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Interview: Senior portfolio manager with Gartmore Global Investments

>> the oil slide continues. prices fell to a three-month low. heating oil and natural gas tumbled in response to what some traders called a tame inventory report. joining us to talk about the supply-demand issues and impact on energy stocks is bill gerlach, senior portfolio manager with gartmore global investments, whose global natural resources fund is up 67% in the past year, beating 96% of its peers. good afternoon, bill.

>> hi, lori.

>> i’d like to get your opinion on moves we saw in large cap energy names today despite the fact that crude oil futures fell slightly and energy prices are lower than they were a month ago. why did we see such big moves in shares of exxon and chevron today?

>> i think there were two things encouraging to the energy market . one, the distillates were not down as much as people expected. they were pretty much in line. the crude and gasoline builds were very explicable. also, investors are worried oil would fall substantially below $60 and that has not occurred so all in all, it was a great day for energy stocks.

>> let me ask you, though, get back to distillates, are you concerned that declines in heating oil inventories came in despite milder temperatures?

>> it was relatively cold last week. the market sold off yesterday on the crude side as well as the distillate side due to the notion that it was 70 degrees in new york and liable to be warmer than usual in the east coast for the coming seven to 10 days but in terms of the stocks, the fundamentals are veryrally very good. frankly, the risk to energy investors and energy company stocks is substantially higher energy prices. our fear as we saw after hurricanes katrina and rita, that we began to see demand destruction as oil hit $75, gasoline hit $3.50 at the bump. $60 is great for companies although a tax on consumers. for the company’s perspective, it’s much better than $. 70 or $75-a-barrel oil.

>> with crude oil below $60 for three days, do you see stabilization here?

>> from our perspective, the price is important but what we are more concerned about is demand to keep prices at relatively this level. with our g.d.p. up 3.8% in the third quarter despite the hurricanes, chinese third-quarter g.d.p. was 9.4%. japan is finally, after 15 years of lackluster economic performance, seemingly finally back on its feet, we think that and india set the stage for robust energy demand over the next 12 to 24 months to help keep prices and profits up. the risk on the consumer side is that $60-a-barrel oil is too much of a tax and we’ll get a chance to see that this winter as people experience several hundred dollars more costs in heating their homes with heating oil or natural gas. that’s a risk to the consumer, but probably not so much in the energy stocks.

>> we were talking off the top here about the significant move―higher moves in some of the big cap integrated names but the gartmore global resources fund is made up of mid and small cap names, is that correct?

>> that’s correct.

>> could you explain the strategy?

>> our perspective is, in a high-priced oil and natural gas environment, we want to own companies that offer volume growth, they can grow the amount of oil and natural gas they’re selling on a quarterly annual basis. the problem with investing in major oil companies is most of their growth is international and most of that international growth is tied up in what are called production sharing agreements where after a certain price, somewhere typically between $25 and $35 a barrel, any excess price goes to the host oil company whereas in the u.s., particularly for north american natural gas companies, all of that money flows back to the company so if i can get a high price for the commodity and production growth ethen―then i win both ways.

>> you told us your favorite companies, burlington resources. shares up over 66% year to date. do you see room for gains?

>> burlington is a special situation. i use that as an offset to owning a major like exxon or conocophillips. but, yes, burlington grows production about 6% a year but their cash flow is enormous. they use it to buy back stocks. on a per-share basis, they’re growing production north of 10%. other companies i like are warren resources and parallel petroleum. they’re very―relatively inexpensive companies with legacy assets from which they grow production on a stable basis and emerging plays. for parallel, that’s the barnett shale and the wolf camp play in new mexico. for warren resources, that’s the wilmington town lot and strangely enough, in long beach, california, as well as the wsh ashsh&r block ashcachei basin in wyoming. if prices are high and given the activity we’ve had in the gulf, there are two sorts of companies we want to own. one are the jack-up rigs that provide drilling services by way of renting drilling rigs in coastal waters under 300 feet. companies there include enso, rowan and hero.

>> thanks so much for that.

>> thank you very much.

>> once again, bill gerlach of gartmore global investments. interest rates are rising and commodities are falling. what’s the link between the fed and commodities?
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Qualcomm --- Ellen (slow)

>> stocks rallied for the third day in four. also, the s&p 500, now, up for the year, just slightly, though, up .2%. leading today’s rally, you see media stocks, of course, that on time warner’s earnings. homebuilders putting in an impressive performance after beazer homes released earnings. you have to remember that the homebuilders, since july 20, the bloomberg home building index, down 17% so getting a really good lift today. semiconductors performing quite well and of the 24 industry groups in the s&p 500, semiconductors leading the way and transports closing at a record high in today’s session. the transports led by many of the airlines. airlines upgraded by bear stearns. you also saw many other stocks like many of the railroad stocks performing quite well. remember that old theory about the highs in the dow transports. richard moroney, editor of the news newsletter on the dow theory said a record close in the dow transports doesn’t predict the bull market . moroney says the dow would have to close above the march high of 10,940, which would then signal more gains. helping out the transports, the fact that crude oil is actually down 15% since its record on september 1 and in fact what you did see, at least in today’s session, oil services were high even though oil, natural gas and heating oil, all lower in today’s session. semiconductors once again leading the rally in the s&p 500. the s&p semiconductor and semiconductor equipment index having its biggest gain in nine months. media stocks gaining after time warner reported its profit exceeded analysts’ estimates and also broker/dealers. remember, the financials, they comprise 1/4 of the s&p 500. goldman sachs at its highest in five years and merrill lynch at its highest since june 2001. i’m deborah kostroun at the new york stock exchange.

>> duke energy third-quarter profit fell 89%, partly because of its wholesale power business. the electric utility had to take a big charge against earnings in order to write down the value of that unit. duke also cites the value of its energy contracts. the company locked in lower prices by selling future production. but since natural gas prices kept rising, the losses added up. so, duke earned just four cents a share but if you strip out all the charges, duke posted a profit of 56 cents a share, which is eight cents ahead of analysts’ estimates. duke also said earnings for the year would come in ahead of wall street forecasts. shares of duke energy ended the day up 47 cents or 1.75%. cigna had its worst day in three years. shares of the health insurance provider were down 6% or $7.18 a share. as a result, the stock is back where it was in august. today’s selloff was fueled by a negative earnings surprise. cigna says profit may fall next year. analysts had been looking for a 7% increase. in a conference call with investors, chief executive ed hanway says sigma―cigna is suffering from lingering hangover from membership declines in the last four years. during that time, the company boosted profits by increasing premiums and getting rid of unprofitable customers. now cigna wants to increase its membership. earnings reports from crossed in the after-hours’ session. qualcomm out with its third-quarter numbers as well as prudential financial and priceline.com. we head to our stocks desk for details with ellen braitman.

>> talking about qualcomm, fourth-quarter results, 32 cents a share excluding items, a penny shy of what analysts were expecting. however, you see shares rising. that’s on the first-quarter forecast. what qualcomm is saying, it sees earning 36 to 38 cents a share for the first quarter. analysts on average currently at 35 cents. for the sales forecast for the first quarter, the company says it should come in as high as $1.77 billion. on average, analysts are closer to $1.66 billion. recapping the fourth-quarter numbers. profit up 37% to 32 cents a share. if you exclude items and the revenue coming in the $1.56 billion. interesting to note, with that sales figure for qualcomm for the fourth quarter, seeing the biggest revenue increase in five quarters. this is the second biggest maker of cell phone chips and back on september 21, it raised the forecast for the fourth quarter, that quarter being reported today. because it increased royalties in the u.s. as well as brazil. being helped in particular by phones, videos and sales in emerging markets . shares down 5% year to date. i’ll have an interview tomorrow with qualcomm c.e.o. paul jacobs during the 1:00 show. we’ll talk in more detail about the company’s forecast. going through the other earnings, for prudential financial. this, keep in mind, the second biggest u.s. life insurance company. $1.46 a share, looking at a pretax adjusted operating income. analysts on average looking for $1.16, shares up 4.1% in extended trade. the company says that for the full year, it anticipates earning $4.95. analysts, on average, $4.56 a share. shares of prudential financial rising in extended trade. looking, as well, at priceline.com. third-quarter results, 47 cents a share, excluding items. a dime better than analysts’ expectations. the company says it will buy back up to $50 million in shares and sees the full year beatingmentlysts’ estimates. on average, analysts looking for $1.26 a share.

>> thank you. oil prices fell to a three-month low but energy stocks were higher. oil drillers and some of the integrated names led the way. does that mean the market ‘s about to turn? we’ll talk about that divergence with bill gerlach.

Interview: Chief investment officer at Pimco

>> fed policymakers raised interest rates the 12th straight time and traders are talking about the next meeting that comes our way in december. for a closer look at the bond market ‘s reaction to today’s rate decision, miment is standing by―michael mckee is standing by with bill gross, chief investment officer at pimco.

>> thank you very much. thank you, bill, for joining us. anything in today’s decision or in the statement afterwards that surprised you or causes you to change your forecast in any way?

>> no, nothing in today’s statement, mike. i expect, however, in december, or perhaps in january, but probably in december, you know, some words to come out indicating that the fed is approaching neutral. a lot of this gets into game theory in terms of how close to the vest the fed wants to play it. it’s all associated to some extent with greenspan’s retirement, but i would point out that the bank of england, in terms of their hikes and their attempts to thwart housing price increases, have played it very close to the vest and only within two weeks of their eventual pause did they announce to the contrary that they were seeing signs of a slowing economy.

>> are you thinking, then, that we might see a pause in the two meetings before mr. greenspan leaves the fed board?

>> no, i don’t think that of the i think today’s indication that monetary policy remains accommodative means that next time, december, they certainly go to 4.25. it would be at that point that the game opens up in terms of parsing economic data between december and late january and determining whether or not that 4.25% rate had enough bite so that the economy and inflation began to slow down.

>> you forecasting a pause, then, or the end of this rate cycle?

>> i think the end of the rate cycle. it’s instructive to me to have gone over bernanke’s old speeches. and there were four or five years of them, the most important of which i think was the global savings glut speech of six months ago in which he spoke to the global savings glut in terms of producing lower real interest rates in the united states and indeed around the world. to the extent that continues and the conditions of which they are probably too lengthy to discuss here, but to the extent that the global savings glut continues that, means basically that when bernanke takes over, that he senses interest rates are high enough to slow an economy down. that’s my interpretation but i think a reasonable one reading that speech of six months ago.

>> have you been surprised by the economy over the past year in september of 2004, you predicted the fed might pause at 2%. in may, you said 3.25 to 3.5% and in june you predicted they might lower rates.

>> i have been surprised and it’s fair to say those forecasts incorrectly predicted a lower real short-term interest rate and did not take into consideration the use of housing as an a.t.m. machine. obviously, the economy has been kept going, at least in our opinion and my opinion, on the basis of consumption predicated upon equity withdrawal from the housing sector and to the extent that housing has gone up in double digits and allowed consumers to ecitize their homes, that’s kept the game going. i didn’t see that coming. but even as greenspan has pointed out in the past month or so in a presentation he has worked on with a fellow fed researcher over the past five years, he suggests that mortgage equityization may be coming to an end and the economy itself may be about to slow down.

>> what do you do from here? what did you do today, buying or selling and what should investors look do getting ready for the next two meetings?

>> not a ticket today, mike, which is unusual for pimco. however, in the past week or two and as i’ve spoken to you in the past over the last three or four weeks, we’re increasingly confident that the front end of the curve will be the attractive portion of the curve. you’ll come mid to late 2006 in which the fed may in fact have to turn tail and start to lower interest rates because the economy has slowed down too much. so those that would invest in one and two- and three-year securities, taking advantage of what are now higher rates than what we might see 12 months from now are the eventual winners in this particular portfolio strategy game.

>> european and japanese central banks talking about raising rates. will there be a disconnect as the fed gets closer to finishing its rate cycle and would that hurt the u.s. dollar or bonds?

>> i think it might. that bears watching, that if japan and euroland move interest rates up, that, to a certain extent, becomes competitive on a global basis and keeps domestic dollars, if only domestic dollars, in those countries and out of the united states so we need to watch that. if the e.c.b. moves up 50 or 100 basis points or if japanese central bank moves theirs up, our interest rates are threatened, as well.

>> got to leave it there. bill gross, thank you very much. throwing it back quickly to lori rothman.

