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LOU DOBBS MONEYLINE
Jeffords Blasts Democrats Back to Senate Dominance; Impact on Politics, Economics, Investments
Aired May 24, 2001 - 18:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEO CLIP)
SEN. JIM JEFFORDS (R), VERMONT: In order to represent my state of Vermont my own conscious and principles I have stood for my whole life, I will leave the Republican party and become an independent.
(END VIDEO CLIP)
LOU DOBBS, HOST: Jim Jeffords' declaration of independence today single-handedly blasting the Democrats back to Senate dominance. One of the beneficiaries of the Jeffords decision joins tonight: Democratic Senator Kent Conrad, who will soon take charge of the Budget Committee.
On Wall Street stocks advance, but not by much. All ears on Greenspan, awaiting his speech just hours from now. And Echostar tries to push Rupert Murdoch out of orbit.
Good evening. Our top story tonight: Jim Jeffords shakes the political establishment to its core. The senator this morning confirmed that he would switch his affiliation from Republican to independent. This is how he explained his decision, which will allow Democrats to take control of the Senate for the first time in seven years.
(BEGIN VIDEO CLIP)
JEFFORDS: Looking ahead I can see more and more instances where I will disagree with the president on very fundamental issues: The issues of choice, the direction of the judiciary, tax and spending decisions, missile defense, energy, and the environment, and a host of other issues large and small.
(END VIDEO CLIP)
DOBBS: The impact of the Jeffords decision: Senate Republicans lose their status as the majority, and Mr. Bush faces a bitter disappointment. He was the first Republican president since Eisenhower to have his party control both the House and Senate. And now that rare advantage has been lost.
Tonight we will cover this profound power shift and impact on everything from politics to economics to investments. Our live coverage begins at the White House with John King and the president's reaction --John.
JOHN KING, CNN WHITE HOUSE CORRESPONDENT: Well, Lou, the president looking both forward and back today. A short time ago he had a 10-minute telephone conversation, with the man who will soon be the Senate majority leader, Democrat Tom Daschle. On both ends of Pennsylvania Avenue, sources saying it was a cordial conversation. Both men promising to work with each other, both men also know some very difficult fights ahead.
Major differences between this president and the Democrats over health care, over the coming debate over military reform, Social Security and Medicare. Looking back, the president today was in Cleveland when the Jeffords decision was making waves here in Washington.
Mr. Bush taking issue with what the senator said. Mr. Jeffords saying he felt uncomfortable in the Republican Party, now that Mr. Bush was president. Making the suggestion that Mr. Bush was not being as bipartisan as he had promised to be when he was running for president. Mr. Bush said that is simply not so.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our agenda for reforming America's public schools and providing tax relief for every taxpayer represents the hopes and dreams of Main Street America. Our agenda for reforming our military and modernizing our military to defend America and our allies, represents the best hope for peace.
(END VIDEO CLIP)
KING: Behind scenes here though, Lou, they are recalibrating their legislative strategy. As you mentioned, no longer a Republican Congress ready to promote this president's agenda. They realize a very different Washington awaits when Tom Daschle takes that gavel becomes the Senate majority leader -- Lou.
DOBBS: John, thank you very much. John King from the White House.
It would be hard to overstate just how dramatic the Jeffords' decision is. Never before in our history has the party controlling the Senate switched by means other than an election. Today, the leadership of both parties responded to the Jeffords switch as they began drawing up new battle plans.
Jonathan Karl is on Capitol Hill and has the report -- Jonathan.
JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT: Democratic leader and soon to be majority leader, Tom Daschle, said that he will reach down Pennsylvania Avenue and work with the Republican president, but Democrats up here on Capitol Hill are also saying that as the Democrats take control of the Senate, many items on president's agenda list will be put on the back burner as the Democrats pursue their own agenda here in the Senate.
(BEGIN VIDEOTAPE)
KARL (voice-over): He'll soon be the new boss, but Tom Daschle confronts an old problem: He leads a restive and often divided Democratic caucus. That will have a razor-thin majority.
SEN. TOM DASCHLE (D-SD), MINORITY LEADER: What does not change with this new balance of power is the need for principled compromise. This is still one of the most closely-divided Senates in all of our history.
KARL: Meanwhile, Republicans like Arlen Specter watched gloomily as Jeffords slipped away, taking their power with him.
SEN. ARLEN SPECTER (R), PENNSYLVANIA: I had hoped that he would've made a different decision and that he would've given the Republican Party a shot across the bow, but instead, it's a shot in the bow.
KARL: Immediately following Jeffords' announcement, Republicans huddled in a closed-door meeting to assess the damage.
SEN. DON NICKLES (R-OK), ASSISTANT MAJORITY LEADER: I think we had a real vetting of emotions. A lot of people are very, kind of, shell-shocked at the change. This is a major change, and it has significant ramifications on a lot of individuals.
