11/09/01: Dynegy's $8B Enron Deal

PAUL KANGAS: A late-breaking story is making news tonight. Just moments ago, Texas-based Dynegy announced it had almost an $8 billion deal to buy Enron. The combined company will keep the Dynegy name, be headquartered in Houston, and will be run by Dynegy's current Chairman and CEO Chuck Watson. This ends a tough few months for Enron, one of the world's largest energy trading companies. It has been plagued by a flood of credit downgrades, management turmoil, an SEC investigation and a huge slide in its stock price. Dynergy says the merger will strength the value of its core businesses, uniting the two firm's global energy delivery networks and strong marketing. The companies are holding a news conference at this hour in Texas. We'll pass along further details in this new cast if we get them.

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.

11/09/01: The PPI's Report Is Negative But Not Wall Street's Reaction

SUSIE GHARIB: Well Wall Street ended the week on the plus side. The Dow rose 20 points and the NASDAQ inched up a fraction. Stocks rose despite some surprising economic news this morning. Wholesale prices posted their biggest one-month drop on record, a sign that inflation is almost non-existent. Erika Miller reports on the reasons why.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: From corn, to paper, to women's clothing, producer prices fell almost across the board last month. But it was the more than 20 percent decline in gasoline prices that really raised eyebrows.

MICKEY LEVY, CHIEF ECONOMIST, BANC OF AMERICA: If you look carefully at today's PPI report, what really stands out is the just very sharp declines in energy prices. And we should all be grateful that oil and energy prices have fallen sharply since September 11th.

MILLER: Wholesale inflation fell 1.6 percent last month, the biggest drop on record, and four times more than forecast. Even excluding energy and food, the core rate slid 0.5 percent, a bigger than expected decline. Almost all of the drop in core inflation was due to a 5 percent dip in auto prices, the result of 0 percent financing by major auto makers. Today's low inflation readings triggered fears of deflation, an extended period of widespread price declines and something the US hasn't seen since the great depression of the 1930s. But many economists say deflation is unlikely today.

LEVY: That's not in the cards. That would occur when there's a sustained period of insufficient demand. And while you've had a slowdown in demand, current dollar spending is still growing.

MILLER: Experts say today's report gives the Fed more room to cut interest rates in an effort to lift the country out of its economic slump.

WILLIAM DUDLEY, CHIEF US ECONOMIST, GOLDMAN SACHS: It's telling us what we already know: that there really is no goods inflation, that this is one reason why the Fed can be very aggressive about easing monetary policy because there's not a big inflation risk.

MILLER: The government's report on October consumer prices is due out next Friday. But experts say it will probably won't show as big a decline as today's report. For one thing, the consumer price index factors in changes in the cost of services, something the producer price index does not. 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.

11/09/01: The Outlook On The Economy From Lawrence Lindsey, National Economic Council Director

SUSIE GHARIB: The White House is welcoming that news of consumer confidence moving higher in November. Lawrence Lindsey, assistant to the president for economic policy, says it might be a sign that the worst of the economic impact of September 11th is behind us. Washington bureau chief Darren Gersh sat down with Lindsey today and asked for his read on the economy.

LAWRENCE LINDSEY, DIRECTOR, NATIONAL ECONOMIC COUNCIL: The good news was that if we hadn't had September 11, it's quite clear the economy would have avoided a recession, the third quarter would have been positive and that would have signaled that the monetary and particularly the fiscal policies that we undertook earlier this year worked. 9-11, of course, well, really was quite a knock for the economy. We are still evaluating how much lower economic activity will be as a result of that.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, let me ask you about today's PPI report. That was off 1.6 percent and there are some people who are saying maybe that's a whiff of deflation. What do you think of that?

LINDSEY: Well, technically it is. But, of course, what deflation, when deflation really matters is if people hold back because they think prices will be falling for the indefinite future, and I don't think we're there now. I don't think that most people are, view us in a deflationary environment.

GERSH: Consumer confidence didn't go down, it sort of trended up, just eked out a small gain. Is that an encouraging sign? Do you make much out of that?

LINDSEY: Well, I think it is. It's a positive sign. It's a sign that perhaps the decline that occurred as a result of 9-11 has stopped. Now we've got to get the economy revved and growing again. But it might signal that, indeed, things are not getting worse off.

