11/02/01: The Weak Work Report Delivers Some Surprises

SUSIE GHARIB: Two big developments to tell you about tonight. Microsoft settled its epic legal battle with the government, and a disturbing jump in the nation's unemployment rate. We begin with the jobs report. The unemployment rate shot up to 5.4 percent in October, the most dramatic evidence yet that the September 11th terrorist attacks are having a disastrous effect on the economy. Erika Miller looks at the data and the outlook for the economy.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The job picture in America is now the bleakest it has been in more than two decades. Employers cut 415,000 jobs last month, the biggest monthly loss since may 1980. That helped push the unemployment rate to 5.4 percent, its greatest one month jump in 21 years.

JAMES GLASSMAN, SENIOR US ECONOMIST, JP MORGAN: It was a shockingly weak report. Although it was a lot weaker than people thought, to tell you the truth, I think most of us expected to see a shockingly weak report.

MILLER: Manufacturing continued to get hammered. But more worrisome to economists was the loss of 111,000 service sector jobs. Experts say today's report highlights the toll of the September 11th terrorist attacks on an already weak economy.

BRIAN JONES, ECONOMIST, SALOMON SMITH BARNEY: I think the economy's definitely going to continue to contract, probably at an accelerated rate in the final quarter of the year. Right now, we don't have any- there are no lights at the end of the tunnel right now.

MILLER: Today's report puts new pressure on Congress to pass an economic stimulus package. It also puts pressure on the Fed to continue cutting interest rates aggressively when it meets next Tuesday.

JONES: I think now with these numbers, it certainly raises the odds that the Fed goes 0.5 percent point on the Federal funds rate, especially the dramatic jump in the jobless rate.

MILLER: Today's report is forcing many on Wall Street to revise their economic forecasts. Analysts had hoped for a mild recession that could end in a few months. Now many fear that's too optimistic. Erika Miller, "NIGHTLY BUSINESS REPORT," New York.

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.

11/02/01: Microsoft Chairman Bill Gates & The Tentative Anti-Trust Deal

SUSIE GHARIB: the Other big story, Microsoft's historic settlement with the Justice Department. The agreement imposes restrictions on the way Microsoft operates, but it's a far cry from splitting up the company. The deal still needs to be approved by the judge and 18 states. We have two reports tonight looking at the settlement and the impact on the computer industry. We begin with Stephanie Woods in Washington.

STEPHANIE WOODS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The beginning of the end in the Microsoft antitrust case came this morning when the Justice Department presented its proposed settlement to Judge Colleen Kollar-Kotelly. The agreement requires Microsoft to help rivals develop competing products that work with Windows operating software. On-site independent monitors will have access to the company's books and plans for five years to ensure compliance. Outside the courthouse, Justice Department officials praised the agreement.

CHARLES JAMES, ASSISTANT ATTORNEY GENERAL FOR ANTITRUST: It also contains broad ranging, future-looking provisions that we think will help to restore and preserve competition in the computer software industry.

WOODS: The 18 state attorneys general aren't so sure. They did not sign onto the proposed settlement, instead asking for and getting more time to review the deal.

TOM MILLER, ATTORNEY GENERAL, IOWA: Those that come to us and say, "this is a great agreement," and those that come to us and say, "this is a terrible agreement," I'm going to be pretty skeptical of either argument because it's somewhere in the middle. This is somewhere in the gray area, and that's the nature of a settlement.

WOODS: But clearly there is pressure to sign the agreement.

RICHARD BLUMENTHAL, ATTORNEY GENERAL, CONNECTICUT: The world changed on September 11th. The war abroad, the threats at home, the cloud on our economy have created a very powerful dynamic toward resolving the issues in this case.

WOODS: The parties will be back here Tuesday to report if the states will agree to the settlement. If they do, the judge will rule on whether it's an appropriate end to one of the longest and most contentious antitrust trials in American history. Stephanie Woods, "NIGHTLY BUSINESS REPORT," Washington.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: "Go forth, but sin no more." That is how many of Microsoft's competitors see today's settlement, and they are not happy with it. The main complaint is that the agreement fails to punish Microsoft for years of illegal behavior. That is true, but competing software developers looking forward will see a significantly changed landscape. No longer will Microsoft be allowed to punish computer makers who dare to promote or even offer their customers products which compete with Microsoft's own. Computer makers, not Microsoft, will have control of the all important first screen, and computer users will find it easier to remove Microsoft products from their systems if they choose. This will encourage competition, not for Windows, but for other products.

