hi, everybody. welcome to "the wall street journal report." i'm maria bartiromo, today coming to you from just outside the new york stock exchange on federal hall on wall street. the market's rally stopped short. earnings are strong but there's a big catch. find out what it is and what's next. who's watching your tax dollars? we'll talk to a washington watchdog and find out how bailed-out banks are spending government rescue money. summer vacation deals. taking a holiday could be less than you think. "the wall street journal report" begins right now. >> this is america's number one financial news program. "the wall street journal report." now, maria bartiromo. >> here's a look at what's making news as we head into a new week on wall street. it is all about earnings once again. most of the news is encouraging. 12 dow components reported their

quarterly profits this week and most of those companies did beat expectations. in fact, they include boeing, american express, at&t, dupont, 3m and caterpillar. also a number of technology names also did well. they beat analyst expectations as well. including apple, ebay, yahoo! and amazon.com. technology giant and economic bellwether microsoft actually missed expectations, as did investment bank morgan stanley. those stocks were under pressure afterwards. strong earnings have pushed the markets higher. the dow jones industrial average closed above 9,000 on thursday for the first time since january after a very strong week for investors. the nasdaq, in fact, was up 12 straight days. nasdaq is up strongly in 2009. it is now at its highest close since early october. also helping the markets this week, good news on the housing front. sales of previously owned homes increased at a faster than expected annualized pace in june, up 3.6%. that was the third straight month of gains.

we haven't seen that kind of winning streak since 2004. many believe that once housing recovers, the rest of the economy will follow. it's been a remarkable week. the nasdaq's big winning streak. the huge rally for the dow jones industrial average. can it last? what does the second half of the year look like? joining me with insight on what's happening and why is john rogers, chairman and ceo of ariel investments. john has about $4 billion under management. john, it is wonderful to have you back on the program. welcome back. >> glad to be back. >> we've seen magic marks pass in the market, with the dow passing 9,000 and the nasdaq on a tear. do you think this kind of move can continue second half of the year? what do you think is behind it and where do we go from here? >> i continue to be a very strong chicago bull. i used to be a chicago bear. but now i've become very, very bullish. i'm very excited about the future. i think the markets have been so strong because earnings have been coming through better than

expected. i think people are starting to realize the end of 2010 and 2011 will be exceedingly strong. so i continue to be quite optimistic about the markets. >> so, you think that there's real fundamental change going on then that's behind this move? i mean, is there optimism about earnings and about the economy, is that what's driving it? or is it just the idea things had gotten too low? >> i think it used to be the market had just gotten too low. now we're seeing real terrific earnings announcement. you're seeing great cost cutting by corporate america. as revenues improve i think the markets are starting to say, think about the end of 2009, end of 2010, you're going to have great cost-cutting and great revenue growth and so you're going to have profitability much higher than anyone anticipates. how are you investing, then? where do i want to be invested to really take advantage of what you're expecting to be a market that has real legs in terms of this rally?

>> i'm looking at those sectors that have been going through the most pain. primarily right now we're adding to our health care companies. we think health care is under a cloud because of the things going on in washington. people aren't clear exactly what's going to happen and how congress is going to deal with the reform. so health care, there's a lot of opportunity, a lot of missed price securities. we also like the housing related companies. companies that provide all kinds of products for homes as well as the actual real estate services companies, which we think have a lot of opportunity for the future. so we really are building our positions in those areas that have been a tremendous weakness. >> you mentioned something about earnings. while we have seen a lot of strong earnings coming out, a lot of the reason for the better than expected numbers have been the fact that companies have undergone so many cost-cutting efforts. they've cut jobs. they've cut back on spending. and we're not necessarily seeing revenue growth but better than expected earnings because they've cut out expenses. when do you expect this story to

turn from a cost-cutting story to an end demand revenue growth story? >> i think the revenue growth story will start to unfold in the third and fourth quarter of '09 and into the first half of '10. and we are wholly confident about that. as we talk to companies, people are telling us they're starting to feel better. they're able to get the financial house in order, make sure they have the right kind of capital to be able to go to businesses again. people are looking at strategic acquisitions again. think there's this sense things are really unfolding for a good revenue story end of this year, early next year. >> where would you say is the growth right now in this economy? a lot of people wonder where the jobs are. certainly they're investing based on where the growth is. >> well, i think we're going to have a big rebound in housing. it's been an extraordinary bear market going on in housing for quite a long time. and i think people are going to be surprised to realize people are going to see housing prices start to increase.

