SUSIE GHARIB: Uncle Sam is reaching into the Social Security cookie jar. New analysis by the Congressional Budget Office shows that in order to balance the budget, the government will be forced to take $9 billion out of the politically sensitive Social Security surplus. Darren Gersh reports on the factors behind this once unthinkable move.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It has become a modern political commandment: thou shalt not spend the Social Security Trust Fund. But now the Congressional Budget Office reports the president and Congress are about to do just that, using $9 billion of Social Security taxes this year to pay for other government programs.

TOM GALLAGHER, POLITICAL ANALYST, ISI GROUP: It seems to be a pretty big political development. Pollsters in both parties seem to think that there is no appetite among voters for using up any of the Social Security surplus. So to the extent that either party can blame the other for tapping into the trust funds, there is some electoral edge to be had in November.

GERSH: But the problem isn't just in fiscal year 2001. The CBO estimates the government will run a $2 billion surplus outside Social Security in fiscal year 2002, but in 2003 the government is expected to tap Social Security for $18 billion and siphon off another $3 billion in 2004 to pay for other programs. Democrats say it is now clear the president's tax cut was too big.

REP. JOHN SPRATT (D) SOUTH CAROLINA:We're very much at the stage-if I can borrow the phrase from Apollo 13-- of saying, "Houston, we got a problem." Except maybe now, we should say, "Crawford, we got a problem."

GERSH: But last week the White House issued its own estimate, showing it won't be necessary to tap into Social Security at all as long as Congress keeps spending under control. But with little margin for error, analysts expect there will be less money spent on defense, education, and other popular programs.

RUDOLPH PENNER, FORMER DIR., CONGRESSIONAL BUDGET OFFICE: I think because the political rhetoric is so powerful, that spending in 2002 will be more restrained than it would be if we had a bigger surplus projection.

GERSH: But the bad budget news is likely to have little impact on financial markets, which have long believed government estimates of the surplus were inflated.

GALLAGHER: This is more a matter of Washington catching up with market expectations, rather than setting market expectations.

GERSH: The irony is, Congress will now be under pressure to rein in spending in a slow economy, about the last thing many economists would recommend. Darren Gersh, "NIGHTLY BUSINESS REPORT," Washington.

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. 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. © 2001 Community Television Foundation of South Florida, Inc.

SUSIE GHARIB: Lucent (LU) stock was up again today. It's been inching higher ever since Lucent outlined its turnaround plan to analysts a few days ago. And here to tell us more about that plan, Lucent CEO Henry Schacht. It's a real pleasure to have you on the program tonight.

HENRY SCHACHT, CEO, LUCENT TECHNOLOGIES: It's nice to be here. Thank you for having us.

GHARIB: So you're saying profitable by 2002. Tell us how that's going to happen.

SCHACHT: Well, we've put together a plan now that's based on a reasonable, we think, assumptions about the marketplace. And by reducing our expenses quite considerably and by pruning our profit, excuse me, our product lines, we believe we will be profitable in '02 with a positive cash flow in '02.

GHARIB: Well, analysts feel good that you're going to at least break even, but the real question is and there's a lot of skepticism about where, what products are going to drive this growth. Where are the revenues going to come from? Is there demand for your products?

SCHACHT: Yes. We are the leader in the technology world for infrastructure for the communications world. And as we go through the product pruning, we still will be a leader. And you can see from the reports that came out on optical, we've regained the number one position in optical. Now one quarter doesn't make a meal. We're ahead in several of the broad band access areas, and we believe we will continue to lead in optical and data for the wire line companies and two and 3G, second and third generation for the wireless companies.

GHARIB: Well, some of the questions about optical though, although you do have this number one market spot temporarily, is that you're not really coming out with products of the next generation optical.

SCHACHT: We believe we are coming out with next generation products. We didn't cover that in the analysts' meeting last week, but we will cover that the first week in November and we told all of our colleagues that and we believe that, as they see the new optical products that we not only will remain number one, but extend the lead.

GHARIB: One of the other areas that there are some doubts on, you also said during the analyst meeting that you see the industry recovering by the year 2003. And there's considerable skepticism and pessimism by other market forecasters. Tell us what your reasoning is on that.

