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Interview: Bank of America Senior Economist

>> peter kretzmer, bank of america senior economist, raised his forecast for federal reserve interest rate increases. he is here to discuss whether the beige book data underscores his forecast. let’s start right there, does the beige book information underscore your forecast or contradict it?

>> it basically underscores the draft. the beige book showed resilience in the u.s. economy to the hurricane, continued expansion, definite cost pressures and in that environment, the fed certainly is not going to slow its tightening process and it rationalizes their concerns about heightened costs getting into expectations.

>> let me dial into particular areas within the beige book, starting with retail. it’s original analysis but in most areas the beige book says retail sales of general merchandise increased though were below plan or weak in several districts. do you read all of this as the consumer taking a pause? what is your view about the consumer?

>> the beige book covers a particular period of time just between the meetings, really just october in this case or late september, and of course in this case, time, an extraordinary time with the hurricane just having passed and it’s anecdotal so while i take it seriously, it’s possible to overread it. i think basically consumer spending as we saw in september’s report remained pretty strong in the month of september, surprisingly strong, although there was weakness in a few areas and vehicle sales have come off as employee discount programs have been discontinue.

>> one of the issues talked about is a possible housing bubble and the banal book said―beige book said nation wide the housing market showed signs of cooling. it said new york and boston districts had homes sitting on the market longer. did you get anything out of the beige book regarding housing?

>> again, i think this would be sort of short-term perturbations, if you will. there’s been a bit of a trend toward a bit of slowdown in housing but this morning we saw housing starts for september jumping right back up there so i think this is within the statistical noise at this point, what’s probably most amazing about the housing market is these data were unaffected by the hurricane activity and the market activity remains strong and mortgage applications were strong this morning.

>> the bloomberg news running the news that san francisco fed bank president yellen said yesterday that the neutral fed rate level ranges from 3.5% to 5.5%. do you agree?

>> that’s a broad interval and certainly we agree it’s in that interval and in fact our move from 4.5 to 4.75% reflects the idea that as yellen herself said, the fed may want to do a little more than take their foot off the accelerator here and maybe tap on the brakes a little bit, once you get past 4.25 and 4.5, perhaps you’re tapping on the brakes a little bit.

>> thanks for your time on the program today. we have news after the bell on ebay. wanted to get to those numbers. the company reporting 20 cents a share for the third quarter. that meets the 20-cent analysts’ estimates, also, the company sees fourth-quarter profit excluding items of 21 cents a share, including a one-cent cut from the purchase of skype, the internet telephone company, the luxembourg based internet telephone company it purchased. so 21 cents a share for the first-quarter forecast compares to 22 cent analysts’ estimates. ebay shares down in extended hours on that news. moving on, we also have allstate in the news. allstate reporting a loss of $2.52 a share. in the regular session, up almost 2% in advance of the earnings news but the third-quarter operating loss, $2.52 a share for allstate. the company sees 2005 operating income of $2.35 to $2.50 for the full year. we’ll have the comparison analysts’ number on that in a bit. that’s the latest on allstate news. checking actually allstate trading, still halted since that was released. moving on, next, we have a commercial coming up. when we return, we’ll talk about more earnings news and also in light of refco, exchanges like the cbot are going public. a question many people have these days. we’ll speak with the chief regulatory officer of the new york stock exchange on what is ahead for regulations in the exchanges.
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Listen Market briefing --- Bob (fast)
Ebay --- Brett (slow)
Refco --- June (slow)
NYSE --- Deb (fast)

>> welcome, from world headquarters in new york city, i am bob bowden, this is “after the bell.” stocks surged overcoming earlier declines as better-than-expected profits from altria, j.p. morgan and yahoo sent the s&p 500 index to its biggest gain since april. the settling numbers after an hour, the dow up 1.25%, s&p 500 up 1.5% and the nasdaq at 1.71% higher. the last time the dow had a 100-point gain or more, september 6. the s&p’s highest gain today since it was up on april 21. shares of ebay are down in the after-hours trading. the world’s largest online auctioneer said third-quarter profit surged 40% but forecast earnings per share for the current quarter below what analysts were expecting. brett gehrig has details.

>> this pleased meg whitman, the c.e.o. of the company, but not investors. investors appeared to be responding to the projected profit per share for the quarter. ebay says it will earn 21 cents a share due to dilution of the acquisition of skype technologies. that said, ebay boosted its fourth-quarter revenue to between 1.25 and 1.29 billion dollars. as for last quarter, revenue beat expectations, coming in at $1.1 billion. sales in europe and asia outpaced growth in the u.s. chief executive meg whitman added listings in germany and the u.k. and expanded ebay’s paypal, online payment service to china to bolster the auction business. the net income increased to $255 million or 18 cents a share, up 40% from the same period last year. taking out a one-cent tax charge, third-quarter per-share profit beat analysts’ estimates by a penny. whitman asked ebay chief financial officer to join skype technologies. the 46-year-old was named president of skype. you may recall ebay acquired the company to expand into internet telephone service. the company’s $2.6 billion purchase of skype has raised concern that ebay is straying from its auction business to boost sales. that skepticism wasn’t reflected in the company’s stock price throughout the third quarter, though, after falling in the first half of the year, ebay shares rebounded 25% last quarter. bob, back to you?

>> thank you. amgen, world’s biggest biotech company by market cap, said quarterly profit increased to $967 million. checking shares in extended hours, amgen shares down 6.33%, similar to ebay. this after sales of its anemia drug gained on johnson & johnson’s rival product. third-quarter net income surged to 77 cents a share from 18 cents a year earlier when the company had costs from its purchase of toularic. revenue rose to $3.51 billion. it’s the revenue coming in at $3.15, missing the $3.6 analysts’ estimates, the explanation for the after-hours’ decline. there has be three companies interest in buying a chunk of refco. we’ll have the latest from june grasso live outside the u.s. bankruptcy court in lower manhattan.

>> the attorney for refco described refco as a large ice block melting at an extraordinarily rapid pace and told the court this was no way to guarantee he could stop that. in five days he has represented the company, it started with $7.5 billion of customer accounts and as of last night, it was $4.1 billion. he said he wanted to stem the tide and stabilize the company by putting money into the unregulated businesses from the regulated business by selling the futures trading business to a group led by christopher flowers who has made an offer of $768 million. christopher flowers spoke to bloomberg earlier today.

>> it’s our ambition, as i mentioned, for refco to continue with all the businesses it was before so we we hope to resuscitate the derivatives business and securities business and that probably will mean that we will buy some of the assets that are in bankruptcy.

>> the attorney for refco mentioned there were 30 other bidders, three bids of which they considered to be credible, that they had considered, as well as flowers’ bid. at the hearing, the attorney for one of the three credible, so-called credible bidders, the dubai investment group, spoke up, as well as the attorney for the interactive brokers group, complaining about the lack of information to even make a bid, the lack of what they called due dill diligence in the case. i spoke to the attorney for the interactive brokers group and he said he thought his group could outbid flowers’ bid.

>> with the limited information we have now, we think that we may well be able to bid more than that. the flowers’ offer is only 3% more than net regulated capital of refco, the regulated entities and we think that that on its face appears to be relatively low offer and we are optimistic that we will be able to offer more, including the breakup fee, which we would have to cover.

>> that breakup fee is 2.8% of the offer. now, what’s going to happen is on monday, the judge is going to hold a hearing at 10:00 a.m. to discuss the terms of the sale, basically, the rules and regulations of the sale, the potential bidders will be there and disclose, they’ll try to set terms for what the disclosure or due diligence should be. back to you on this very windy downtown bankruptcy court.

>> speaking over the jackhammers downtown, we appreciate that, june grasso. earnings from j.p. morgan helped that stock to be one of the biggest gainers on the dow jones industrials on the day. deborah kostroun is at the new york stock exchange and filed this report on today’s stellar rally.

>> stocks closing at their best level of the day, a lot of factors in the session helping to lead this afternoon rally. one of the things, the fed’s beige book survey showed the economy weathering hurricane katrina better than expected and crude oil prices falling 3% over the past couple of days, helping things out, as well. housing starts came in better than expected. earnings abound, as well, 904 earnings reports coming out this week and 272 earnings that will be released tomorrow and it will be a very busy day. gainers in the dow jones industrial average, j.p. morgan at the bottom of the list but a big gainer, releasing earnings, said third-quarter profit came in better than expected. bank of america was up on the day, they helped underwrite the refco i.p.o. they said quarterly profit climbed 10 percent. financial earnings coming out tomorrow, a pretty long list. the homebuilders rebounded in today’s session after taking a pretty big hit yesterday. all the concerns about higher interest rates have been keeping the homebuilders lower but really performing quite well on that better than expected housing starts number. eastman kodak falling on the day, third-quarter profit was disappointing as they struggled to make the transition to digital imaging. film sales climbed, also they recorded a record quarterly loss of more than $1 billion. we saw this rebound in today’s session, even the s&p energy index made a bit of a turnaround, rebounded, closed higher even after oil and gasoline was lower. crude oil down 3% in the past couple of days and gasoline futures down 8% in the past two days and gasoline falling to a three-month low. dow laggards in the session, honeywell fourth-quarter profit expected to be less than expected, the biggest drag in the dow jones industrial average. the chicago board of trade holdings had their yop and saw a―it was up well above the $54 offer price. i’m deborah kostroun at the new york stock exchange for bloomberg news.

>> the federal government released its latest beige book today, the report on regional economic conditions members will use in policy deliberations november 1. the report said that while economic activity expanded in september, most districts described the pace of activity as moderate or gradual. no surprise, the atlanta fed district including alabama, mississippi and louisiana, where katrina hit, reported significant negative effects on the district economy from the hurricane damage. retail sales increased in most districts but a number said sales were below plan or weak. service industries continued to expand and manufacturing advanced in all districts, except st. louis and atlanta. all districts reported cost increases for energy, petroleum-based products, building materials and shipping. we heard from four federal reserve officials. federal reserve governor donald kohn said the economy is most likely on a solid upward track and the central bank has not reached the point where it can stop the measured increases in interest rates. treasuries rose the second day after federal reserve vice chairman furgeson said higher energy costs will slow the economy. the two-year at 4.24%. dallas fed president richard fisher said the fed must remain on guard against expectations of higher inflation taking hold in the aftermath of hurricanes katrina and rita. the dollar fell against the euro after a rally earlier today stopped short the currency’s highest level of the year. the u.s. currency’s highest level of the year. thanks for watching. stay with us.

Interview: A breakdown for Citigroup reported third-quarter profit

>> the merrill numbers are due tomorrow. citigroup out earlier today. it had a record profit helped by a sale of its insurance business, also a surge in investment banking. margaret popper covers wall street for us at bloomberg tv and joins us with a breakdown. margaret?

>> thank you. citigroup reported third-quarter profit of $31.4 billion, an increase of almost 34% last year, at $7.14 billion. without the sale of the insurance unit, and $222 million in charges from hurricane katrina, the bank made $1.01 a share. two cents more than analysts predicted. sandler o’neill analyst jeff harte credits investment banking.