GEORGE GODFREY, SOFTWARE ANALYST, ABN AMRO: The challenge that competitors are going to offer them are probably not going to come in the platform area. They'll probably come in other applications like the database or in exchange or group ware products but in Windows platform Microsoft's the dominant company out there with greater than 90 percent market share.

GURVEY: This settlement does not come in time to save Novell's (NOVL) Netware, IBM's (IBM) OS/2, WordPerfect, Lotus 1-2-3, or a host of other products that have been driven off the market or into obscurity by Microsoft's marketing pressure over the years. But it does mean that developers with the resources and skill to create a better-than-Microsoft product in the years ahead will find a more level playing field when they bring it to market. Scott Gurvey, "NIGHTLY BUSINESS REPORT," New York.

GHARIB: After the Microsoft announcement this afternoon, I talked with Microsoft Chairman Bill Gates. I began by asking him how the settlement will change the way his company does business.

BILL GATES, CHAIRMAN & CHIEF SOFTWARE ARCHITECT, MICROSOFT: Well, the settlement we've reached here has an impact on a number of aspects on our business, licensing, technical, disclosure, some of the flexibility we put into our design. So in Windows, as the industry leader there, we're stepping up to a new level of responsibility in each one of those areas.

GHARIB: Mr. Gates, you said that the consent decree went a little further than you might have liked. What did Microsoft give up?

GATES: Well, it's a very broad decree addressing a number of issues. Some of the issues, like the protocol disclosure, actually go beyond any of the specific concerns that were raised in the court of appeals process. So it's an extensive agreement. From our point of view the key here is the uncertainty of the lawsuit is resolved. We now know what the rules are. Those rules, while they put restrictions on us, allow us to go ahead and innovate with new products.

GHARIB: Now, while you speak of restrictions, there are people who feel that Microsoft really doesn't have any restrictions, that you really got an easy out here.

GATES: Well, they should take a hard look at the agreement. The attorney general and Mr. James this morning talked about how they went through this very professionally. They addressed the concerns that had come up. And I think as people study the document they'll see that Microsoft really went the extra mile and made significant concessions in order to have the uncertainty removed.

GHARIB: In terms of these new rules and regulations that you speak of, will you have to make any changes to new products or to your XP operating system or recall any of your current product?

GATES: We will be doing updates to XP in the months ahead to make sure that this add/remove flexibility and some of the hooks are built in there. We don't have to eliminate any of the functionality in the product, but we do need to give OEMs some new flexibility and put some new technical hooks in, and in the course of updating the product, those things will be done.

GHARIB: How will this new oversight board, how might it possibly interfere with the way Microsoft does business?

GATES: Well, I don't think there will be a need to think of that as interference. Their role is to make sure that as we're disclosing information that the third parties who want that information get what they want. That advisory committee, we're going to work very closely with, and they'll be here on our campus when they choose to be, looking at whatever they choose to. And so we're pleased to have that group to make sure that they can make sure that the information is getting out and yet Microsoft is allowed to move forward with new products.

GHARIB: OK. In terms of lifting uncertainty, we still have those state attorneys general who haven't signed off on this until next week, we'll find out one way or another. If they don't sign on, how might that impact the Microsoft settlement?

GATES: Well, we're settling with the Department of Justice, that starts a period called the Tuniac (ph) review in a matter of days. The judge on Tuesday will be meeting with the parties and will ask the states where they are at that point. I'm hopeful, as is the attorney general, as well, that the states will look at this and choose to join on.

GHARIB: All right, well, thank you very much, Mr. Gates, for talking us, and good luck to you.

GATES: Thank you.

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.

11/02/01: Market Monitor-James Grant, Editor, "Grant's Interest Rate Observer"

PAUL KANGAS: My guest market monitor this week is James Grant, editor of the highly respected publication "Grant's Interest Rate Observer." And welcome, Jim.

JAMES GRANT, EDITOR, GRANT'S INTEREST RATE OBSERVER: Thank you, Paul. Nice to be here.

KANGAS: We are, indeed, fortunate to have an expert like you on interests rate at the end of a week when a lot has happened in that sector. Very first on my agenda is do you believe Uncle Sam is solvent enough to discontinue the sale of a 30 Year Treasury bond?

GRANT: Well, I think the Treasury will soon need the money. I think the Treasury's decision had to do with the determination, both the Fed and the Treasury, to bring down long-term interest rates. The Fed, of course, controls only one rate, the funds rate. It influences the others. To date this year its influence has not been very well felt and mortgage rates and longer dated yields have been very stubborn.

