10/06/00: Oil Prices Expected To Heat Up This Winter

PAUL KANGAS: There's more evidence tonight that energy prices are going up. A new government report says a colder winter than last year will drive up demand while inventories of oil remain tight. So, as Stephanie Woods reports, consumers and businesses alike can expect to pay more.

STEPHANIE WOODS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The government predicts consumers will pay about $240 more this winter than they did last year to heat their homes.

MARK MAZUR, ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION: Our projection of price is somewhat higher than last year so, again, customers might not like the price they are paying, but they should be able to get adequate supplies of heating oil.

WOODS: Business customers like UPS (UPS) will also pay the price. The shipping giant expects to spend $220 million more than it did last year to keep its fleet of trucks gassed up. But to cut costs, the company is testing a new way to buy fuel. UPS is using an Internet auction to fill a contract for 90 million gallons of gas. The company handling the transaction, American Petroleum Exchange, says the online process should squeeze administrative costs out of the system.

BRUCE LEVENSON, CHAIRMAN & CEO, AMERICAN PETROLEUM EXCHANGE: This technology is going to drive down the cost of these transactions for them. The market is the market for the fuel. It is, this process isn't going to change that, but there are inefficiencies on both sides in the way that they buy and sell fuel. This will change that in a fairly dramatic way.

WOODS: Federal Express (FDX), Wal*Mart (WMT) and the Postal Service are also expected to try American Petroleum Exchange's Internet auction. While the Internet won't change the laws of supply and demand that have driven up prices this year, analyst Adam Sieminski says the oil companies' use of more efficient systems has helped keep costs down.

ADAM SIEMINSKI, OIL MARKET ANALYST, DEUTSCHE BANK SECURITIES: The business to business exchanges and the restructuring that's occurred within the industry as part of that, that has actually helped result in, you know, up until the last year and a half, lower costs for drilling, which has actually filtered into lower costs for fuels.

WOODS: American Petroleum Exchange makes its money off transaction fees charged to both buyers and suppliers. But the company knows high prices have fueled interest in its business. Stephanie Woods, NIGHTLY BUSINESS REPORT, Rockville, Maryland.

Nightly Business Report transcripts are available on-line post broadcast.  The program is transcribed by FDCH. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc., Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. © 2000 Community Television Foundation of South Florida, Inc.

10/06/00: Race To The White House: Pentagon Priorities

LINDA O'BRYON: Late today the Navy awarded a $9 billion contract to Electronic Data Systems Corporation (EDS) that will link hundreds of computer networks into a single system. The news sent EDS stock soaring after hours up 20 percent to $48. This deal spotlights one issue under scrutiny on the presidential campaign trail, military readiness. Analysts say the candidates are much closer on defense than their rhetoric would suggest. Continuing our coverage of the road to the White House, Darren Gersh looks at presidential priorities for the Pentagon.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: For all the tough talk on the military, defense analysts say the difference between the two sides comes down to this, Texas Governor George W. Bush wants to increase military spending 1.5 percent over 10 years, Vice President Gore by a little more than two percent.

BRETT LAMBERT, DEFENSE ANALYST, DFI INTERNATIONAL: Both candidates and both
advisors to the teams to the candidates look at defense as something, a box they have to check. They have to address it, but not really change it.

GERSH: But whoever wins in November, defense contractors are likely to benefit. The Pentagon's procurement budget is expected to increase by $10 billion over the next five years as the military replaces hundreds of aging tanks, helicopters and fighters. Both candidates have pledged to improve housing and pay for the troops, but there are some significant differences. Governor Bush has suggested he would skip a major investment in current weapon systems now coming online and invest more in the next generation of military technology. Gore is expected to spend more on systems now in the defense pipeline. But neither man is proposing a massive spending increase.

LAMBERT: If you wanted to maintain the current force structure, if you wanted to maintain the ability to fight and win two nearly simultaneous wars, which is our current strategy, you would need frankly to put in between $20 billion and $50 billion more a year.