people are going to start to move into homes again. i think that's going to really help drive the economy. >> you conducted a survey showing african-americans and hispanics are significantly less prepared for retirement than other ethnic groups. why is this, and how can it be addressed? >> i think the primary way we can address it is really to make sure that our public schools have financial literacy programs. as you know, we created a small public school called the ariel community academy where we teach kids in middle school all about the stock market. we think that's something so important that all public schools should have initiatives to get people comfortable in the markets early so when they get that first job, they're ready to invest in the 401(k) plan and know about the magic of compound interest and how important the equities market is for long-term growth. we think major corporations need to make sure that they are enhancing their education documents and videos to help explain the 401(k) plan and help explain the importance of saving for the future. and we think that you have to

make sure that those are done in a culturally creative way so that all types of american citizens get exposed to the kind of information that could help them make great decisions. of course, the reasons why people have not been comfortable in the markets are really cultural. if you think about it, you start to plan on how to invest wealth when you have a lot of wealth. >> john, great to have you on the program. we appreciate it. >> thank you. john rogers at ariel capital. ford says more jobs could be in their future. an optimistic outlook from caterpillar's ceo. and a noted economist says we're not out of the woods just yet. that's what wall street's movers and shakers are talking about this week. here they are in their own words. >> i've been saying the recession would last 24 months. it started in december 2007. it's going to be over by the end of this year, december. that is 24 months. it is now three times as long as

six times as deep as the previous two. it's now 1% growth for the next couple of years. >> so i think the prospects over the next several years of dramatic recovery in these markets is very high. and we just want to be sure our company is very well positioned to take advantage of that global macro economic recovery which we think will begin to get under way, if you will, in the fourth quarter and gain strength next year. >> with our plan to go forward, we'll be able to offer opportunity for employment again. and the real reason is the strength of our product line. because we committed to have a full product line, small, medium, large, cars, utilities, trucks. every one of them will be best in class in safety and value. up next on "the wall street journal report," the bank bailout and the money they're paying back to the government. i'll be talking to the woman in charge of protecting the largest investment of tax dollars in history. is the travel industry heating up with the summer weather or is it the bargains

that are heating up for consumers watching their dollar?

the $700 billion financial bailout and the t.a.r.p. its troubled asset relief program is the laenget investment of taxpayer dollars in history. congress appointed my next guest. she's elizabeth warren, harvard law professor and chair of the congressional oversight panel. professor warren, thanks for being on the program. thanks for spending the time. >> thank you very having me. >> the bipartisan congressional oversight panel has issued eight reports this year about the effectiveness of this bailout. is oversight working? are we, the taxpayers getting our money's worth from the actions the government has taken to stabilize this economy? can you walk us through it?

>> well, we have to remember there's really been a sort of t.a.r.p. 1 and t.a.r.p. 2. t.a.r.p. 1 was when secretary paulson basically pushed $350 billion out the door. mostly to the large financial institutions. on a kind of no questions asked basis. and that's the part that we've all struggled with ever since. what are the banks doing with that money? the second half, which is t.a.r.p. 2 is the part that secretary geithner has had. and he's taken a very different approach. he's tried to put down multiple bets. he's trying to work in the housing industry, he's trying to restart small business lending with those programs, he's tried to do the stress tests and help get some of the banks out, and he's tried to preserve the money they'll have available if there are future problems. >> so you believe that the oversight is working? >> well, what i believe is we've got a lot of programs going on.

oversight itself, i think it's working in the following sense. back when secretary paulson spent the first $350 billion out the door, basically that money was gone before the oversight panel was even formed. we came in, we did an evaluation of what the stock and warrants were worth that the u.s. got in return. and according to our independent estimate, lots of number crunching, is basically for every $100 that treasury sent out, it got back $66 worth of stock and warrants. now we roll forward. some of the financial institutions are coming out of the t.a.r.p. program. and the question is, they want to redeem their warrants. and pay them off and end all their ties with the government. what should be the price on the warrants? this time, because we're already in place, we evaluated the

first 0.5% of the warrants that treasury had already sold. the leading wedge. and we found some problems. by our independent calculation, the american taxpayer had lost about one-third off what might be the fair market value. in the 11 days after our report was issued, three things happened. chase -- now we're talking about the big dollars -- said they would go to a market auction, which means we, the american taxpayer, will get the market value. goldman sachs more than doubled its offer and ended up paying the taxpayers $1.1 billion. our independent valuation would have brought that in at $1.08 billion. so $20 million above where we said. and treasury announced in its hearings that it was going to release a whole lot more information about the private negotiations it was having over the warrants. so in my view, yeah, i think oversight works.

>> so, actually $200 million above, right? >> $200 million, sorry, dropped the zero. >> you supported for a long time creating a consumer financial protection agency. this is hotly debated. chairman bernanke said he thinks the fed is doing just fine. your colleague representative farley called the idea orwellian. let's talk about this. because a number of other people feel this is just more layers of government and bureaucracy. what can a new authority do that isn't being done right now? >> well, the consumer financial protection agency is about -- it's really just about making markets work. it's about saying, most folks want a plain vanilla product. how about a two-page credit card agreement with blanks for the interest rates, the penalty rates, what causes the penalty and how you get your free gift. if we move to that kind of a credit card market, home mortgage market, payday loan

market, what happens is that consumers can make clear and easy choices. >> professor, great to have you on the program. we so appreciate your time today. thank you. >> thank you. >> professor elizabeth warren. up next on "the wall street journal report," how some of america's best known brands in travel are rolling out the welcome mat to entice foreign tourists. as we take a break, look at how the stock market ended the week. (announcer) this is nine generations of the world's most revered luxury sedan. this is a history of over 50,000 crash-tested cars... this is the world record for longevity and endurance. and one of the most technologically advanced automobiles on the planet. this is the 9th generation e-class. this is mercedes-benz.