>> thank you very much. mother nature may be helping the energy markets with milder weather. we’ll look at oil prices.
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Listen Market briefing --- Lori (slow)
Fed --- June (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
After hours' earnings --- Ellen (slow)

stands at 4%. policymakers suggested they’re not done yet. more on the fed in a moment, first, let’s bring you the closing numbers. all three benchmark averages closed lower after the fed did the expected. the dow lost 33 points to close at 10,406. the s&p lost 4.25 points and nasdaq closed down 6.25 points. the fed raised rates for the 12th straight time, again, a quarter-point increase, taking the overnight bank lending rate to 4%, the highest since june 2001. policymakers kept the words “measured pace” in the statement, suggesting the fed is not finishing, the reason boiling down to inflation. the fed doesn’t want. soaring energy prices to filter into other parts of the economy. looking at the fed’s decision, june grasso has the story for us.

>> lori, the federal reserve did just as expected, down to repeating language and keeping its “measured” plan, saying in the statement, with underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace likely to be measured. as for inflation, the fed’s statement was basically unchanged from its last meeting on september 20. the cumulative rise in energy and other costs had the potential to add to inflation pressures, however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained. the fed again spoke about hurricanes katrina and rita, saying higher energy prices and hurricane-related disruptions and economic activity have temporarily depressed output and employment. there was little sustained reaction in the market to the 12th straight rate hike.

>> this is great reaction, if i were a fed governor, i’d be very happy because they told the market what they were going to do and they it and the market didn’t react at all.

>> fed chairman alan greenspan will have two more opportunities to raise rates before his 18-year run ends. his successor, ben bernanke, will take over on february 1, if confirmed by the u.s. senate. 10-year notes had the biggest drop since march last week because of concern bernanke will be less vigilant on inflation in favor of strong growth policies but citigroup market strategist scott pang says treasuries may recoup last week’s drop because of that concern being overdone. drew matus agrees about bernanke.

>> people tend to mistake him for a dove because when deflation threatened, he wanted to cut rates quickly. the flip side is also true. he doesn’t care about anything else, he just wants inflation in his boundary, 1% to 2% on core p.c.e.

>> today’s decision was unanimous, unlike the meeting on september september 20 when mark olson voted to hold rates steady.

>> for more on the federal reserve’s decision and impact on the stock market , we’ll check in with deborah kostroun with details on the day’s trading session from the new york stock exchange.

>> stocks snapped their two-day rally as the fed signals it will continue to raise interest rates. interest rate-sensitive stocks lower on the day with stocks like utility and real estate stocks weighing on the 24 industry groups in the s&p 500. let’s not forget the earnings of the 353 companies in the s&p 500 that have reported results, almost 2/3 beating analysts’ estimates. one company that beat estimates on the day, viacom, up after earnings exceeded estimates after increased advertising sales at the mtv cable channel and a surge in box office revenue for movies like “war of the worlds.” interest-rate-sensitive stocks weighing on the s&p 500. real estate stocks, the worst performers, semiconductors and utilities. looking at the real estate and utility stocks with increasing interest rates, pushing bond yields higher and that tends to make dividend-paying stocks less attractive so those stocks were lower. t.x.u., one of the utilities there, also said third-quarter earnings were below estimates as higher natural gas costs cut into earnings. chief economist with barclays capital in new york said that the fed statement had very little changed and the message remains we should continue to expect steady rate hikes at the next few meetings. their call is that we have three more rate hikes to go, up to 4.75% in march. it was a double whammy for general motors on the day. their october u.s. vehicle sales fell 26% and the company’s debt rating, which was already two levels below investment grade, was cut another two levels by moods investors services, saying g.m. may not be able to rebuild profit and sales. ford said october sales fell 26% in october but toyota reported higher sales after ford and g.m. posted those declines. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> thank you. the nasdaq didn’t fare much better, falling .3% today. dell had its worst day in more than four years. robert gray has details from the nasdaq marketsite in times square.

>> the nasdaq composite falling for the first day in three. there was a brief rally after the fed’s decision to raise rates for the 12th consecutive time but that rally did not hold and the nasdaq closed lower by almost .33% in today’s session. dell was a driver in the decline. dell, after the close last night, saying it would miss its own sales forecast for the second quarter. the shares falling today with their biggest drop in four years on heavy volume, above 100 million shares, the most active in five years, at 105 million shares of dell changing hands today. dell said preliminary earnings would be 39 cents a share, the low end of the previous forecast of 39 to 41 cents, blaming it on demand from u.s. consumers and u.k. businesses trailing expectations. shares of intel fell along with dell. of course, dell uses intel chips exclusively in their p.c.’s. we did see microsoft shares rise as they unveiled their new live versions of windows and office software, designed to create realtime links to data over the internet, countering competition from google. google’s shares rising to another record in today’s session. and also, within the broader industry groups, we saw biotechs, the weakest industry group on the nasdaq. also, tech stocks weaker, of course, led lower by dell. bank statistics lower as the fed continues to increase rates and shows no signs of stopping any time soon. transports led the rally yesterday and were higher again in today’s session. expediters international the best performer in the nasdaq 100. the freight and customs broker beating the average by four cents and sirius boosting their forecast for year-end subscribers. nabi biopharmaceutical shares cut by more than 2/3 after a drug failed a phase iii clinical trial.

>> after-hours’ earnings to tell you about. sun microsystems, symantec and electronics arts have released their latest quarterly earnings. ellen braitman has more.

>> lori, let’s begin with sun microsystems. first-quarter results for the company, a penny a share loss, two cents excluding items, which is more than analysts were looking for. they were looking for a loss of a penny a share. the shares currently down 1.3% in extended trade. sales coming in shy of estimates at 2.7 billion. analysts were expecting 2.9 billion when it comes to sun. talking about e.d.s., the second biggest computer services company. e.d.s. reported 15 cents a share excluding profit, three times the amount analysts were expecting. analysts were looking for five cents a share. e.d.s. shares up 2.9% in extended trade. i’m sorry, that was the electronic arts number. e.d.s., 19 cents a share, excluding items, does beat estimates as analysts were expecting 14 cents a share. e.d.s. saying 2005 profit will be 55 to 60 cents a share. on average, analysts were expecting 55 cents a share. it says sales adjusted sales will be 19.9 to 20.1 billion o.average, analysts expecting 20.3 billion so shy on the sales forecast but these are adjusted numbers. the company tuesday agreed to sell the consultsy to the unit’s managers. profit coming in at 19 cents a share excluding items, higher than the 14 cents analysts were expecting. with that in mind, now let’s talk about electronic arts. that is at 15 cents, excluding items. analysts were looking for five cents a share. keep in mind, with electronic arts, it is beating lowered forecasts but again, beating by much more than had been expected. the sales also coming in stronger than expected. $675 million. analysts were looking for sales of $632 million. lori, with all of that, sending it back to you.

>> thank you so much for that. they stuck to the script. greenspan and fellow policymakers raised rates again. the word “measured” still there. bill gross runs the world’s biggest bond fund at pimco. he’ll tell us what it means for the economy, housing and the bond market . keep it here.

Interview: Senior fund manager at federated investors

>> thank you. for a closer look at the bond market ahead of tomorrow’s fomc meeting, i’m joined by joe balestrino, senior fund manager at federated investors. he manages about $7 billion in fixed income investments for federated. joe joins us from pittsburgh. hi, joe.

>> hi, lori.

>> let’s pick this up where suzanne left off. the yield on the 10-year approaching the 4.6% mark. does this signal a turning point?

>> i think we’ll see more of the same. it’s a virtual lock we’ll see 25 basis points tomorrow and i’d say the same for december. so we’ll close the year at 4.5%. they’ve been citing mire economic―higher economic activity and higher inflation.

>> we did get the core p.c.e., the fed’s preferred gauge of inflation .does that add to your commentary?

>> it was .2 and 2% year over year, slightly above expectations. there, again, you’re expecting something, you get a little more than that. it’s the reason why they’re raising rates so we believe they raise rates into next year.

>> tomorrow’s meeting will be the first since ben bernanke was appointed to succeed alan greenspan as fed chief, of course. how do you think greenspan will hand the reins to bernanke?

>> i think he’ll largely be done. not that that’s necessarily been his plan but he’s been moving in the “measured measured pace” for quite a while. we anticipate a 4.5% fed funds rate is handed to mr. bernanke and then it’s what the data shows. it’s conceivable that mr. bernanke’s move is initially down.

>> bernanke does have significant pressure to prove himself as an inflation fighter so even if greenspan leaves the fed funds target at 4.5%, is there any chance bernanke could take it beyond that?

>> there certainly is. at that point in time, it’s the tug of war and who will have won, will higher inflation continue to see through to the system or will the higher inflation and cost pressures we’ve seen already hurt the consumer, not to mention the heating of homes in the northeast taking money out of folks’ pockets and one of those will have rolled around by the time february rolls around.

>> the inflation-adjusted spending falling in september and we learned today energy prices fell. energy prices significantly lower for october. does this encourage you that inflation may be subsiding?

>> not really. it is lower from the peak but the peak is miles higher than we were talking six or nine months ago and it’s the impact of that with the lag effect, like monetary policy, it has a lag effect and we’ve not had the consumer hit from the initial runup from energy prices so the $10 off the top is not now meaningful for consumer spending, i don’t believe.

>> we have to take a quick break but would like to ask you how in the climate of rising interest rates you can make money in the fixed income market . please stay with us as we ask joe that question.
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Nasdaq --- Robert (slow)

the company said earnings and revenue this quarter would miss analysts’ estimates. bob bowden joins me with the story.

>> thank you. the release hit the wires at 4:07 p.m. new york time sending dell shares lower. dell is predicting operating profits at the low end of the previous forecast. specifically, dell sees 39 cents a share for the fiscal third quarter. when the second-quarter earnings were released, dell forecasted a range between 39 and 41 so the new number is at bottom of that range. the thomson financial estimate is at midpoint of that forecast. the new member missing the forecast. going on to revenue, dell now seeing third-quarter revenue at $13.9 billion, completely missing the $14.1 to $14.9 billion previous revenue forecast given in august and not surprisingly, the new number missing the average analyst estimates, like earnings in the midpoint of the fourthorecast. they’re announcing a one-time charge in the fiscal fourth quarter, working out to 14 cents a share of net income, a one-time charge. 2/3 of this charge, or about $300 million, is related to the cost of a faulty vendor part used in optiplex desktop computers. we have this reaction from chuck jones with steinroe, saying “all of a sudden, long-term growth rate expectations have ratcheted down for dell.” in extended hours, dell down 5.5% right now at $30.10, the latest quote on dell’s shares. a little perspective, the dell shares hit a two-year low last friday, just the previous session to today. that two-year low price was $30.82 so at $30.11, we are below the two-year low if we trade at that level tomorrow. h.p. shares, the most-compared stock to dell, down 19 cents and two of dell’s suppliers, intel and microsoft down 45 cents and 14 cents respectively in extended hours.

>> going to the closing numbers, another day of gains for wall street’s benchmark averages. the dow jones industrial average closing up 37 points, off session highs. the s&p gains over 8.5 points and the nasdaq, more than 30 points. for the last 30 days, major indices lower for the month of october. but as deborah kostroun tells us, the two-day rally helped to close the month with a bang.

>> many traders have been focused on the monthly declines for the month of october but the last two trading days of the month have helped stocks stage their biggest two-day rally in almost a year. for the s&p 500, our biggest back-to-back advance since november of 2004. one of the things that got us started was friday’s g.d.p. report helping to alleviate concern about high fuel prices possibly curbing growth. tomorrow, the fed will be meeting. what we’re likely to see, the fed to increase interest rates to 4%. oil closing below $60 a barrel for the first time in three months since july 28, that very notable today. and, of course, the indexes still declined in october and many traders asking what is next. dick mccabe, technical research analyst with merrill lynch, said since 1960, the s&p 500 has fallen in october 22 times and 18 of those years, the benchmark s&p posted an increase in november and december with a combined average gain of 5.9%. he said adding all of that up, the prospects appear to be favorable for a year-end rally. looking at the gainers for october in the s&p 500, transports performing well, banks and financials also performing well. we did get a lot of positive earnings from many of the banks and financials. if you look at the laggards on the month, energy stocks, semiconductors and also auto stocks. for the month, energy stocks lower as crude oil lost 9.8%. also, gasoline was down 28% and, remember, of course, crude oil closing at $59.76 a barrel n.today’s session, what we did see, retail stocks performing very well. wal-mart, the biggest gainer in the dow jones industrial average after they said october same-store sales rose 4.3%, beating their own forecasts. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> thank you. and a broad-based rally helped nasdaq to its best two-day gain since july. robert gray has details from the market site in times square.