KARL: According to sources at the meeting, a parade of G.O.P. Senators, including Arlen Specter, Olympia Snowe and Pete Domenici, stood up to demand a reassessment of the party's strategy. Several said the party leadership has neglected moderates like Jeffords.
Senator John McCain was more blunt, releasing a statement saying of Jeffords -- quote -- "For his votes of conscience, he was unfairly targeted for abuse, usually anonymously, by short-sighted party operatives. Tolerance of dissent is the hallmark of a mature party, and it is well past time for the Republican Party to grow up."
(END VIDEOTAPE)
KARL: Senator Jeffords has written Trent Lott and Tom Daschle, telling them that his decision to leave the Republican Party will not become effective until after Congress completes its work on that $1.35 trillion tax cut that they are still working on as we speak, or on June 5, whichever date comes first.
So when that happens, when the Congress finally finishes work on that tax cut, sends it for the president to sign, Jim Jeffords will become an independent and the Democrats will take over the Senate and all of its committees -- Lou.
DOBBS: John, thank you very much. Jonathan Karl reporting from Capitol Hill.
Jim Jeffords' decision to leave the Republican Party has catapulted a new team of senators into seats of power, from the Senate Banking Committee to commerce to health. Tim O'Brien has the report. (BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice-over): Few viewers may have found Jeffords' announcement more engrossing than Ted Kennedy, who, as a result, takes over the Health, Education and Labor Committee. He still may not have the votes for his pet project, a patient's bill of rights, but...
SEN. EDWARD KENNEDY (D), MASSACHUSETTS: The fact is, we can bring these issues up, you can have the debate on the floor of the United States Senate, you can get the focus of the American people on these issues, and to that extent, moving policy on it.
O'BRIEN: Democrats were not happy with the president's energy program, unveiled last week. And some analysts feel the parts that need Congressional approval may now have an uphill fight.
JOE LEIBER, WASHINGTON ANALYSIS: Unless there is an agreement on wholesale price caps, I think the chances for a comprehensive bill getting through are probably much lower than 50 percent.
O'BRIEN: And the Energy Committee's new chairman hinted the president's plan to explore for oil in Alaska's National Wildlife Refuge is all but dead.
SEN. JEFF BINGAMAN (D), NEW MEXICO: I know that the president has urged that on the Congress and there are many members who support it, but a majority do not support it.
O'BRIEN: Perhaps the greatest long-range impact of the Jeffords switch is that it may give the Senate Judiciary Committee veto power over President Bush's judicial appointments.
SEN. CHARLES SCHUMER (D), NEW YORK: We will not have nominations of right wing, after right wing, after right wing judges. Judges will have to be moderate. The president will get some he wants, we will get some we want.
O'BRIEN: It remains to be seen whether divided government will alleviate gridlock on Capitol Hill or aggravate it. But compromise may now be essential to accomplish anything of significance.
(END VIDEOTAPE)
O'BRIEN: Republicans also have to look to next year's off-year elections, when the party that occupies the White House usually loses seats. And the Republicans do have more seats up for grabs in the Senate than do the Democrats. So while today was not a good day for the Republicans, it could get worse. And the time to move forward might be right now -- Lou.
DOBBS: Tim, thank you very much. Tim O'Brien.
Well, on Wall Street today, drug stocks retreated again. The Senate shift raises the prospect of health care reform, and greater scrutiny of the industry according to some analysts. But overall, the market today gained. Pundits who blamed yesterday's selloff on the Jeffords switch, clearly overstating investor concern, at least today.
The Dow gained nearly 17 points, closing at 11,122. A more impressive session for the Nasdaq, where the composite jumped nearly 2 percent. Its seventh winning session out of the past eight, much more on the markets later here in the program of course, and we'll have a preview of Alan Greenspan's speech tonight.
Well, up next here, Jim Jeffords' decision setting off a cascade of changes in committee leadership. I'll be talking with one man in line for a top spot: Senator Kent Conrad, set to take control of the Senate Budget Committee.
It's been one of the most resilient parts of the economy, but is the housing market now succumbing to a slowdown? And, a special report on what it really means when an analyst says, "buy." The massive conflict of interest on Wall Street. That report coming up. Stay with us.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: The fact that he changed his affiliation will have an obvious impact upon the Congress. Now, I have seen many party switches since I've been in the Congress. But none has had the impact that the Jeffords switch will have.
(END VIDEO CLIP)
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UNIDENTIFIED MALE: I think that the Senate is still going to be obviously very close. I think that the idea is to try and find ways to get results in a bipartisan fashion.
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UNIDENTIFIED MALE: At the national level I'm thinking of people like Trent Lott. Jeffords' decision means that Trent Lott loses his position as majority leader. They have been part of a singing quartet. I'm not so sure the singing quartet is going to survive this.
(END VIDEO CLIP)
DOBBS: Well, from Washington now, we're joined by one senator who stands to become the chairman of the Senate Budget Committee when the Democrats take control of the Senate, Senator Kent Conrad from North Dakota. Senator, good to have you with us.