>> the biggest driver of the outperformance was the investment bank, both trading and investment banking but that will probably lead to the bigger question on the conference call, with revenues coming in so strong, why did overall results just come in line?

>> investment banking profit jumped 24% as bond trading revenue climbed 53% and equity trading revenue rose 78% compared with last year’s third quarter. m&a fees were up 63% and revenue from underwriting stock issues climbed 45%. the consumer bank did not fare quite so well. net income fell 13% during the quarter. the biggest drag on earnings, profit on loans, fell 23% as the fed raised interest rates. credit card net income fell 7% as bankruptcies rose. so far this year, citigroup shares have fallen $3.37 or 6.99%. ellen?

>> let’s talk about the disconnect. there’s always a disconnect, it seems, particularly with the financials between what analysts were looking for and what the company actually reports. how did this play out in this particular case?

>> i think what analysts expected when i talked to them, actually, what they said was that they were expecting a big drop because of the consumer bank and that in fact that didn’t play out. if you looked at the total net income figures, they were talking about a 6% decline, not just what we see on the earnings per share numbers. citi managed to beat by two cents a share because they were able to grow their credit card receivables and nobody was really expecting that to be able to offset the fact that there are more bankruptcies because consumers want to get in before the bankruptcy law changes.

>> the rush before today.

>> yes.

>> let’s look forward because we have merrill lynch out before the open tomorrow. what kind of numbers are analysts looking for?

>> analysts have forecast for merrill that the earnings will grow 27% while. while impressive, that’s less than its rivals. if you look at merrill lynch and consider that it’s the second biggest u.s. securities firm by market value, analysts are expecting it to have the smallest earnings gain in the third quarter. chief executive stanley o’neal said a a year ago he would boost market share in investment banking with selective hiring but so far merrill’s market share has been falling. merrill has slid in the rankings over the past year from eighth to -- -- - to eighth from first. wachovia analyst expects a 15% return on equity from merrill this year, seven points below its peer group average of 17% to 18%. analysts forecast merrill’s earnings rose to almost $1.2 billion, or $1.19 a share, a third-quarter record, but merrill’s 27% gain would be less than what was reported by bear stearns, morgan stanley, lehman brothers or goldman sachs. that’s not counting morgan stanley’s billion dollar write-off of its aircraft leasing business, of course. merrill lynch is a passive minority investor in bloomberg lp, the parent of bloomberg news. ellen?

>> thanks so much. we’ll get those numbers tomorrow as they cross. in the meantime, heading into a quick commercial break, we’ll return with the latest on world and national news. also, some changes at “nightline.”
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Listen Market briefing --- Ellen (slow)
Interview: Economist with Wachovia

>> welcome back to “after the bell.” i’m ellen braitman, 30 after the hour. recapping the day on wall street, benchmark indexes ending the day with gains. the dow up just shy of 61 points, 10,348. there you have shares of altria as well as g.m. giving a boost to the dow industrials. the s&p rising 3.5 points. 1190, the latest for the s&p. the nasdaq up five points to 2070. note that with the major benchmarks, it is the first back-to-back gains we’ve seen so far this month. so far for october. and you recently, last week, had the benchmark indexes trading near five-month lows. it was on concerns about energy prices, about higher inflation and anticipation the fed will continue to raise rates. now, with today’s gains, you have the benchmark indexes recording their first back-to-back gains we’ve seen so far this month. there is a change at the top for the consumer products maker newell rubbermaid. chief executive joseph galley resigned after sales fell for 10 consecutive quarters and his plan to turn around the company failed. his position is being filled kemp regional by board member mark ketchum. newell shares dropped 13% since galli took over and he began investing in products such as pens and cookware. shares surged on the back of the news, up 8.7%. higher energy costs have led to a downturn in manufacturing growth in new york state. a federal reserve survey shows expansion this month slipped to the lowest reading since june. and september’s index was revised lower. 10-year treasuries declined and that was because an inflation component of that report on manufacturing in new york increased to the highest we’ve seen this year. the 10-year down 3/32, 4.49% is that current yield. as for the five-year, the yield at 4.35%. here’s a look at the two-year treasury note, yield at 4.27%. here’s a look at what we’ve seen in the currency market . the dollar gaining against the yen. in fact, most other currencies today. came after china and speaking with the top global finance ministers, remained vague about how it would allow, that is, freer trading of currencies. the dollar gaining today. fed chairman alan greenspan and 10 other policymakers slated to give speeches this week and they may underscore concerns about the potential for faster inflation. we have a key inflation report coming out tomorrow, the producer price index. helping us take a look at what all of this may mean for investors is gina martin, economist with wachovia. joining us right now from charlotte, north carolina. gina, thanks so much for joining us.

>> glad to be here. thank you.

>> we had that new york state manufacturing report today come in weaker than expected but that inflation component, troublesome for some investors. is that perhaps a sign of what we could see from the p.p.i. report tomorrow?

>> i think so. absolutely. last week, we found out that consumer prices are increasing faster than we had hoped. though core consumer prices remained contained. i don’t think we’re going to get quite as lucky as we look at wholesale prices. i think producer prices are increasing across the board. when you think about the core producer price index, those energy costs are running into core producer prices quicker than they’re going to consumers so i think we’ll have strong numbers tomorrow.

>> when i look at the numbers and i’d like for you to give them to us in terms of your inflation outlook, you’re a little bit ahead of the average estimate among economists. tell us your number and why you’re perhaps seeing more inflation than some other economists.

>> sure. the consensus forecast for overall p.p.i. is for 5.8% year-over-year increase. i would not be surprised to see 6% tomorrow. i think that the energy costs are very strong. post-katrina, we saw lumber prices increase quickly, cement costs continue to go higher as well as construction materials across the board. prices went higher on anticipation of stronger demand and supply shortages so we have that working against us as far as inflation goes. and then energy costs, very obvious one, were significantly higher in september so we’re quite a bit stronger in our expectations.

>> given that, given your inflation outlook and the data we’ve had and will have tomorrow, with all of these speeches coming up from fed officials in coming days, how blunt do you think they will be about expectations for rate increases and about the inflation outlook?

>> well, the story out of the fed right now is inflation, inflation, inflation. that seems to be all we’re hearing about. so i think they’ll be very blunt, quite frankly. we’re forecasting that the fed will continue increasing over the next four straight meetings, another 25 basis points in each meeting so we’re looking at november-december and into the next year, as well, in january and march. so we think the fed will forecast and be very blunt about their expectations, inflation is very scary to them and they will do everything they can to fight it.

>> what, then is, your take on current yields? you have the 10-year at 4.49%. we’ve seen a significant move in recent weeks. how well matched do you think that is to your inflation outlook?

>> pretty well matched. i think the 10-year is reflecting these inflation concerns. we think the 10-year will end the year still below 5% and a lot of that is because the inflation concerns start to moderate and get replaced with growth concerns going into the holiday season. i think that consumers will continue shpg through the holiday season but as we get into january, february, it looks like consumers will have significant pullbacks in their spending especially on the discretionary side as they nice higher heating oil and natural gas costs so as growth concerns start to outweigh inflation concerns, the 10-year may not show nearly as much propensity to increase in yield.

>> gina, thanks so much for joining us.

>> thank you.

>> gina martin with wachovia. we want to note for our viewers that fed chairman alan greenspan will speak on energy to business groups in tokyo at 9:30 new york time. we’ll have all the details in our asia coverage tonight on bloomberg news. still ahead, the president of leapfrog, an educational toy company. he’ll talk to us about a new product the company has the market as well as his outlook for the holiday season. stay with us.

Interview: President of Jacobs Company

>> i.b.m. reported earnings after the close saying that third-quarter revenue was 21.5 million, shy of what analysts had been looking for. if you lock at the profit per share, excluding certain items, coming in at $1.26 per share, stronger than analysts were looking for, looking for $1.13 on average. the total margin, 30.6%, a key number for investors. we’ll find out why when we’re joined by john jacobs, president of jacobs and company, managing $150 million for his firm including 80,000 shares of i.b.m. i was going over some of those numbers with you during the break and you had a positive reaction. what is your reaction to this report?

>> the key for us this week is we wanted to see gross margins above 40%. we felt if they did this with the strong bookings that i.b.m. has, even knowing the revenues were lower primarily because of the lenovo sale on the p.c. side, this tells us they’re focussing on their strength and it is the strong bookings coming and the 40% gross margin, they’re starting to really get it down, a key quarter for i.b.m.

>> they sold that p.c. business, it was not profitable. it got so much press, they had an earnings miss and they’ve been restructuring. how significant is it that the sales are lighter than analysts on average were looking for?

>> i think you’ll find most analysts thought the revenue number might be softer. because what’s happened here is that a lot of the bookings have come late in the quarter. the key will be when we get to the conference call in a few minutes when they begin to start in terms of the quality of what’s going forward. i think you’ll hear bullish remarks because what’s happening, their approach to everything, they bring the c.p.a.’s, consultants in and they take the expertise, in house that the companies are working with and do the hardware, software support, everything. it’s really catching on. you’ll also see as we dig deep in the report, they should have over 50% of their revenues coming, now, just from the service side and that’s also significant.

>> and the company saying as part of this report that the services backlog is $113 billion. what does that indicate to you, then, about how strong future quarters may be? >> we have felt tech should have a very strong demand coming in the fourth quarter. this confirms that. not only does it confirm it here, i.b.m. is the leader, number one and number two in almost all market segment where is they are and i think what you’re seeing here is they’ve had to fight back. they have had some missteps and i think finally you’re seeing a ship on the right court and -- course and not only should we see a strong quarter and unless the worldwide economy gets really weak, i think we’ll see a strong 2006, as well, for tech.

>> you have about 80,000 shares for i.b.m. what will you do in extended trade tonight or tomorrow morning?

>> we really to look to do, as the market moves, we’ll see the response from investors and the key will be, we like a covered call strategy and it’s very possible, depending on the pop i.b.m. gets tomorrow --

>> explain to us what a covered call strategy is?

>> what we will do, we will go out to the marketplace, probably to january, and give an investor three months. we will look to give someone the right to buy our shares at $85 or $90 and we will go to january of 2006 for that to be when that contract expires. what will happen, they will pay us for that right, which will give us protection and it will be incomead at the end of the contract but i think with this report we may see a good 5% to 7% which givss us―gives us good downside. the market is nervous overall but this could be a good kick into the fourth quarter.

>> you think a 5% to 7% pop potentially on the shares. that’s interesting, those shares down 16% year to date but 24 buys on the stock, very few holds. why is there such a disconnect between what the analyst community says and how investors have reacted?

>> i think there’s been a disconnect because of the misses they’ve had. what this has to do is bring confidence back to management. because what has happened here, you’ve had two or three significant areas over the last year where analysts and investors are just scratching their heads saying, you know, what’s really happening? they’re talking about cutting costs, what are they doing? well, just as an example, we’ve seen in europe, without a doubt, they’re ahead of their head count in terms of becoming much more efficient on all sides here. we’ve seen over the last month tremendous movements where everything should be going right for i.b.m. and i think this report should give confidence back to the investor community and back to tech, where i.b.m. can possibly step up again here and get their place in terms of leaders in market share.