GERSH: But former Assistant Secretary of Defense Lawrence Korb says the military is now wasting $50 billion a year on weapons systems designed to fight the cold war. Korb says the campaign debate over readiness misses the point.

LAWRENCE KORB, COUNCIL ON FOREIGN RELATIONS: It really is the wrong debate. The real debate is what should we have a military for? What should be its role in the world? We haven't had that debate.

GERSH: Korb says defense policy is on automatic pilot, but he says the next president will have to decide what kind of military the nation needs to meet new threats and analysts say defense contractors will have to adapt. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.

Nightly Business Report transcripts are available on-line post broadcast.  The program is transcribed by FDCH. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc., Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. © 2000 Community Television Foundation of South Florida, Inc.

10/06/00: "Market Monitor"- Julius Maldutis, Managing Dir., CIBC World Markets

PAUL KANGAS: My guest market monitor this week is Julius Maldutis, Managing Director, CIBC World Markets (CIBC). Welcome back, Julius.

JULIUS MALDUTIS, MANAGING DIRECTOR, CIBC WORLD MARKETS: Thank you, Paul.

KANGAS: Although your specialty is the airline industry, in your role as managing director of CIBC World Markets, what stance is your firm taking with regard to the stock market in general, especially in light of today's broad sell-off?

MALDUTIS: Subath Kamar, our strategist, feels that the market is going to trade at the lower end of the range until we clear out all the third quarter earnings results. After that, he feels there's going to be an upward bias to the market. In the meantime, we're going to see rotation in the various groups, particularly as we saw recently when oil came down a little bit, airline stocks had a mini rally.

KANGAS: Well, we've dove tailed right into the airline group and that's your specialty. And, of course, a major relation is between oil prices and what the airline stocks do. And we have a chart depicting what's happened over the last 10 years or so. And here we see the price of crude oil in green and the airline stocks in yellow and there is an inverse correlation, is there not?

MALDUTIS: Absolutely because the second largest cost is oil and you can see in 1997 to 1999 when oil dropped precipitously, airlines enjoyed one of their greatest rallies.

KANGAS: Yes.

MALDUTIS: There's an interesting development that has taken place after that.  With the rally in oil prices, airplane stocks have remained flat.

KANGAS: Yes. And why is that?

MALDUTIS: Very simply for two reasons. The airlines have started to hedge oil very significantly. And second, airlines put through three fair increases and a fuel surcharge. So, in effect, they've neutralized the corrosive impact of oil prices.

KANGAS: OK, that's interesting. And they're also doing something to fill up those seats, are they not?

MALDUTIS: Absolutely. They're using the Internet to sell those seats that are usually left unsold.

KANGAS: Or those that Priceline (PCLN) or outfits like that might try to sell.

MALDUTIS: Absolutely. Even the airlines have started up their own Web sites to encourage consumers to book directly so they can avoid the travel agent fees and other distribution costs.

KANGAS: So we're not going to be able to have three empty seats across very often so we can sleep in coach, right?

MALDUTIS: Absolutely. More importantly, I think as airlines fill up the airplanes, your frequent flier mileage is going to become more and more worthless.

KANGAS: What about this report out today that Delta (DAL) might get a $61 share takeover bid?

MALDUTIS: I am a great skeptic of that. The only leveraged buyout was Northwest Airlines in 1989 and the only reason that occurred is because Northwest had no debt. The principals borrowed some $4.5 billion and they succeeded in the takeover. In the case of Delta, you've got some $8.6 billion in debt. I think it's going to be very, very difficult to raise the $8 billion necessary to make that $61 price stick.

KANGAS: Understood. Now, your last visit with us was in early March. Alaska Air (ALK) was one of your favorites. It was at $27. It's about a point below that. But your favorite for a long time had been Southwest Air. It was $18 then. Now it's in the mid 20s. Are you still with it? Would you buy it here?

