company acted responsibly every step of the way in researching this drug and continuing relentlessly to study the drug after it was on the market and disclosing the raoults of the work they did to the f.d.a. and to medical and scientific communities. this was a medicine that the company believed strongly in its benefits and safety and the researchers who worked on the drug, the head of the research laboratories took the drug themselves and they believed very strongly in it.

>> let’s talk a little about that scientific evidence, that which will likely be the basis of your appeal. what changes, if any, cow anticipate bringing into evidence in an appeal to make a stronger case about the scientific veracity of the drug?

>> well, the evidence is what it is which is evidence of a strong science-based company researching relentlessly this drug before it was on the market . careful research before it was ever submitted to f.d.a. a very big body of research that supported the safety of the drug. continuing to research it after the drug was on the market and making appropriate disclosure of that information to the public, to the medical and scientific community and f.d.a., working with the f.d.a. on labeling. that story will not change. those are the facts. we believe they strongly support the fact that the company reacted responsibly every step of the way. those facts will be in every case we defend.

>> give us an update in terms of the number of cases. there have been efforts to do class action suits and individual suits as well. what pace of cases are you geared up to handle?

>> well, we’ll be ready for whatever comes. and we’ll address these individually on their individual facts.

>> and how many cases are you anticipating?

>> well, we can’t predict that. the behavior of the trial lawyers. but we are ready to defend the cases one by one as they come.

>> and in terms of how well the company is positioned to deal with the financial fallout from this, can you give us an update on how much the company has set aside? >> i think that’s in public disclosure of the company. i really can’t elaborate further on what the company has disclosed in the public disclosures.

>> and, ted, one other question here which has to do also with that drug. give us an update. there have been discussions on whether merck would bring back the drug. what’s the latest on that?

>> that continues to be looked at carefully. the company with the f.d.a. will continue to look at that issue carefully going forward.

>> ted, we thank you for joining us this afternoon.

>> thank you very much.

>> ted mayer, merck attorney, joining us by telephone. we take a break and come back. a lot more to talk b.world and national news, updates on the market as well as the latest financial news. please stay with us.
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Listen Market briefing --- Ellen (slow)
NYSE --- Deb (fast)

>> welcome back to “after the bell.” i’m ellen braitman. a ruling against merck over the vioxx painkiller sparking an afternoon selloff. in terms of the week, benchmark indexes falling for the week. this week marks the unofficial end of second quarter earnings season. let’s check in now with deborah kostroun. she continues to be at the big board. she will wrap it up for us.

>> thanks, ellen. if you take a look at where we are, second quarter earnings pretty much wrapped up. 476 of the s&p 500 members have posted results. 71% of s&p 500 companies reporting have exceeded analyst estimates that. according to thomson financial. that is the highest quarter since the first quarter of 2004 that companies have exceeded estimates. as we take a look at where we are with second quarter earnings we look at growth up 11.8%. you can see the third quarter what we expect. growth up 14.4%. that has been ratcheted down ever so slightly mainly because of energy prices. of course, fourth quarter earnings will come in at least expected 12.9%. big story on the day is merck. it led other drug shares lower like pfizer and johnson&johnson. you combine those together and that took off a point and a half of the s&p 500. you are talking about merck today and it lobbed off $4.8 billion in market cap on the day. so certainly a big story. it did come in the last hour of trading. we also saw the best volume in merck since about february 18. we saw about 37 million shares traded on the day. take a look at a little bit of flip-flop changes he in the s&p 500. public storage was one of the most actively traded stocks on the day. a little lower. it entered the s&p 500 on the day after the stock market closed yesterday replacing delta airlines. a lot of news about delta. delta the worst performer in the s&p 500 so far this year. gainers in the dow on the day, caterpillar, i.b.m., and coke. coke got an upgrade. i.b.m. with positive comments from a prudential equity analyst as well. that helping out i.b.m. and also coke. mellon financial higher on the day. looks like they may spin off asset businesses and merge with merrill lynch. you saw mellon financial higher.