SEN. KENT CONRAD (D), NORTH DAKOTA: Good to be with you, Lou.
DOBBS: This has been reported as a great shock to the Republicans, and to the Bush Administration. Just how long have the Democrats been working on the Jeffords switch?
CONRAD: Really, I think it has been more a matter of Senator Jeffords being more and more alienated from his party and I think the precipitating moment was when the conference report on the budget came back, and had taken out all of the new resources for education.
That was a bitter disappointment to Jim Jeffords, who is passionately committed to improving education.
DOBBS: And in terms of the Democratic Party itself, you obviously are prepared, you're organized to take control of the committee chairmanships, and your colleague, Tom Daschle, ready to take over the majority leader. What will be the first, in your judgment, the first profound difference we'll notice in the Senate in terms of what is actually done there? .
CONRAD: Really, I don't think you will see a profound difference in what is done. You will see new committee chairman. That means we will control the agenda, but I don't think it will be as profound a difference as some are expecting, because you still have a very closely divided Senate.
The agenda will be to complete the education bill and then go perhaps to the patients' bill of rights. As you know the tax bill will have to be completed. That is part of a commitment that Senator Jeffords apparently made to the president.
DOBBS: Right. And in terms, of -- going forward in terms of the budget, obviously, this will not have a tremendous effect. I probably shouldn't say obviously. I would suspect it does not, for the current fiscal year, but certainly will have, I would think, for the succeeding year. Is that correct?
CONRAD: Well, I can tell you my top priority is to maintain fiscal responsibility. I think it's critically important that we continue the high priority of paying down this national debt, because we have surpluses now, but we all know what's going to happen when the baby boomers start to retire in 11 years. So, it is critically important that we stay on path of fiscal responsibility and fiscal restraint.
DOBBS: Is it your sense of things that the Bush agenda has suffered a major setback, no question about the profound nature of this shift, but is this a profound setback for the Bush administration in terms of its agenda?
CONRAD: You know, it is a setback, clearly. I'm not certain how profound it is in the sense that you still have to vote. At the end of the day, who controls the votes is who wins. And there has really not been a change in the makeup of the Senate in terms of a vote total. So, clearly Democrats are now able to control the agenda and the timing of things, but I don't think this is going to be as profound a shift as some people may expect.
DOBBS: Senator Conrad, thanks very much for joining us here.
CONRAD: Good be with you.
DOBBS: Well, for more on the Jeffords's decision and what it means for policy going forward, the impact on everything in terms of economics and markets, and business, and, of course, politics, we are joined tonight by three guests in Washington: Stephen Moore of the Club For Growth, which supports limited government and lower taxes, and Greg Valliere of Charles Schwab's Washington Research Group. And here in New York, we're joined by former Republican presidential candidate and Forbes president and editor in chief, Steve Forbes.
Good to have you all with us.
If I may, Stephen, begin with you. This -- your judgment -- what will be the impact of this change that we witnessed today?
STEPHEN MOORE, CLUB FOR GROWTH: Lou, great to have you back on the show. We missed you. You know, I think this is not the major political setback that you were suggesting it might be to Kent Conrad. In fact, the fact is that Jim Jeffords voted like a Democrat almost his entire career, so this sort of just makes official what de facto had been case for the last six months, which is that the Democrats really did have functional control of the Senate.
So I don't see this as a major setback. If anything, I see the Republicans now maybe fighting a little bit harder for their agenda, and fighting a little bit harder in 2002, to take back the Senate.
DOBBS: Shared power as a result of the Jeffords decision, but you are also suggesting shared responsibility, too.
MOORE: I think that is right. In fact conservatives have been a little bit frustrated with the pace of progress, saying look, you control the House the Senate the White House, why aren't the Republicans doing more, and the fact is they really haven't had control of the Senate. I think this really makes that very clear to people. One other thing...
DOBBS: That ambiguity is now removed.
MOORE: Exactly -- the other thing I think the Republicans do have a chance of reaching out to the people like Zell Miller and creating a kind of functional majority, on their side now, and I think they will reach out more to the Zell Millers and Ben Nelsons now.
DOBBS: Greg, your view?
GREG VALLIERE, SCHWAB WASHINGTON RESEARCH GROUP: Well, my view, Lou, to be a little bit contrarian is that is very minimal in terms of an impact on the financial markets. As we saw today, the markets, I think, brushed it off. This idea yesterday, that Ted Kennedy somehow could hurt the drug stocks, the last time I checked....
(LAUGHTER)
VALLIERE: The last time I checked, Tom DeLay and Denny Hastert were in control of the house, and I think you my get some gridlock, but I think in late 90s for the markets, gridlock was not a bad scenario.
DOBBS: Well, you know, Greg, many of the wags had it yesterday that the markets were in decline because of the uncertainty created by this power shift. You're suggesting all is normal and well?
VALLIERE: Well, the only negative to me, Lou, is that Robert Byrd will now be chairman of Appropriations Committee.