GERSH: Well, let's talk about that, the stimulus package. There are some predictions that we're not going to see that until Christmas. If that happens and it doesn't pass till Christmas, will the package be less effective?

LINDSEY: Well, I think that we need to restore confidence in the U.S. economy and particularly get it past early so that businesses that are now doing their planning for spending next year, their investment planning, can take it into consideration.

GERSH: I think most political analysts still think that the stimulus is going to pass, but I've seen some people who are, say the odds are no better than 50-50. What odds are you giving it?

LINDSEY: Well, there's some concern that it's unclear what the leadership on the other party in the Senate, whether they really want a stimulus package. After all, the president went out there six weeks ago calling for higher unemployment benefits and job creation. The House passed a bill two weeks later. We've been waiting for the Senate to act. And what they marked up this week, you know, most people wouldn't take it seriously. This is an emergency measure, but there's money in there for bison meat, there's money in there to-yes, well, we had the Majority Leader, Mr. Daschle, yesterday saying that cleaning up animal wastes was an important national priority. Animal wastes are with us all the time, I'm sorry to say and we don't need that as part of a stimulus package.

GERSH: But the central argument that Democrats make is that the Republican plan focuses on corporate tax cuts, incentives to business, tax cuts for well off people who tend to save it or invest it, and that the problem in the economy is demand, a lack of demand, and that if you want to stimulate demand, you should target it towards low income and moderate income people, like the Democrats say they're doing.

LINDSEY: Well, let's look at both sides. I agree that it's lack of demand. What's been falling is capital expenditures. That's investment demand. And our package is designed to stimulate increased investment by corporations and by partnerships and proprietorships that are taxed under the individual rate. That's what we're trying to do. Now, what the Democrats are proposing to do is the biggest entitlement expansion that we've seen probably in 30 years. It would permanently raise the unemployment rate by discouraging people from returning to work. The Council of Economic Advisors here has estimated that there would be 800,000 more people unemployed if the Democrats' plan passed.

GERSH: If the economy is still struggling six months from now, would the White House consider another stimulus effort?

LINDSEY: We are determined to do whatever it takes to make sure Osama bin Laden does not win on the domestic front. And one of the wars on the domestic front is our economy. He's, you know, he hates our prosperity. He is trying to destroy it. And we are determined that he will not have his way. The best way to do that is to get the President's proposal through, stimulate the economy now and we'll revisit it in six months if more is needed.

GERSH: Thank you very much.

LINDSEY: 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.

11/09/01: Market Monitor-Frank Cochrane,President of Investment Timing Consultants

PAUL KANGAS: My guest market monitor this week is Frank Cochrane, the President of Investment Timing Consultants, an investment advisory firm based in Farmington Hills, Michigan. And welcome back, Frank.

FRANK COCHRANE, PRESIDENT, INVESTMENT TIMING CONSULTANTS: Thank you very much, Paul. It's great to be here.

KANGAS: You know, Wall Street had a rather muted reaction, it was somewhat positive, but it was all about the big decline in wholesale prices, not a real rally on that at all. Do you think there's some concern that the economy might be heading for a deflationary recession?

COCHRANE: Well, if you look at the stock market, I would say no. However, I think that concern we'll rule out some time next year and that prices will start deflating, and they've started already, and I think we'll see a continuation of that going well into next year and into '03. So it's certainly a concern of mine and I think the stock market rate here has provided one of the great levitation acts, especially over the past six weeks.

KANGAS: Well, on your last visit with us back on June 1 when the Dow was at 11,000, you were decidedly bearish and correctly so. So has the stock market's subsequent decline made you any more positive now? It doesn't sound like it.

COCHRANE: No. In fact, I think that this is one of these times when the market has given us another reason to sell, an opportunity here to sell into this. If I look at the market over the, say, the next three, six, 12 months, I think very possibly through the end of this you're going to see stocks move considerably lower. You may have a rally next week but I'm saying in December especially when people realize the losses that they have, I mean-

KANGAS: Give us a down side estimate of where you think the Dow could go.

COCHRANE: Well, a year out, some time within the fourth quarter of '02, I would say that the Dow could be around the 5,500 level, the S&P 500 around 500, 600 and the NASDAQ Composite somewhere in the 600 to 800 level. If we look at historical valuations with respect to P/E multiples on the S&P 500, we're trading right now somewhere, if you believe the numbers, somewhere around 36, 37, and an overvaluation is 20. And that puts the S&P around 750. A fair value would be at 550 at 15 P/E and an under value would be at 10, and that would be right around 400 on the S&P 500. so right now obviously trading at the 1,100 and change level, the S&P 500 is very, very over valued, as is the Dow Industrials and the NASDAQ.