SCHACHT: Well, I think what we said is, when the market recovers, we expect it to recover at between 10 and 12 percent. And that makes us on the conservative side, not on the optimistic side. Many, many others are forecasting that when it recovers, it'll recover in a much sharper fashion than that. When it recovers, we were very careful to say we simply don't know, but all three is a good guess. GHARIB: OK. You're saying also that your gross margins will recover to around 35 percent. That will be up from 17 percent where they are right now. But how can you still justify this to investors who are looking at your peer group and saying that their gross margins are higher than that by a minimum 40 percent of something.

SCHACHT: Well, we'd love to be at 40 percent. But being at 16 now, we get 10 percentage points as soon as we're able to take the one time events out and then the combination of cost reduction, new products and ongoing issues, will get us the remainder. Thirty-five percent is a good place for us to be talking about. If we can get higher than that, we will.

GHARIB: So what is the new Lucent going to look like? You're doing all of this cost cutting and employee restructuring.

SCHACHT: Well, the real issues at Lucent have been, do they have a plan? If they execute, can they get there? Do they have the money to finance it and then, can they execute. I think with our meeting last week, we took the first two off the table. We have a plan that will get us there, and we have more than enough money to execute by a considerable margin. Now, the discussion is quite properly about execution. And that is something we know how to do. We did a seven-point plan earlier this year. We're ahead on every one of those. We now have a phase two, and we intend to get that done, also.

GHARIB: Let's talk a little bit about your stock. It has been inching up the last couple of days, but it's still been a frustrating for many investors, as you can see here. What do you think investors are looking for from you before they get interested in Lucent stock again?

SCHACHT: Well, I think there has been an increased interest and we'll be able to talk about the plan now and the specifics of our financial position in terms of liquidity. So I think we've seen a regeneration of interest. But it's all about performance, and until we can demonstrate the performance that people have come to rightly expect of us, I think things will still be in the show-me mode.

GHARIB: So when will we see some results?

SCHACHT: Well, we have said we'll be profitable next year and cash flow positive next year. We've got this quarter, which is the end of our fiscal year, to get behind us. This will still be on the old plan. The new plan starts first of October.

GHARIB: Hopefully you'll come back and tell us more about that new plan. Thank you very much. It's been a real pleasure having you on the program.

SCHACHT: Look forward to it. Thanks. It's a real pleasure.

GHARIB: My guest tonight, Henry Schact, chief executive of Lucent Technologies.

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. 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. © 2001 Community Television Foundation of South Florida, Inc.

08/27/01: Tips For Turning Bonds Into Big Bucks

SUSIE GHARIB: Ever since the stock market tanked last year, investors have been told: diversify. One suggestion: buy bonds. But as Stephen Aug reports, getting into and out of bonds might not be easy as it sounds.

STEPHEN AUG, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some months ago I told my broker I'd like to sell some municipal bonds. I asked how much I could expect to get. He called back with a price way below what I thought they were worth. He said, "look, it's Friday afternoon, the traders want to go home. Call back next week. You'll get a better price." Sound far-fetched? Not to Christopher Taylor. He runs the Municipal Securities Rulemaking Board, the agency that regulates municipal bond trading.

CHRISTOPHER TAYLOR, EXEC DIR., MUNICIPAL SECURITIES RULEMAKING BD: In the muni market, the dealer has to go out and find someone who is interested in your particular bond, and the potential buyer has up to 1.5 million different choices.

AUG: In fact, there is no organized market for municipal bonds, no real-time prices. That's because there are 1.5 million different issues. Some of them never trade; others may trade only every few years.

TAYLOR: People buy bonds for the stream of income that the bond yields. And so they buy the bond with the idea that they're going to get a set amount of income for the life of the bond. In contrast, you buy a stock and you hope that it goes up and that's why you sell it and that's why there's active trading in stocks.

AUG: So while there's no central market, there's a web site called investinginbonds. Com where you can look up bonds and get a price on those few that have recently traded. It's not different in corporate bonds. Even many of those listed on the New York Stock Exchange seldom trade. Kevin Rast, who trades bonds at the regional brokerage of Ferris Baker Watts says he prices bonds using Treasury paper as a benchmark.

KEVIN RAST, S. VP, FERRIS BAKER WATTS: Let's take for example a triple A corporate bond. With a rating like that, it'll trade somewhere around 60 to 80 basis points over the 10-year Treasury which would put it in the 5 ½ to 5 ¾ type level.