(LAUGHTER)
VALLIERE: That is like having a rabbit in charge of the lettuce. And they could spend a little more money. That would worry me a bit.
MOORE: Ted Stephens was a pretty big spender, too.
DOBBS: But good guys all, of course. And Steve Forbes is not one to look at that lettuce and allow a rabbit near it without some trepidation. Steve, your take on all of this?
STEVE FORBES, PRES. & CEO, FORBES: I think it is a real wake-up call to the White House that they have to do far more to take their case to the country, rather than to the politicians on Capitol Hill. They allowed the Capitol Hill politicians to, I think, water down the tax bill. It's a very weak tax bill right now. I hope they use this opportunity to make the case, to add some muscle on new tax cuts in future.
DOBBS: Those tax cuts dear to your heart looking at a $1.35 trillion tax cut that Bush Administration has gotten through against all odds, up until the beginning of this year, certainly. You expect to see further tax cuts now with a House sorely divided and Democratic opposition to further tax cuts?
FORBES: I think you saw it on the vote on the death tax in the House of Representatives where 58 Democrats voted for it. I think you would have strong Democratic support for a cut in the capital gains tax, getting rid of the alternative minimum tax, and some other good things.
So if they marshal the troops I think the White House can make some real progress in the next few months.
DOBBS: Gentlemen, President Bush came into White House talking about civility, talking about setting a different tone and bipartisanship. Are we going to see a different tone? Some accuse Senator Trent Lott of great arrogance and indifference to the Democrats. Will this, in point of fact, create the reality of what President Bush was suggesting at the outset of his administration -- Stephen?
MOORE: Well, I certainly hope, Lou, that the Republicans don't retreat from their principles that won them these majorities in the House and the Senate and the White House in the first place.
Steve Forbes is exactly right. The lesson we have learned in the last couple of weeks and following this tax bill, is guess what? Tax cuts are pretty popular with people. If you look at the vote in the Senate, every vulnerable Democrat who is up for re-election in 2002 voted for the tax cut. Maybe there is some political appeal to these conservative ideas.
VALLIERE: Just one other point I would make, Lou, and that is I think the new cycle now focuses on Daschle, who has his own mavericks in his party, people like Zell Miller or even Senator Breaux from Louisiana.
It may be a little more difficult for Daschle to get what he wants, proving the old adage, be careful what you wish for.
DOBBS: Steve, in terms of -- I'm going to leave the last word to you on this -- the idea that bipartisanship is now here in full force, because the Democrats will take control of the Senate probably no later than June 5. Good thing?
FORBES: Well, I think, again, it is how you define "bipartisanship." The White House makes its case to the people, that's the best educator on Capitol Hill. If you leave it to Capitol Hill, they will just water down the education bill, the tax bill. They go to the people, like Ronald Reagan did, I think the Democrats are going to start to sound more like George Bush.
DOBBS: Well, good counsel for President Bush and for the way he should approach it. In terms of the Democrats, do you suspect that we will likely now be hearing more about Tom Daschle's arrogance and a lot less about Trent Lott's?
FORBES: Well, Tom Daschle is going to find that being in a majority means you can't go to his party members and say: "You got to do it for me." I think the Zell Millers are going to rise up and say: "If Jim Jeffords could force a change in the agenda, we can too." So, I think it would be a positive.
DOBBS: And the idea of shared power and perhaps slower legislation, for some would mean less legislation, and some gentlemen might hold that is very good for business.
FORBES: Certainly when it comes to more regulations.
DOBBS: Thank you, gentlemen, for joining us.
(CROSSTALK)
DOBBS: OK. Thank you.
Still ahead here, a wedding hall packed with hundreds of people has collapsed in Jerusalem. We'll be bringing that report to you and other developments that are coming in to CNN. We'll have more of the hour's top headlines right after this. Please stay with us.
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DOBBS: An update now on a number of stories that are developing. Police say at least 10 people are dead, hundreds of others injured after a wedding hall collapsed in Jerusalem. Police say a structural problem, not a terrorist attack, apparently caused that three-story building to collapse.
In Washington tonight, Attorney General John Ashcroft has announced the results of a review of FBI documents on the Oklahoma bombing case. The Justice Department closely checked 4,000 pages recently given to Timothy McVeigh's attorneys. Ashcroft says the review showed nothing to warrant another delay of McVeigh's execution.
And the Senate today approved, by a vote of 51 to 47, Ted Olson's nomination to become U.S. solicitor general. Some Democrats have fought this nomination, questioning Olson's ties to anti-Clinton groups.
Coming up next here on MONEYLINE, for the first time in three months, Alan Greenspan tonight offers his views on the state of the economy. His speech comes on a day we learned that housing sales suffered their biggest drop in four years. Is this sector beginning to slow down?
And will Rupert Murdoch's bid to create a global satellite network be frustrated once again?