>> briefly, given the report, what’s the biggest risk to owning the shares?

>> i think the biggest risk is really the worldwide economy. i mean, always technology, but the worldwide economy, if things start to slow, but the key here, spending with i.t. today is so discretionary. companies are making the move to this now because they want to be more efficient and i think the risks are lower than they’ve been for probably a year and a half.

>> john, thanks so much for joining us. john jacobs joining us in our new york studio. we’ll take a quick break. when we come back, refco futures brokerage business about to be scooped up by a private equity firm run by a former goldman sachs partner. our allan dodds frank will have the latest on a troubled company.
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Listen Market briefing --- Ellen (slow)
IBM --- Brett (slow)
J & J --- Suzanne (slow)

stocks rose today as shares of general motors went higher on news of an accord with the u.a.w. over healthcare costs. still, benchmark indexes held back for much of the day on another advance for energy prices as well as concerns about inflation. here’s how the markets settled today, the dow up 60 points, 10,348. shares of g.m. along with altria giving the biggest boost to the dow. the s&p up 3.5 points and the nasdaq rising by five. we’ll have more on the markets in a few moments’ time. first up, i.b.m., it is the first big technology company to report earnings this week. the company elected to bring back profit earns overseas last quarter and costs related to that pushed down net income. let’s get more details on that report from brett gehrig. hi, brett.

>> i.b.m. recorded tax costs of about $525 million after taking advantage of a tax break to return $9 billion in earnings. net income for the quarter came in at $1.52 billion or 94 cents a share. excluding that cost, profit per share was $1.26, far exceeding the average estimate among analysts. top-line growth, though, was not as strong as analysts had hoped. revenue at i.b.m.’s hardware services unit plunged 32% from the year-ago period to 5.1%. this quarter is the first without the p.c. unit that i.b.m. sold to lenovo group in may for $1.25 billion. analysts say i.b.m. is working to build market share in other businesses.

>> they have a competitive lineup outside the main frame and the rest of the server, have seen very strong growth in the low end of the business, in the blade server market . and the recent offering around a new chip architecture and higher end of the server market has been pretty well received.

>> a new main frame compute that―computer that went on sale bolstered revenue at i.b.m.’s hardware unit. software revenue totalled $3.8 billion, a gain of 5%. global services revenue increased slightly from a year ago. i.b.m. signed $11 billion worth of services contracts in the quarter. we’ll get a better idea of how the technology industry fared last quarter when other bellwethers report earnings later this week. intel and yahoo announced their latest results tomorrow and google will release its profit report on friday. back to you.

>> brett, thanks so much. we did have several earnings reports or forecasts come out, as well, after the close today. chiron saying full-year earnings will be lower than the company forecast. and that’s because it will produce fewer doses of its flu i have ron―viron influenza vaccine. the number of doses will be lower than previously forecast for the 2005-2006 flu season because of delays as the company resolves manufacturing issues. the company did not provide a new forecast. also after the close, you had novellus out with earnings. what novellus said is that it did earn 21 cents per share, if you exclude items. on that basis, matching what analysts were looking for. novellus saying fourth-quarter sales will be down 5% to 10% from the third quarter. novellus saying fourth-quarter earnings per share of 15 to 17 cents a share, if you exclude costs. novellus makes machines used in making semiconductors and in late august, the company had narrowed its profit and sales forecast for the third quarter that it reported today. as chipmakers remain conservative about buying new equipment because of high oil prices, novellus faces increased competition and industry-wide price cuts. shares down about 12% so far this year. and let’s get earnings after the close, as well, from rambus. the company said that profit was up 40% to 14 cents a share for the third quarter. sales, however, were down 7.1% to $36.1 million. the profit number up 40% to 14 cents a share. the average analyst estimates had been two cents a share. rambus, in terms of background, it’s a company that sells chip designs. it receives royalties on patents, it says, cover fundamentals of all memory chip design. the company has said sales will fall as it loses licensing payments from samsung. also, as other company agreements expire and come up for renegotiation. shares have lost about half their value so far this year. as we look ahead to earnings due later this week, johnson & johnson set to report tomorrow. the company’s pending acquisition of the heart device maker, guidant, is the main focus for investors. analysts surveyed estimate johnson & johnson’s revenue will rise to 86 cents a share. sales forecast to rise 8% to $12.5 billion. suzanne o’halloran joins us with more specifics on the quarter.

>> j&j’s profit growth next year is expected to be half what it was in 2003 and with few blockbuster drugs in the pipeline, analysts say j&j’s medical device unit is a bonus for the company. the drug-coated heart stent probably regained market share against rival boston scientific. research indicates j&j’s stent outperforming the competing product. investor jake dollarhyde says the medical device unit is helping stem the slowdown in medical pharmaceuticals.

>> medical products and over-the-counter products like tylenol, bandaids, slenda -- splenda, are really helping bridge the gap between falling, slowing pharmaceutical sales and other high-growth sales medical products making j&j attractive to value and growth investors.

>> still, some investors and analysts say the $25 billion j&j is paying to buy guidant is too much. following j&j’s proposed acquisition of guidant, they have recalled defective pacemakers and defibrillators. although u.b.s. analyst kenneth wheatley says the guidant deal will erase 30 cents off next year’s earnings, he calls j&j’s one of the best portfolio managers in healthcare and sees the deal broadening the company’s product scope with shares rising 25% in the next year. the pharmaceutical unit, which generated 46% of sales last year is, struggling. sales likely grew just 1% in the latest quarter. j&j’s best selling aniqueia drug, procrit is, losing sales to amgen’s rival drug. medicaid pressures may hurt sales of its number two drug for schizophrenia and its painkiller probably lost 2/3 of sales to generics. patents on drugs for attention deficit disorder and incontinence expire next year and f.d.a. concerns may delay approval for a drug for premature ejaculation by as long as nine months. shares of j&j lost in today’s session.

>> the swiss pharmaceutical company, serono, agreed to settle civil and criminal charges for promoting of its aids drug.

>> it put its desire to sell more ser oftim above interests of the public and the country has a system of evaluating and approving the use of drugs through the f.d.a. and the health of americans depends upon the pharmaceutical industry adhering to that system and acting responsibly. serono abused that system.

>> the company pled guilty to acquisitions it conspired with a drugmaker in promoteing a product not endorsed by the food and drug administration. an executive change on tell you about over at nortel networks. the company, the largest north american telephone equipment maker named a former motorola official, mike zafirovski, as chief executive, doing this to help win back customers who had been driven away by nortel’s accounting fraud. zafirovski quit as motorola’s president in january after he was passed over for the top spot there. at nortel, he will succeed bill owens as president and c.e.o., beginning november 15. owens is handing over the reins after spending 18 months unwinding accounting misstatements that dated back to 1999 and as you see, shares ending the day higher by 5.5%. an update to tell you about, the auto parts maker, delphi. chief executive steve miller says he will cut his salary to a dollar a year from january 1 until the company exits from bankruptcy. the move comes in response to union’s criticism of miller for increasing executive severance plans. delphi president rodney o’neill will take a 20% reduction in base pay and about 20 other executives will take cuts of 10%. miller said he will keep a $3 million signing bonus he received when he joined delphi in january. that original deal with miller put his annual salary at $1.5 million. we’ll take a quick break. when we return, we’ll have more on the i.b.m. earnings. checking the stock right now in extended hours, up 1.3%. we’ll be right back.

Interview: Chief Investment Officer with Boston Advisers

>> welcome back, earnings are coming down fast and furious but stocks are stuck in an ugly october slump. where’s the market headed from here? well, what can we expect from the new round of earnings is another question. joining us now with his answer, mike vogelzang, chief investment officer with boston advisers from boston. october turning out traditionally ugly for the markets . what’s your biggest concern?

>> the tug of war between inflation worries the fed’s fighting and slowdown worries of the consumer because of higher energy prices and hurricanes. we’re right in the tug of war and neither direction looks interesting right now and that’s shaking out in the market .

>> you mentioned the hurricanes. what factor will that have on the markets ?

>> the hurricanes, of course, pushed up energy prices so you’re paying $50, $60, $70 and more for a tank of gas. the consumers are having a difficult time dealing with that and we’re seeing the consumer start to roll over with implications for the christmas holiday season, shopping, the economy, corporate earnings in the consumer area so you could have a situation with inflation in the economy with higher energy prices while at the same time you have weak and anemic consumer spending and consumer action and that’s not a particularly good dynamic and i think you’re seeing that in the market all of a sudden.

>> oil is selling off but the market is still struggling. why?

>> the market right now has been lead all―led all year by energy stocks, accounting for almost 100% of the gain in the s&p before the correction in october. all we’re seeing is a pullback here in energy, in our opinion, we don’t think energy is headed down to $40 any time soon and the sentiment around energy stocks specifically was significantly high at the end of september with window-dressing at the end of the quarter with fund managers and i think that’s unwinding right now but it’s not fun to go through this right now.

>> you’re not changing your position right now?

>> no, we’re more careful, selling into the strength in late september but still have an overweight condition and anticipate staying there. with a little more than this, we’d be net buyers.

>> what about the s&p 500? it’s been in a five-month slump, do you see a break soon?

>> let’s hope so. we’ve been talking about all year about basically this market taking two steps forward and two steps back and the same things still apply with relatively high valuations, upward pressure on interest rates, inflation looking to creep in and first year of a presidential cycle, all of those things work against us historically. the thing that makes us feel better about the market , the valuation is getting more interesting, down around 15 times forward earnings on the s&p 500. the long-term picture is beginning to get more interesting. i think we have headwind to get through. there’s nothing particularly bright on the horizon we can see.

>> what are you doing with your portfolio? are you repositioning your portfolio to be more defensive now?

>> not much. you saw a defensive rally today, all the big major industrial names and big healthcare names rallied strongly while energy sold off. we think that’s a bit of a temporary correction in energy, as i said. no, i don’t think we’re doing a lot differently. we are lightening up in the consumer area believing the holiday season will be tough for consumer stocks and consumers in general with a weaker-than-expected holiday seasonyso that’s one area we we are beginning to be defensive but we are buying selective technology and with a little more dip in energy, probably adding to the energy position. >> how confident are you that stocks will move higher by the end of the year, and if so, what do you see as at catalyst?

>> if they move higher, it will be fractionally, back to breakeven for the year. we’ve been saying it will be a flat year and nothing’s really in our forecast that has changed from that perspective. there’s no catalyst to drive us up 10% before the end of the year. one thing that might do that which won’t happen in our opinion is the fed all of a sudden reversing course but that won’t. happen. we don’t see a particular catalyst here unless earnings come through gangbusteners the third quarter but we don’t see that ahead of expectations.

>> what are you underweighting and what are you overweighting right now?

>> as i said, we’re overweight energy with a little bit of overweight in utilities n.terms of underweighting, we’re light in the consumer staples area, light in the consumer discretion and retail area and we’re also significantly underweight in financials and have been for quite some time because of the upward pressure on rates.