KANGAS: Well, do you feel that we are at the bottom of the interest rate cycle?

GRANT: I feel it's a great time to refinance a mortgage and I think that the longer rates are more likely at this point to go up than down.

KANGAS: But will that happen any time soon or are we going to stay in this lower range because of the slack economy for a long time?

GRANT: I kind of think that we'll be in this range for a while. I think that the short-term rates, which the Fed does control, will be down where they are for some time because we are in the process of clearing away the debris from the boom. That's really the problem in front of us. September 11th is not the main economic issue. The main economic issue is the aftermath of the biggest boom ever.

KANGAS: The bursting of the bubble.

GRANT: Yes, it is.

KANGAS: The Fed, of course, is widely expected to cut interest rates again next week. Is that a given? GRANT: Yes.

KANGAS: A half or a quarter?

GRANT: Yes.

KANGAS: One or the other, right?

GRANT: One or the other, Paul. I guess more likely a half but I'm agnostic.

KANGAS: So you plainly feel that this is a good time. If you're going to refinance your mortgage, do it now?

GRANT: I do. Everyone will have to determine for himself or herself whether there is enough daylight underneath the existing rate and whether the closing costs will be, you can amortize them quickly enough. But I think it's a fine time to extend your mortgage and refinance it. And by the way, the Treasury might think about lengthening its debt instead of shortening it. But the Treasury did not ask me, as you kindly have.

KANGAS: Now, you have been very bearish on the U.S. stock market. Do you feel the market is close to bottoming out here?

GRANT: Oh, I'm the world's leading authority on where stock rates are not going. I am thunderstruck still by the stubbornness of the market to trade down into a range that's more characteristic of a bottom. Valuations, Paul, are very near levels that in the past have been at the all time peaks of bull markets and here we are, what is meant to be, according to Wall Street, the bottom, and this-Standard & Poor's is close to 30 times net income. To me it's astounding.

KANGAS: Right. For you it's a no-no, obviously. But do you manage money. So what are you investing in now?

GRANT: Well, I am a general partner of a small fund that invests in Japan. And we visit companies and we appraise managements and we buy things for their value. And we have about 25 positions of companies, many of which are selling for less than the net current assets, meaning that they're scarcely valued higher than their, the cash in their bank accounts.

KANGAS: Can you name a few of these stocks?

GRANT: Oh, I can, indeed. Most of them are so small, their market cap is typically $100 million or $200 million. So if you like I can name them. Central Uni is one. There's a terrific jeweler, or retailer of jewelry called Jewel Verite, which is selling below its net current assets.

KANGAS: But you see nothing like that over here on this side of the Pacific?

GRANT: Well, there are some, and this is not all one monolithic stock market. There are plenty of things to do in this market, both long and short. It's a great time for securities analysis, an art that was all but out of fashion during the great momentum boom.

KANGAS: So, a Graham Dodd man you are.

GRANT: I am, indeed, Paul.

KANGAS: Thank you very much, Jim. It's pleasure to see you.

GRANT: A pleasure. Thank you, Paul.

KANGAS: My guest market monitor, James Grant, Editor of "Grant's Interest Rate Observer."

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.

11/02/01: Paul Kangas' Wall Street Wrap Up

PAUL KANGAS: The stock market showed just a modestly negative knee-jerk reaction to the big jump in unemployment as the Dow Industrial Average fell only 50 points at the outset of trading while the NASDAQ Index lost just 12 points before buyers came off the sidelines, apparently in the belief that this week's barrage of bad economic reports might be as bad as it's going to get. This resilience built up a lot of bullish enthusiasm throughout the morning and into the noon hour and strong gains by the stocks of CIGNA (CI) and Computer Sciences (CSC) on better than expected earnings also helped the mood. At 1:00 p.m., the Dow was up 77 points. NASDAQ posted an 11-point gain. The market went into a slow weakening phase for the rest of the session, slightly undermined by normal preweekend precautionary selling. The Dow Industrial Average came in with a closing gain of 59.64 at 9323.54. This week, the Dow fell three times, rose twice, at a net loss of 221.63 points. That's 2.3 percent. The NASDAQ Index came in with a loss of only 0.57 at 1745.73. And this week the Composite fell three times and rose twice, just like the Dow at a net overall decline of 23.23 points; that's 1.3 percent.

Big board volume faded a little bit from yesterday to 1.18 billion shares and just a little bit more up volume than down volume, not too impressive.

The Dow Transport Index was up 13 2/3 points.

Utility Index fell nearly 5 1/2.