>> the retreat in energy prices combined with more than $19 billion in mergers and acquisitions announcements today helping to push the nasdaq higher, adding on to friday’s gains, it was the biggest two-day advance for the nasdaq since middle july, two days within a seven-day advance for the nasdaq composite. we did hear from the managing director of equity trading at legg mason, saying the end of the fiscal year for a number of mutual fund companies in today’s session on october 31 so there was a lot of portfolio buying, he said, many people adding on to positions, helping to increase the buying in today’s session. we saw advancers outpacing advancers by a five-to-two ratio with above-average volume on the nasdaq. all of the industry groups participated in the rally with the internet group strong as well as biotechs. semiconductors, which did not participate in the rally on friday, did rally in today’s session and the transports, the strongest on the day. within the gainers, google rose to a record. also, apple computer rising to a record, as well, as it said its itunes music store sold a million videos in less than three weeks of offering them on the website. we have m&a activity on the nasdaq, including bon-ton purchasing saks’ northern regional stores for $1.1 billion. they’ll focus now on selling the fifth avenue luxury unit. we saw in the media deal, comcast buying susquehanna communications cable tv and broadband unit and cumulus media buying from susquehanna its 33-station radio business, teaming up with bain capital, blackstone group and thomas h. lee partners for the $1.2 billion acquisition. at the nasdaq, i’m robert gray.

>> thank you. crude oil and heating oil tumbled and gasoline fell to its lowest level in almost five months. warmer-than-average weather may cut consumption in the u.s. northeast. crude oil at the close, down below $60 a barrel with a loss of $1.46 a barrel at $59.76, the closing price. among other energy movers, nasdaq down more than 4.5% and heating oil closing off 3.8% and natural gas futures down 6.5%. continuing the october slide. despite lower crude and natural gas prices, energy stocks rose today in concert with the general market rally after valero energy reported third-quarter earnings topping analysts’ estimates. in the entire s&p 500, the single very best performing stock year to date is valero energy. up again today after there was nothing not to like in its earnings report. now, the headline earnings number was $4.37. that’s after an accounting adjustment related to its purchase of premcor. that’s nearly triple the $1.57 a share in the same period last year. the $4.37 exceeds the analysts’ estimates by 14 cents a share. one factor helping valero last quarter, higher prices for products such as gasoline and diesel. for example, the average wholesale price of a gallon of unleaded in last year’s third quarter was $1.26. this year’s third quarter, up 52% to $1.91. phil mcpherson, director of research at c.k. cooper and company.

>> the refining business obviously is a sweet spot for investors right now mostly due to what we’ve heard over and over again, that we haven’t built new refineries in the last 30 years and refined product is a scarcity. these companies have the capacity to increase existing facilities, which is going to be the only way we’re going to eventually make up for the refining capacity shortfall.

>> valero also benefited by retooling its refineries to focus on more sour crude. the lower grade higher sulfur alternative to light sweet crude because sweet crude rose in price faster than sour so the gamble on sour paid off. mexican meiya sour crude, $15.27 a barrel cheaper than west texas intermediate sweet crude on average last quarter, compared to $11.61 cheaper in the same period last year. 70% of valero’s crude oil need are presently of the sour variety. analysts estimate profits at $3.67 for the fourth quarter. valero up $5.74 today. still ahead, investors getting ready for tomorrow’s federal reserve vote on interest rates. we’ll hear from joe balestrino of federated investors. learn what he thinks the fed will say in their post-meeting statement. stay tuned.

Interview: Chief Market Technician at Openheimer

>> stocks finished the week on a high note helped by a strong g.d.p. report. is the market shaking off the october blues? and can we count on a rally in the fourth quarter? carter worth joins us from his firm in new york city. hi, carter.

>> a pleasure.

>> the next three months of the year are historically the best month for stock gains. could today’s rally set us up for a late-year run here?

>> could be. i would be slow to hope for too much in the way of seasonality. it almost is too pat. just to expect a year-end rally every time. there are all sorts of let’s say back of the envelope clues to market direction. one of them is there has never been a down 2005. 1945, 1955, 1975, 1985, never been a down 05 year. so i think those things are too easy, too pat. certain stocks have stablized and need to be monitored closely.

>> what if today’s rally has legs? short legs to head us into november, would you be more confident at that point?

>> well, if you accept the top for the year is august 3 on the s&p at 1245, and we basically went straight down for the better part of august, september and october, the low was october 13, at 1168, we’re halfway back at basically 1198 on the close today. i think interesting, i was with you all three weeks ago exactly, it was a friday, we’re at 1195. three weeks later 1198. perhaps it’s starting to stop going down. but it’s not enough to come to any overly optimistic conclusion.

>> so tell me again what you think is critical for us to break out of this trading range.

>> you’ll need to see continued relative strength by my work and good price-control―price -volume correlation. wal-mart has been up five or six weeks in a row while the market has been moving sideways or down. a.i.g., the same. i.b.m., the same. citibank, bank of america, big important financials. also showing good relative strength. so i would use those as a control mechanism if you will for taking one’s clues as to overall market direction. if they continue to show that type of relative strength, perhaps there is a better moment ahead.

>> are you expecting that stabilization to shake out, perhaps to the upside with those blue chips you just mentioned?

>> i would give them the benefit of the doubt. what cuts the other way and is important is the succession of breaks in trend that’s gone on for the last two or three months. and the lack of those groups to get back even anywhere near their highs. that would be home builders, retailers. reits in general. energy. and of course utilities most recently. all very steady multimonth advances and then sharp breaks. none of them, not a single one of those groups, anywhere near its highs of a month to three months ago. so those need to be monitored for further deterioration and/or stabilization.

>> third quarter results chock full of companies lowering guidance into the fourth quarter. how much focus will investors put on that slowing guidance?

>> by and large the reaction in the marketplace was negative. almost universally negative. very few googles and sandisks. those being the exceptions. with big shocking dislocation where there’s a halt in trading, and open with a big move to the upside. that’s the exception. it’s been hundreds of examples of stocks dropping, sharp, 10, 12-point drops and gaps from footwear companies like skechers to industrials like goodrich and i.t.t. and candle makers, wax and string like yankee candle. so a lot of shocking dislocation. i would characterize that as a pretty big negative.

>> are you encouraged at all by today’s economic datapoints? we had the first take on g.d.p., expanding at a greater-than-expected pace and inflation relatively contained.

>> it cuts both ways. the g.d.p. numbers were good at 3.8%. the inflation is maybe not that tame. the price deflator, tame enough. higher than consensus. but the personal consumption component of the price deflator running at almost 3.8%. the economy, two thirds consumption, personal consumption. and that can point the deflator higher than one might want and treasuries today hitting 4.60 on the 10-year. the presumption, and you can look at the futures for fed funds basically. almost an inexorable series of further tightenings taking us to number 12, maybe 13, 14, and the implications are 4.25% or 4.50% from the front end of the curve.

>> getting back to inflation. do you consider―do you expect to see rising energy prices, oil prices, to be the main driver to inflation here as well?

>> obviously there has been hard asset inflation now for several years. that would be everything from carbon fuels, energy as you point out, home builders, copper, lumber. anything like that. in principle, our work on the chart of the front contract in the crude market , suggests that there’s further downside from here. probably what we’re looking for is 58. continued gentle move down. we’ve touched 70 almost to the day that katrina was making its most impact. and we’re basically at call it 60 now. we’re look at 57 or 58 before sort of stabilization.

>> quickly, carter, where is the s&p at the end of the year?

>> i would say we’re probably right here.

>> carter worth from openheimer.

>> thanks. our “money and sports” segment is coming up. michelle wie driving women’s golf. we will hear from the c.e.o. of p.g.a. america after this.
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>> hello and welcome back to “ after the bell.” i’m lori rothman. the biggest rally in six months for the dow and s&p with the dow gaining 172 points. the s&p up just about 20. the nasdaq up 26 points at the closing bell. today’s gains in the dow and the s&p really helped prop up the major averages for the month of october. deborah kostroun is at the new york stock exchange and she’ll explain that for us.

>> thanks a lot, lori. yes, definitely, after today’s whopping gains in the dow and helping out the s&p 500, really kind of helping out those -- the monthly numbers. take a look at the major averages for the month of october. what we’re looking at for the month of october, the dow, down 1.6%, the s&p down 2.5%. and the s&p still on pace for its worst october since 1997. the nasdaq down 2.9%. but all of these numbers look very different going into today. and remember, we only have one more trading day left. and that is on monday. and also, as we’re getting ready to start out the next -- the month of november. it looks like at least for -- as we’re going to be starting the best three months of the year for stocks because november and december, the average gains for the last 54 years, about 1.7% each for the month of november and then december, january’s average, generally we see a gain of 1.5%. that makes them the three best months of the year or that according to the strock traders’ almanac. at least in today’s session what we’re looking at are―is our first weekly gain for october, for the dow and s&p 500. remember, the last three days, what we did see, losses in the dow jones industrial average of 155 points. we totally wiped that out today and so kind of helping out not only the weekly numbers but also those monthly numbers that i was just talking about. g.d.p. for the third quarter coming in better than expected. that obviously coming from evidence that the economy may be―may be being able to withstand higher energy prices. following the hurricanes. and also what we saw in today’s session, 29 of 30 members in the dow jones industrial average were higher. only one that was lower. and that was i.b.m. and of the 24 industry groups in the s&p 500, only one was lower. and that was auto stocks. gain eshes in the dow jones industrial average, take a look at them, hewlett-packard gaining on gateway’s news. gateway had strong third quarter numbers. verizon got an upgrade from merrill lynch. and remember, the one thing about verizon, $8.4 billion purchase of m.c.i., it was just approved yesterday by the justice department. back to you in the studio, lori.

>> thanks, deborah kostroun. and stocks were little changed for the week and the biggest rally in six months for the s&p and dow, helping the indexes snap a three-week losing streak. bob bowdon has a wrapup of the week that was.

>> the week that was. a strong beginning, a weak middle and a strong finish. that was the snapshot of the u.s. equities markets this week. depressed stocks, mid week, you see those tuesday, wednesday, thursday red arrows. that’s the depression i’m talking about. giving way to a big rally on friday driven by the surging g.d.p. report friday morning. investors bet today that growth in the economy will trump higher rates from the fed next week. and any energy-driven inflation we might learn about. microsoft might be an illustration of the optimism in friday’s trading. after the company said second quarter sales may miss analyst estimates. it was down in after hours trading on thursday. but by the opening bell today, the stock was higher and rose all day. finishing up almost 3%. the chief investment officer of raymond james says the drop in stocks at the beginning of october that we saw is a typical seasonal selloff. and that we’re now headed for a typical end of the year rally.

>> we came into the month of october expecting a correction. typical october mauling if you will. tend to run about three weeks. they bottom at the end of the month. they usually take about 10% out of equities. now, the nasdaq came from top to bottom down around 9%. and in any event, i think you are oversold here. i think you are sinking a bottom foundation if you will for the fabled year-end rally.

>> best s&p 500 groups for the week, include energy stocks, when slumberger and neighborors industries both gained more than 11%. material stocks, second on the list, pactiv comp, the maker of hefty trash bags gained 19% on tuesday. and diversified financial, janus corporation, that stock up over 10% on wednesday. worse s&p groups this week, third worst, the beleaguered auto stocks. g.m. lost 3.5% on the week. its fifth losing week out of the last six. tech hardware led lower by lucent. that was down over 9% for the week. and the worst group, it wasn’t even close. semis. down 2.4%. i have a bloomberg terminal screen showing some of the biggest stocks in the philadelphia semiconductor index. and look at here on the right side. we have maxim integrated down almost 14% on the week. texas instruments, down over 8%. linear down over 7%. a lot of bleeding in semi stocks on the week. lori, back to you.

>> all right, bob. thanks for that. shares of archer daniels midland had their biggest gain in a year. posted fiscal first quarter profits and the report showed operating income for a.d.m.’s biggest business, corn processing, jumped 32% on lower costs. the company’s stock rose as much as 7.3%. to approach a seven-month high. overall for the quarter, net income fell 30%. which was about what analysts were expecting. hurricanes rita and katrina damaged ports along the mississippi river. and that disrupted grain shipments during the period. also, there was an inventory adjustment. higher fees and increased trading raised earnings last quarter at the chicago board of trade. net income was up 63% from a year earlier. and the average fee per contract, 11% higher. the stock doubled since cbot went public last week. the initial offering priced at $54 a share. look at that. $112. that was―does today’s rally suggest a turnaround for stocks as we head into the end of the year? we will find out with the charts suggesting―what the charts are suggesting about this market . we will talk to carter worth, chief market technician at openheimer and company, what to expect.