around the world, three people check into a holiday inn every second. one of the best-known brands in the travel industry is relaunching more than 3,000 new locations in the middle of troubled times in the economy, broadly speaking. joining me is jim abrahamson, ihg president for the americas and kevin kowalski, global member of the holiday inn brand. thank you for joining us. jim, let me begin with you. you've got seven brands. more hotel rooms than anybody else around the world. how is this summer season affecting holiday travel here? what are you seeing in terms of the economy and the broad business outlook? >> well, of course, you know, we're in a very difficult recessionary environment right now. but what makes this recession just a little bit different than previous recessions, we're

seeing people are traveling today. people aren't staying home. we're seeing that in a number of the major marks that the leisure customer is very resilient today. so while our numbers are clearly down from where we've seen them year over year in comparisons, we're seeing some positive trajectories. it's clearly around leisure markets. >> so what are the trends right now? you're saying around leisure markets. meaning what? is that an upscale area of the business doing well, or leisure versus business? >> well, we look at our company, we look at our brands. we're exceptionally well positioned. we have brands in every category. our largest, most significant brand is holiday inn and holiday inn express, which is the largest and most powerful brand in the mid-scale segment. so in that segment, today, our penetration of that segment is about 30% of supply. >> kevin, are you seeing sort of a shift in terms of behaviors that people want that value proposition now and they are looking toward holiday inn for it?

>> no question. but you know, we think of value in two ways. it's not just price. it's getting a great experience at a good price. i think that's where the relaunch of holiday inn comes in. we're ideally positioned in that midtier price sphere, so we're providing value from a price standpoint. we're also refreshing our brand, so we're providing a better experience, a great experience for all of our guests. the combination of those two things is very powerful. >> guests right now, they want a deal. they want to know that they can call the reservationist and they can get the best quality and the best deal for their money. so while reservations are down, do you see savvy people calling and up saying, can you do any better? >> yeah, again, they want a deal but they also want a great experience. i think we're covering both of those things. we've got some pretty aggressive marketing campaigns right now. we've increased our sales force when everybody else is cutting back. we've increased our focus on marketing and promotional marketing online. we've got two really big promotions out in the marketplace to try to drive incremental business at a good deal for our customers.

and again, at the same time, we're refreshing our brand. >> what's powerful is the new identity. customers are looking for that signal of new and improved. and our new holiday inn identity is really a good, fresh approach. it's not just identity. sometimes companies put a fresh wrap over an old product. but for us, we're changing the entire product and the entire experience. the sleep experience, the bath experience, the arrival experience. it's a new holiday inn. and the customers are really responding well. >> it's a big relaunch that you're undergoing right now. >> the biggest in hospitality history. >> rebranding is costing about $1 billion. i know these plans were in place for a long time -- >> before the economy went south, yes. >> before things went off a cliff, if you will. was there a concern you should hold off on this expense given the economic environment? why go forward with this now, even in this tough period? >> it's certainly been a debate. if you're a historian of brands and great brands and recessions,

you'll find that pretty much at every major recession throughout history, the brands that have invested in their guest experience and invested in increased market activity have gained market share, and they've come out of the recovery much stronger brands and they've actually led their segment as a result. so in many ways it's an ideal time to invest in our brand. and we're already stealing market share. we see dramatic market share gains, versus our key competitors. >> we like this positioning in this mid-scale segment. it's the largest and most dynamic segment in the business. doing it now is very important because the new product and the consistency is really the most important driver of customer satisfaction. >> we'll leave it there. >> thank you so much. up next on "the wall street journal report," a look at the news this week that will have an impact on your money. then, was a $25 million fixer-upper linked to a presidential scandal? overpriced, an auction for a piece of history.

for more on our show and our guests check out the website wsjr.cnbc.com. you'll find a link to my new blog, maria bartiromo's investor agenda. check it out. let me know what you think of it. here's a look at the stories coming up in the week ahead that may move the markets and impact your money this week. once again, it's a jam-packed week of earnings. four dow components release

their earnings -- they include verizon, exxonmobil, disney. also monday another look at the state of the housing market. this time the total number of new homes sold for june will be reported. tuesday the conference board releases its survey of consumer confidence. always an important indicator. wednesday we get june's total orders for durable goods. that's consumer products meant to last a long time, six to nine months. that will be released by the commerce department. friday, the initial reading of the gross domestic product for the second quarter of 2009. the gdp is the broadest measure of economic activity and typically a market mover. finally, do you want to buy the watergate hotel? no one else did either. part of the washington, d.c. complex made infamous in the 1972 burglary went on the auction block this week. a room with more reporters than buyers remained silent. after auctioneers advanced an opening bid of $25 million.