>> what are you advising clients at this point? what’s attractive at this phase in the market ?

>> look for a fun place for the holiday it’s beaches of the caribbean. there’s nothing particularly interesting right now in our opinion. sometimes there’s really no place to hide. so a little careful, a little defensive, a little cash probably not a bad idea for stock investors. but, again, we like the long-term story and think the long-term story is shaping up quite nicely but we’ll have turbulence for a bit in our opinion.

>> thank you very much. mike vogelzang, chief investment officer at boston advisers. thank you. it looks like there could be big changes ahead in the media world. who’s buying and who’s being bought. google, a.o.l., comcast, learn after the break.
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Listen Market briefing --- Derek (slow)
Refco --- Allan (slow)
Rush to the courthouse --- William (slow)

story. reeling from the disclosure its former c.e.o. hid unpaid debts, blocked clients from withdrawing funds. bloomberg’s allan dodds frank will have further details on refco and big names the broker added as special advisers. let’s get you caught up on the closing numbers. markets mixed with the dow jones industrial average down less than a point to 10,216. s&p 500 index down less than a point to 1176. the nasdaq composite index up nine points to 2047. to our top corporate story, trading of the shares of futures broker refco have been suspended as the company tries to remain in business. the company says it is suspending operations and hiring special advisers. today’s actions followed yesterday’s bombshell that the filing of criminal chrges against refco’s former c.e.o. for securities fraud. allan dodds frank has the latest. allan?

>> the new york stock exchange has halted trading in refco stock indefinitely. the exchange says it is evaluating the need for further disclosures from refco and whether a continued listing of the company’s stock is appropriate. the big board move followed a refco announcement today that liquidity issues require a 15-day moratorium on all activity by its capital markets unit. that unit is not regulated and the company says it accounts for a material portion of its business. the refco moratorium prevents customers if withdrawing money or closing accounts for 15 days as the company struggles to regain liquidity. the company says its regulated businesses, including segregated accounts for customers at the chicago mercantile exchange are safe and doing business. that claims was bolstered by reassuring statements about refco’s regulated businesses from the chicago mercantile exchange and chairman of the commodities futures trading commission. refco calls itself the world’s largest independent futures broker with more than 4.9 billion in customer accounts and offices in 14 crazy. earlier, refco announced hiring former s.e.c. chairman and bloomberg board member and contributor, arthur levitt, as special adviser. also hired, eugene ludwig in the financial firm goldman sachs. before the refco announcements, s&p analyst thomas foley characterized the company’s problems this way.

>> the liquid is the big issue here. even though they said they had $400 million received from phil bentet on cash and they had cash on hand, that may go out the door quickly. >> customers and investors fled since the company announced it failed to disclosed hundreds of millions of debt since going public last august at $22 a share. since friday’s close, the stock is down 72%. phillip ben het was charged on securities fraud, released on $5 million bail and allowed to spend the night in his apartment in new york. although bennett repaid nearly $430 million to the company monday, the disclosure of that act caused the company’s stock to drop sharply. and it caused prosecutors, after just two days of investigation, to charge bennett. back to you.

>> thank you very much for that, allan. refco’s failure to disclose - we will continue with general electric, general electric caps off first week of the earnings season tomorrow. c.e.o. jeffrey immelt will probably report that third-quarter profit rose nearly 16% to 44 cents a share. g.e. stock is heading the other direction. we return to brett gehrig with the story.

>> jeffrey immelt has reshaped g.e. with $60 billion in acquisitions in faster growth businesses while navigating through recession. the result, analysts say immelt is track to post profit growth of 13% this year and 13% next year, the first time g.e. has posted earnings growth over 10% since jack welch stepped down. yet, the share price is little changed in the past year compared to a nearly 6% increase for the s&p 500. investors say one force driving down g.e.’s stock is uncertainty about the economy.

>> there’s a total fear in this market that the geis going into recession and that the economy is slowing down. so what’s the first trigger people pull, the most liquid industrial name in the s&p 500, g.e. so it’s been used as that trigger point.

>> that skepticism is also illustrated by analysts forecasting revenue growth will slow from 14% to 7%. fund manager job jacobs points to another factor, this is the first year of g.e. financial’s turnaround and jacobs says some investors are waiting to see more strong results before buying g.e. shares, now trading at around $33.

>> my feeling is if he gets three or four really strong quarters and i think the stock easily can probably move way above the levels that are into the early 40’s.

>> g.e. has fallen about 16% during immelt’s first four years as c.e.o. during jack welch’s first four years, g.e. rose more than 70%. derek, back to you.

>> thank you very much for that, brett. we have more, now, on refco. let’s go to bloomberg’s allan dodds frank. allan?

>> refco’s failure to disclose that his former c.e.o. owed the company more than $400 million has prompted the filing of a number of class-action lawsuits on behalf of shareholders. joining us by phone today is another class-action attorney, william federman request federman and sherwood in oklahoma city, oklahoma. tell us about the rush to the courthouse.

>> the rush to the courthouse is an attempt to try to protect what’s left of any shareholder value here. under the circumstances, i think the investors are not getting all the information as soon as they should be getting from the regulators.

>> bill, what do you think all these events today mean? if the stock is not trading, is there going to be a company left to sue?

>> that’s an interesting point you are making. you may wind up with almost an enron-typ situation where it’s the underwriters, advisers and insurance companies left holding the bag. one item that has been circulated would be whether they should rescind the i.p.o. and put the burden on the underwriters themselves to have to refund the money.

>> that i.p.o. was in august and raised more than half a billion dollars. how important is the u.s. attorney’s criminal charge against the former c.e.o.?

>> i think it sends a clear message that the problem here is pronounced and very, very clear. to do such a preemptive strike, there had to be very little doubt in the u.s. attorney’s mind that there was some true wrongdoing that was very obvious. why the underwriters never knew about it or why the auditors never knew about it is going to be the issue for the lawyers to tackle.

>> what do you think the significance is of the company’s decision today to freeze its accounts, especially in its nonregulated business?

>> there’s good and bad to it, obviously. the good part is, there may be something left to the company. the bad part is, if you’re one of the unfortunate few who still have money the company. what it really shows is i think the market does not have confidence in this company’s ability going forward. the biggest fear the investors have is, are they going to be the last one with money still invested?

>> your suit seeks to represent investors. do you expect class actions frawls customers of this―also from customers of the company?

>> i think that’s a possibility. the mercantile exchange i believe issued a release today, as i recall, that they are monitoring the situation on a realtime basis so perhaps maybe belatedly someone is watching what’s going on and there may not be as much risk. we were looking to represent the current shareholders of the company.

>> what do you think their potential loss? is?

>> the i.p.o., $500 million, there’s been a large amount of trading even after the initial disclosure so it would be well in excess of that amount. keep in mind, of the money raised, not all of it went to the company. phillip bennett, the c.e.o. you mentioned, pocketed about $118 million himself.

>> does it make a difference to you that he repaid the company $430 million on monday?

>> no, it doesn’t. i think that’s too little, too late, because what we’re probably going to see are additional disclosures, something that that that doesn’t happen in isolation. there’s a lack of confidence in the audit and financial condition of this company.

>> ok.

>> and it’s early to tell but we don’t know the full story.

>> thank you very much, william federman in oklahoma city.

>> thank you very much. more financial news coming up.

Interview: Economic cycle research

>> welcome back. the u.s. trade deficit widened to $59 billion from $58 billion last month. import prices had a big jump in september. now excluding oil, import prices rose 1.2%. that’s the largest on record since 1989. our guest says that is a bad sign if you want the fed to stop raising rates. anirvan banerji with the economic cycle research is with us in the studio. you say import prices―this news on import prices is bad. cow explain that.

>> sure. the one-month jump which is a record is ahead. what is more ominous is the fact that import prices, even excluding oil has been trending up since 2004 and rather aggressively. the most aggressive since 10 years ago. and why it’s important is it’s a period of rising import prices that you see the fed undertake a series of rate hikes. that was true in 1994-1995 and again now. it wasn’t true in the late 1990’s with import prices falling for four years. the fed keeping rates low. so when you have these rising import prices reinforcing domestic investment pressure, that’s when you have to watch out. the fed has to counter those inflationary pressures coming from abroad as well as domestically.

>> the fed may counter by raising rates still more?

>> that’s what they have traditionally done.

>> what do you think is fueling all of this?

>> well, it’s obviously a combination of what used to be a weaker dollar. also you have economies overseas that are getting stronger at the margin. even japan and europe are beginning to get stronger than before. while china is rolling ahead of eupbd kwrafplt the u.s. economy is on an even keel and going ahead so you have all of these resources being soaked up worldwide pretty rapidly. that leads to rising import prices.

>> we had the trade numbers today also. any surprises there?

>> no, i think that came in pretty close to expectations. you had both imports and exports at record highs. but that is par for the course. it shows that the u.s. economy as of august was expanding nicely. but so were the overseas economies.

>> do you see the trade balance more of a product of strong u.s. demand? or kind of maybe luke warm overseas economies?

>> well, it’s a bit of both. it’s become a structural issue now. at this point if you want the deficit to go down significantly on a sustained basis, you have to have exports grow almost twice as fast as imports. that’s not in the cards. it’s a structural issue more than a temporary issue.

>> we have c.p.i. coming out tomorrow. where do you see the numbers and how much of a role do you think the numbers play in our economy?

>> well, it’s important to tell you what happened last month in terms of inflation. but in the light of the import price numbers, i understand that some people are saying that tomorrow’s c.p.i. numbers i expect higher than what people expect. i’m not sure what that means. in any case, i think that is something―that’s looking backward at what happened. what the fed has to do is look ahead a year or two. the c.p.i. is not going to tell them much about that.

>> you say then the fed―do you think the fed actually considers the month to month indicators and how much of a role do you think that plays in policy?

>> i think the month to month gyrations are not important. it’s what they add up to over a period of time. i think what you see is that inflation as measured by the c c.p.i. has been trending up for a while now. that is a confirmation of the buildup in cyclical inflationary pressures we have been seeing.

>> where do you stand on the inflation growth debate? what do you see as more of an issue for our economy?

>> no question of inflation. on a cyclical basis, the clear and present danger is not recessionary but inflation. that is why you have seen the fed raising rates. that is why you have seen in recent weeks since the beginning of september the long bond yields go up. today they touched 4.5%. that’s clearly the market telling you that it’s inflation, not growth.

>> we talked about the imports. what about exports. do you think the dollar’s appreciation will have an impact on exports?

>> at margin a little bit maybe. but i think the bigger issue here may be that foreign economies including economies like europe and japan which has been rather lackluster may be picking up a little ahead of steam. that might help u.s. exports.

>> thank you very much. anirvan banerji of the economic cycle research. ok. when we continue, the u.s.-china trade balance continues to widen. when we come back, our “chart of the day” takes a closer look at that. a most persistent trend.
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Listen Interview: Chairman of M & A.