AUG: Rast says there are three factors to consider in deciding what to buy.

RAST: The coupon on the issue, the credit quality of the issue and the maturity of the issue. Those are the three most important parts of the bond.

AUG: Of course, you could avoid a lot of complications by simply buying a bond mutual fund, but then you lose the certainty of individual bonds.

TAYLOR: If you own an individual bond, you know how much you're going to get every six months and you know what you're going to get at maturity. With a bond fund, while you get diversity, you know less about the exact flow pattern of how much money you're going to get and when you're going to get your final pay out.

AUG: The only really active bond market is the U.S. Treasury paper and you could easily get current prices. Treasury securities are the ultimate in safety but their after tax yield is lower than munis and corporate. So if it's tax frees or high yield and corporates you want, be prepared for a market in which it's difficult to find a price or buy a bond when it's first issued and hold it until maturity and don't worry about market prices. Stephen Aug, "NIGHTLY BUSINESS REPORT," Washington.

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. 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. © 2001 Community Television Foundation of South Florida, Inc.

08/27/01: Commentary: Should We Faithfully Invest On Wall Street?

SUSIE GHARIB: Do you have faith in the economy? Tonight's commentator does. He's Alan Blinder, partner of the Promontory Financial Group and former vice chair of the Federal Reserve.

ALAN BLINDER, COMMENTARY: I read in the papers that President Bush's faith-based initiative is in trouble. Seems that people from both the church and the state remembered that there are good reasons to separate the two. But don't worry. The president is proceeding apace with several other faith-based policies. Start with faith-based tax policy. Only blind faith in the god of false accounting could have justified the tax bill that passed in May, which goes well beyond fuzzy math, into the realm of numerology. How else could anyone believe that the 10-year cost of the tax cut will be only $1.35 trillion? Or that the estate tax will die in 2010 only to rise from the grave a year later? Or that the entire tax cut will disappear like an apparition in 2011? Then there's faith-based environmental policy. The president scrapped the Kyoto agreement, but offered nothing in its place. So I guess we're supposed to pray that the scientists have it wrong. He also told Californians to put their faith in the free market, even though the market was broken and far from free. There's a pattern here. I'm worried that faith-based Social Security reform might be next. That's certainly the way the issue was handled in the campaign. The Bush team assured us that everything would be fine if we put our faith in the stock market. Fortunately, the president's Social Security Commission includes a number of sober-minded members who understand the hard realities. Let's all pray that they aren't pressured into keeping the faith. I'm Alan Blinder.

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. 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. © 2001 Community Television Foundation of South Florida, Inc.

PAUL KANGAS: The stock market opened on a firm note, trying to follow through on last Friday's big rally, which resulted in gains of 194 points, or 1.9 percent, for the Dow Industrials, and nearly 74 points, or 4 percent, for the NASDAQ Index. The best the Dow could do at the outset however, was struggle 16 points higher, while the NASDAQ barely managed a three-point advance before prices began to fade. The problem was the absence of any new developments suggesting the economy is in the bottoming out process. And hardly inspiring bullish enthusiasm was the "Wall Street Journal's "Heard on the Street" column today which questioned the reasoning behind last week's upgrading of the semiconductor sector by several analysts. For the rest of the morning then, the Dow stair-stepped its way down to a 33-point loss by noontime, while the NASDAQ Index fell to a 15- point deficit. Well, it looked like someone put the market on hold in a very slow afternoon session, which did however show some improvement in the NASDAQ market. But the Dow Industrial average posted a closing loss of 40.82, putting it at 10,382.35. The NASDAQ dipped only 4.39 point to close at 1912.41.

Big board volume, one of the slowest of the year, 837 million shares. It was dreadfully slow. The up volume and down volume about 43 in favor of the down variety.

The Dow Transport Index down nearly 22 1/2 points. But the Utility Index managed to gain almost 3 points.

The Closing Tick slightly bearish at -487.

Standard & Poor's 500 off nearly 5 3/4 points.

Just about a 2 1/2 point drop in the 100.

The MidCap 400 off .56.

And the Bridge Futures Price Index fell 1/3 of a point.

A loss of nearly 2 2/3 in the New York Composite.