MALDUTIS: Absolutely. I think Southwest Airlines- (LUV) and its clone in Calgary called WestJet (WJTAF) --

KANGAS: Which you recommended. It was about $10 Canadian. Now where is it?

MALDUTIS: It's in the mid 20's.

KANGAS: Oh, you've done well there. Stay with it?

MALDUTIS: Absolutely. They're very good companies. Those are the only two "strong buys" that I have on my list.

KANGAS: AirTran (AAI) you liked around $4.25. It's about $5 or $4.75 now. Do you still like that?

MALDUTIS: Well, I've downgraded it because of the uncertainty surrounding the ability of the company to refinance some $230 million of debt coming due next April.

KANGAS: We only have about 40 seconds left, but you don't like any of the major airlines like American (AMR), United (UAL) and so forth?

MALDUTIS: I have those carriers as a "buy." I think you have to be extremely selective. I have three carriers on hold, essentially Alaska (ALK), TWA (TWA) and US Air (U) because I think the United/US Air merger is going to face great difficulties. I think over the near term the bias is slightly negative. But long term I'm still a very big bull on the airline sector.

KANGAS: All right, fair enough. So oil will have less of an impact if it spikes up because of their hedging operations?

MALDUTIS: I think absolutely because the airlines have learned to control that.

KANGAS: OK. Very good. Julius, thanks, as usual.

MALDUTIS: Thank you.

Nightly Business Report transcripts are available on-line post broadcast.  The program is transcribed by FDCH. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc., Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. © 2000 Community Television Foundation of South Florida, Inc.

10/06/00: Paul Kangas' Wall Street Wrap Up

PAUL KANGAS: The stock market attempted to rebound from yesterday's downturn early today as the Dow Industrial Average rose some 46 points, and the NASDAQ Index advanced 32 points at the outset. But that stronger-than-expected September employment report soon quashed the upturn because it convinced investors the economy was still growing at too brisk a pace to even think about lower interest rates. And yet, in the face of the economy's strength, corporate earnings warnings continued to flow this morning. As a result, sellers took the upper hand and the Dow was down 97 points by 11:00 a.m. When the NASDAQ Index fell to an 89-point deficit. A bearish wariness seemed to envelop the market over the mid-session hours, bringing with it a dearth of buyers which caused a steep sell-off even though downside pressures weren't particularly heavy. Around 3:00 p.m. the Industrial Average was off nearly 170 points, but late in the final hour, enough buying appeared to cut the closing loss on the Dow to 128.38, or 1.2 percent, putting it at 10,596.54. This week, the Dow actually rose three times, fell only twice, and the net loss was just 54.38 points. The NASDAQ Composite today tumbled 111.09, ending at 3361.01. For the week, this Index fell four times, rose only once, and had a net overall loss of 311.81 points, that's 8 1/2 percent down for the NASDAQ Index.

Big board volume today down a bit from yesterday, 1.15 billion shares. And  here's what I mean by a "dearth" of buying: look at the up volume versus the down volume, just about four times of the down variety.

The Dow Transport Index down 24 2/3 points.

But the Utility Index had a little gain of 3.72.

The Closing Tick practically neutral at +56. At least it was a plus.

Standard & Poor's 500 down a little over 27 1/4.

Nearly a 13 1/2-point drop on the 100.

The MidCap 400 down just about 9 3/4 points.

And the Bridge Futures Price Index down .40.

And 11 3/4-point drop on the New York Exchange Composite.

Value Line losing just over 7 1/4.

An 11 2/3-point drop on the Russell2000 Small Cap.

Broadly-Based Wilshire 5000 down almost 280 points, or 2.1 percent.