>> welcome back. this is “after the bell.” i’m derek davis. let us recap the day on wall street. stocks ened mixed with the dow jones industrial average down less than a point to 10,216. s&p 500 index down less than a point to 1,176. the high tech heavy nasdaq up nine points to 2,047. we had some deal making today. buyout firm bain capital agreed to acquire c.r.c. health group for $720 million. c.r.c. provides drug and alcohol treatment centers in more than 20 states. the deal is expected to close next year and adds to bain’s list of more than 25 health care investments. private equity firms have announced more than $215 billion worth of takeovers this year. that’s almost―that’s up almost 50% from a year ago. now speaking of deals, know the first of nine months with 2005 behind us, a recap of merger activity. find out what we can expect for the fourth quarter of next year. joining us now is lou bevilacqua of cadwalader, wickersham & taft. m anne a dog pretty well, globally and abroad, is that right?

>> it’s been an excellent year. we see macrofactors lining up to continue to have a good year going from now into the end of the year and into 2006.

>> with the fourth quarter upon us, what trends do you expect going forward?

>> i think we’ll see continued activity by the private equity firms. the b aeurbgs n transaction you mentioned is a good example. there’s lots of money on the equity side from the private equity firms. lots of money available for debt financing. there’s an awful lot of transactions being driven by people who decided they’ll take lower yields on returns to get something done.

>> with the bain capital merger we just talked about, is that indicative of what we may see in the health care industry?

>> i think there’s a general trend today with the baby boomers getting holder and myself in that group to use the health care system more aggressively. health care is obviously a growth area for this country and consequently it’s a target area for the acquisition moguls.

>> you are saying that―how about financial institutions? let’s talk about that. do you see trends there?

>> i think financial institutions as well. you have a very flat yield curve right now between the short-term and long-term rates. that’s bound to change. as rates climb, there tends to be opportunities in the financial institutions. i think you’ll see consolidation in the insurance industry, in the banks. not necessarily the mega banks but in the regional bank areas and that will also expand between the united states and overseas. i think you will see transactions for u.s. financial institutions are looking to china, india and some other foreign countries. ao rue saying we’ll see activity in financial institutions but no blockbuster bank deal as soon as

>> i think the large deals will be cross border as opposed to additional domestic deals.

>> why is that, do you think?

>> you run into issues with the size of the deal that has already been done. there’s a limited number of additional candidates that may be appropriate in the united states. the huge market available in china and india and other countries seems to be more attractive from a financial point of view.

>> i aou mentioned the fed and the fed made it clear that it will keep raising rates. do you think that will lead to more companies doing business elsewhere?

>> no. i think the issue on the fed raising rates, although short-term rates have gone up. we continue to have a flat yield curve. long-term rates will stay very low. consequently there’s plenty of activity in the united states. with growth in the united states as far as earnings, it has been a robust series of earnings reports in the last several months. i think we’ll continue to see a lot of activity in the united states. there’s also a trend today for very aggressive and innovative financing. security is a big part of m&a. you take the assets, whether royalties of software or royalties on drugs, and effectively secure advertise those into special vehicles creating a unique and aggressive opportunity for bert financing of transactions.

>> it appears that junk bond investors are more skittish about default rates. some are balking at helping companies with financial deals. do you see that affecting m&a at all?

>> well, the problem with the high yield right now is as prices are getting a lot of pressure. prices are high because of competition which requires obviously more financing in order to make the necessary returns. the high yield market is under a lot of pressure. i don’t think that the default rates will be increasing. i think until the interest rate on the bond starts to climb up a bit―and at moment because of the flat yield curve they’re not high enough―there will be pressure not to use the high yield as much. there is also competition from a different type of finance. you get second lien types of loans as well as securtization.

>> the junk bond market has been closed to some of the lowest rated companies. what will bring it back if anything?

>> prices coming down. if prices don’t come down, i don’t think you will seat lowest rated companies being able to finance.

>> great. thank you very much. lou bevilacqua, chairman of m&a. we zero in on today’s trade balance report. will fed officials take any hints from the big jump in import prices. our next guest says yes. find out his reasons.

Chart of the day

>> in recent decades there has been a close correlation between gold and the yield on the 10-year treasury note but it’s a hinck that has weakened. the higher gold prices, we have not seen higher yields. here with an in-depth look in our “chart of the day,” editor-at-large tom keene.

>> this is a great piece, david cotack at cumberland advisers talks about the barbaric relic, he took that from john maynard keynes and also percy bishop, a poet. the white line is gold and the red line is the yield on the 10-year note and they’re very well correlated going back 15, 10, even five years and something happens in 2002. gold goes up, exploding up touching $480 today and the treasuries stay down. will gold come down, are interest rates going to go higher ands you heard from conrad dequadros of bear stearns, their bet is that the yield will go up 4.75%. that’s where david kotok is, too, he thinks the fed is signaling higher interest rates.

>> is that that simple, higher gold means higher yields?

>> it’s not that formulaic. with the chart, as you look back 10 years, there was a great correlation but it’s always a mix of issues and kotok is clear that this is one of the indicators of higher rates. part of it is where we are in the cycle, the fed is raising rates, he thinks long rates will pick up with the short rates that the fed influences but it’s a mix of things the economists are looking at.

>> but the fed rarely speaks of gold yet they hold gold. why?

>> our fed reporter craig torres told me that in wyoming at the recent jackson hole meetings, of course, they don’t talk about gold, but off the podium, they’re aware of where gold is moving. but it is an interesting thing and i would suggest and certainly what i’m reading from economists is it has to do with the behavior idea. the fed doesn’t want to rock the boat and create the kind of fare that can come up with too much talk of higher gold prices.

>> your chart indicates about a 7% 10-year yield.

>> over here, absolutely, popping up there. sobering.

>> if the 10-year yield was to catch up with gold, is that possible?

>> it’s one of the scenarios but not what everyone is expecting and kotok is not suggesting you’ll get that perfect correlation again with yields returning to 7%. it could be gold comes back a little and yields come up a little but all in all, the idea is this is just one correlation, the gold bugs will tell you, kotok is not a gold bugs, but it’s one idea out there.

>> thank you very much, tom keene, editor-at-large with the “chart of the day” talking gold and the 10-year note. we’ll catch up with the latest world and national headlines when we return and in our alibaba.com, we will―the “world’s biggest mover,” we’ll talk about the russian stock market .
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Listen Interview: Senior Economist at Bank of Bear Stearns

>> fed officials continue to cite concern about potential inflation pressures. the speech came a day after minutes of the fed’s september meeting were released. the question is how far will the fed go? joining us with a closer look at remarks and outlook for interest rates is conrad dequadros, senior economist at bank of bear stearns. welcome, conrad. fed chairman alan greenspan said earlier today the u.s. economy has “weathered reasonably well the steep rise in energy prices.” do you agree?

>> i would agree with that. most of the data suggests that outside of the short-term impact of hurricane katrina, the economy is still performing quite well. we saw evidence of that in last friday’s payroll report and we’ve heard other fed officials discuss similar issues. recently governor olson spoke and he said that it appears job creation outside of the hurricane-affected areas is performing quite well.

>> yesterday we got minutes of the september 20 meeting, do you think the fed’s view of the economy has changed since the september meeting?

>> i don’t believe so. i think that the fed realizes that there is a significant increase in the amount of uncertainty about the outlook but i think their baseline view is that the underlying economy is still expanding at a reasonably robust pace. i think the minutes do suggest they are concerned about the potential inflationary impact of the,hurricanes. they note that inflation expectations have picked up and even called that troubling and suggested that there’s been a pickup in potential inflation pressures and coupled with the fact that the fed funds rate is still, in their view, too low to potentially maintain stable inflation going forward, they suggest that there’s more rate hikes to come.

>> now, the fed meets again in november and december. what are your expectations?

>> our view and our view, it’s been our view for quite some time, that the fed will not pause in its rate-hiking campaign and we’re looking for another 25 basis point rate hike at both the november and december meetings. this is largely priced into the fed funds futures market , although it was about a month ago. i think given the various speeches from fed officials and somewhat hawkish commentary from the minutes that were released, i think the market has shifted its view and now is also looking for those rate hikes in november and december.

>> what about the treasury yield curve? how do you expect the yield curve to change through the rest of the year and how is that view influencing your investing?

>> our view is that there is a risk that we see an inverted curve as the fed continues to push up yields at the front end of the yield curve and non-fundamental factors are holding down yields at the back end of the yield curve. our baseline view is that the yield curve will not invert. we are looking for a backup in yields on the long end of the curve, as well, looking for a 4.25% fed funds rate at the end of the year and our expectation is that the 10-year will be around 4.75%.

>> this is a busy week for economic data, c.p.i., consumer sales, consumer confidence. which one is the bond market watching most closely and which in your view best tell the tale of our economy?

>> i think in terms of the sensitivity of the bond market , i think it’s clear that the data on friday are by far the most important report, especially given the fed’s heightened concern about inflation and given the fact that that c.p.i. report might show a significant rise in the inflation rate, particularly the overall inflation rate. our view is that the core inflation rate will trend a little bit higher. i think that’s a report the bond market is most sensitive to. in terms of the state of the economy, industrial production and retail sales reports are important. i think the retail sales report will show that despite the hurricanes, consumer spending advanced at a moderate pace for the quarter and consumer spending was probably 3.5% in real terms but i imagine the industrial production report will be significantly negatively impacted by the hurricanes and we might see a reduction of .7%.

>> which do you see as a bigger concern for the u.s. economy?

>> our bigger concern on the inflation side. we think that the underlying fundamentals point to solid growth going forward. we believe that we’ll continue to see growth somewhere between 3.5% and 4%. once we’re outside of the near-term negative impact of the hurricanes on some of the september data but our belief is that the economy is still on a fairly firm footing. we’re concerned that inflation will rise in the month ahead although we believe that the fed will do everything in their power to prevent an inflation problem and we expect the fed to continue to raise rates.

>> what is the outlook for the economy for the rest of the year?

>> we’re looking for 3.5% real g.d.p. growth in the third quarter to be reported towards the end of this month and we’ll see a rebound in real g.d.p. growth in the fourth quarter, somewhere between 4% and 4.5%. for 2006, we think real g.d.p. growth will average 3.8%. conrad dequadros, senior economist at bear stearns, thank you for joining us. gold touches $480 per ounce. does that signal higher inflation or higher interest rates? that’s the subject in our “chart of the day” next.

Interview: Liz Claiborne

>> liz claiborne loses a top executive. brands who include ellen tracey is facing declining sales growth also as consumers face near record energy costs. let’s take a closer look at company with chief executive paul charron. he just finished ringing the closing bell at the new york stock exchange. we welcome you to our show today.

>> good to be here.

>> let’s start with some of the executive changes that you have had going on. what does angela going to burberry mean for your company?

>> loss of a highly valued executive. she’s a great merchant and great leader. by the same token we have a number of great executives and the woman picking up her responsibilities is going to -- is an accomplished professional. i don’t think we’ll miss a beat. it’s an occupational hazard when you run a company as highly regarded as liz is that you will occasionally lose top talent and who find a need to go elsewhere.