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DOBBS: Echostar, stepping up its effort to buy larger rival Hughes Electronics. It hasn't made a formal bid for the property, which includes DirecTV, but confirms that it is lining up financing. A new buyout offer would further frustrate Rupert Murdoch's News Corporation, which has been trying to buy DirecTV to add to its global satellite network. But so far, they haven't been able to close the deal. Casey Wian has more on that story from El Segundo, California.
(BEGIN VIDEOTAPE)
CASEY WIAN, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Satellite TV giant Echostar Communications tells the Securities and Exchange Commission that General Motors, the parent of Hughes Electronics, is now willing to discuss the sale of Hughes to Echostar. It would combine Hughes' DirecTV unit, the nation's largest satellite broadcaster, with Echostar's second-ranked Dish Network. DirecTV has more than twice the Dish Network's subscribers.
Despite obvious antitrust concerns, the development raises the stakes for Rupert Murdoch's News Corporation, which for months has been trying to finalize a deal for Hughes. In fact, some speculate that Echostar's chairman Charlie Ergen is actually trying to force Murdoch to overpay, and weaken DirecTV's ability to offer expensive incentives to attract subscribers.
DAVIS KESTENBAUM, ABN AMRO: Charlie Ergen is a great poker player, and this is what he does. I think, yeah, he would love to own Hughes Electronics, that would be great, but I think that News Corp is far along in the due diligence process -- that's what all my sources at Hughes are telling me -- and I think he would want to raise the price, simply because I think he knows Rupert would get -- News Corp will get more aggressive on subscriber acquisition costs.
ROBERT KAIMOWITZ, SG COWEN SECURITIES: It's too soon to tell, but I think it would be a mistake to discount Echo star's seriousness in trying to get its hands on DirecTV. I've been aware of their intent or their desire to own DirecTV for almost 18 months now, so I think that this is for real.
WIAN: Echostar announced $1 billion debt offering this week, money analysts say could be used for a Hughes bid. Echostar declined comment beyond its SEC filing. News Corp says its negotiations with GM and Hughes are proceeding nicely.
(on camera): GM is selling Hughes to raise cash. A spokeswoman says negotiations with News Corp remain GM's priority, but added the company will consider all alternatives in the interests of shareholders.
Casey Wian, CNN Financial News, El Segundo, California.
(END VIDEOTAPE)
DOBBS: To give you an idea of the size of the satellite market: News Corp has the largest stake, some 85 million homes around the world. DirecTV has 11 million subscribers in the United States and Latin America, generating more than $7 billion in sales a year. Echostar has more than five million customers, sales of $2.7 billion.
And here's how the shares of those companies did today: Hughes Electronics rising 55 cents, Echostar and News Corp ending today's session lower.
Overall on Wall Street today, stocks modestly higher. But it was something of a listless session, and one reason: anxiety ahead of a speech from Alan Greenspan tonight. The Federal Reserve chairman less than two hours from now will be talking in New York. He's expected to discuss the overall health of the economy for the first time in nearly three months. Kitty Pilgrim reports from the New York Stock Exchange on that, and the other factors that kept investors in limbo.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): It was the perfect day not to make a decision. And a host of reasons backed up the lack of action. First, few investors make substantial bets going into the Memorial Day weekend. In addition, Fed Chairman Alan Greenspan is addressing the Economic Club in New York Thursday night.
ARTHUR CASHIN, UBS PAINEWEBBER: Unless there's some major surprise either from Greenspan tonight, or something dramatic out of the University of Michigan confidence index tomorrow, people are planning to regroup and look at things maybe as late as Wednesday of next week.
PILGRIM: A late-day buying spree did propel the Dow Industrials and the Nasdaq into positive territory, but the sudden power shift in the Senate was a tough one to sort out in terms of which stocks would benefit.
Blue chips traded in a very narrow range, and technology made modest gains in the afternoon trading. So-called Bush stocks fared badly, including drug stocks Merck, Johnson & Johnson and Pfizer. Energy stocks such as Apache and Texaco, also fell on the theory the president would have a harder time pushing his energy agenda through a Democratic-controlled Senate.
RICHARD MCCAGE, MERRILL LYNCH: The shift in the Senate might create some short-term uncertainty as to how things play out, what this means. I don't think it's going to have a major negative impact on the market, but it might be a reason that the market for a few days or a week, as the situation gets sorted out, could have an excuse to pull back or hesitate, following the recent gains.
(END VIDEOTAPE)
PILGRIM: Interest rate antennae were tuned to any mention of rate changes, but Governor Lawrence Meyer, speaking overseas, cautioned against what he called overshooting on interest rate cuts, and that caused a minor sell-off in the bond market -- Lou.
DOBBS: Kitty, thanks very much.
Investors today, anticipating an event that resists handicapping: a speech later tonight by Federal Reserve Chairman Alan Greenspan. The Fed chairman will address the Economic Club of New York, and his topic tonight, as you might suspect, the economy.
Peter Viles is here now and have a preview for us -- Pete?
