Dow Tumbles 40.82 to 10,382.35; Housing Sales Fall 3 Percent in July
LOU DOBBS, CNN ANCHOR: Good evening. In tonight's headlines, home sales falling 3 percent in July, a bigger decline in existing home sales than economists had expected. Stocks today struggled after a powerful rally Friday. The Dow today down 40 points and the Nasdaq losing four. And the manufacturing and services industries expecting fourth-quarter hiring levels to be at or near levels not seen since the last recession. That according to the staffing firm Manpower. A quick note tonight. Consolidated Edison here in New York has experienced a power outage that affects our New York studios. So we ask you to please bear with us if this broadcast looks a little different tonight. With that in mind, let's check in with our reporters. We begin with Lisa Leiter in cooler Chicago. Lisa?</s>LISA LEITER, CNN CORRESPONDENT: Lou, a hint of weakness in what's been the most resilient part of the economy: housing. I'll have that and the day's other economic news.</s>JOHN KING, CNN WHITE HOUSE CORRESPONDENT: A new budget report from the Congress is contradicting the White House and intensifying the political debate. Massive layoffs and desperation deals make this a season that memory chip makers won't soon forget.</s>KITTY PILGRIM, CNN CORRESPONDENT: The dead IPO market is about to pick up, and they have a lot of ground to cover. This has been the weakest year for IPO's in a decade.</s>FRED KATAYAMA, CNN CORRESPONDENT: A Madison Avenue makeover for a 226-year-old landmark: The U.S. Postal Service -- Lou.</s>DOBBS: Fred, thank you. All of those stories coming up tonight on MONEYLINE. We begin with troubling news about this economy. Home resales in July dropped more than economists had expected. The housing sector has been a lone pocket of strength in the economy. Today's report shows that consumers may -- may -- be pulling back. And the drumbeat of layoff announcements continued today, both here and abroad. Lisa Leiter has the report from Chicago.</s>LEITER (voice-over): Home resales in July posted their biggest drop in three months, a weaker report than expected. Sales fell 3 percent to an annual rate of 5.17 million units, still on track for a near-record year. But the report does raise questions about whether people will keep buying homes if they're worried about losing their incomes.</s>STEPHEN SLIFER, LEHMAN BROTHERS: People are worried that we as consumers taken on too much debt. And there's going to be a lot of layoffs, and that by gosh, just a few months down the road, that we can't possibly keep up this pace of spending. I'm not quite sure I agree with that. I mean, interest rates have come down a lot. And mortgage rates these days are sort of in the seven, seven and a quarter percent area. That's pretty cheap. The week kicked with more layoff announcements. Farm equipment maker Deere will cut 2000 jobs. In Japan, Toshiba is slashing 19,000 jobs, and there are reports Hitachi also will cut 20,000 jobs worldwide. A new survey by hiring firm Manpower suggests there are likely more layoffs to come. 11 percent of companies plan to cut jobs in the final three months of the year. Only 24 percent plan to add workers; manufacturing hiring hasn't been this bad since the past two recessions, and the once-resilient services business now puts hiring plans at recession levels as well.</s>CARL TANNENBAUM, ABN AMRO: It's clear that firms are being very conservative in their hiring practices and looking for that formula that will get their bottom line back into shape. Until we see some signs that sales and margins are improving, I'm afraid that employment is just not going to benefit that much.</s>LEITER: This gloomy outlook comes just two days ahead of a critical economic report: The second-quarter growth revision. And if that number is negative, some economists say it could be psychologically damaging to consumer confidence and could undermine efforts for an economic recovery -- Lou.</s>DOBBS: Lisa, thank you. Lisa Leiter. On Wall Street today, stocks failed to maintain the momentum after Friday's big rally. The lack of follow-through has been a persistent problem for the markets this summer. Stocks have not gained in back-to-back sessions in more than a month now. Christine Romans is at the New York Exchange -- Christine.</s>CHRISTINE ROMANS, CNN CORRESPONDENT: Lou, one trader tonight saying he's not sure if we should congratulate the market for at least essentially holding Friday's rally, or whether we should criticize the market for not following through. Whatever side of the camp you're on, many of the bulls telling me they are disappointed that once again we could not get follow through in the market. The Dow closing about 40 points below the 10,400 mark. But Lou, it was a very quiet volume day on Wall Street here today, fewer than 900 million shares changing hands. It was your typical August Monday. And that means a lot of folks are not thinking you could read much of anything into today's action at all, and they expect that to continue through the week, even though we have a pretty heavy data calendar. We have Home Depot on the downside here, there was a negative analyst comment in "Barron's" magazine over the weekend. Also that housing number that Lisa told you about helped drag down Home Depot as well as some of those building stocks. But for the most part, Lou, a very quiet, quiet session to start the week on Wall Street.</s>DOBBS: As you say, what has become a typical Monday performance of light trading and little movement in the indexes. But I'm curious about this idea of either chastising or applauding markets on their performance. Is that a groundswell of opinion down there?</s>ROMANS: They want to talk about just about anything down here. Today it was the weather, it wasn't really the markets, Lou. Lot of cheering for your team, whether it's the market going higher or lower. But not a lot of action. No one is putting their money where their mouth is.