>> thanks so much. the yield on the 10-year treasury note falling to the lowest level this month even though the economy does seem to be on solid footing. so why is the value of the benchmark falling even as the economy improves and which treasury should investors look to to generate better income? let’s ask the portfolio manager with port washington investment advisors. he helps oversee $1.7 billion in bonds. he joins us from cincinnati. tim, thank you for joining us. do we have you, tim? can you hear me? does seem like we have a technical problem with tim for which we apologize. in the meantime, we catch you up on the market today. let’s take a closer look because we have not looked at the bond market . here you go. here’s the 10-year. price differences today in bonds. let me tell you what happened in the bond market today because there’s focus on the movement in yields. what you had today was treasuries falling on speculation yields at the lowest since july offering little value after reports this week showed bigger than expected gains in manufacturing as well as wholesale prices. you currently have the yield on the 10-year at 4 pwoeupb 2%. as for the two-year, yield at 4%. a lot of focus here. we are sorry we don’t have the conversation with tim. what we’ll also do is tell you about―where are we going now? ok. we are going to look at the stock market again. let me bring you back to more stocks. here’s the stock market on my bloomberg terminal today. you had option expiring today. as for what happened in stocks, you see the indexes really ending little changed for the day. you had a rally during the day. you had the indexes higher for much of the day. then that verdict came out against merck in the afternoon trading. what that did is essentially wipe out gains in the dow. it also weighed on the s&p. the indexes closing little changed. an investor we spoke to earlier today said the head winds have been building for at least the past six months with higher energy prices. it was a week ago today you had crude reaching record highs. huh a few days of declines earlier this week. crude rising again today. very much a factor for investors. again, the indexes ending the day little changed. as for the week, they did end the week lower. now let’s move on and talk about housing. very much a focus for investors as well these days. what we’re hear something the housing market may, in fact, be near ago peak. that according to economist and realtors that say too many buyers are having to stretch too far to pay inflated home prices. lehman economist ethan harris says buyers are “taking interest-only loans and other exotic loans in a desperate attempt to afford the house.” that is a sign the market is near ago top. housing affordability is at 14-year low according to the national association of realtors. the trade group expects price also rise next year at about half the rate of 2005. real estate brokers in some markets say houses are staying on the market longer and the number of unsold homes, they say sin creasing. this week the federal reserve released figures showing buyers increasingly resorting to riskier financing in order to afford houses. adjustable rate mortgages, interest-only loans and non-traditional options make up a larger share of portfolios at more than half the u.s. banks who did respond to the fed survey. with all that, we head to a quick break. coming up, we have a guest saying the second half of the year looking bright for corporate profits. but the short term may not be as bright. we’ll have the details, a conversation coming up.

Interview: Analyst with Pickering Energy Partners

>> let’s pit the spotlight on energy with crude oil prices slumping today that. on heels of a report from the department of energy showing u.s. inventories rose last week. while today’s supply may be sufficient to meet demand, what about six months from now? here to offer his forecast is david purcell, analyst with pickering energy partners, joining us from houston, texas. david, want to start with asking you about the whipsaw we saw in the market today. we had the prices rise on the heels of the report from the department of energy but then ending the day with that slump. what do you make of that turn around?

>> hi, ellen. thanks for having me. the market was anticipating a large gasoline draw and you saw that. but the gasoline draw was not caused by reduction in refinery production. remember, there had been a lot of reported outages over the past couple of weeks of large refiners in the u.s. refinery production of gasoline was essentially flat from week to week. the reduction in inventories was really a function of reduced imports for the week. i think the market is anticipating those refineries coming back online and maybe not seeing as large of draws over the next couple of weeks. then gasoline season is over or peak driving season is over.

>> when you get to the office every day, do you have any sense what will happen, meaning how much is this market trading on fundamentals and how much is it trading on something else, fear or speculation?

>> i think the underlying fundamentals are driving the market higher. but on a day-to-day basis, it’s really hard to figure out what is moving the market higher. you saw today, gasoline traded up and then it traded down significantly after the numbers came out.

>> a lot of focus on the fact that we’re close to labor day, we’re getting close to the end of the peak summer driving season. do you think we have seen the peak in gas prices perhaps?

>> i think it’s hard to tell. i don’t mean to be―to have that kind of caveat but we have winner weather in front of us. there’s a lot of factors. i think one of the overarching factors that hit the energy complex today is questions about underlying demand growth. you saw wal-mart cautioned yesterday that high gasoline prices are having an impact on their sales. the underlying demand growth numbers we’re seeing are less than impressive. i think that’s starting to weigh on prices with crude oil in the mid to high 60’s and retail gasoline is over $2.

>> let’s tie it into what this means for stock investors. i know when you look at the landscape you think oil service stocks perhaps are a safer bet for investors compared with the explorers and producers. why is that?

>> in a market where commodity prices may be flat to trading down a little over the next six months, oil service stocks likely have better earnings power. the producing companies will be impacted somewhat by lower prices. so in that environment we tend to like the service industry in general over the e.n.p. stocks.

>> give as you name you like the most, have the best potential to appreciate further.

>> favorite names, we stick with the big caps. a little bit of a safety issue there. we like halliburton and then b.j. services and then he schlumberger.

>> why in that order?

>> in that order we like halliburton and schlumberger because they’re broad, diversified service companies and touch on all pieces of the business. they’ll benefit from continued strong underlying fundamentals. we like b.j. services because they have a focus on north american natural gas. that’s a company that the street has not liked a lot lately. we think the street is coming around to liking the company again. couple that with incredible underlying fundamentals and that’s a stock we like.

>> given what you said that we could see prices flat to down in terms of the actual commodity,’ prices start to come down, how much do you think that will spook investors given how much appreciation there has been in the stock names, meaning what is the risk for the stocks really to tumble?