>> this also after hiring pamela thomas brown to be an executive. your contract may expire next year. can we expect to see other executive changes at your company?

>> i don’t think there’s a connection between the pamela thomas graham hiring, my contract coming due, if you will and angela’s departure. i certainly would expect no more than the average executive turmoil. as i said, a company likes ours creates, develops, trains nurtures great executives. we try hard to do that. not surprising that owe kaoeugsally we lose someone.

>> let’s talk about a few other topics including one why is you’re at the new york stock exchange today.

>> domestic violence is a subject that has been near and dear to our hearts if you can say that about something as insidious. but this has been a subject we have been close to since 1991. we see this as a real problem in american society, whether it is domestic violence, relationship violence, dating violence. it’s violence against women. women are the people that buy a majority of our products. we try to embrace, if you will, an issue that has such relevance particularly today.

>> there today to help promote it an give some light to the issue. let’s talk as well about a few of the other issues having to do with your company. one thing that has been very much a story for liz claiborne has been your growth through acquisitions. we named some of the brands when we introduced you. what kinds of deals are you looking for now? are there specific holes in the makeup of your company?

>> we’re always looking for speciality retail, international men’s and accessories opportunities. occasionally we find one or another that fits all the bills, if you will. but those have been our areas of focus for some time. kind of like a football draft. when you see a great athlete in a position when you are not looking for that athlete, you may pick him up because it adds strength to your team.

>> perhaps you haven’t made inroads into the moderate apparel. is that an area you may be looking in.

>> we have been successful in moderate which are more popular priced goods. we have done that by building brands ourselves. emma james, tape measures, crazy horse at jcpenney, villager and access at kohl’s. we have a substantial presence in moderate but haven’t felt a need to go outside and spend our acquisition money, if you will, on that. instead we built them from scratch. i’m pleased with the size and scope and growth rates of our moderate portion of our port followo.

>> paul, speaking of the moderate portfolio and moderate consumer, what fallout are you seeing from what happened to gas prices and that looming presence of winter where heating oil bills will go higher for so many consumer as soon as

>> i’m not an economist or prognosticator of things in the macro sense. i’m focused on things we can control here at liz claiborne and that’s turning out the very best product at the very best price. i will say that the comps in september, particularly at the retailers who deal with consumers of more moderate means were a bit disappointing. however, the upper end of the market , places like neimans and saks and bloomingdale’s and nordstrom where we have a strong presence with lucky, lottery, dana buchman business, that area of retail has been considerably more robust than at moderate price points. in addition we have a rather substantial number, 600 to 700 stores of our own speciality stores and we have a strong international presence that represents about 25%, 26% of total sales. we’re a rather diversified portfolio.

>> paul, thank you for joining us today.

>> you’re quite welcome. thank you.

>> paul charron, chief executive of liz claiborne. apple out with earnings after the bell. shares turn lower. after the break, we break down the numbers. we speak with ted shandler of forester research.
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Listen Market briefing -- Ellen (slow)
Tax breaks --- Peter (slow)

>> welcome back to “after the bell.” i’m ellen braitman. analysts were looking for $3.74 billion in revenue for apple. coming in below what analysts were looking for. as for earnings per share, the company said for the fourth quarter it earned 50 cents per shear. that beats what analysts had been looking for. on average analysts were looking for 37 cents a share. apple also saying that fourth quarter ipod sales were 6.4 million units in terms of what had been shipped. also the company saying it sees first quarter revenue about $4.7 billion―first quarter revenue it appearance will be about $4.7 billion. let’s go over headlines again out after the bell from a.m. saying fourth quarter revenue was $3.68 billion. on that basis, shy of what analysts were looking for. but that earnings per share figure coming in stronger than what analysts were looking for, coming in at 50 cents a share. being helped there by 12 cents a share in terms of tax items. what apple also―give you some background. earnings coming one week after the apple shares had surged to a record. they trade for 30 times fiscal 2006 earnings. analysts say the key to maintaining momentum is new products. they may bring out a new product tomorrow at an event held in california called “one more thing.” anticipating the company may unveil a video ipod. some investors and analysts are concerned about a squeeze on consumers from gas and heating oil bills saying that could crimp demand for gadgets. also some investors and analysts saying they want to see if the company is able to sustain the ipod sales whether it has peaked or not. so more on apple in just a few moments time. we’ll speak with ted shandler with forester research. will give us his take on the apple numbers in a few minutes’ time. another story we have been following. ‘ president’s tax panel has its way, americans in the future would not face a national sales tax. they could lose housing and health care tax breaks. let’s get details from peter cook. peter?

>> with the november 1 deadline, the date is fast approaching. specific proposals are starting to emerge. some of the items on the table will be controversial. at the next to last meeting here today in washington, a majority of panel members express support for capping tax deductions for employer-provided health care plans possibly at the current federal employee limit of $11,000. right now the current execution would save american workers $1.9 trillion over 10 years. a majority on the panel express support for capping the mortgage interest and property tax reductions for homeowners. not only would changes raise revenue for the government to offset the cost of eliminating the alternative minimum tax, supporters on the panel including liz anne sonders is.

>> if you could let a little bit of air out of the bubble by kind of reining in excesss in terms of prices, i think on the margin that would be beneficial to the economy overall. >> two proposals unlikely to make the cut, a valued a tax similar to that used in europe. a majority of panelists said the taxes wouldn’t work efficiently in the united states.

>> i think we have heardened evidence has been presented to the panel that the evasion factor is very large. we have a high retail sales tax. also the complexity of trying to have a value add tax on top of income tax, the complexity of it is very, very bad.

>> ultimately the panel’s recommendations will only take effect if congress approves them. a former chairman of the house ways and means committee is not optimistic lawmakers will embrace a major overhawley.

>> i wonder whether the administration and the congress will be willing to go forward with something that i would call unique.

>> the panel holds a meeting next week to finalize its recommendations. the final deadline november 1.

>> thank you so much. sanford bernstein analysts forecasting $80 oil in four years because of small producer costs. su keenan gave us a preview of that. a closer look right now with editor-at-large tom keene. he will join us for an abbreviated “chart of the day.” we wanted to get in the apple earnings.

>> oil production in the united states. it’s not a pretty picture. down 30% since 1978. ok. we’re done with the chart. here’s the story behind the chart.

>> let’s talk about the $80. how do you get there?

>> sanford bernstein says don’t look at average cost of production. do calculus and look at marginal costs, the next barrel, next to last barrel to be produced. it’s a much bigger number than we perceive. what he does is he subdivides oil into exxon, the big majors and then subsidizes into the middle and what he focuses on was 52% of our oil comes from small phraeurts and their marginal costs are skyrocketing. when you factor in five more years out, those small producers push their marginal costs which comes into an $80 per barrel oil. so modeling out. we go up another $20.

>> in terms of smaller players, how much of the market do he they represent?

>> they represent 52% of the market . they make more oil than saudi arabia. just amazing.

>> interesting analogy. tom, thank you so much. we’ll come back and have more time tomorrow. thank you so much. tom keene with our “chart of the day. wgs we take a break. when we come back, we continue to look at apple earnings. also we’ll zero in on the apparel industry and get a view from the top. the chief executive of liz claiborne will be our guest.

Interview: Oracle

>> one of the big story stocks today was xilinx. shares tumbled down 16%. xilinx is the world’s biggest maker of programable semiconducters. it says second quarter sales fell short of estimates as orders in asia dried up. that news sent the company’s shares down again that 16%. you had revenue in the quarter ending september 30 falling as much as 2% from the first quartser. at that rate, sales may be as low as $397 million. that will compare with a forecast from september 7 of at least $405 million. xilinx shares reached a 52-week low as you see now down 23% since the beginning of the year. a shareholder meeting with oracle today. what is the company saying about acquisitions. particularly after missing sales forecasts last quartser on the heels of its peoplesoft and retek buys. paul walravens has a strong buy on the stock. joining us from san francisco to tell us why he likes the shares so much and what happened in that shareholder meeting today. pat, good afternoon.

>> what the most important thing that oracle is say stphg

>> at the shareholder meeting?

>> exactly.

>> it was fairly mundane so basically a lot of question and answer around subjects which people are pretty familiar with such as the dividend which is not something they currently intend to do.

>> why do you think the tone wasn’t a little more aggressive or more intense given that the company missed that sales forecast?

>> i think that’s the reason. when you missed a quarter, slightly better to keep expectations down and do better than they expect rather than risk disappointsing again.

>> in terms of reassurance that you got about that sales miss, what kind of reassurance due hear?

>> for reinsurance what we look for is to look to people in the field, people who are selling or partnered with oracle in the field. basically it’s important for us to understand why they missed. so what we heard is they had a number of sales execution issues in the quarter meaning that things―they reorganized their sales force and those results are something that didn’t click as smoothly as they could have. people we talk to in general feel the demand for what oracle sells is quite good and the year should still be good. as we head through the second, third and fourth quarter, we’ll see results bounce back.

>> i aou have remained with a strong buy on that stock since december of 2003. shares down almost 6% in that period of time how long are you willing to give the stock to come back?

>> well, you know, it’s been up and down. for me the important thing is whether i think the strategy that they’re pursuing makes sense, right. it may take a while for the market to agree with that. there’s a key thing to keep in mind. there’s two approaches. can you grow organicly or through acquisition. organic growth makes the most sense when you have a market that is in its early stages and is growing rapidly which is what software was like in the 1990’s. when a market starts to mature and consolidation starts to make sense, then growth through acquisition is a reasonable strategy and that’s what oracle is doing currently. my personal view is the software market is maturing. and in a maturing market , people want to view with fewer vendors. oracle is trying to be a vendsor who can go to enterprises and say look, we can offer you just about everything you need in one place.

>> given the consolidation, given the acquisition that larry ellison had pursued in the past several years, particularly in the past year, what sales growth target do you have and how has that changed?

>> it’s very difficult on the application side of the business to know what rate the applications are growing at. if you look at database side of the business that’s pure organic growth. they haven’t had meaningful database acquisitions. last year you saw them growing the database in the low to mid teens which is very healthy for a big company. in the first quarter it grew 1% which is obviously not good. if i thought it was going to stay at 1%, i wouldn’t recommend the stock. but i think what you will see is over the next couple of quarters that will bounce back. the database market should grow at a high single digit, 7%, 8%, 9%, 10% growth rate.

>> larry ellison telling bloomberg recently that saffir katz would be his choice for successor. you don’t think that’s the best choice. who would be the best person to replace larry ellison?

>> i think they need to go outside the company. i think that oracle needs to be led by someone who 15 -- is a technologist which is what larry is. the people who you look at as being sort of the immediate potential successors, chuck philips who is a research analyst and is outstanding. he has a financial background. katz, same situation. an investment banker. outstanding financial background. i don’t think that’s what you need to lead the world’s largest enterprise software company. the good news is i don’t think -- >> i thought you completed your thought and we’re out of time so we’ll leave it there. we hope to speak with you soon. thank you for joining us.

>> thank you.