And the Closing Tick practically neutral at +73.

A 3 1/10 point rise in the Standard & Poor's 500.

The 100 up exactly 1 3/4 points.

MidCap 400 dropped exactly 1 1/4 points.

And a loss of just over a point in the Bridge Futures Price Index.

A gain of 1.64 in the New York Composite Index.

Value Line down .13.

Russell2000 Small Cap Index off 1.81.

Broadly based Wilshire 5000 losing nearly 16 1/4 points.

The bond market moved broadly lower today as the big jump in unemployment was apparently already discounted by the huge rally of the previous several days.

A decidedly weak US dollar was another factor which triggered a lot of profit-taking and that resulted in 3/8 point losses on average for tax-frees. A full point decline in most corporate issues and the Treasury market fell sharply across the board.

5-year notes down 12/32.

10-year note down 1 2/32.

And the 30-year bond fell 2 17/32.

Lehman Brothers Long-Term Treasury Bond Index off a little over 31 1/4 points.

A slightly positive close today, but the Dow, which was up nearly 60 points on the day, still down 221 for the week. But the broader market higher today by 59 issues, 1570 versus 1511. 83 new yearly highs, 51 new lows.

Enron (ENE) topped the active list on 20.4 million shares, losing $0.72. Standard & Poor's today cut debt ratings, although the company did secure a new $1 billion line of credit.

AT&T (T) moved up $0.63.

Qwest Communications (Q) down $0.03. It reported a loss earlier in the week.

EMC (EMC) a $0.05 gain.

Providian Financial (PVN) down $0.61. Moody's cut some of its debt ratings from BA1 to BA3.

Compaq Computer (CPQ) dropped $0.04 after Merrill Lynch downgraded it from "accumulate" to "near term neutral."

AOL Time Warner (AOL) a $0.63 loss there.

General Electric (GE) up $0.05.

Lucent Technologies (LU) gained $0.12.

Tenth in volume, Advanced Micro Devices (AMD) gained $0.75.

Computer Associates (CA) fell $1.03. Morgan Stanley downgraded the stock today from "outperform" to just "neutral."

Eastman Kodak (EK) losing $2.15. For the first time since the Great Depression the company's employees may not get an annual bonus. Last year the company paid out $55 million.

Home Depot (HD) up $1.92 in anticipation of more interest rate cuts next week. That's good for companies like that.

John Hancock (JHF) was up $1.86. After the close yesterday, third quarter earnings higher, $0.67 versus $0.57 the year before.

Revenues up 2.6 percent. Today, Morgan Stanley upgraded it from "neutral" to "outperform."

Navistar International (NAV) gained $3.14. J.P. Morgan added this stock to its focus list on Wednesday and the company said it's going to meet next week with analysts.

And finally, Northrop Grumman (NOC) up $0.21. But after the market close, the Department of Justice has cleared the way effectively for the company's proposed acquisition of Newport News Shipbuilding (NNS).

Computer Sciences (CSC) up $6.14, the big percentage gainer of the day. Second quarter earnings better than expected at $0.40 a share and the company sees third quarter coming in in the high 40s or the low 50s range.

CIGNA (CI), the big insurance company, up $8.29. Third quarter operating earnings out today, $1.83. The Street estimate was only $1.58 and Prudential Securities upgraded it from "hold" to "buy."

Global Power Equipment (GEG) gained $1.15. Last Monday the company reported third quarter revenues up 80 percent and profits up 88 percent. Raymond James Financial today repeated a "strong buy" on the stock.

Nisource (NI), this is an electric utility serving northern Indiana. Yesterday late the company had a third quarter loss of $0.10 versus earnings the year before and today Bank America, Goldman Sachs, Merrill Lynch all downgraded the stock.

Pogo Producing (PPP) dropping $2.11. A 6.1 million share block of common stock was sold at $25.50 today by Norrick Corporation .

Keithley Instruments (KEI) down $1.20. Fourth quarter earnings out, only $0.08 versus $0.40 last year. Revenues tumbled 40 percent.

Standard & Poor's downgraded Keithley from "accumulate" to "hold."

NASDAQ trading, a loss of .57 today, hardly any change at all. Volume slackened off a bit from yesterday. For every 16 stocks higher, nearly 19 lower.

Microsoft (MSFT) topped the active list, closing down $0.44. But earlier in the day it traded as high as $63.02.

Intel (INTC) off, or up $0.36.

Followed by Cisco (CSCO), which lost $0.40.

And then Sun Microsystems (SUNW), a gain of $0.60.

Juni