KANGAS: You're even more bearish now than you were back in June. But so what do you do? What's your strategy here? The last time in June you told us strictly quick trades. You liked K Mart (KM) at $11, it went to $13, it's down to $6.61. Compuware (CPWR) at $11, went to $14, it's now down around $10. Advanced Magnetics (AVM) $32, went to $36, now down to $30. And Beckton Deckinson, was at $34, it went to $38, now $33. they're all lower, but they did go higher. I hope you got out.

COCHRANE: Oh, absolutely. Those, again, this is the type of market where it's Jack be nimble. You've got to get in and get out. You have to be almost in the dry cleaning business, in by nine and out by five. And I'm not saying that people should still day trade, but what I am saying is this, is that when you realize a profit in a stock, if you want to hold stocks at these levels, you get in, you get out, you recognize things that are, in your opinion, under valued or perhaps technically over sold, and then on that basis maybe see a rally and then get out from there. I'm expecting the fourth quarter this year to end near or at the lows for the year and then I think the first quarter of next year, though, you could see some-a pretty good rally some time within the first quarter. However, that will be another market to sell into.

KANGAS: All right. So strictly just, you know, quick rallies in an overall bear market is what you're saying?

COCHRANE: Yes, and I think that this will continue, as I said, for the next year. We're going to stair step lower and continue to do so over the next 12 months.

KANGAS: OK, give as you couple of ideas about a quick trade, in and out for, what, 10 or 15 percent.

COCHRANE: Well, certainly-

KANGAS: We just have a minute.

COCHRANE: Certainly you could look at some of the stocks in the technology group, whether it's Dell (DELL), Cisco (CSCO), Intel (INTC). If you want something that is in the defense industry, you could look at Northrop (NOC). UTX (UTX), you could look at J&J (JNJ). I would stay with primarily defensive issues because I think what's going to happen is people will get in situations and then they'll find they're down, as most people have nowadays, then they say well, hell-excuse me-I can't sell now. And the bottom line is the, they can't sell now because they feel that it's going to come back. Well, that's not going to be the case. I think that the type of rallies that we see now, stocks come down from $50 down to $10, they rally up to $15 and people say well, I'm up, you know, 50 percent. Those stocks conceivably go back down to $10 or $5 a share.

KANGAS: I've got you. A quick in and out and that's it, and the rest of the time in money market funds?

COCHRANE: Yes, sir. Absolutely.

KANGAS: Thanks, Frank.

COCHRANE: Thank you very much, Paul.

KANGAS: Great to see you again. Frank Cochrane, the President of Investment Timing Consultants.

11/09/01: Paul Kangas' Wall Street Wrap Up

PAUL KANGAS: The stock market's knee-jerk reaction to the big drop in producer prices was negative because, as we said, it raised concerns about deflation. In any case, the Dow Industrial Average fell 43 points by 10:00 a.m today. That more than wiped out yesterday's 33-point closing gain and the NASDAQ Index posted a 13-point loss on top of yesterday's 9 ¾ point deficit. After a weak reflex rally failed, the market began trading in a very narrow range in slightly lower ground. An earnings warning and over a $3 a share drop in Heinz (HNZ) stock put investors in a cautious mood as did yesterday's post market report of sharply lower earnings from Disney (DIS). Halfway through the noon hour, the Dow was still down 17 points. NASDAQ Index was off about 5. The market firmed up in mid-afternoon as some investors seemed heartened by some good news on the war in Afghanistan where Northern Alliance troops reportedly made a major breakthrough. The Dow Industrial Average went on to close with a gain of 20.48 points at 9608 even. This week the Dow rose in four out of five sessions, had a net overall advance of 284.46 points. That's 3.1 percent. Today the NASDAQ Composite eked out a gain of only 0.71 putting it at 1828.48. This week it, too, rose in four out of five sessions for a net overall gain of 82 3/4 points or 4 1/2 percent.

Big board volume a little on the slack side, 1.1 billion shares, well down from yesterday and looks like about 43 more million shares of up volume than down volume.

The Dow Transport Index down .29.

Utilities moved up 1.48.