Interview: Chief Economist with Wachovia

>> and welcome back. let’s go ahead now and run through treasuries and currencies for you today. treasuries fell on a greater-than-expected g.d.p. reading for the third quarter. it was the first take on that. down 4/32 with the yield pushing to 5.57%. five-year today down 3/32. the yield up to 4.45%. and the short end of the curve, the two-year down 2/32 and you saw that as well. the u.s. economy grew at a 3.8% annual pace in the third quarter. despite higher energy costs and hurricane katrina. what’s fueling the growth and how long can the momentum last? joining us you is john silvia, chief economist with wachovia. he is in charlotte, north carolina. hi, john. thanks for joining us.

>> hi, lori.

>> we put those bond boards up for you. third quarter g.d.p. coming in better than expected. so what are you reading from this reaction in the bond market , especially the 10-year yield pushing so close to 4.6% now?

>> i think the bond market has it right. not only did you have good, solid economic growth but broad based. you had contributions from consumer spending. investment spending. government spending and residential investment. so i think the whole spectrum says the economy has forward momentum. i also want to pick up on what point suzanne made that i thought was very critical and that was that p.c. deflator going up over 3.5%. i think the bond market looked at that and said hmmm, there might be more inflation here than we first discounted.

>> are you concerned that the rate of inflation we saw will accelerate through the end of the year?

>> we think it will accelerate. i think a lot of the prices in terms of energy prices will continue to feed through. in terms of the consumer budget. i think the higher transportation costs, the heating oil costs, natural gas prices, will feed through business costs. so we do see continued upward pressure on prices through the end of the year.

>> do you think the fed is doing a good job of keeping a container on inflation?

>> i think suzanne also did a good job for us when she mentioned both the core and the total p.c.e. deflator. because what’s happening here is you’re getting two very different pictures. the overall being 3.5% plus. and the overall core being about 1.5%. so you see a real distinction there. and now the fed is really going to be challenged here to decide which price or inflation target they’re really following. the total, or the core. it gives you two different outlooks for monetary policy.

>> what is your outlook? what do you think the right direction is?

>> we think they will go with the overall number. they will talk about the core deflator. being sort of contained. but we still think the bias on rates is to follow them up in terms of raising the federal funds rate, both november and december.

>> the next meeting with the fed on rates is tuesday. widely expected to get that bump up. a quarter percentage point. do you expect the commentary to change at all, the tone there to change?

>> no, i don’t think the tone will change. because i think from the fed’s point of view, they are still fairly accommodative and in december they will do another 25 basis points. i think the fed in a way is feeling itself as a little bit behind the curve in terms of catching up to some of this inflation feeding through the system.

>> getting back to this morning’s g.d.p. reading, this is the first takes, they do three takes as we all know. will we face an upward or downward revision?

>> we think a downward revision because we don’t know a lot about trade and what happened to the port of new orleans. we also don’t know very much about inventories. those two key factors, we don’t have a lot of data on. i think the revisions as they come through will probably hit on the downside here in terms of overall g.d.p.

>> we have evidence―do you think we have evidence of what the impact for katrina has been or should we wait for those revisions?

>> i think we’re seeing the impact. when you look at jobless claims and we looked at capital goods orders. when you’re looking at the consumer confidence numbers that came out earlier today, you are seeing the impact of the hurricanes and my bet is that going forward, that 3.8% g.d.p. we saw in the third quarter is probably the best we’re going to do for the next two or three quarters.

>> ok. as you mentioned, consumer confidence reading came out, a little bit of a disappointment there, is this a forewarning of a slowdown in consumer spending? is there a tie-in in?

>> i think there is a tie-in. if you look at the components of consumer confidence, the buying intentions were really hit in a number of different areas. and intriguing also consumer inflation expectations were raised for the highest rate they’ve been. in over 10 years. so i think the consumer is saying, listen, we’re going to cut back our buying a little bit because we are concerned that inflation is picking up.

>> and this could translate into trouble come holiday season.

>> well, i think again for a lot of retailers, christmas sales will be good. but perhaps not as good as they had hoped.

>> so let me get you to sum up your statements. you did mention talking about inflation earlier. but what beside that would be the biggest risk to economic growth here in the fourth quarter?

>> i think the biggest risk in the fourth quarter is that feeding through not only of consumer confidence but business confidence. in terms of how people feel post holiday season. so what we may see in november and december is a significant slowdown and capital goods orders. that will be a signal that business investment spending is slowing. and if consumer confidence stays at a fairly low level, it may be yes, they will spend for christmas because they always spend for christmas. but post holidays, i think the budget for the consumer is going to be hit.

>> we’ll have to leave it there. john silvia, thank you for joining us. an economist with wachovia. stay with us, we’ll be back after this.

>> hurricane katrina took a bite out of the energy companies reporting earnings today. chevron took the biggest hit with a 12% profit gain that was much lower than expected. bloomberg’s margaret popper joins us with more.

>> thanks, lori. chief executive david o’reilly said higher oil and gas prices couldn’t compensate for a 40-day shutdown of chevron’s biggest refinery. chevron reported third quarter earnings of $3.6 billion or $1.51 a share. analysts had been expecting profits to climb 31% to $4.2 billion. national city analyst james halloran says the street missed, not chevron.
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indictment of lewis libby, vice president dick cheney’s chief of staff in connection with the leak of a c.i.a. agent’s name in retaliation for her husband’s criticism of the iraq war. libby was indicted on five counts by a grand jury. including obstruction of justice and making a false statement. libby resigned shortly after the indictment papers were released. bloomberg’s mark crumpton will have all the details in our world and national news report later in the half-hour. in the meantime stocks surged to their first weekly advance in october after reports showed economic growth accelerated last quarter without spurring inflation. it was the biggest rally since april 21. 29 of the 30 dow industrials finished higher. i.b.m. was the exception. checking your major averages, the dow and s&p have their best rally in six months. with the gain on the dow of nearly 2%. the s&p gains more than 1.5%. and the nasdaq up one third of 1%. the dow closed at a huge week with the rally. deborah kostroun has been following what was moving in today’s session.

>> what a difference a day makes for the last three sessions in the dow jones industrial average. we had a cumulative loss of 155 points but today, wiping out all of those losses for the past three days. and the dow and the s&p 500 closed higher for the week. for the first time this month. gainers in the s&p 500, you saw real estate, retail, and also some of the consumer services. laggards in the s&p 500. of the 24 industry groups, only one was lower and that was auto. and very surprising that you saw tech hardware with just a minimal gain. mainly because you saw gateway on the day. they reported third quarter numbers that were better than expected. amid higher sales of computers to retailers, hewlett-packard, that was the biggest gainer in the dow jones industrial average but on the other end what you did see of the 30 members in the dow jones industrial average, only one was lower and that was i.b.m. qualcomm also another reason why technology was really struggling on the day. crude oil, it was little changed. but as we kind of take a look at some of the integrated oil stocks, chevron, even though their earnings were worse than expected, their third quarter profit still rose 12%. that was the smallest gain among many of the major oil companies. that as the hurricanes in the gulf of mexico, curbing output, mainly because you have to remember that chevron, they had to close down some refineries and idle offshore wells because of the hurricane. taking a look at the drug stocks, bristol myers squib, bristol myers was down. the company cut its full-year earnings estimates. also they are discussing plans to end an agreement with merck to jointly develop a diabetes pill. after u.s. regulators saying last week they need more information to clear that drug for sale. and avon, that was the biggest gainer in the s&p 500. their third quarter revenue was better than expected. h.m.o. stocks generally having a pretty good week. mainly as we’ve been hearing a lot of earnings reports. coventry health earlier in the week. but aetna, they raised their 2005 profit forecasts. third quarter profit rose 25%. i’m deborah kostroun.

>> thanks, deborah. friday’s g.d.p. report pushed the nasdaq higher for the second day and second straight weekly gain as well. robert gray has detailed in today’s nasdaq trading from the market site in times square.

>> friday’s g.d.p. report helped to boost the nasdaq composite higher for the day and also for the week. that g.d.p. report showing the economy accelerating in the third quarter without spurring inflation. and we saw a broad based rally. we saw above average volume in friday’s session and we saw advancers outpacing decliners by a 2-1 margin on the nasdaq. as i mentioned, a broad based rally. the transports the strongest group after that g.d.p. report showing the economy accelerating. the banking stocks, the industrials where you see the retail stocks moving higher and computer related shares participating as well. and speaking of computer related, microsoft shares were strong in friday’s session. after they reported earnings after the close thursday night. they accelerated their stock buyback program to $19 billion. even though their forecast was a little bit conservative. many analysts said. and it would be below their average estimates. credit suisse first boston upgrading the stock to an outperform. noting the conservative forecast was very beatable for this quarter, also noting that share buyback program in their notes. we also saw the nasdaq gainers including j.d.s. uniphase. one of the big percentage gainers. the world’s number one maker of fiber optic networks saying in an s.e.c. filing it was raising its fiscal first quarter revenue and it would be above its previous forecast back on september 1, the mid point of that range. also amgen shares rising after getting e.u. approval for their treatment for mouth sores and cancer patients undergoing blood and bone marrow transplants and bed, bath & beyond, a retail stock rising on the report. and t.h.q. raising its forecast for the year. and gamers are upgrading to the new microsoft xbox 360 and the sony playstation due out next year. i’m robert gray.

>> the president of overstock.com apologized to investors in japan for the company’s widening loss and said it was “my bad.” the loss widened to 75 cents a share from 16 cents a year earlier. revenue was up 64%, the new payroll and inventory system was not ready when planned. and the president says that caused the company to lose money by tracking orders and performing other customer service functions by hand. despite a hurricane season that rocked much of the southeast the u.s. economy grew faster than expected during the third quarter. suzanne o’halloran and what that report means for the fed.

>> it appears that energy prices did little to curb economic growth last quarter. the u.s. economy grew at a 3.8% annual rate. that’s higher than―than the previous quarter and better than what economists were expecting. the g.d.p. price index, a measure of inflation closely watched by the fed, rose nearly 4%. take out food and energy, the rise was 1.3%. that’s the slowest since 2003. car sales added .6 points to third quarter growth but economist robert kubard says take that away and the report is not nearly as strong as it looks.

>> what we saw was almost all of though big sales were concentrated in july. june and july. and then they fell off quite sharply. they cannot sell a lot of cars unless they give them away at prices that actually end up in losses. that’s not stable.

>> even though u.s. stocks had a banner day, economist andrew pile says not so fast. he thinks today’s number could be a false positive. and reminds us that consumer confidence fell to its lowest level in 13 years today. and that’s according to the university of michigan sentiment index.

>> consumers are still very much concerned about the prospects going forward. whether it’s employment, incomes, and that could weigh on sales performance in q-4. we may soon be forgetting the strength we saw in q-3.

>> more evidence that may -- that may indicate a slowdown in consumer spending. wage growth and the savings rate, wages increased 2.3% in the third quarter. that’s the smallest year-over-year rise since record keeping began in 1981. and the savings rate fell below zero. bottom line, consumers are spending more than they’re making. couple that with higher heating costs this winter and some economists remain concerned as for the fed which meets next tuesday, another quarter point rate hike is expected. a bloomberg survey shows policymakers will lift rates to 4% at next week’s meeting. lori, back to you.

>> thank you for that, suzanne. this week crude oil ending higher continuing its see-saw performance but gasoline down the for the yankee as was heating oil. june grasso has a look at energy.

>> crude oil was little changed on signs high prices have cut demand and repairs to u.s. production facilities along the gulf of mexico are progressing at a slow rate. retail fuel prices jumped to records in the days after the hurricanes disrupted production. the high price of―curtailed demand. for the week crude oil was nearly 1% higher. continuing with an oscillating performance for the last several weeks. michael fitzpatrick of fimat u.s.a. says there are both bearish and bullish factors. but none are strong enough to push prices strongly in either direction. heating oil was little changed today. but fell about 1% this week for its fourth weekly drop. as temperatures in the u.s. northeast were forecast to be higher than normal next week. heating demand in the region will be 7% below normal over the next seven days according to forecaster weather derivative. the most used heating fuel, natural gas, fell a little more than 5.5%, 4.6% today. but was higher by nearly .5% for the week, snapping a three-week losing streak. regular gasoline at the pump fell 1.9% to $2.55 a gallon average nationwide. according to triple-a. but pump prices are still 26% higher than a year ago. gasoline is down nearly 1% this week. the fourth weekly drop in a row. that’s its longest streak of weekly drops in four years. let’s take a look at the week ahead for crude oil and a bloomberg survey, 38% of analysts questioned said oil prices would be little changed next week. 37% said prices would decline. and 25% forecast an increase. so it should be an interesting week next week, lori.

>> thanks, june. up next, we’ll have more on the economic numbers from this friday and look ahead to the fed meeting on tuesday with the chief economist with wachovia. stay tuned.