PETER VILES, CNN FINANCIAL NEWS CORRESPONDENT: Lou, the stage certainly has been set for the chairman to make some news tonight, in part because, as you pointed out, it has been three months since he gave his last detailed analysis of the U.S. economy. At that time, in late February, he appeared before Congress and made some headlines by using the "R" word -- not recession, but retrenchment.
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ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: Excesses built up in 1999 and early 2000 have engendered a retrenchment that has yet to run its full course. This retrenchment has been prompt, in part because new technologies have enabled businesses to respond more rapidly to emerging excesses.
(END VIDEO CLIP)
VILES: The two big questions tonight: in Greenspan's view, is the economy nearing the end of this retrenchment? What does he say about that, and how does he answer those growing concerns that Kitty Pilgrim just mentioned, that the Fed is in danger of overshooting, of cutting rates too deeply, and reigniting inflation? So, those are the two things to listen for -- Lou.
DOBBS: And tonight, you will have the opportunity to do one of the very fun things, parse Alan Greenspan's speech.
VILES: Exactly what it was he said after he said it.
DOBBS: Exactly. Pete, thank you very much. Peter Viles.
VILES: As Chairman Greenspan prepares to speak, the government released two troubling reports on the economy. Jobless claims last week moving back above 400,000. Economists had been expecting a decline, a modest decline. The four-week moving average is also above 400,000 now. A year ago it was under 300,000.
And sales of new homes in April plunged 9.5 percent after gaining more than 2 percent in March. April's decline was the biggest monthly drop in four years, and frankly, surprising most economists.
One factor behind that slump: rising mortgage rates. With the Federal Reserve slashing short-term rates, why are mortgage interest rates climbing? Lisa Leiter has the story from Chicago.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): At Prism Mortgage, the complaints are piling up as fast as the applications.
TERI JANSEN, LOAN OFFICER, PRISM MORTGAGE: We spend a lot of time educating our clients to let them know that 1/2 point from Alan Greenspan is not 1/2 point on the retail market, unfortunately. We wish it were, but it's just not.
LEITER: The banner headlines are causing a lot of confusion. If the Federal Reserve is cutting rates, then home buyers believe mortgage rates should be falling too.
CLAUDIA KUPIC, PROSPECTIVE HOME BUYER: You hear these talking mouths saying the Fed cut interest rates, the Fed cut interest rates. Again, the Fed cut interest rates. And I recently discovered that really has nothing to do with me.
LEITER: That's because mortgage rates are tied to long-term interest rates, which typically rise and fall before the Federal Reserve moves.
JAMES SMITH, FORMER CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS: They have no control over one-year rates, two-year rates, 10-year rates or 30-year rates. And it's the 10-year rate that is critical for the mortgage market, that is where home mortgages are priced off of.
LEITER: As the Fed slashed its key short-term rate 2.5 percentage points this year, the average 30-year fixed rate loan has shot up 1/4 point. Now fewer people are applying for new mortgages and a key gauge of refinancing activity dropped 20 percent this week.
JERRY PALMER, V.P. SALES, PRISM MORTGAGE: Everyone who is locked in when it hit the lows of the year are pretty much closing right now. The boom part is over.
LEITER (on camera): The boom put extra cash in people's pockets to spend at the malls. Some economists worry that an increase in mortgage rates and a decline in refinancing could curb consumer spending later this year.
Lisa Leiter, CNN Financial News, Chicago.
(END VIDEOTAPE)
DOBBS: Next up: thoughts from a money manager who sees economic recovery ahead. And opportunity in the energy sector. Stay with us.
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DOBBS: In tonight's "MONEYLINE movers": Krispy Kreme closing at a new 52-week high today. The donut maker continuing what has been a blistering run, hot on the heels of a move to the New York Stock Exchange and a two-for-one stock split. It's gained nearly 80 percent since the beginning of this month.
Claire's Stores today falling more than 15 percent. The teen jewelry retailer warning its profits for the remainder of the year will be below, sharply below, estimates.
And Tivo gaining more than 72 percent today and continuing that rally after hours. Tivo, whose devices allow one to pause live TV broadcasts, winning several new technology patents and posting a narrower-than-expected quarterly loss. Despite the promise of new technology, Tivo has not been a winner, down nearly 82 percent from its high.
In tonight's "MONEYLINE Focus": the outlook for stocks, interest rates, the economy, and to guide us through all of that is Susan Byrne. She is the president of Westwood Management.
Susan, good to have you with us.
SUSAN BYRNE, PRESIDENT, WESTWOOD MANAGEMENT: Thank you, Lou, happy to be here.
DOBBS: Good. The market today, moving slightly higher, and seems solid.
BYRNE: Moving up and down, quite a bit.
DOBBS: Are we -- are we at the end of what some people were describing a bear market, is this a bear market rally? And...
BYRNE: I think we've been in a rally. I think we have had a big rally up in some of the technology telecommunications. And they may be pausing now. We've had a big, strong rally in the energy stocks, retailers, defense, some might say the Republican stocks, and, of course, in the last two days, they've had really strong corrections.