Value Line dropping .59.

Russell2000 Small Cap off 1.88.

And the broadly based Wilshire 5000 fell a little over 44 points.

The bond market got a little support early today on the report that existing home sales fell a larger-than- expected 3 percent in July, but prices soon turned flat to lower due to extremely light activity reflecting the fact that London financial markets were closed for a holiday, while US trading desks were manned by skeleton crews ahead of the long Labor Day weekend.

Tax-free and corporate issues ended mostly unchanged and the Treasury closed slightly lower for the most part.

5-year notes off only 1/32.

No change whatever in the bellwether 10-year note.

And the 30-year bond down 4/32.

While the Lehman Brothers Long-Term Treasury Bond Index was down .11.

It was a dreadfully slow day on Wall Street but down nearly 41 points on the Dow. For every 13 stocks higher, about 17 on the lower side. 133 new highs for the year nevertheless and only 36 new lows.

Lucent Technologies (LU) topped the active list on nearly 19 million shares, moving up $0.31 and as you heard, Mr. Schacht rather optimistic about the restructuring.

Washington Mutual (WM) down $1.75. The perception that the Federal Reserve's easing cycle is almost over seems to be clouding the earnings outlook for a lot of financially rated stocks or related I should say.

General Electric (GE) was up $0.18.

Global Crossing (GX) dropped $0.22. That's a new low, 52-week low, incidentally.

NASDAQ 100 Shares (QQQ) were in there with a $0.05 gain.

NorTel Networks Corp. (NT) losing $0.02.

Taiwan Semiconductor Manft (TSM) edged up $0.25.

Citigroup a $0.30 loss.

Qwest Communications (Q) down $0.57.

And EMC Corp. (EMC), tenth in volume, was up $0.28, very narrow movement.

AmeriSource Health (AAS) up $2.81.

And Bergen Brunswig (BBC) up $1.45. The Federal Trade Commission has given the green light for these two companies to merge for stock into a new company which will be called AmeriSource Bergen and the trading symbol will be ABC on the big board and then after the close on Wednesday, that new stock will become the newest member of the Standard & Poor's 500 Index.

Home Depot (HD) down $0.95, traded as low as $48.37. Lead columnist Alan Abelson (ph) in this week's "Barron's" quotes some bearish comments about the company's outlook from a Wall Street analyst by the name of Barbara Allen.

International Game Technology (IGT) moved up $1.27. Goldman Sachs sees this as a trading opportunity and repeated or maintained a recommended list rating on the stock.

Charles Schwab (SCH) down $0.38. Goldman Sachs cut its third quarter earnings estimates.

And Synovus Financial (SNV) down $1.16. Robertson Humphrey Brokerage downgraded it from "buy" to "outperform" on a valuation basis.

Crown Castle International (CCI) up $1.26. The company manages wireless communication sites and broadcast transmission networks and apparently the reason for the strength, recent confirmation of insider buying in the stock.

TDK (TDK) up $3.96. NIKKEI Index overnight was up 1 percent and TDK trading on the Tokyo exchange rose 10 percent. But the corporation according to the U.S. spokesman, no specific news.

Vector Group Ltd. (VGR) up $2.86. The company owns Liggett Group which makes cigarettes and some say it now makes cigarettes that are less hazardous because they contain very little nicotine. As a matter of fact, Carl Icahn last week said the stock should be bought because of this new development.

Sulzer Medica (SM) down $1.02, big percentage loser. Company says if its proposal to settle its faulty hip implant lawsuits is accepted, it may issue new American Depository Receipts and analysts feel that could dilute earnings up to 30 percent.

Flagstar Trust (FBC) down $2.65. Another financial stock down in the belief they Fed's easing policy is about over.

And Blockbuster (BBI) down $1.60 a share. The new "Barron's" financial suggests the company's video rental business could be hurt by the video on demand market which is increasing.

NASDAQ trading, a loss of 4.39 in the Index, very slow day, 1.19 billion shares. For every 15 stocks higher, about 19 lower.

Microsoft Corp. (MSFT) topped the active list, moving up $0.26.

Followed by Intel Corp. (INTC), a $0.07 gain.

Then Cisco Systems (CSCO) down $0.24.

Applied Materials (AMAT) edged up $0.36