>> in the initial phase of a price decline, it’s not good for the stocks. it’s hard for stocks to go up when energy prices decline. as soon as there is recognition that prices are not in a free fall and they’ll stop somewhere in the low 50’s, then the deman concerns go away. lower prices go, the less concerned i am that prices will impact underlying demand growth. then i can focus on stock fundamentals and less worry about demand and things that are very difficult to quantify and predict.

>> thank you for joining us. david pur serbgs ll of pickering energy partners. in our “chart of the day,” a closer look at inflation. is it up, level or decreasing? our editor-at-large tom keene will offer perspective straight ahead.
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welcome back to “after the bell.” i’m ellen braitman. 30 after the hour. let’s recan’t day on wall street. stocks rose after hewlett-packard reported earnings that beat analyst estimates. also as oil prices plunged by the most since april. hewlett-packard the last company in the dow jones industrial average to announce results for the second quarter. the dow ending the day up 37 points. crude oil falling almost $3 a barrel, again the biggest decline since april. the drop coming after a government report showed u.s. refiners have sufficient supplys to make gas for the final weeks of the summer. we’ll talk about energy in a few minutes’ time. a closer look at stocks. i have the s&p up less than 1% so far this year. a lot of people looking forward toward the end of the year. deborah kostroun has more now on what strategists are anticipating.

>> thanks a lot. the s&p 500, it’s up only .6%. dow down 2% this year. nasdaq down 1%. we did see those indexes higher for the year. now they’re a little lower. tobias lekovich at smith barney says he expects the s&p 500 to rally to 1,300 by the end of the year. that represents a 6.6% increase from the close. what we’re looking at, at least what he says, much of that gain will come in the third quarter because he says we’re starting to see where you could start to see that over the next several weeks because investors typically anticipate a fourth quarter rally or traditional fourth quarter rally. he says as a result we could see prepositioning. he expects to see a rally to begin in the next six to eight weeks. as for today, take a look at laggards in the s&p 500. you saw sunoco, valero, freeport-mcmoran and phelps dodge. crude oil was down. we saw unexpectedly large declines in gasoline supplies. that really didn’t help things out. it was the fact that u.s. refineries may have sufficient supplys to make gasoline. in fact, gasoline futures were down 4.7%, biggest fluctuation of any commodity today. so what we did see is a lot of the oil stocks sharply lower. also material stocks were lower as well. in addition to some of the material stocks, if you look at gold, the philadelphia gold and silver index was sharply lower, one of the worst individual performers today. gold falling by the most in six weeks. this was the commodity, that as the dollar rose to a two-week high against the euro. that increases the precious metals appeal as an alternative investment. so whao we did see is more people going to the dollar as opposed to gold stocks. take a look at beverly enterprises. this is a company that operates 345 nursing homes from california to virginia. they agreed to a leverage buyout by a newly-formed group for $1.63 billion in cash. that after rejecting an unsolicited group back in march. north america senior care, they’ll pay $12.85 for each of beverly’s outstanding shares. we did see beverly closing a little lower than that $12.80 purchase price. once again, what we did see in today’s session, a little lighter than average volume. so below average volume, something we typically see during the month of august. back to you.

>> with that, a closer look at economy. wholesale prices in the u.s. surged more than economists expected last month. the government saying producer prices rose 1% in july for the biggest gain in nine months. our brett gering joins with us more on the inflation data.

>> the latest data from the government is renewing inflation fears that some economists maintain it does not change the overall inflation picture. still, the headline number of 1% is the sharpest rise since last october and double the average estimate in a bloomberg survey of economists. the main driver, gasoline and other energy costs. excluding energy and food, the core index rose .4. that’s four times the forecast and the biggest jump since january.

>> it confirm as trend we have been in for a while. that is inflation is going higher. the fed back in 2003 was concerned about deflation and wanted to put a little bit of inflation back into the economy. well, we’re getting it today.

>> energy prices jumped 4.4% last month after climbing 2% in june. gasoline alone rose 10.9%, the most since october. costs from the health care sector rose as well. prices paid to drug makers jumped 1.3% in july. that was the biggest increase since april of last year. perhaps the biggest surprise, passenger car prices rose 1.5% in july, the biggest rise since march 2003 following a decline of 1% in june. the cost of light trucks increased 1.4%. with the employee discounts offered by g.m. and other car makers, some economists question those numbers. as a result they say the p.p.i. report may not be telling the whole inflation story.

>> when you think through it, you look at the components and really outside of automotive, sweu hard to believe, and outside of floor kofrgs and pharmaceuticals, there’s not a lot of evidence that the energy side is soaking through in a broad-based pricing power.

>> economists say the p.p.i. combined with yesterday’s c.p.i. numbers should reinforce the view that inflation pressures have not peaked. as a result there is no reason for the central bank at sth point to abandon the measured pace of interest rate increases.

>> thanks so much. as brett was saying, energy a part of the inflation story. a lot of investors and traders asking will that slide continue or can energy prices head higher still? coming up, we put that question to david purcell with pickering energy partners.