</s>DOBBS: OK, Christine, thanks. Christine Romans. There was, as Christine said, little follow-through on Wall Street anywhere. But one key sector did build on Friday's gains: chip stocks. Jennifer Rogers is at the Nasdaq marketsite and has more on that for us -- Jen.</s>JENNIFER ROGERS, CNN CORRESPONDENT: Hi, there, Lou. Chips were able to build on their gains from Friday. They were up 6 percent on Friday, 2 percent today. But they were not able to keep the index in positive territory. If we go back -- take a look at the wall. You can see just how flat a day it really was here, hugging the waterline for most of the day. We did a have a break up in positive territory. But most traders I talked to around then weren't too wowed by that rally. It lost it all and a little more, down to 1912, down $4. Here's the stocks. The Philly Semiconductor Index you can see up 11 points. All 16 components in it were in the green for the day. Let's take look at a couple of those. Intel the world's biggest chipmaker -- just a small gain, but still in the green, coming out</s>DOBBS: There must be something to this pattern, Jen. In this market today, there seem to be really no stories at all. You had mentioned the chip sector continuing to show at least some strength, but overall no striking performance at all in any sector or group.</s>ROGERS: Exactly. You call around asking, what are the story stocks? What can we -- what's moving? And people really just talking about the chips. A couple people were talking about the biotechs. Those have really been on a roll, last week in positive territory. But no star performances here really moving the market.</s>DOBBS: Jen, thanks. Jen Rogers. My guest tonight expects a strong fourth quarter rebound, with the Dow moving above 11,700 by the end of this year. The record for the Dow 11,722, set in January of last year. David Alger joins me now. David, good to have you with us.</s>DAVID ALGER, ALGER FUNDS: Great to be here.</s>DOBBS: David, this market as we've -- we've grown accustomed to seeing -- not</s>ALGER: Well, I think the market has been very boring, actually. August has been a horrible month, except for of course Friday. But I think that's fairly characteristic of what we're seeing. We're waiting for the economy to pick up or show some signs that it will. I think we're starting to see that, and I think the fourth quarter is going to be really terrific.</s>DOBBS: Why do you expect such a -- what I take to be a dramatic performance in the fourth quarter, from what you've said?</s>ALGER: I think what we've seen is that the economy is starting to stabilize. I mean, if you look at the numbers, some numbers are up, some numbers are down, but basically it's going sideways. So what I'm thinking is with the tax refund, and the interest rate cuts, in the fourth quarter we could have the consumer coming on really strong. And I think that will really spur the market.</s>DOBBS: David, no one would want you to be more right than I would, I assure you. But we're hearing from a number of the retailers that those tax rebate checks, frankly, are not having the impact that they had both hoped and expected. We have heard from Lawrence Lindsey, the president's top economic adviser in the White House, that he expects unemployment to rise to 5 percent by year's end. We have this latest report today, showing that the consumer is, at least for the month of July, retreating from the housing market somewhat. What gives you such confidence?</s>ALGER: I'm not sure that's true about the housing market. I mean, yes, it's true, the numbers we got today were not favorable. But on the other hand, housing starts have been strong. It's only one month worth of data. And also, I think we have to see the full effect of the tax rebates coming through the system. I don't think</s>DOBBS: And in terms of the consumer, you expect the consumer, he and she, to remain invigorated and pressing this economy forward?</s>ALGER: I do. I don't -- I think that the unemployment rate is irrelevant. I mean, I think that's a lagging indicator and always has been. So what I think is going to happen is that in fact by, you know, sort of midway through September, October, we 're going to start to see the economy, economic numbers moving up. And I think that's going to be very bullish for the market.</s>DOBBS: Does that include, your view, that earnings -- corporate earnings -- will surge here?</s>ALGER: I don't think they're going to surge, but what I do think is going to happen is that in the September quarter there are going to be surprisingly few preannouncements, because analysts have ratcheted their expectations down so dramatically that I think what's going to happen is that when earnings come out, they're going to be pretty much on expectation. So the confession season, if you will, is going to be surprisingly benign.</s>DOBBS: Well, the poor investor here has been treated to something, if you will, of Chinese water torture, whether it be in terms of expectations and lowered expectations in terms of those earnings, but the disappointment in those corporate earnings just continues and continues. We are approaching almost a year of what is a corporate earnings recession. You expect that to actually break, leaving aside the expectations -- the actual performance?</s>ALGER: I think it will start to break through next year. I think the fourth quarter we're going to see some positive earnings comparisons. And I think for technology sector, which of course is the main focus of the Nasdaq, I think that start to really come on next year when we have the good year-to-year comparisons.</s>DOBBS: Well, David, I want to ask you what looks good to you, and your recommendation to our viewers in terms of stocks that they invest in. But I want to, if I may, address the stocks that you were recommending on June 13th when you were last with us. Now, I mentioned that we had a power outage here. Con Ed had a power outage and they're working very hard to fix that, but we're losing a lot of graphics and things here because of it. So I want to show you the high-tech version, David, and our viewers. This is -- these are your high-tech picks: Sun Microsystems, EMC, eBay, Calpine, Stillwell, the S&P; on 5 percent of that period. Are you staying with those recommendations? Some of them such as EMC down 45 percent during this period. Calpine off 26 percent?