Marketplace: News Archives

Monday, October 09, 2000
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It's Monday, the October 9th. I'm David Brown sitting in for David Brancaccio.

First we take a look at the markets which-despite the low volume, this being a holiday and all-caused a few moments of dread. Not so much the Dow, which was down modestly about 28 points or 0.2 percent, it was more the Nasdaq that had folks worried. By the close, it had fallen about 5.5 points-also a drop of about 0.2 percent. No big deal there, you might say-but not so fast. Earlier in the day, things were looking pretty nasty for the Nasdaq, one of the more basic indices for the technology sector. We'll have details later on in the program, when we do the numbers, but first, Marketplace's Jessica Smith fills us in on what's behind the Nasdaq jitters.

Smith: "With Columbus Day and Yom Kippur keeping many investors out of action, it was a slow day on Wall Street. And bleak, says John O'Donahue, co-head of trading at investment bank Credit Suisse First Boston."

O'Donahue: "It's kind of gloomy in anticipation of the election and various other things. That would sum it up. And we'll see how we get through the earnings season."

Smith: "After falling more than two percent this morning, the Nasdaq managed to crawl back and end the day only 0.2 percent lower. The stocks of semiconductors firms had a tough day, with Intel falling 7/8. Internet network builder Cisco Systems, another big component of the Nasdaq, also lost value. Yahoo eked out a tiny gain but the internet bellwether is still only a few dollars above its low for the year. The black cloud still hanging over Wall Street is of earnings, slowing earnings. Chuck Hill is research director at First Call, which tracks company earnings."

Hill: "In the last few weeks there have been second thoughts about the outlook for earnings for technology. Not the third quarter, the numbers are going to look good when they come out despite the fact we've had some highly publicized warnings. It's the fourth quarter that's becoming a worry."

Smith: "The latest report on what executives are doing with their own company stock doesn't do much for investors' confidence. Leland Montgomery, commentary editor at the Street.com, sums of the August report."

Montgomery: "Continued selling in particularly the internet and tech sectors, even after those stocks have come down a fair amount. And that's got a lot of people on edge. If the future were brighter for these companies, why are these executives dumping stock?"

Smith: "But while some analysts call this deflating of the technology stock bubble healthy for the market, Montgomery worries stocks long in the shadow of technology aren't resurfacing."

Montgomery: "We're seeing the punishment of the former leaders but we are not seeing the renaissance of those who were formally shunned."

Smith: "This week a series of closely watched earnings reports are due out, including one from internet blue chip Yahoo. But today, one non-tech firm didn't start the week of earnings report on a good note. Home goods retailer Williams Sonoma, which also owns Pottery Barn and Hold Everything stores, said disappointing catalog sales would drag profits lower. The stock fell 30 percent. In New York, I'm Jessica Smith for Marketplace."

On this holiest day in the Jewish calendar there were more feverish diplomatic moves in the Middle East to head off what some fear could, over the next several hours, spiral into an all-out war between the Israelis and Palestinians. UN Secretary-General Kofi Annan got personally involved in the peacemaking today, but he conceded that he was arriving in the region with no "magic formula or solution." And the rising tensions are pushing oil prices higher. Marketplace's Bob Moon talked to some analysts who think we should all be watching this very carefully:

Verleger: "I think the consumer should be prudently concerned about this, particularly because inventories are so low."

Moon: "Philip Verleger is a former Treasury Department energy advisor and now an oil economist with Brattle Group, a consulting firm in Cambridge, Massachusetts. He says the Arab world has a long history of using oil as a political weapon, and he wouldn't be surprised to see at least some nations use it as a sword of Damocles again."

Verleger: "The Middle East has been the source of most of the oil market disruptions over the last 50 years, and this current dispute has the potential to blow up into something really big."

Moon: "Verleger says Iran or Iraq find themselves wielding heavy influence with inventories so low, and would be most likely to take action first. But even Saudi Arabia's Crown Prince Abdullah warned just today that nobody should think Arab and Islamic nations would - as he put it - "just watch with their hands tied." Vahan Zanoyan heads the Petroleum Finance Company, a Washington consulting firm. He sees chances as extremely remote for a full-scale cutoff like the painful 1973 embargo against nations that had supported Israel in its conflict with Egypt. And even then, he says, America's strategic petroleum reserves would soften any impact."

Zanoyan: "You will not have a unified embargo, with every country participating."

Moon: "Still, Zanoyan cautions the sensitive political climate could make it impossible for, say, Saudi Arabia to make up any supply shortfalls caused by other Arab nations. Without the price controls of the '70s, though, there probably wouldn't be the supply problems that caused long lines at the pump, just higher prices."

Zanoyan: "It's going to be tight, it's going to be probably difficult. Probably prices will still rise, if nothing else on speculation. So there may be even specific pockets of shortages here and there. But I cannot see a nationwide major crisis."

Moon: "And there's a psychological side that wasn't part of the equation in the '70s. As former Fed chairman Paul Volcker recently marveled, 'Maybe the country is just too prosperous to worry about it.' I'm Bob Moon for Marketplace."

Perhaps as early as Wednesday, we'll know whether the European Union will give the green light to the controversial $120-billion dollar merger of TimeWarner and America Online. It's under intense regulatory scrutiny on both sides of the Atlantic and today the plan hit a hurdle here in the states. The powerful chairman of the Senate Judiciary Committee, Utah Republican Orrin Hatch, is raising concerns about what he calls the anti-competitive results of the merger. Marketplace's John Dimsdale reports from Washington.

Dimsdale: "In a letter to the Federal Trade Commission, which is reviewing AOL's purchase of Time-Warner, Senator Hatch raises the red flag not only about the clout of Time Warner and AOL ... but also about AT&T's 25% ownership of Time Warner Entertainment. TWE is the division that owns most of Time Warner's cable and programming interests. Senator Hatch, who's offices were closed for Columbus Day, writes that it would be 'unfortunate' if AOL, Time Warner and AT&T coordinated their activities to discriminate against rivals. Consumer groups, long opposed to the merger, today welcomed Senator Hatch's letter. Mark Cooper of the Consumer Federation of America says its beginning to sink in that these companies, dominant in their respective industries, are coming together into one interactive multimedia conglomeration."

Cooper: "If you own the wire, and you own the content and you control the interactivity, all of a sudden each of those businesses could in fact suffer a dramatic loss of competition."

Dimsdale: "America Online would not comment on Senator Hatch's letter but in a filing with federal regulators last week, argued that its affiliation with Time Warner should not affect the government's earlier OK of AT&T's stake in Time Warner Entertainment." In Washington, I'm John Dimsdale for Marketplace."