DOBBS: Technology in telecommunication: the multiples there are still...
BYRNE: Very high.
DOBBS: Consistently high, historically.
BYRNE: I think so. And I think that there we built up a huge overcapacity in the last -- really, it took us five years to get there. And it's not going to take us, like, two or three quarters to get out of it.
DOBBS: And in terms of the economy, itself, you are looking for some pick up here quickly?
BYRNE: We are looking for a slowdown, second, third quarter, and a better fourth quarter. But what we think the market is not looking at right now is the effect of a slowdown in Europe, on the psychology of here. Most people feel, and we agree, that profits have bottomed in technology and telecommunications. But, when they are going to go up and what rate we would -- markets seems to think 30 percent, we think 15 to 18 is more reasonable.
DOBBS: Somewhat more modest and conservative.
BYRNE: Yes.
DOBBS: And in terms of the stocks that you like in this environment?
BYRNE: Well, we have like energy stocks, and they've done quite well. I would use this opportunity for this correction that they're having, to begin to look at them. For those people who have bought them, please don't sell them. And, whether Congress is Democratic or Republican, we need energy and we need natural gas.
DOBBS: People are still going to turn on the lights and drive their cars.
BYRNE: We are still going to need energy.
DOBBS: And in the energy sector what are your favorite stocks?
BYRNE: We've talked about Anadarko, and I really, really like that here. If there is no more drilling, and the president's package does not go forward it means there will have to be more drilling in the lower 48 and in the gulf, and that means natural gas, if you can't use the coal, you use natural gas. All of you can't use nuclear because nobody likes that now, at least today for two days, maybe tomorrow they will. All of that is positive for natural gas, Anadarko, Apache, Enron, Williams Company. These are examples of companies that you can invest in.
DOBBS: Susan, thank you very much for being with us.
BYRNE: Thank you, Lou.
DOBBS: Susan Byrne. Well, still ahead here: a tough call and a tight deadline for millions of "Ma Bell" shareholders. That story coming up next.
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DOBBS: Well, in tonight's Tech Watch: deadline time for 5 million AT&T shareholders. By tomorrow, they must decide whether to hang onto their AT&T shares or go with one of the company's spin-offs. But the choice between sitting tight or swapping for wireless stock has led to a lot of confusion. Steve Young has our story.
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STEVE YOUNG, CNN CORRESPONDENT (voice-over): With nearly 5 million owners, AT&T is one of the most widely held stocks in America. And with a 5 p.m., Friday Eastern deadline looming, lots of investors are struggling over whether to exchange shares for a stake in AT&T's wireless company.
UNIDENTIFIED FEMALE: I looked at all this information this morning, and I just threw it on the couch again. So yeah, its confusing.
UNIDENTIFIED FEMALE: Now I've got to decide. I've got to call my mother.
YOUNG: It is confusing. Each AT&T share of the company agrees to exchange, will fetch slightly more than one share of the wireless stock. The AWE shares are widely regarded as a better bet for growth potential, but there's no dividend. Those T shares do yield a modest dividend, but in a shrinking market and in a company losing market share.
GARY JACOBI, DEUTSCHE BANC ALEXANDER BROWN: We have been recommending to investors to take AWE. I think you'd rather own a stock that's going to go up 10 percent than one that's going to stay stagnant and only pay a 2 or 3 percent dividend. You know, at the end of the year, you can sell some of your AT&T Wireless for a gain and be better off.
YOUNG: This is one time it pays to be a small investor. Any tender offer of fewer than 100 shares will be accepted in full, unless for some reason, AT&T cancels the whole exchange. It used to be the stock safe enough for widows and orphans, but now many investors say it feels like a crap shoot.
(END VIDEOTAPE)
YOUNG: And if you do nothing, you'll still get some wireless stock. But probably fewer shares as part of a complicated basket of securities, and not until AT&T finishes splitting into four companies next year -- Lou.
DOBBS: Terrific, Steve, thank you very much. Steve Young.
Well, checking those shares today: AT&T is up 35 cents today, but the stock is down more than 56 percent from its 52-week high. How about those other stocks? The company's wireless group up 13 cents today. That stock is off only 48 percent from its high.
Coming up on next on MONEYLINE, a former White House press secretary parting ways with one of the most powerful men in the software industry. That story next. Stay with us.
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DOBBS: In tonight's Sector Report: drug stocks. The industry today taking a hit after Senator James Jeffords announced his plans to leave the Republican party. With his defection, and the subsequent Democratic control of the Senate, some on Wall Street predict drug companies could face tougher scrutiny. Also, it brings a couple of issues back for the debate, the idea of a Medicare drug benefit with price controls, and drug patent reforms favoring generics.
But earlier on this broadcast, my guest, Greg Valliere, said he does not think the change of power is really an issue for the drug sector or the financial markets in general. Taking a look at the drug sector: Merck and American Home Products losing about a $1.50. And Bristol-Myers Squibb, Abbott Labs and Johnson & Johnson all off on the day.