The stronger-than-expected September jobs report sent bond prices modestly lower early today as investors gave up hope for any near-term chance of lower interest rates. But when stocks began to tumble, bonds rallied, thanks to plenty of buyers seeking safe haven. The upturn was cut short, though, because the credit markets closed early today at 2:00 p.m., and they'll also be closed Monday for Columbus Day, even though the stock markets will be
open. Anyway, tax free and corporates ended up 1/8s and 1/4s on average.  And the Treasury market was higher across the board.

5-year notes up 4/32.

10-year notes up 10/32, bringing the yield down to 5.82 percent.

30-year bond up 23/32, with the yield at 5.85.

And the Lehman Brothers Long-Term Treasury Bond Index gained almost eight points.

It was a rather frightful Friday on Wall Street and buyers were just conspicuous by their absence. Down 12838 in the Dow and the broader market better than 2 to 1 negative. Only 50 new yearly highs, 127 new lows.

AT & T (T) topped the active list on 20.6 billion shares, down $1.63, traded as low as $26.38 today after Salomon Smith Barney downgraded it from "buy" to "outperform" and also lowered its price target for big T from $65 down to $37 a share. Also, Salomon cut 2000 and 2001 earnings estimates by $0.08 and $0.42 a share respectively.

Nortel Networks (NT) down $4.75.

Clear Channel (CCU) the clear winner today, up $6 after the company said it plans to buy back up to $1 billion of its own stock.

Citigroup down $2.69 in the weak financial sector.

Viacom B (VIAb) dropped $1.63.

General Electric (GE) losing $0.31.

America Online (AOL) down $2.02. It was up $2.39 yesterday on an ING Barings upgrade to a "strong buy." It gave most of that back.

Motorola (MOT) fell $1.25. First Boston repeated a "buy." It did trade this morning after that as high as $29.75.

Lucent Technologies (LU) edged up $0.25.

And then Chase Manhattan (CMB) down $1.75.

Capital One Financial (COF) fell $5.44 after the A.G. Edwards Brokerage downgraded it from "buy" to just "accumulate."

Delta Air (DAL) up $2.38. Gene Marcial's "Inside Wall Street" column in the new "Business Week" magazine says two ex-airline executives and an investment group are about to make a $61 a share buyout bid on Delta.

Lowe's Companies (LOW) losing $1.06. The company sees third quarter same store sales below the prior growth projection of four to six percent growth. But it still thinks it'll earn $0.53 a share in the third quarter. That was the Street estimate. But nevertheless, Alex Brown downgraded the stock from "strong buy" to just "buy."

J.P. Morgan (JPM) plunging 6 points. Now the story here, the company is denying a rumor, let's-no. That's the story for Morgan Stanley. J.P. Morgan was just the biggest point loser in the Dow. We'll get to the other story in a minute.

MBNA (KRB) down $3.19. The story here, Morgan Stanley downgraded it from "strong buy" to "outperform."

And then Morgan Stanley (MWD) down $7.88. Now, this company is denying a rumor making the rounds today that it has suffered huge looses from its junk bond operation.

Packaging of America (PKG), one of the few good percentage gainers today, up $1.25. Alex Brown issued a rather upbeat report on the packaging sector and had a "buy" on this stock.

Armstrong Holdings (ACK) losing $1.63 on top of a loss of $4.25 yesterday.

And USG (USG) down $2.75. Goldman Sachs linked the losses in those two stocks to yesterday's Chapter 11 bankruptcy filing by Owens Corning (OWC).

Imation (IMN) down $2.88. The company sees third quarter results below Street expectations.

Metris Companies (MXT) plunging $6. A spokesman said no corporate developments to account for that, but it could be profit taking. The stock's had a nice recent rise.

And Providian Financial (PVN) dropping $15.13. The ABN AMRO Brokerage issued a report noting a slowdown in the economy could hurt credit card issuing companies like this.   NASDAQ trading, a loss of over 111 today. For the week, that index down about 311 ¾ or 8 ½ percent. Volume about the same as yesterday. And for every 10 stocks up, 28 down.