>> pat walravens. overlooked in 1994 for his work in developing game theory further, thomas schelling and robert aumann awarded the nobel prize in economics today. peter cook spoke with the former aoufrt of maryland economist. we have that conversation straight ahead.
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Listen Market briefing -- Ellen (slow)
NYSE --- Deb (fast)

>> welcome back to “after the bell.” i’m ellen braitman. 30 after the hour. let’s recap the day on wall street where there were declines across the board. you had the major indexes extending declines. we saw the dow down 53 points to 10,238. the s&p losing 8 1/2 points. 1,187 there. as for the nasdaq, down 11 points to 2,078. some of the lowest levels in several months for the indexes. more in a moment on the stock trading. but in the meantime, let’s get the after the bell earnings from genentech. the company coming out with 35 cents a share if you exclude items for its third quarter. genentech the second largest biotech company. also stronger than anticipated on the sales front. sales from continuing operations coming in at $1.75 billion. analysts looking for revenue of $1.6 billion. as for a breakdown of the company’s important products, the company said avastin sales in the u.s. were up 78%. herceptin up 70%. raptiva sales up 28%. also the company saying it sees full-year earnings per share growth about 50%. already you have shares up 50% so far this year. analysts mostly optimistic that genentech can go higher still. 21 of 31 analysts recommend investors buy shares. 10 say investors should hold shares. genentech, keep in mind, has had a goal of passing amgen as the top selling karpb treatment by 2010. counting on avastin and herceptin to help reach the goal. back to trading today. we have deborah kostroun standing by at the new york stock exchange. deb, it is columbus day but a very interesting story on the volume front.

>> you know, it really was, ellen. we actually did more volume today than we did on friday. of course, on friday we had the bond market close a little bit early. but today the bond market was closed and so we had 1.638 billion shares traded. volume is something that we’re tracking closely last week because last thursday we saw 2.1 billion shares traded. we also saw heavy volume on last wednesday. 1.9 billion shares. remember, it was on a week where we had the biggest weekly decline in about six months. where you have above average volume in a down market , that signals to traders definitely a lot of interest in this market . certainly in a day like today the market closing on the lowest level of the day. s&p and dow at the lowest level since may on the close on the day. very interesting things we have been looking at and certainly tracking over the past week. as we get back toward tomorrow with the bond market being open, we’ll have to see what interest we do have in the market . we’ll check that action very closely. if you look at what we’re looking at with the market down once again after the declines last week with the dow down about 2.8% or so. you saw bart barnett at morgan keegan saying the market has been beaten up a little bit. he says with energy prices coming back down, the oil services sector really sold off. he said the market is down to some levels we haven’t seen in some months. if we need expectations for the third quarter earnings and need expectations for the fourth quarter, he says he thinks we could see this market moving a little bit higher so at least that is something we’ll look at over here as we are getting into the third quarter earnings season. alcoa kick that off today. a look at lincoln national corp. they agreed to buy jefferson pilot for $7.5 billion. one of the things that they’re hoping they can do is cut 12k% of the company’s combined costs. as you can see, jefferson pilot was up quite a bit, mainly because the price that lincoln is willing to pay is an 11% premium for each share of jefferson pilot and the acquisition will make lincoln the seventh largest u.s. life insurer by premiums. a big story on the day certainly in the auto-related area. delphi coming in filing for bankruptcy. that was the biggest drag in the s&p 500 not only today but for the year. down 96%. back to you.

>> thank you so much. also today, wre following trouble at the futures broker refco. the company said its chairman and c.e.o. philip bennett placed on a leave of absence after an internal review found he owed the company $430 million. he did not previously disclose that the amount was payable by a separate company that he controlled. all of this according to refco’s statement released today. refco plunged down 45% erasing gains made since the i.p.o. of the company two months ago. refco said its financial statement for 2002 through 2005 should no longer be relied on. the resignation of chief financial officer will remain as chief executive. let’s go into a little more detail now. lincoln national agreeing to buy jefferson pilot for about $7.5 billion. the company will pay $55.48 a share in cash and stock for each share of jefferson pilot. it is an 11% premium to the average closing price over the past month. lincoln national expecting the merger will yield annual pretax cost savings of $180 million by the end of 2008. barry diller had tough words about a keycorp rat governance law. the sarbanes-oxley act of 2002 was passed to protect investors from fraudulent accounting by corporations. the chief executive of i.a.c. interactive saying the cost of complying with sarbanes-oxley are hurting companies.

>> the problems that sarbanes was about attacking financial malfeasance as the the top of organizations, not the bottom or middle of organizations. to make those people run around in circles is wasteful and totally non-productive.

>> shares of dillers’ company, i.a.c. interactive, are down this year slumping 18% for 2005. are acquisitions right for oracle, particularly when the company missed sales forecasts last quarter? we take a closer look coming up.

Interview: Chief u.s. economist at societe generale

>> today’s better than expected jobs number are fueling speculation the federal reserve will continue to raise interest rates but some investors and economists also say there’s a risk the fed could be raising rates too much as well as too fast. we’re joined by steve gallagher, chief u.s. economist at societe generale, joining us from new york city. what does today’s report tell us about the economy that we did not already know?

>> unfortunately, not much. we have enough information from this morning’s report from the labor department on the job growth in september and also what they see as the impact from katrina itself, if we strip that out. we see job growth in that 175,000 to 200,000 range, just where it was right before hurricane katrina so it doesn’t appear that much has changed in the economy as a result of katrina on a sustainable basis.

>> what about this week’s report and comments from federal reserve officials? when you look at how the stock market reacted, many concerns there about inflation. you had all the comments out from fed officials earlier this week. when you look at the past five days, what takeaway do you have as most important either on the inflation front or the economic growth front?

>> we haven’t seen much on the inflation front that’s materially different. oil and gas prices came off a little bit but are still very high and starting to work through the economy. we heard from many fed officials and they have stepped up rhetoric on inflation. they’re expressing greater concern, raising the prospects that they may go further than what we had imagined in terms of raising interest rates and the markets aren’t performing so well because of that, they’re worried the fed’s going too far and that’s why we see the equity market falling back. it’s not one specific economic data point but a sense that the economy is perhaps more vulnerable going into next year and the fed is still lifting interest rates, trying to fight the inflation poison as one fed official spoke of it this week.

>> where do you see the rates headed? where do you see the fed going by year-end?

>> by year-end, it’s almost pretty easy. they’ve given us a strong indication on that for a few weeks now. they should be raising at each of the next two meetings. we have a november meeting and december meeting so they should be lifting a quarter point at each meeting, giving us a year-end fed funds target of 4.25, which is where we expect them to stop in this rate hike cycle. the problem is, is i think we’re getting―comments from fed officials, keep hinting at even more rate hikes in the pipeline going into early 2006.

>> how are you changing your forecast, if at all?

>> i’m not changing it yet. i’m watching. i think the inversion of the yield curve, which is something the―the treasury yield curve, which is something i expect to happen by year end, ought to be slowing the fed. i think some of the information we get out from the consumer may also stop the fed at that 4.25%. but i do see, to me, risk of needing to raise my interest rate forecast for the short-term interest rates going sgoirst and early part of 2006 and then cutting my growth rates. if i start raising my fed funds targets, i’ll probably be cutting my growth g.d.p. forecast also for 2006.

>> by how much?

>> i’m at 3% now for the year and, again, i’m not making any forecast changes because i don’t have the fed raising rates beyond that 4.25. but i could see myself pushing it down to 2.5%. that may sound ok but it’s getting to a point where people will not be happy below 3%, you’ll start to see confidence, rode in this economy.

>> we started by introducing you, saying some investors, some economists say the fed is raising too fast and too far. how too fast do you think the fed is going?

>> they seem to be―they’re keeping with their measured pace so i don’t know if it’s going to be too fast. they’re moving steadily. i think that part of the equation is ok. it just seems to me too far is the right focus on this discussion and one problem, i think we have, is that the fed wants to keep raising until they see rates as neutral. the problem is, it’s very difficult to recognize what is a neutral rate. we often don’t recognize it until we’ve already gone beyond it and that’s a mistake fed policy has made often in the past, it’s very difficult to, because of the lags involved between the rate hikes and how it impacts the economy, it’s very difficult to determine where that neutral point is. one of our best indicators of that is the slope of the yield curve. this is where, to me, real worry comes in because you have an extremely flat treasure yield curve right now. the signals from fed officials is that the yield curve may not be as good a predictor as it has been in the past and i don’t like it when i hear it’s not the same this time, it’s different this time. we’re getting a clear warning from the market that perhaps the fed is going too far and they tend to be dismissing it.

>> steve, thanks so much for joining us. steve gallagher, chief u.s. economist at societe generale. in a month where the economy did lose thousands of jobs. one 15-year-old managed to secure a new one, one that pays pretty well. we’ll tell you about it coming up.
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Listen Market briefing -- Ellen (slow)
Taking stock --- Daniel (slow)
NYSE ---Allan (slow)

>> welcome back to “after the bell,” i’m ellen braitman. 30 after the hour. let’s recap the day on wall street where stocks gained, after the latest report on employment showed the economy lost fewer jobs in september than had been forecast. that renewed confidence companies will sustain their profit growth. the dow ending the day higher by five points -- there has been speculation that stocks this year may not duplicate the fourth-quarter rallies seen in the past decade, the sentiment bolstered by surging fuel costs as well as concerns about inflation. we’re now joined by bloomberg news reporter daniel hauck with “taking stock.” what are people saying might be different this year without a late-year rally?

>> we had a good third quarter, which was unusual so coming into the fourth quarter, investors had to be feeling pretty good. one investor said normally every quarter we face challenges but this quarter it’s unusual because we’re facing so many challenges at the same time and many challenges we haven’t seen for a long time and obviously this week highlighted one of those with inflation. you had three fed officials talking about inflation. we also had signs in some of the prices data that the fuel costs you’ve mentioned are starting to spill over in inflation and at the same time we are seeing signs in the economy that things are slowing. the report in the services is industry wasn’t good this week and we still have fuel prices near record highs.

>> we talked about how stocks were higher today and on friday that there are expectations earnings will continue to grow. what are expectations looking like for earnings growth and how analysts have changed expectations?

>> it’s cloudier than normal given that no one knows the effects of the hurricanes. so people will watch the profit announcements seeing what the effects were and what people are saying anything forward. we have had analysts cutting forecasts on most non-energy companies. i believe eight of the s&p industries had their forecasts cut and particularly it’s companies that sell to consumers, which makes sense because consumer spending and consumer confidence is dropping because of the hurricanes and we saw raw materials forecasts cut as alcoa came out with a warning on third quarter profit and announcing earnings on monday. people will look at signs from other hurricanes as to how -- other companies as to how much the hurricanes will affect companies going forward.

>> what do investors point to as to why stocks are going higher?

>> it’s tough to go against history. the first reason is enough investors believe that stocks will go up in the fourth quarter, it would be a self-fulfilling prophecy. we have buying by fund managers and money falling into the market and at the same time, the economy is not in that bad of shape as the jobs report wasn’t as bad as some expected and although analysts are cutting forecasts for earnings, earnings are suppose to grow 16% the next couple of quarters, which is better in the next quarter.