Interview: Energy analyst with Consumer powerline

>> crude oil and gasoline have pulled back after an energy department showed u.s. inventories increased last week. our guest is michael gordon, energy analyst with consumerpowerline. consumerpowerline is an energy asset line that works with some of the largest companies in the world. what can we glean fromt’s inventory data with regard to crude oil, heating oil, natural gas through the end of the year?

>> the surprise on the crude oil to an extent i think is an option on the future of this market . people saying this market may look good stocking up. and then there’s a little bit of a cold snap which, then, people start to say, well, maybe it’s a good product. i tend to think a lot of the upside has already been targeted into the price. so i’m not quite as bullish on the price of oil as others are.

>> so crude oil today at $60.86 per barrel. do you see us staying within that range through the end of the year?

>> if we get a cold winter, we have $3 or $4 on the upside. if it’s a warmer winter, i think we have quite a bit on the downside, maybe $6 to $7 on the downside, prospectively, mid january.

>> consumers, businesses, fearful of home heating oil expenses. let’s discuss natural gas first, where we see the tremendous runup. given the increase we’ve already seen from last year, how much more will we be paying?

>> substantially more for natural gas.

>> at these levels?

>> yes. 40% to 50% more this year than last so we are going to see it. will there be a paul o’neill back at the―or even  i’ve seen it both ways. long term, i think we’re seeing these kinds of increases consistently over the next three to five years but there are also opportunities in the midst of that so you see fallbacks often half the winters, you see fallbacks in mid january, late january, substantial fallbacks in price so i tend to be an advocate in a winter like this, because it’s overblown from hysteria, i tend to be an advocate of either capping, if you’re capping costs are 5% to 7% of total expenditures, or alternatively, taking over control of when you buy so not allowing the supplier to control delivery time table but instead to buy on dips, top off tanks, 3% to 5% dips.

>> are these customers in better or worse shape than the natural gas folks for heating oil?

>> slightly worse now. but heating oil actually, interestingly, because the heating oil market is more competitive, you may see better opportunities on the downside so now, worse, but later in the winter, possibly better.

>> how language should consumers expect to be paying $3 a gallon for gasoline?

>> i do think they’re falling back, absolutely and if you look at today’s inventory numbers, the expectations were for greater buildups and there were practically none and that’s probably because people see an opportunity in heating oil market and, a, imports are less, and b, people switch over. so i think we may have seen what we are going to see on the gas side.

>> and you don’t expect increasing demand there?

>> yes, there will be increasing demand from the fallback in prices, but we’re out of the driving season. and i just don’t think it will drive the prices back up. i just don’t buy it.

>> overall, how do you see the energy picture squeezing consumer spending? it’s a lot of concern about the holiday season ahead of us.

>> hmm, on the consumer side, people are afraid of what they’re going to have to pay. so i think it may, again, you have the hysteria concept. people feel that it’s―could be 70% to 90% more this year and they may be more and aul than they would―careful than they would otherwise be so, yeah, i think it will squeeze spending. over the long run, i think high energy prices are not a bad thing because infrastructure, all sorts of opportunities happen in a volatile market and ultimately i think it’s a more sustainable market but for now i think you’re going to see impact on holiday spending perhaps.

>> michael, thank you very much for joining us this afternoon.

>> it’s a pleasure.

>> this is michael gordon, energy economist with consumerpowerline. we’ll continue our focus on energy after the break. natural gas was lower today. we’ll ask why to the encana c.e.o., gwyn morgan, right after this. “after the bell” continues.
　
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highest since its peak in march. there’s speculation the federal reserve will continue raising interest rates into next year. the fed meets on tuesday. the european and japanese government bonds slumped on speculation central banks in those regions will boost rates for the first time in years. two-year treasury yields, more sensitive to expectations for monetary policy, at a four-year high. treasuries extended a selloff that gan when ben bernanke was named to succeed alan greenspan as fed chairman. inflation accelerated led by fuel prices. we’ll look at moves in the bond market with john miller later in the hour. meanwhile, stocks with their first back-to-back losses in two weeks after revenue forecasts from amazon.com and boeing disappointed. shortfalls left the market unable to capitalize on a morning rally triggered by better-than-expected earnings from chubb and conocophillips. the dow jones industrial average loses 32 points, mostly in late selling. the s&p off five and nasdaq down nine points. disappointing earnings and forecasts sent the nasdaq to its second straight decline. robert gray has details on the nasdaq trading from the market site in times square.

>> investor concerns over profit outlooks from companies sending the nasdaq lower for a second consecutive session. closing near the lows of the session. in the early part of the day, the nasdaq pushed up toward the 50-day moving average, less than a point from that, unable to push higher and began a slow, steady selloff throughout the afternoon, closing near the lows of the session, holding near the psychologically important 2100 level. we did see a number of companies with profit disappointments including flextronics, worst performer in the nasdaq 100 percentage-wise, falling on the profit short all and forecasts, saying profit in the fourth and third quarter will miss analysts’ estimates. and amazon.com falling after saying its profit will trail analysts’ estimates. cutting operating margin forecasts and saying the midpoint of its fourth-quarter sales forecasts will trail the average analyst estimates. garman limited, maker of g.p.s. navigation devices, low end of forecast for fourth-quarter consumer sect gross margin, sending that stock lower, as well. research in motion losing an appeal to a stay. john roberts rejecting a stay of a blackberry patent ruling in hay lower court that stated that research in motion infringed on patents owned by n.t.p. incorporated. the stock did rise on this news, actually, and an analyst told me that the reason it did close higher is that judge roberts moving n.t.p. and r.i.m. closer to a settlement which is what investors were hoping for all along. research in motion shares moved higher and she expects resolution by year’s end. a look at tech gainers, adobe systems, one of the best performers, saying fourth-quarter sales and profit will be at high end of forecasts and apple computer and google at records in the session. at the nasdaq, i’m robert gray.

>> thank you. the market was battling between good earnings and bad earnings today. finally finishing lower. for more on the action, here’s a report from deborah kostroun at the big board.

>> we were battling with a lot of earnings today. some earnings good, some, not so good. conocophillips released third-quarter earnings beating expectations. they also, however, did have supply disruptions from the hurricanes but also rising demand. crude oil and gasoline declining today after an energy department report showing inventories increased last week so what you saw in the energy industry, pretty much a little bit of a mixed market . delphi, of course, we’ve been following that since they filed for bankruptcy. delphi wants to cut workers’ wages by as much as 2/3 and begin monthly charges for healthcare and eliminate health benefits for retirees in the plan to exit bankruptcy. laggards in the dow jones industrial average, boeing, the worst performer after cutting its forecast for delivery of aircraft to 290 planes this year because of that 28-day machinist strike, which, of course, slowed production. they also cut their full-year sales forecast to reflect delays from the strike. dupont rising the second day, biggest gainer in the dow jones industrial average for the second day, after the company saying yesterday they would buy back $5 billion of its stock. chubb hitting a 52-week high. chubb saying yesterday that their third-quarter profit before investment gains, 89 cents, more than four times the 20 cents estimated by analysts at sandler o’neill and partners. claims from katrina were also lower than expected. material stocks among the biggest winners. cyclical stocks performing well. cibc, they raised their rating on u.s. steel. citigroup raising its rating on international paper. so material stocks, the best performers of the 24 industry groups in the s&p 500. anheuser busch was down, profit falling 24% in the third quarter after price cuts on budweiser and michelob. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> thank you. crude oil and gasoline declined after an energy department report showed inventories increased last week. crude oil supplies jumped 4.4 million barrels, the third straight increase. gasoline supplies rose 159,000 barrels. crude oil at the dlos close down $1.78 a barrel. gasoline fell more than 4%, heating oil down more than 1.75% and natural gas futures off 2%. exxon-mobil’s profits may set a record in the company’s history when it reports tomorrow before the market opens in new york. suzanne o’halloran has a preview.

>> thank you very much, lori. record oil prices last quarter may translate into a strong third quarter for exxon-mobil. analysts are forecasting exxon’s profit to jump 44% to $1.38 a share. net income probably rose to $8.6 billion, the highest quarterly profit in exxon-mobil’s 123-year history. the lingering effects of hurricanes katrina and rita on oil, gasoline and heating oil prices, plus rising demand worldwide, is lifting the bottom line. the storm shut down oil and gas output along the u.s. gulf coast for several oil companies, including exxon-mobil. analysts say any losses for exxon were probably offset by higher profit margins from pumping oil.

>> although the refineries in the u.s. took down time due to the hurricanes, exxon is one of the biggest refiners in the world and they have refineries in every geography around the globe and all of those refineries experienced much higher margins, contributing to higher profitability.

>> the price of crude oil peaked at $70.85 a barrel in august, a day after hurricane katrina struck. since then, the price has retreated on concern u.s. demand may be falling. fears have taken a toll on exxon-mobil shares. the stock has dropped more than 11% this month compared to a 3% drop for s&p 500. investors are shrugging off demand concerns, saying worldwide demand should be strong through next year. he says any weakness in exxon stock makes for a good buying opportunity.

>> we still view exxon as a core intermediate to long-term holding in the energy sector. exxon is one of the best managed and most consistent producers of earnings in the energy sector and has been for many years.

>> he says exxon-mobil shares could climb over 25% to $72 a share in a year especially as the company boosts oil production in new markets such as anguolla. the stock lost 2% today ahead of the earnings released tomorrow morning.

>> analysts not expecting improvement in verizon communications earnings or sales. they’ll release third-quarter earnings tomorrow amid tough questions about the strategy. the third-quarter profit barely changed as verizon was forced to cut prices in order to keep customers from jumping to competitors. verizon will likely report a profit of 1.8 billion dollars or 64 cents a share. a year ago, it made 65 cents a share. sales may grow 4% to $18.9 billion. verizon was cutting prices for phone calls and internet access as it battled tougher competition from cable companies and vonage.

>> what they need to do is stem customer defections that they’re losing from the local side of the business. they’ve worked hard to try to improve that by discounting the bundle of services, discounting d.s.l. service but competition from cable and wireless is intensifying and making it a challenge.

>> it’s been a tough year for the phone giant, spending billions of dollars to build a fiber optic network to deliver phone and tv services. the stock has plunged 25%, on pace for its worst annual loss since the company was formed in the breakup of at&t 21 years ago. we have more coming up. reality check on the energy markets , charting crude oil for you and the quarter ahead. all of this as “after the bell” continues.

Interview: Jupiter Research on Amazon.com

>> we have computer associates and bob bowden is standing by with the numbers.

>> thank you, lori, checking out c.a. right now, reporting 24 cents for last quarter, meeting the 24-cent analysts’ estimates for computer associates and the forecast at 24 cents. pulling out the forecast, that’s 25 cents for the forecast for the current quarter. so that’s missing by a penny on the forecast for the current quarter. for computer associates. also, checking other news, the company says that second-quarter bookings fell 11% to $665 million. checking after-hours’ reaction to c.a., what we have―we’ll have that later for you. but basically, the headline is computer associates forecast missing by a penny. back to you.

>> thank you very much. a lot of economic data in the news today, a busy day. consumer confidence numbers released this morning. confidence unexpectedly fell to a two-year low in october. high energy prices, left consumers with less money to spend, raising fears of a slump in holiday spending. the conference board’s consumer confidence index fell to 85 from 87.5 in september, a far cry from the average reading of 98.4 over the past five years. treasury notes fell as traders and investors said the confidence number would not stop the fed from continuing to raise interest rates. the fed meets a week from today. checking the shorter end of the yield curve, down 4/32 with the yield on the two-year at 4.33%. amazon.com, world’s largest online retailer, reported third-quarter earnings. vikram sehgal covers online retailers for jupiter research and he’s in our studio. welcome. the story with amazon, investors really key into those margins and we know in the third quarter amazon.com’s margins dropped to 24.9%, that’s ploble why -- probably why we see shares lower in extended trading. why does amazon go from here?

>> what we are going to expect is the holiday season is upon us and we’re going to expect margins to be squeezed further especially for online retailers because online consumers expect free shipping more so this year an last year given the high gas prices and most of these online retailers have to absorb these rather than pass it along to consumers.

>> an interesting situation with amazon, rising gas prices were a challenge for them but you could look at the other side of the story and say, gosh, with rising gas prices, many customers will probably more likely to do shopping online.

>> right. so there’s―two stories to this. one is that, yeah, they are likely to shop online where price is still king. they need to continue to compete on price and continue to give free shipping as one of the incentives. and they’re also competing with the offline stores where they’re less likely or at least the perception is they’re less likely to go because of high gas prices, avoiding the trips to the malls.

>> i want to invite bob bowden to ask you questions.