Coming up next: Wall Street under fire for what it tells investors. (COMMERCIAL BREAK)
DOBBS: It's a problem familiar to millions of investors: just how to figure out the language of Wall Street -- when a research analyst says "hold" and really means "sell." Prudential Securities today said it would begin using a simplified stock rating system right after Memorial Day.
But Prudential's move is a sign of a much deeper problem: a loss of faith in Wall Street's words and supposed wisdom. That has Congress set to hold hearings on the issue. Allan Chernoff is here tonight and has the story for us -- Allan.
ALLAN CHERNOFF, CNN CORRESPONDENT: Lou, in fact, this storm has been brewing for quite some time. Wall Street analysts are highly compensated, but the advice they offer, too often, is far from objective. They're under pressure from many constituencies who sometimes have opposing interests. And to top it off, analyst recommendations may be interpreted one way on Wall Street, and quite another on Main Street.
(BEGIN VIDEOTAPE)
CHERNOFF (voice-over): Beginning next week, analysts at Prudential Securities will use one of three simple words to advise clients: buy, sell or hold. Gone will be the recommendations "strong buy" and "accumulate." And management says analysts should tell it like it is. If a stock is likely to fall 20 percent, issue a "sell."
The firm's banking analyst, Mike Mayo, is cheering. He was fired from CS First Boston for issuing "sells" on companies that the firm's investment bankers had been courting. MIKE MAYO, PRUDENTIAL SECURITIES: There's pressures from investors to say good things about the stocks that they hold. There's pressures from the companies that analysts follow, to say nice things to support the management direction.
CHERNOFF: It's relatively easy for Prudential Securities to give analysts free reign. Prudential has essentially scrapped its investment banking unit, never a major force at the firm. It would be far tougher for the biggest brokerage houses, like Merrill Lynch, Goldman Sachs and Morgan Stanley, which earn huge sums from underwriting stocks and advising on mergers and acquisitions.
Morgan's star Internet analyst, Mary Meeker, is featured in "Fortune" magazine's cover story, "Can We Ever Trust Wall Street Again?" pledging allegiance to the firm's investment banking clients. That attracted the attention of Congressman Richard Baker, chair of the subcommittee on capital markets. He's planning hearings, tentatively scheduled for June 14th, to investigate Wall Street's research analysts.
REP. RICHARD BAKER (R), LOUISIANA: The responsibility for professional conduct sometimes bumps into the motivation to earn the commission. And clearly that is the center of the problem, and whether or not there is adequate disclosure.
CHERNOFF: Well aware that political heat is heading their way, Wall Street firms are working on a code of best practices for industry analysts.
MARC LACKRITZ, SECURITIES INDUSTRY ASSN.: They're really addressed to reassuring the public and investors of analyst objectivity and of their commitment to their customers and their investors' interests, by putting the customers' interests first.
(END VIDEOTAPE)
CHERNOFF: At MONEYLINE'S request, Zack's Investment Research surveyed Wall Street's ratings on more than 7,000 public companies. It found that only 1.2 percent of all analyst recommendations were sells. One more interesting item: the firm Gerard Klauer Mattison & Co. in January began a contest to get its 23 analysts to issue negative recommendations. Right now the firm has only one "underperform" rating, no sell ratings -- Lou.
DOBBS: Maybe they should improve the prize. Thank you very much. Great report. "Ahead of the Curve" is coming up next. Stay with us,
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DOBBS: Tomorrow the treasury markets close at 1:00 p.m., ahead of the Memorial Day weekend. The rest of Wall Street will be open for business as usual. We will have a revised look at first-quarter gross domestic product tomorrow. Durable Goods and existing home sales. Also, the University of Michigan's consumer sentiment report. Congratulations in order for the MONEYLINE team. Last night, MONEYLINE won the Deadline Club Award for the best business news reporting for the series "The Dot-com Crash." Congratulations to all.
And finally tonight, Joe Lockhart and the job that disappeared faster than a dot-com, the former White House press secretary is leaving Oracle and his mercurial boss, Larry Ellison, after just six months on the job, one report suggesting Lockhart couldn't escape the antics of his previous boss, Former President Clinton, who kept taking up his time. Nothing to do with Lockhart's scandal specialty, but -- with Marc Rich, really. Lockhart, apparently stuck with coping with the pardon uproar that followed.
And that's MONEYLINE for this Thursday evening. Thanks for being with us. I'm Lou Dobbs. Good night from New York. "CROSSFIRE" coming up next with Bill Press -- Bill.
BILL PRESS, HOST, "CROSSFIRE": All right, you got it, Lou, thank you. It's a new day, a new Senate and maybe a whole new agenda in Washington. All because one man asserted his independence, as an independent, and turned power over to Democrats. What will change? Who will benefit? Are there any more senators ready to jump? Two dueling senators, next on "CROSSFIRE."
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