</s>ALGER: There's no question they were bad stocks, but of course August was very, very punitive for gross stocks in general and technology stocks. And remember these stocks are very volatile. They can come back so rapidly when things turn around. Calpine is still one of our favorites. EBay is one of our favorites, EMC, I think will eventually come back -- I hope. And Sun Microsystems as well. I think we really need the technology stocks to turn. It's only two months, and it was a very bad one month in there, so I'm not too disappointed.</s>DOBBS: But David -- I don't know if you can see this, but we are</s>ALGER: I am. I do like all of those companies. I would also add, certainly, Tyco, too. It's one of our favorites. And, you know, we have a lot of stocks that we like. We own 212 among all our funds. But I think all of those companies are good, and I think they'll do well over the next, say, six to 12 months.</s>DOBBS: David, like many people, I'm hoping that your forecast and outlook is the correct one. As always, we appreciate you taking the time to share your thoughts with us here on</s>MONEYLINE. ALGER: I'm delighted to be here, even under these circumstances.</s>DOBBS: David, thank you. David Alger. Topping tonight's MONEYLINE movers, Biopure. It surged than $4.5 a share. A study showing the biotech company's substitute blood product, Hemopure, is as safe as blood from human donors. Biopure plans to file for FDA approval by the end of the year. Northrop Grumman today gaining more than $2 a share. Northrop's electronic systems unit is consolidating some facilities acquired through its purchase of Litton industries. As a result, the company is cutting 500 jobs. That's about 5 percent of its California work force. Blockbuster down more than $1.5 today. A "Barron's" article over the weekend raising concern that the growth of Blockbuster's "Internet Video on Demand" may slow video rental chain business. Shares of Blockbuster are trading now just below their 52 week high. In other corporate news tonight, John Deere saying it plans to get out of the consumer products business, ending production on things such as chainsaws and trimmers under its Homelite brand name. The farm equipment maker is also scaling back its construction and forestry division, and it plans to cut an additional 775 jobs. That's on top of the 1200 job eliminations announced in June. Deere's Homelite division lost more than 70 million dollars last year. Deere hopes to sell that unit by October. IBM saying its scientists have reached a computer milestone. IBM scientists have created a computer circuit made up of single carbon atoms. IBM hopes this discovery will lead to faster, smaller computer chips. The carbon processors are about 1,000 times thinner than a human hair. The chip industry's search for a way through this current slowdown has prompted another round of merger talks and talk of more layoffs. Senior Technology Correspondent Bruce Francis has the report.</s>BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Germany's Infineon may merge its memory chip operations with Toshiba's, part of an effort that Toshiba is making to cut cost. Toshiba is eliminating some 19,000 jobs from its worldwide operations. Toshiba's president says that its memory chip business needs a partner. He told reporters in Japan, "This is one business that has gotten away from economic principles." Rivals NEC and Fujitsu have felt the pinch</s>JOSEPH OSHA, MERRILL LYNCH: The 128 megabit chip -- I mean, that part is trading for less than a tenth of where it was a year ago. So it's pretty awful. What that's driving, though, is positive, which is companies getting out of the business. So the problem we have right now is too much inventory, especially on the balance sheets of the big suppliers like Micron and Samsung.</s>FRANCIS: Those low prices for memory chips are good news for PC makers, who are getting lower prices on another key component, the microprocessor. Intel is introducing its fastest chip to date, a blazing 2 gigahertz Pentium. The company is also discounting heavily, in hopes of stimulating demand. And rival AMD is scrambling to keep its prices competitive. That ongoing price war could be one factor that contributes to improving fortunes of the chip industry by the fourth quarter. Chris Chaney believes that improvement will be temporary.</s>CHRIS CHANEY, A.G. EDWARDS: That's going to be sort of a letdown to people that wanted to see these stocks show a continuous rally. They may sell into that strength, and then I think we're going to see a sustainable recovery in the second half of next year.</s>FRANCIS: Timing the semiconductor recovery been frustrating for investors, and the past few months have been marked with false starts and conflicting calls by analysts. But the rewards can be huge, since chip stocks have led tech revivals in the past -- Lou.</s>DOBBS: No recovery until the second half of next year?</s>FRANCIS: That's what some people are saying. Yes, sir.</s>DOBBS: All right. Bruce, thank you very much. Speaking of technology, we're going to be joined by Ann Mulcahy, the new president and CEO of Xerox, here later. We'll also explain to you why she's one of our new heroes here at MONEYLINE. And next on MONEYLINE, we'll be talking about Social Security, the budget and the politics of government spending. Our guest tonight, Senate Budget Committee Chairman, Senator Kent Conrad. We'll be talking about reports that the federal government may tap the Social Security fund to the tune of $9 billion. The United States loses a very expensive spy plane, but the military says it's not concerned. We'll have that story for you. And "American Pie II" eating up the competition. Once again. We'll tell you how this movie put Universal Pictures in the history books. It's all ahead, and a lot more, on MONEYLINE.