>> i wanted to ask you about the competition in particular, since last year, an advertising campaign by overstock.com,,”it’s all about the o,” is their line. once i typed in books, there was competition from brick and mortar retailers with their websites. is that landscape changing for amazon?

>> it’s been changing and we expect it to continue to change but we expect online retail steals to grow 20% this year and there’s room for companies like amazon who are online only, who are competing with the brick and mortars, as well. so there’s room to grow for all.

>> let’s talk here about some of their other competitors. how does amazon.com set itself apart from competitors such as wal-mart, world’s largest retailer or even ebay.

>> ebay is a different animal. amazon.com talks about the convenience and what to bring to the table and they have a loyal customer base. marketing with them effectively and segmenting the consumers is going to be key as to how they’re going to keep attracting consumers coming online. this year, we expect approximately 12 million new online buyers coming on line and many this holiday season so attracting them and gaining a higher share of existing customer base is key for amazon.

>> i want to ask about earnings for amazon. i’ve charted it on the bloomberg terminal. the point is how earnings have dropped the last three quarters and predicted to drop. the red numbers are the last three quarters, earnings down. five quarters had earnings up more than 20% and three in a row down more than 29%. what changed?

>> it’s extensive competition. so they’re spending more on marketing , spending more on online search. and in addition to other marketing , as well. so prices have always been key. they’ve tried to move away but it continues to be that consumers are always looking for a bargain online or offline so it’s a national phenomenon over the past year or so.

>> thank you for joining us this evening. vikram sehgal of jupiter research with his commentary on amazon.com. from online shopping to fast food, mcdonald’s says it is getting more health conscious. we’ll talk to the c.e.o. about that.
　
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Earnings --- Bob (fast)
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forecast from texas instruments and this month’s biggest jump in oil prices hurt the market . technology shares paced declines along with retailers, which were brought down by an unexpected drop in the consumer confidence index, to a two-year low. we’ll bring you the closing numbers. the dow jones industrial average close down 7 points, a fractional percent. the dow flirted into positive territory but is extending october’s slump. the s&p 500 also lower on the day, down .25% and the nasdaq composite index down six points, that is 1/3 of a percent decline. amazon.com’s third-quarter results are out and the stock is lower. suzanne o’halloran has the story.

>> thank you very much. shares of amazon.com trading down by 7% in extended trading, although sales rose, profits and margins are not what analysts were hoping. earnings excluding items were 12 cents a share, topping forecasts of 10 cents. revenue climbed 27% to $1.86 billion, ahead of forecasts. the release of the latest harry potter book was a mixed blessing, lifting sales but amazon had to cut the price of the book, hurting the profit margin. amazon c.e.o. jeff beesose is adding more warehouses and software engineers to upgrade service. gross margins declined sequentially to 24.9%. livs i spoke to ahead of the report hoped to see margins stabilize. gross margins have dropped the past four years as sales continued to soar. amazon gave a disappointing forecast for the fourth quarter, its busiest season. operating income is expected to be as much as $210 million and revenue as much as $3 billion. the bulk of amazon’s profits come from books, music and videos. analysts say amazon needs to offer higher margin items.

>> the items that brings cowrms to a store or site is electronics, especially in the christmas season so i think this season they will focus on those customers but the goal for amazon will be to be able to expand the customer’s exposure to other areas to be able to have them think of amazon if they’re thinking of apparel or even appliance item.

>> ahead of the report, shares of amazon were at a 52-week high today for the year, the stock up 4%. lori, all indications from the extended trading session is that the stock will open lower tomorrow. back to you.

>> suzanne, thank you. other earnings out after the bell, checking with bob bowden for details.

>> thank you. we begin with flextronics, the world’s largest contract electronics manufacturer, the largest maker of electronics for other companies. the stock taking an after-hours hit. on a gaap basis, the company lost money slightly but on an operating basis, the headline number 17 cents a share, missing the 19-cent average analyst estimates. revenue coming in down 6.1% from the same period the year before and missing the midpoint of the forecast it issued in july. 3.8 to 4.2 was the forecast back then. no relief from the current quarter, either, the forecast. flextronics only sees 18 to 20 cents a share in the third quarter, analysts at 25 cents a share and the weak numbers have produced that on the bottom of your screen, a weak after hours stock price, down over 12% for flextronics. r.f. micro devices reporting four cents a share in the fiscal second quarter, beating estimates. the revenue forecast in the current quarter in a range of $205 to $212 million, the range higher than the $191 million analysts were looking for. r.f. micro up 2.66% in extended hours trading. chiron falling in after hours, quite a bit. it’s like more what we were seeing with chiron at the beginning. well, that is chiron, more like with r.f. micro. the company wrote off its flu i have ron inventory after -- viron inventory after inventory prices arose in the u.k. not a large move after hours, but a 1.56% downward for chiron.

>> thanks for that. the market attempted a late-day rally but failed, leaving the major indices lower. more on today’sitration action, a report from deborah kostroun at the big board.

>> in the last few minutes of trading, we did see the dow jones industrial average move higher. however, could not hold on to gains so a little bit disappointing, also disappointing is the s&p 500, failing to post more than two straight days of gains so far this month and what has been keeping the s&p lower, concern about inflation and rising interest rates. all day today, semiconductor were lower after texas instruments said profit this quarter will be less than expected. sales expected to decline for the fourth quarter. chief financial officer saying the company may not have enough inventory if sales accelerate and that could limit sales in the holiday buying season which of course is the busiest for consumer electronic makers and also retailers. cablevision on the day, sharply lower after the dolan family withdrew the $7.9 billion offer to take the company private after failing to reach an accord with directors during four months of talks. so, even for the year, however, the stock down only 3%. existing home sales, they were unchanged in a report coming out today and that really kind of led the bloomberg home building index lower. many of the home building stocks sharply lower in today’s session. lexmark falling today. that after their third-quarter profit fell after a slump in ink cartridge prices. it expects their fourth-quarter profit to be below estimates. that stock, however, down 53% so far this year. and we saw crude oil on the rise, on the day, not only crude oil but we also saw natural gas and heating oil all on the rise as fuel consumption is expected to increase going into the winter. crude oil with its biggest increase since september 19 and our biggest one-day gain for natural gas in a month, up 10%. really, that led the s&p 500 energy index to be the biggest gainer in the 24 industry groups of the s&p 500. you saw oil services and also integrated oil stocks higher. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> thank you. boeing is set to report third-quarter results before the open of trading in new york tomorrow. boeing’s c.e.o., james mcnerney, quickly oversaw the settlement of a machinist strike in september, limiting the damage the walk-out could have had on new orders. airplane shipments were hurt by the strike and analysts want to know how quickly boeing with recover. fresh on the job, mcnerney settled the strike by 19,000 machinists in record time and the company’s stock rebounded as investors bet the walk-out would have little impact on the company’s plane deliveries. as many as 30 planes were not delivered in september and analysts say they want to hear boeing’s update for aircraft deliveries when boeing reports tomorrow.

>> investors i think would like to hear about the impact of the boeing strike, the machinist strike, on this year’s scheduled deliveries and whether boeing can make up substantial portion of the aircraft that it did not deliver because of the strike in the third quarter.

>> boeing is not changing its forecast that it will delivery 320 planes this year. as for third-quarter net income, analysts expect it to rise 43% to $650 million or 80 cents a share. the quarter’s results include a $575 million pretax gain from the sale of its rocket engine unit to united technologies. third-quarter revenue will probably rise more than 1% to $13.3 billion thanks partly to a surge in military spending. cost cutting, another key part of mcnerney’s strategy. boeing is focusing on faster assembly times to lower the costs of making aircraft. the productivity gains are expected to help boeing reach its goal of achieving profit margins of 10% and allow the company to compete against airbus on price. boeing said it would top airbus on plane orders this year, already receiving 616 orders. analysts say a global economic recession or drop in u.s. military spending are still risks for boeing.

>> we have an economic recession globally. that’s what drives traffic and that’s what drives demand for planes so that certainly would be one issue. i think we have a tighter defense budget so they’ve got some programs that might be cut back. i think that would be a second issue.

>> a program note, at 12:30 new york time tomorrow, we will speak live with james mcnerney, c.e.o. of boeing, on the bloomberg news program “in focus.” amazon.com out with third-quarter earnings, learn what’s driving the company’s growth and the latest trends on the online shopping industry, next.

Interview: Former Fed Economist

>> santander is buying sovereign bancorp. santander is making the minority investment in sovereign that equals about $27 per share. santander will buy the independent community bank and the investment at $27 a share, that deal adding over 3% to 2007 operating earnings for santander. i’m sorry, for sovereign. moving on this afternoon, we have a couple of guests to continue our discussion on the appointment of ben bernanke. he will succeed alan greenspan as chairman of the federal reserve. for more reaction to the news, we head to washington where we’re joined by two bloomberg news contributors, kevin hassett, former fed economist and aide to president bush’s re-election campaign, and gene sperling. let me get your reaction, gene, to the market ‘s perception that mr. bernanke may be more tolerant of faster inflation?

>> he’ll get it both ways on this. on one hand because of some things he’s written, from there is some of that reaction. on the other hand, when he goes to capitol hill, they’ll be more focused on the idea that he’s for inflation targeting and i think some of the intense hearing that senator paul sarbanes and others have promised will be questioning whether he might be indeed too rigid on inflation and not show the flexibility that chairman greenspan has concerning unemployment so he may be getting it a bit both ways this time around.

>> how will he, gene, following that up, initially react?

>> excuse me?

>> how will he initially react? he’s taking the reins, has to establish himself after following the icon of greenspan. what does he do there?

>> well, i think―my guess, if i were him, he hasn’t called me for advice―but i think what he needs to do to really get through confirmation is to focus on his role as a monetary expert to show himself as a serious person who’s open minded. i think what he needs to run away from a little bit is that while this is a person seen as very nonpartisan and truly a monetary policy expert throughout his academic career, he certainly did make very partisan remarks about the bush tax cuts, et cetera, which probably helped him get the job but he’ll have to pay a certain price when he comes to capitol hill, to the senate, for his hearing.

>> do you think he’s up to speed politically, gene?

>> you know, i talked to people about some of the comments they made and they said, no, actually, what a lot of his fans say, is if he seemed a little too political it was simply because he’s not good as being political but he’s much more comfortable being a monetary economist and therefore when he gets to the federal reserve, he’ll be freed of the talking points that come with being the chairman of the council of economic advisers so his advocates are saying, focus on the 20 previous years where he was a nonpartisan, academic, highly respected by all five and don’t focus as much on some of the comments he’s made in the last few months when he was clearly trying to please bush loyalists and may have given the democrats some fodder for intense questioning at the hearings.

>> let’s bring kevin into the discussion. we’re not forgetting about it. what do you foresee mr. bernanke’s biggest challenge to be in the coming months?

>> i think the confirmation will likely go smoothly. i think he about as good a candidate as you could think of for the federal reserve and that people on the left and right acknowledge that. the one thing that’s a little bit creepy about him is that so many people have such a high regard for him you kind of wonder if he’s really from earth. i think going forward, his real challenge will be to show central bank independence and i would guess the way he’ll do that will be to focus on his love of monetary policy and not introduce himself into fiscal policy debates. i would guess that in his hearings he’ll probably say that that’s what his intent is.
　
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Interview: On Ben Bernanke on the Fed
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the bell.” our top story, a changing of the guard at the fed.

>> i will do everything in my power in collaboration with my fed colleagues to ensure the continued prosperity and stability of the american economy.

>> that is ben bernanke, president bush’s choice to succeed alan greenspan as chairman of the federal reserve. let’s go to michael mckee for more reaction.

>> lori rothman, thank you. we have an exclusive interview with dallas fed president, former dallas fed president, robert mcteer, chancellor of the texas a&m university system. thank you very much for joining us. you worked with ben bernanke on the fed, have known him for a while. your reaction to his choice to lead the organization?

>> if the chairman has to go, i can’t think of a better choice to replace him. i think it will turn out to be a very wise decision.

>> what skills does he bring to the job? how would you contrast those with what alan greenspan brought

>> ben bernanke has been a monetary economist for a long time, a highly published academic in the area that has now had probably three years or so of practical experience sitting on the fomc meetings so he knows it from the academic side and he knows it from where the rubber meets the road and he has all the skills that are necessary, i think.

>> of course, the fed chairman’s job is not just about monetary policy and economics, but there’s a certain amount of politics involved. does he have those skills, do you think?

>> i have no idea. and of course part of the job is staying out of politics. so if he has a modest opinion of his ability as a politician, that probably will serve him very well.