The Closing Tick modestly bullish +484.

Standard & Poor's 500 up just over 1 3/4 points.

About a 1 1/3 point rise in the 100.

MidCap 400 edged up .16.

Bridge Futures Price Index gained 1.42.

A gain of just over 1/2 point in the New York Composite.

Jut a small gain of .06 in the Value Line.

Russell2000 down nearly a point.

And the Wilshire 5000 gained 6.88.

The bond market edged lower today, showing little positive reaction to that drop in wholesale prices which had already apparently been discounted. Meanwhile, an unexpected rise in the University of Michigan's November consumer sentiment index prompted some selling as did the early 2:00 p.m. close of trading ahead of the Monday Veterans Day holiday for the bond market, but not for the stock market.

Tax-free and corporates fell about an 1/8 point on average and the Treasury market closed slightly lower, too.

A drop of 4/32 in the 5-year note.

The 10-year note dropping 6/32.

The 30-year bond fell 8/32.

And the Lehman Brothers Long-Term Treasury Bond Index managed to gain .11.

Another lackluster day on Wall Street, but a pretty decent week overall. The Dow Industrial Average up 20 ½ today, but as we mentioned, about a 284 point rise for the week. About 16 to 15 advances over decliners, 73 new yearly highs, 29 new lows.

Enron (ENE) topped the active list on 48.6 million shares, edging up $0.22. And now it looks like Dynegy's (DYN) buyout bid is worth a little bit less than $10.50 a share for Enron shareholders, but that's a nice 20 percent premium over this closing price.

Compaq Computer (CPQ) down $0.26 a share.

Lucent Technologies (LU) edged up $0.04.

EMC (EMC) a rise of $0.51.

And Corning (GLW) down $0.16. It's still in the midst of a $600 million convertible bond offering.

AOL Time Warner (AOL) edged up $0.65.

Boeing's (BA) stock was down $1.66. SAS Airlines has apparently grounded all of its MV-80s after discovering a landing gear crack in one of those planes.

Dynegy (DYN) itself up $2.26. Very little after hours trading because the deal was announced so long after the closing bell.

The NASDAQ Cubes (QQQ) were down $0.02.

And Disney (DIS) managed to gain $0.11 despite yesterday's disappointing earnings.

Amerada Hess (AHC) up $2.71. A lot of the oils firm on reports Saudi Arabia may cut production more sharply than expected.

Ace Limited (ACE) down $1.54.

And Chubb (CB) down $3.75. Both stocks downgraded by Morgan Stanley from "outperform" to "neutral."

Genentech (DNA), however, moved up $3.33. The board of directors has approved a $625 million stock buyback over the next year.

Also, CIBC World Markets Brokerage repeated a "strong buy" on Genentech. HJ Heinz (HNZ) stock down $2.80. Of course, the company sees lower than expected second quarter earnings, in the range of $0.59 to $0.60 a share.

Hewlett-Packard (HWP) edged up $0.64. The company said it's postponing a December scheduled meeting with analysts and will put it off until early next year.

Sulzer Medica ADS (SM) up $0.94, the best percentage gainer of the day. The company is confident it will reach a fair and equitable settlement in or out of court regarding its problematic hip implants.

Value City Department Stores (VCD) stock up $1.08. Yesterday, the company reported a very respectable three percent increase in October same store sales.

Royal PTT Netherlands (KPN), this is a telecom company over there, and it was the biggest percentage loser. The chief executive officer cut revenue growth targets by 10 to 15 percent over the next few years.

Health Net (HNT) down $2.98. The company's third quarter, including restructuring charge, only $0.02 a share, down from $0.36 a year ago.

Fleming Companies (FLM) down $2.35. A spokesperson said the stock has recently been plagued by short selling. He said no corporate developments today to account for it.

And Stillwater Mining (SWC) down $1.34. The Nesbitt Brokerage, I believe that's up in Canada, downgraded it from "market outperformer" to just a "market performer."

NASDAQ trading edged up .71 today, but a 82 ¾ point gain for the week. Volume way down to 1 1/2 billion shares. About 17 stocks up for about 18 down.

Microsoft (MSFT) edged up .79, or $0.79, that is.

Cisco (CSCO) an $0.11 gain.

Intel (INTC) down $0.40.

NVIDIA (NVDA), which after the close yesterday reported better than expected earnings, up $3.45.

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