>> another story that we’re following today, the new york stock exchange, planning a big share sale after completing its takeover of able go -- archipelago.

>> the big board plans to let seat holders carb in―cash in early. secondary stock offering could occur in the next few months, right after the new york stock exchange completes its acquisition of 70% of archipelago holdings, electronic trading company. u.s. stock exchange c.e.o. john thain informed seat holders of the offering.

>> john thain alleged there would probably be a secondary very soon after the deal is committed, if completed. and he did say that there were a number of investment banks that could very easily do this deal.

>> for each of the exchange’s 13,66 seats, owners will get about $13 million -- $300,000 in cash and $3.2 million in stock.

>> it’s much too soon to really think about a secondary. i think you have to take one step at a time, as i said, first things first and first is the enormous step of converting fora a non-for profit to profit to a public company. that, in itself, is so dramatic when you look at the history of this institution.

>> thain told championship members yesterday that the vote on the plan to buy the electronic trading network may be completed in november, requiring a 2/3 majority for approval so the deal could be wrapped up by january. under terms of the deal, each member will be able to sell 1/3 of his shares 1 year―one year after the deal completed, another share after the second. ellen?

>> quite a move up. allan, thanks so much. we’ll take a quick break. when we return, more on the september jobs report. looking specifically as what it will mean for the federal reserve and for the u.s. economy. we’ll be joined by chief economist at societe generale joining us.

Interview: Chief investment strategist at harris private bank

>> crude oil rose in the last half hour of trading after the government released a report showing offshore output in the gulf increased. crude at the close, up .8%, $61.84 per barrel. here’s what happened over the past five days. a decline of 6.6%, $61.84, your closing price for a barrel of oil this week. for other energy movers, gas falling for the seventh straight session, the longest slide in more than two years. comes as high prices reduce consumption and threaten global economic growth. as for heating oil, up .5%. natural gas futures down 1.1%. on the energy story, noting that the house of representatives approved a republican-sponsored bill to speed the expansion of oil refineries, the vote, 212 to 2.10. the senate has not introduced a similar bill, at least not as of yet. well, after big declines this week, stocks pared losses on the back of the stronger-than-expected jobs report. inflation, a very big concern for investors. let’s take a closer look at how this could play out in coming days and weeks. joined by jack ablin, chief investment strategist at harris private bank joining us from chicago. how important was the jobs report for investors?

>> i think on the surface it calmed concerns but device honestly, the data is probably still mixed up. i don’t know what analysts really put together to come up with that 135,000 jobs downturn so i’m not sure how solid the data is but it certainly calmed fears.

>> did it calm your fears?

>> well, you know, it’s funny, i really wasn’t all that worried going into this week. i know that the downturn has been troublesome for a lot of investors. we have a bunch of fed governors gating their gums but i think the inflation story and growth story is on track. the fed, there’s no indication that the fed would give up raising interest rates anyway. i don’t think the story changed from week to week quite frankly.

>> when you look at the performance for the major benchmarks this week. do you say the declines are justified or not justified?

>> i will tell you, ellen, that for accounts that i had that had cash, new accounts coming in the market , we use this opportunity to―for a buying opportunity, quite frankly.

>> where specifically were you doing that buying?

>> we did really a broad-based approach. keep in mind, i think it was yesterday or perhaps the day before, the emerging markets were down something like 3% on the news here and it seems wholly unjustified given the fact that not only the emerging markets but international markets are cheap relative to our own that that was a pretty good buy a couple of days ago.

>> jack, it’s interesting, you talk about the accounts where you had cash available to be investing. what are you hearing from clients? are people willing to put new money in the market or feeling more cautious?

>> first of all, we braced our clients saying that this year we don’t expect more than, say, single-digit return out of the s&p and we’re still on track for that forecast so already we had our clients pretty well conditioned for meager results out of the financial markets this year. that said, we’ve got s&p earnings forecasts up 17.8 for the third quarter which would represent the 11th consecutive double-digit earnings growth for the s&p so we still have some solid earnings on the top side and reasonable interest rates on the denominator so valuations are still pretty fair.

>> let’s talk about the bond market . you talk about the interest rates. what about the yield curve. increasingly, you have people saying we’re getting closer and closer to the yield on the 10-year, falling below the yield on the two-year, which to some signals recession could be imminent. what do you see?

>> i would say that 90% chance we’re going to have an inverted yield curve by january or february and here’s my take on that, ellen. if you believe that the two-year treasury is a good forward-looking indicator of what the fed is likely to do and we have had certainly every reason to believe that it has, if you believe the fed will tighten two more times to 4.25 year-end, that’s going to take the two-year, anticipating more tightening, up to, say, 4.5 to 4.75. given the fact that we have a 10-year treasury rate at 4.35, either you have to find a condition where 10-year treasury rates will escalate or the curve will invert. i believe the fed is prepared to invert the curve. does that mean recession? so far, every indication that i would suggest based on history would say, yeah, we’ll have a recession. if the curve inverts by february, we’ll have recession by 2007.

>> jack, thanks so much for the joining us.

>> thank you, ellen.

>> have a good weekend.

>> you, too.

>> jack ablin of harris private bank. we’ll talk more about the jobs report because for the first time in more than two years, the economy lost jobs in september. is katrina to blame for everything? we’ll look at this question and get more answers ahead.
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september account thated.  than expected. benchmark indexes lower for the week, the s&p recording its biggest weekly decline since april. a major setpack for research in motion. in a story heard first on bloomberg, a u.s. appeals court rejecting the company’s bid for a second challenge of a ruling that the company’s blackberry email device infringed on patents held by a different company. shares were halted and resumed at 2:00 p.m. the closing price down 3.6%. bob bowden will have details on the story. here’s what happened in the stock market on friday, gains of five points for the dow -- to our top story, again, reported first here on bloomberg, research in motion, maker of the popular blackberry email device losing an appeal before a federal court today in a patent infringement case. r.i.m. shares now down for 8 of the past 10 sessions. bob bowden has more on that story.

>> happy friday, ellen, yes. hitting a 52-week low, r.i.m. shares. last march, the chairman of ontario-based research in motion had an agreement, press releases reporting that r.i.m. had made an agreement to pay n.t.p. $450 million to settle its patent dispute over the technology to push email messages to wireless black beres - blackberries. in june, the parties reached an “impasse” prompting an appeal. today, the u.s. court of appeals for the federal circuit of washington denied r.i.m.’s request for a rehearing, letting stand the lower court’s ruling that r.i.m. infringed on n.t.p.’s intellectual property. analysts say even if r.i.m. is allowed to keep selling blackberries, it could be bad news for r.i.m.

>> the blackberries that push email have become critical to a lot of businesses and telling people they can’t use a blackberry tomorrow would be a big problem. nonetheless, that doesn’t mean r.i.m. would get away for free. it would be a serious problem for r.i.m. they could be slapped with infunction or―injunction or serious penalty.

>> r.i.m. said it will ask the judge to force n.t.p. to accept the former settlement terms to end the suit. while shares of research in motion frp halted in most of the middle hours of the session, finished down 3.6%, hitting at the 52-week low. in palm shares, palm, which sells the treo, a competitive device to the blackberry, a wireless unit that is used as a phone or receives emails.

>> hurricane katrina helped sweep 35,000 jobs out of the economy last month, the first monthly drop in two years, but only a fraction of the loss amounted. also important to note that the jobless number was driven higher. the unemployment rate driven to 5.1%, more than economists expected. the 10-year note rose even after the jobs report -- in the meantime, the jobs report sent stocks higher and with that, the s&p halted the longest losing streak since january. june grasso will join us with more on the message in the markets . june?

>> the s&p 500 is down 2.7% this week for its largest weekly decline since april. the dow jones industrials worst weekly performance ensued and the nasdaq composite had its biggest drop since april. the selloff in stocks was accompanied by a drop in the 10-year treasuries. one of the reasons, a drum beat of statements from federal reserve policymakers about inflation.

>> i think the markets this week have been braced by the fact that if you make the analogy the economy is the patient and the fed is the dollar, the markets per bracing for the concern that the doctor is prescribing the wrong medication for the patient.

>> while crude oil prices fell 7% this week, energy prices were a concern for investors bracing for the impact home heating bills may have on consumer spending this winter.

>> the housing market is softening and energy prices will hold back consumer spending. 4.25% seems like a good spot where the fed will stop but they’ll keep tightening until they see softness in housing and consumer spending.

>> just as energy prices affect the consumer, they affect corporate profits.

>> corporate earnings are probably going to be nailed by higher energy and raw material costs on one hand and higher interest rates on the other hand and that’s why we’ve had a pullback in the last couple of days.

>> during the week, the traders raised bets that the federal reserve will increase its benchmark lending rate to 4.5% by the end of january when alan greenspan steps down as chairman after more than eight years.

>> want to look at the stock market , trading activity for the day and the week. deborah kostroun filed this report from the big board.

>> stocks closed virtually unchanged. however, we snapped a four-day losing streak so a little bit higher on inflation concerns for the week. for the week, however, big losses for the dow, s&p and nasdaq. starting out in today’s session, the market was up at least 60 points, didn’t close that level as the economy lost fewer jobs in september than expected with that good payroll report, really showing the fed probably will continue raising interest rates. gasoline fell for a seventh straight session, the longest slide in more than two years, gasoline down 14% this week. a different story in crude oil, up 24 cents at $61.60 after a five-day slide, crude oil rebounding from a two-month low seen yesterday on concern that refineries shut along the gulf of mexico will leave the u.s. with insufficient heating oil stockpiles this winter. crude oil down 7.3% this week. looking at what we did see, energy stocks down all this past week. however, in today’s session, that was the biggest gainer in the s&p 500 and it looks like a bloomberg survey of traders and analysts showed crude oil prices may decline next week because of high fuel imports coming into the u.s. in this weekly chart, down 7%, the worst performer in the s&p 500. what you did see, integrated oil, natural gas, oil services all higher after being down for the last four days, but, remember, about 18% of refining capacity does remain shut in the gulf of mexico. quick headlines after the close of trading, the new york stock exchange saying they are going to suspend trading in delta air lines and of course delta and other airline stocks certainly have been reeling from the high energy prices. also, delphi, worst performance in the s&p 500 on the day and also for the year. a lot of speculation that delphi may file for bankruptcy. i’m deborah kostroun.

>> treasury secretary john snow travels to asia on saturday on a trip that may show a change in u.s. priorities. two days in japan and nine in china. snow’s last trip to asia was three years ago and that time he did not even visit china. now, china’s fast economic growth represents a challenge to u.s. dominance in the world economy and a surge in imports from china in recent years has contributed to a record u.s. trade deficit. some manufacturers and lawmakers say mayy of china’s gains are the result of unfair government policies. when we come back, we’ll look at that stock market . as we’ve been pointing out, the benchmark indexes lower this week on concerns about inflation. coming up, we’ll speak to the chief investment officer at harris private bank.