>> how did it go over with chairman greenspan, with the rest of the members of the open market committee, that he was constantly being asked to comment on issues outside of the fed’s normal purview?

>> i’m not sure i understand your question. but i know that over the course of his long career, he seemed to become more willing to comment on a broader range of issues and congress seemed to use him for sort of a national economic education program every now and then. they felt free to ask about just about everything and he’s a matter at that and―a master at that and i don’t know if ben bernanke can match him on that. probably eventually but he probably will have large shoes to fill in terms of speaking on that broad range of issues. on the other hand, i doubt that people expect him to be alan greenspan right away. he’ll be his own person with his own personality and his own set of skills. and he’ll do the job well. he just will probably do it differently.

>> we’ve talked in the past and many have said the same thing, that one of alan greenspan’s great abilities was his ability to draw people together and get consensus. how hard will it be for a newcomer do it, whether ben bernanke or someone else?

>> i think ben’s prior service on the board of governors will keep him from being a newcomer. everyone there at the board of governors and all the research bank presidents and research directors like him very much and have very high regard for him so he will not have a newcomer problem inside the fed and based on the stock market today, i’d say he won’t have one outside the fed, either.

>> that is a question, how much credibility he brings to the job. when greenspan was first chosen, markets were rather violently reacting one way or the other because they didn’t know enough about him. do you think he comes in, having served on the fed before, with the benefit of the doubt and less volatility going forward?

>> yes, not only having served on the fed before but having been fairly active as a speaker. he has given a lot of important talks over the last few years and i think the markets know himville.

>> one of the things he’s talked about is the idea of inflation targeting. where do you think that goes? do you think the rest of the fed is ready to consider that once alan greenspan has left the board?

>> i think several members of the fomc are ready to consider it. i don’t―i couldn’t give you a head count. i don’t think it was in the cards with alan greenspan there. i don’t know whether it’s in the cards now. but it will be considered and it will―the chances of that have certainly gone up significantly.

>> chairman greenspan has always argued that you didn’t need it because the fed had found other ways to be predictable for the markets . does that goal weigh when chairman greenspan leaves that it would be a help to the markets to have a target?

>> i personally don’t think it would add much. the chairman’s view was that inflation targeting is sort of a marketing tool for a central bank that needs credibility. and i think the federal reserve has earned its credibility. so i don’t think it has a lot to gain by adopting inflation targeting. on the other hand, i think adopting it would constrain it somewhat and reduce its flexibility and options.

>> in terms of credibility, markets will be watching mr. bernanke closely. how would you describe his monetary philosophy? is he a hawk, a dove? where is he on the scale?

>> well, i think he’s―they’re all hawks. they’re just various degrees of hawks and i’m not sure how he fits in but i heard someone describe him as more dovish today than chairman greenspan. i don’t know where that comes from. i think he’s plenty hawkish.

>> so you think he would support the ongoing, at least, idea of continued fed rate increases in to the near future?

>> most likely. he also has his eyes and ears open and he will evaluate each decision as they come. i don’t think he knows right now how far he will go. i hope he doesn’t go too far. i think it’s almost time to stop and put your finger up and see how things are going. but he’s as willing to fight inflation as anybody on the fomc.

>> i have just 30 seconds left. greenspan was the face of the fed. the fact that he’s leaving, good thing, bad thing for monetary policy?

>> he’s been there 18 years and i won’t say it’s a good thing that he’s leaving but he’s served his country well. they have found an excellent successor so i think maybe the time has come. and we’re not there yet. it’s not january 31. not quite yet.

>> thank you very much, robert mcteer, former dallas fed president, now chancellor of the texas a&m university system. back to you, lori.

>> thank you very much. texas instruments is out with its latest earnings after the bell and we’ll check with ellen braitman for the details.

>> topping what analysts had been looking for, 41 cents a share for the third quarter, if you exclude items, a penny better than analysts were looking for. sales also topping estimates, $3.59 billion, analysts looking for $3.55 billion. you do see shares falling in the extended trade. they did rise going into the close today, going into that report, currently down 3.9% and up 26% so far this year. john lau, the analyst who covers the company, said perhaps investors were looking for stronger numbers from the company. we’ll hear more from that analyst in half an hour’s time. the company also giving a profit forecast for the fourth quarter as well as a revenue forecast for the fourth quarter. does anticipate earning between 39 and 43 cents a share. that midpoint, 41 cents a share, matches what analysts are looking for for the fourth quarter. as for sales, it says fourth-quarter sales may rise as high as $3.7 billion. analysts, on average, at $3.6 billion. more details on the third quarter, the company said the chip business was up 10% from the year-ago period, that the third-quarter gross margin was 39.3% and operating margin was 22.7% and that orders were up 24% from that year-ago period. that key in terms of investor reaction in extend trade, those shares down 3.9%. as for the report today, the third-quarter number coming in stronger than expected, for both profit as well as sales, keep in mind it was on september 8 that texas instruments said third-quarter sales and profit would beat earlier forecasts because of a stronger-than-expected demand. those shares up 26% so far this year. in terms of how it stacks up to peers, it makes texas instruments the fifth best performing stock out of the 19 shares in that philly chip index. lori, back to you.

>> thank you very much for that. stay with us. we’ll be right back with the latest on the refco scandal. bloomberg television continues.

Interview: Chief Economist at Moody's Investor Service

>> earnings are likely to dominate headlines again next week, but we are getting a sleuth of important economic indicators as well. fed chairman alan greenspan is scheduled to testify before congress on november 3, just two days after the fed meeting on interest rates. joining us now with an economic preview is john lonski, chief economist at moody’s investor service. john joins us from the american stock exchange in downtown manhattan. welcome, john.

>> thank you.

>> some economists i’ve talked to say inflation pressures related to the hurricane are clearly a concern for the economy. we have big economic reports next week. which are you watching and what do you think most closely measure inflation?

>> i think the fear is regarding inflation are overblown. the truth is it’s not a bad idea to have a somewhat faster rate of core inflation and order that companies be compensated for now higher energy costs as well as earlier runups by industrial materials costs.

>> so you’re―so you’re saying a limited rise in inflation can actually benefit profitability?

>> oh, most definitely.

>> how can that be?

>> oh, because it allows final product prices to grow relative to cost. it widens profit margins. that’s what it does. those equity analyst that is are fearful of a higher rate of inflation, are really fearful of a runaway rate of inflation, the type of inflation we had back in the late 1970’s and maybe early 1980’s. and i think that’s quite unlikely to happen. if inflation was really becoming such a problem for the u.s. economy, we would look at sharply higher treasury bond yields and that’s simply not the case.

>> so where do you see inflation heading? are we going to see companies increasingly passing on higher costs to the consumers?

>> to a limited degree. we think the core rate of inflation that was understated at only 2% in september perhaps will peak at a range of 2.5% to 3% in 2006. and i might add that when we last had more corporate credit rating upgrades than downgrades, we had a core rate of inflation of 2.8%. thus far in the current recovery we have a lower average rate of core c.p.i. inflation, and with that we still have more corporate credit rating downgrades and upgrades. it’s that inability for companies to more fully pass on cost that explains the lagging performance of corporate credit.

>> now, john, we’re getting closer to the fed decision on november 1. the general consensus among economists for another 25 basis points rate hike, do you think the fed might be overshooting there?

>> i think we’re quickly approaching neutrality as far as monetary policy is concerned.

>> what do you call neutrality? why do you say that?

>> if in 2006 nominal g.d.p. rose as expected by 5.7% in core inflation is no higher than that range of 2.5% to 3%, then 4.5% ought to be the peak for fed funds. that’s where neutrality lies.

>> ok. so you’re saying neutrality is at 4.5%. do you think that’s where the fed will pause?

>> i believe so at this point in time unless the fed is compelled to tighten more aggressively because of a rise in inflation risk that forces not only treasury yields sharply higher but significantly weakens the dollar exchange rate. remember, like never before, the u.s. economy depends on foreign credit and if foreign creditors get frightened about a runaway inflation, you can be sure that will hurt both bonds and the dollar.

>> let me ask you this. earnings are strong. oil is down. but we don’t see any rally in the market . are we having a scenario where the fed is actually beating earnings? that is to say are investors waiting for the fed to be done with raising rates?

>> i think that’s absolutely right. and i would also add that my impression is if the fed funds peaks at 4.5%, the equity market is overreacting to what remains in terms of rate hikes. but you can’t blame shareholders from becoming or taking a cautious view, being risk averse, until this latest series of fed rate hikes is finally over.

>> now let me ask you, federal greenspan is scheduled to testify a couple days after the fed’s decision, what are your expectations there?

>> i think greenspan will admit that he’s pleased with the performance of the u.s. economy. he’ll recognize that inflation risks have risen but he’ll add that inflation appears to be well contained from the perspective of most financial market participants, in particular the credit market and the foreign exchange market . therefore, the fed can continue to move towards neutrality at a measured pace. not at a pace that risks slowing the u.s. economy.

>> john, before we go, do you see a successor and who do you have as a frontrunner of successor for alan greenspan?

>> cohn, larry lindsey with an outside shot.

>> all right. john lonski, chief economist at moody’s investment service. thank you for joining us, john. up next money and sports. homecoming takes on a whole new meaning for florida college students. and, it seems, that even the people who live in chicago are not that excited for the world series.
　
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Listen Market briefing --- Derek (slow)
G.M. --- Brian (slow)
Market wrap --- June (slow)

>> welcome back. this is “ after the bell.” i’m derek davis. thank you for joining us. general motors said today it has a short list of possible buyers for a stake in the general motors acceptance corporation, g.m.’s finance unit. analysts say the sale may raise as much as $15 billion. rick wagoner in part two of an exclusive interview with bloomberg’s brian sullivan said g.m. is already in discussions with several companies. that would make the most sense for a strategic partnership to buy a stake in gmac. he wouldn’t identify potential buyers. brian asked wagoner about justifying job cuts at g.m. and when the sale of gmac would mean the company would be sitting on a lot of cash.

>> what we’re going to do is come up with a transaction or try to come up with a transaction that boosts gmac’s credit rating n. doing so, that’s going to help the auto business and their other businesses to grow more. we don’t know what the financial proceeds might be. we haven’t made any calls on how to use those proceeds. and so premature for me to guess how my―how it’s going to affect our relations with other parties. i just go back to say again i think u.a.w. has a clear understanding of the challenges being faced by the domestic auto industry and my sense is they’d be glad to see moves which strengthen the company. it’s good for us and them.

>> part of the plan you announced was recently future layoffs and plant closings. you make about 80 models in north america, correct?

>> right. depending on how count them but 75 to 80.

>> how do you continue to make that mod wind chill fewer plants? it would some logically some models have to go.

>> i think what we’re trying to do, a critical part of our strategy is improving manufacturing flexibility because the one thing even the last 60 days have shown us that you just can’t even with the smartest people forecasting very―in a very exacting fashion, we can’t forecast all the events that may affect demand patterns, and so we really have to build in a robust and flexible capacity. we want the capacity to be tight because excess capacity is incredibly expensive but we do have to be able to use the capacity and that means we have to be able to build at least in the whole manufacturing system the full array of products that we need to offer to competitors. so we don’t have a specific strategy to significantly reduce models. in fact, what we’re going to do is drive through a global product development process being able to keep the same number of models at a much lower cost and frankly we think shorter life cycles and better products as we proceed with that and we need to be able to build those in a flexible manner and that’s the plan we’re laying out.

>> i spoke with an analyst who described the auto industry -- not g.m. in general but ford, also, as the bad movie syndrome. that you’re sitting there and you’re hoping it gets better at some point and maybe it only gets better when it ends. is the u.s. or ford or g.m. auto industry in the middle of a bad movie syndrome?

>> i think we’re obviously in a tough time but this industry is filled around the world with ups and downs for companies. and it’s not u.s. companies alone, by the way. it’s european companies, it’s japanese companies, too. so i think we all have our better periods and our weaker periods. obviously it’s a tough, tough time for us here. i’m highly confident we’ll come back strong and get u.s. business on track and then build on some strengths we have in the rest of the world like asia. so don’t think it’s a bad movie but certainly the slot we’re in is the challenging one for us.

>> and that was bloomberg’s brian sullivan with general motors c.e.o. rick wagoner. here is a look at g.m.’s stock at the close. down over .4% or 12 cents to $28.26. stocks suffered a third straight week of losses with concern about inflation. higher interest rates and slower earnings growth pushing share prices. bloomberg’s june grasso has this week’s “market wrap.”

>> benchmark indexes have failed to sustain either advances or declines for more than one day this week. on thursday the dow and s&p 500 erased wednesday’s gains almost exactly. the dow followed a 100-point gain with a 100-point loss for the first time since march of 2004. while the s&p erased a 1.5% gain with a drop of the same size. investors have focused on the affect of energy prices on consumer spending and the strength of earnings. crude oil fell below $60 a barrel for the first time since july.

>> there has been somewhat of a pullback in that price. if we continue to see that, that will have an obvious effect on psychology and spending going into the winter. but, that said, the earnings season is coming along just fine. total earnings are up like 17% but it’s a much more modest 9%-type number.

>> but concerns continue to weigh on the market . a government report the start of the week showed the biggest jump in producer prices in 15 years leading some investors to expect faster inflation and pfizer posted weaker earnings and withdrew its forecast for next year. caterpillar and radio shack reinforced speculation that earnings growth will slow. some analysts say a bear market may develop soon.

>> we see really resumption of what happened in 2001 and 2002. we had such an overvaluation in the market and we’ve not yet seen the―what we would see the absolute lows that would have washed the bear market out.

>> thanks to the drop in oil prices this week, energy stocks tumbled, utilities also plunged, and health care companies slid. for the week, the dow is down .7%, the s&p dropped .6% putting it on course for its third weekly decline which would mark its longest retreat since march. only the nasdaq has gained .8%. back to you, derek.

>> thank you very much, june. still ahead, a view of the economy. we will preview next week’s important economic indicators with the chief economist at moody’s investor service. his name? john lonski.

Interview: Senior investment Strategist and Portfolio Manager with Deutsche Asset Management

>> crude oil, gasoline and heating oil fell for a fourth straight day on expectations u.s. inventories will jump as hurricane wilma heads away from the nation’s oil fields. crude oil at the close, here, checking the bloomberg. this is for the week, now, crude oil down 3% or $2, to $60.63. among the other energy movers, gasoline up over 1.5%, 1.6%. heating oil down almost .2% and natural gas futures down .8%. it looks like oil is likely to continue to head lower. of the 40 analysts surveyed by bloomberg, 60% -- 68% say prices will fall next week, the most bearish forecast since our survey began a year and a half ago. 8% say prices will rise and 1/4 of those surveyed forecast little change. on to earnings, one week down, yet still more to go. joining us now with this week’s corporate america scorecard and preview of what’s to come in the weeks ahead is arnim holzer, senior investment strategist and portfolio manager with deutsche asset management, helping to manage about $3.5 billion, joining us in our studio today. welcome, arnim. we had more than 2/3 of the 171 s&p 500 companies reporting third-quarter earnings. how is the market shaping up for earnings next week?

>> we’ve had a pretty good earnings season so far. there have been minor disappointments here and there but we think the season is shaping up pretty well. i think the expectations at the beginning of the year may have been a bit high, given what’s happening with energy prices, derrick―derek, i think we have to be more reasonable but generally despite compositional difference, certain sectors doing better than expected and certain doing worse, i think the general tone of the market from the earnings point of view is pretty good.

>> we had earnings yesterday and today. google was a notable yesterday. are you more positive in that sector given the positive report?

>> we think tech has come in fairly well. there was a little bit of a disappointment around intel although the numbers weren’t that bad, the market overreacted a bit. we think what the market is doing now with tech is look at an earnings perspective more realistic, annual growth rates more like 18% to 20% rather than the 30%-plus. given that change in investor expectation, we think tech companies are doing well and beginning to spend cash more intelligently, dividends and buybacks across the sector so we feel more comfortable about tech which is the first time in quite a while.

>> would you advise your clients in tech?

>> it’s time to start nibbling a bit there and take longer term positions particularly what’s happening in the cash side, moving towards dividends and m&a, there’s good activity there.

>> on monday, we have merck and schering-plough coming out on monday. i know you look at the healthcare sector. how do you feel about that?

>> healthcare for us has been a little bit of an underweight and actually quite a bit of an underweight last year and we’ve been reducing that underweight. we’re beginning to feel some of the bad news is out. we ihink the pipeline discussion is understood by the market . we think cost containment, rationalizing the size of sales staffs, the mergers and acquisitions, so getting that done correctly we think the biotech area is interesting and medical device area is interesting so all in all for healthcare, we think organic growth is good and that’s a place to start looking if you’re an investor.

>> any biotechs in particular?

>> we have an overweight for genentech, very good pipeline, executing well.

>> what’s your concerns? any concerns for any sectors?

>> well, on the consumer discretionary side, has been a difficult sector to really understand. it has got a lot of heaviness to it right now primarily because of autos. there’s over three million auto workers, related auto workers in the country and that’s going to impact consumption numbers. i think the auto sector has done very well over the last couple of years with low interest rates. clearly, interest rates moving up will have more of an impact there. the delphi bankruptcy. so it will take a while to see how that gets ferreted out but some of the retailer numbers on the other side of consumer discretionary have come in pretty well. the luxury side has been exceptional so our sense is you have to be careful there, don’t throw the baby out with the bath water. we would have a tendency to underweight consumer discretionary but be careful with the sub categories.

>> a hurricane brewing in the gulf likely to hit florida. do you expect volatility in the markets as a result?

>> this hurricane doesn’t seem to have the same danger in terms of the oil and gas infrastructure that the prior two did. i think the insurance company numbers are already taking into account a bigger-than-expected hurricane season so i don’t expect to see greater down drafts in some of the insurance names but we haven’t seen if it really is going to hit with the force that katrina hit so i don’t want to speculate too much but i think the insurance numbers seem to have that in there and the oil and gas complex seems safe for now.

>> arnim holzer, senior investment strategist at deutsche asset management. thank you for joining us. when we come back, google stock price jumped to a record today and investors say it will continue to climb. how much higher can it go? we’ll find out after the break. this is bloomberg “after the bell.”
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Listen Market briefing --- Derek (slow)
G.M. --- Brian (slow)
Nasdaq --- Robert (slow)
NYSE --- Deb (fast)

i’m derek davis, this is “after the bell.” shares of google soared today to a record after the company’s sales and profit beat the most optimistic of expectations. we’ll hear from robert gray at the nasdaq for the google story. settling in on the closing numbers, a reduced earnings projection from caterpillar weighed on the dow jones industrial average, which lost 65 points to 10,215 -- general motors chairman rick wagoner spoke out on the future of gmac, speaking with brian sullivan at g.m. headquarters in detroit earlier today. it was an exclusive interview. this is the first question to wagoner, has g.m. spoken with interested buyers for gmac?

>> we had a list of people that we thought would be the prime candidates. it’s a huge transaction and it’s also a transaction that, not being a purchase, but a strategic partner arrangement, needs to be someone who understands what our vision for gmam is and the relationships that are important and would be comfortable with that so on that basis we put together what we thought was a good list and have had a chance to talk to them and i think we’ll have interested parties but it’s a highly complex transaction, a massive potential transaction, so at this point, real early to speculate on the likelihood of success or timing.

>> how many of those potentially interested parties are private equity firms?

>> i don’t want to comment on who bhib on the list―might be on the list.

>> as i understand it, standard & poor’s would prefer to see gmac’s controlling stake, if sold, go to an auto finance company or big bank with an auto finance arm. do you think you need to stipulate to that or would you be open to any potential buyer?

>> we have a specific objection in the transaction, which is to improve the credit rating of gmac to improve the access to funds and cost of their funds which is critical for them to support the auto business and grow their other businesses so we’ll try to do a transaction which plishs that and -- accomplishes that and the people we see as primary partners will enable us to do that but time will tell.

>> do you have an end date as to when you would like to finalize the deal? do you have a date on your mind?

>> no, we’ll move as expeditiously as we can. realistically, it is a big deal and won’t happen from one day to the next.

>> what do you think of the credit rating agencies?

>> well, they’re independent agencies that make their calls. i think they’ve been tough on us.

>> too tough?

>> they’re going to make the calls they want. it doesn’t matter what i think. they make the calls they do and the result of the calls they’ve made have put us under significant pressure and led to the need to rethink our gmac strategy. we think we can come up with something good out of it but it puts pressure on that.

>> we will have part two of brian’s talk with rick wagoner at the bottom of the hour. google’s record earnings fueled a rally leading the nasdaq to its first weekly gain of the fourth quarter. bloomberg’s robert gray has details from the nasdaq marketsite in times square.

>> the nasdaq composite thinkhing the―finishing the week with a gain, the seventh consecutive friday we’ve seen a gain for the nasdaq composite, finishing higher for the week, as well. wednesday we saw 1.7% gain followed by a better than 1% decline on thursday before friday’s advance of .7%, putting it over the top as a gain for the week. internals on friday’s session, advancers outpacing decliners and volume at about average, 1.8 billion shares on the nasdaq. moving back above the 200-day moving average in friday’s session. google definitely inspiring the rally in the session after reporting a sevenfold increase in profits, sales doubling to a record above more than $1 billion in the third quarter, topping the most bullish analysts’ estimates for earnings and revenue. yahoo also posting a modest gain as well as baidu.com, referred to as the chinese google as google owns a 2.5% stake in baidu and ebay shares bouncing back from their declines on thursday. internet stocks the strongest group in friday’s trading, up nearly 3% on friday’s session, helped by the software, the philadelphia semiconductor index moving higher. the hardware index was weak in the session. research in motion, a large part of that. they lost an appeal for a stay in their patent case with n.t.p. they wanted to halt the proceedings while they appealed the case to the supreme court. the federal court of appeals rejected that request and faces a possible court order to halt blackberry email service in the u.s. sandisk helping the rally, third-quarter profit doubling for sandisk on increased consumer demand for storage of digital music, photos and information. a big week for earnings next week. earnings from the likes of microsoft, x.m. satellite radio. at the nasdaq, i’m robert gray.

>> today’s decline in the dow does not tell the entire story. for more on today’s trading action, here’s a report from deborah kostroun at the big board.

>> the numbers really do not tell the story today. mainly because here at the new york stock exchange, advancers outpaced decliners two to one so we had more stocks up than down and you might ask why was the dow jones industrial average lower? it was really caterpillar. take a look at the laggards in the dow jones industrial average. caterpillar, that chopped off 41 points in the dow. not only was it the worst performer in the dow but also in the s&p 500 after the company lowered its 2005 profit forecast, pfizer also down for a second day. it’s once again at an eight-year low, the stock declining after slashing their 2005 profit forecast yesterday and withdrew their 2006 and 2007 projections. looking at other areas in the market , forestry, weyerhaeuser up on the day. this is the world’s biggest lumber company, saying third-quarter profit fell 52% because of lower lumber prices. the company said they would close a pulp plant and lumber mill in washington to reduce costs. energy stocks a big story this week. oil and energy stocks down 5% this week. for the month, those were the worst performers this week in the s&p 500 and for the month, it has not been very nice to the energy stocks. exxon down 13%. chevron down 13% and conoco down 7%. you have to remember we had those two block trades over the past week selling exxon and chevron shares at $57 a piece. while we did see many of the energy stocks performing quite well in today’s session, we did see a rebound but even exxon, even chevron, still below the $57 mark where we saw the block trades. best performers in the s&p 500 on the day, the telecom group. at&t, they reported earnings, of course being bought by s.b.c. they had earnings beating expectations and also s.b.c., the biggest gainer in the dow jones industrial average. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> refco has filed more papers with bankruptcy court asking the judge to approve final sale of the company by november 11. the federal bankruptcy court has scheduled a hearing monday morning to address the company’s requests. allan dodds frank has been following the story and joins us with more.

>> refco says that given the fragility of its business, it needs to be sold quickly. the company outlined the procedures it wants for the auction of its assets by bankruptcy judge robert drain. the court documents refco proposed a november 4 deadline for the last bid to be received and asked the judge to select the winning bidder by november 11. that is the day j.c. flowers set as a pullout date if its deal is not accepted. on october 17, refco tentatively agreed to sell the regulated portion of its futures brokerage to flowers for $768 million. thursday, interactive brokers of greenwich, connecticut, filed a $790 million bid. both bids are tied to the value of regulated capital refco had on its books at the time of the sale and therefore could change as the company continues to examine its books. the units have not filed for bankruptcy but are subject to judge drain’s jurisdiction.

>> flowers’ bid is what’s known in our industry as a stalking horse bid and people play strategy games as to whether they come in early or late in the bidding but on the day of the hearing, there will be a requirement for a deposit ahead of time, qualification, and there’s a bidding war in the court back and forth.

>> refco asked the court to set minimum increases of $2 million between bids. as for phillip bennett, former c.e.o. of refco who faces criminal charges of securities fraud, the next court date is october 31. he is expected to appear before a u.s. magistrate.

>> thank you very much for that. still ahead, we will wrap up this week’s earnings and look ahead to next week with arnim holzer of deutsche asset management.