million on the secondary. they're increasing waiting in the s&p 500 today and that will get volume at the close here. stock moved up all throughout the day ending near the highs of the day. some of the other financials, remember yesterday they didn't pay a lot of attention to the american express delinquency numbers. today they were the market leaders here. with the financials strong throughout the day. hp, these stocks have had huge runs, dell, ibm, hewlett packard all have had big runs off the march 9th lows. we're waiting for hewlett in a moment. we did better than expected pc demand in the second quarter. we're looking for guidance here what's going to be happening in the third and fourth quarter here. how about the retailers, pretty simple. home depot, target beat on the bottom line. top line a sad light. we're still not seeing signs of a pickup in consumer spending.

home depot did increase the numbers on cost savings. the stock moved on the upside even though as i said consumer spending not really doing a heck of a lot here. the important thing on hmo stocks, let's call it ping-pong. remember yesterday what happened? the stocks zoom on the upside on some discussions perhaps they're not going to be the public option would not be in the health care reform bill. today health care stocks, hmos moved down. some democrats objecting they want the public option in there. let's call it ping-pong for hmos. >> yesterday we had money moving into health care. it definitely feels like investors are looking for some alternatives trying to figure out how to invest in this debate. >> it's definitely happening. this hmo, they are definitely hostage to whatever the sentiment is from one day to the next. >> thanks so much. we mentioned oil that was certainly a highlight today. oil prices today at $69.31 a barrel. we did have money moving into a

number of the oils. exxonmobil was down in terms of the equity. that was one of the weak spots. walmart another weak spot within the dow tonight, one that a lot of people were talking about. an interesting situation. given the packet we had better than expected earnings notice retail sector. we break down market action along with nick, vice president of financial research at ms global. thanks for joining us. nick, back to school certainly one of the big issues here, one of the more important times of the year for the retail sector. what are you expecting going back into school and do you think the rally in retail is justified? >> i think it's going to be a sluggish back to school year. i think the market is ahead of itself in retail. and we need to have a little bit of a correction here. i just think people are going to continue to be a little bit cautious and you know, for that reason, i'm kind of playing for

a little bit much a near-term correction. >> do you agree with that, eric? >> yeah, i think we would expect the consumer to reengage like they were in the 2006 seven era are going to be disappointed. what we're hearing from retailers so far is positive news on the back to school front. you know, there is a big move in consumer discretionary stocks, retail in particular. if we do see an economic recovery, there's probably more room to go in those stocks. >> what do you want to do? do you want to be invested or take to the sidelines just from the valuation case. >> i think the reality is that the staying on the sidelines so far this year hasn't paid very well. the risk trade has been fully on all year. you're looking at equities having a good year, treasuries are the worse performing it asset class in the board where they were the best last year. if we get a recovery, people are going to regret not getting into the market. >> we've got the hewlett packard

numbers. much better than expected on earnings and revenue line. earnings per share coming in at 91 clents cents a share. revenue at $27.5 billion on revenue, this is the third quarter for hewlett and we are looking at some action in the extended outlook here. we are watching the stock trade. now trade higher just with these numbers coming out across the wires. silicon valley bureau chief jim goldman now break down the numbers for us and we want to look at the printing business, we want to look at china, very important part of the world for china for hewlett packard is china. this has been the story of the day in terms of that recovery here. let me ask you, eric, what you were expecting out of china. how important is a recovery in china for corporate america? >> it's very important. the two economic engines that the world is looking to take us out of this recession in a reasonable way are china and the u.s. china has been pulling more than

its own way weight for the first eight or nine months of this and we expect they'll continue. they should be able to do that more organically than through the physical stimulus they've been going through. >> do you agree with that, nick. >> yeah, i think it's been big for the material stocks, commodity based stocks, some of the industrial based stocks. why i am focused on the u.s. consumer is that the recovery there has been a little bit in balance. you basically have the stimulus, the lending that's gone on. you need some kind of civility come back for the export sector. we need to help that export sector out a little bit over there. >> what do you want to do if you believe that china is continuing this recovery? we had guests on recently talking about 9% growth in china. if that's the case, that should be pretty important for the global recovery. >> i mean, my general strategy is try to look for the market to pull back a bit towards 950 in the s&p and i think we'll try to

go up again. the big issue is the cash on the sideline which was kind of alluded to before. you've got about $3.5 trillion in money market funds. stocks are cheap to cash. there's a lot of stocks that pay dividends well above that. i think people are going to try to buy the break. i think the fear is among people is that if the market starts to get away from them and they have to chase it up. i think that's kind of the, you know, kind of the question that we face here everthe next 2004 to six weeks. >> great conversation. we appreciate it. thanks very much. as i mentioned moments ago, hewlett-packard just out with third quarter results. jim goldman breaking down the numbers. what can you tell news. >> this is a pretty good report and the kind of news that hp investors tech investors by and large were probably hoping for. you mentioned headline numbers, 91 cents against the 90 cents anticipated on better than expected revenue, 27.45 bild 23

was what the street was looking at. let's talk about guidance. there's some interesting developments with that, as well. as far as the fourth quarter, the company's fourth fiscal quarter, this is the back to school shopping time. very important to hp and its computer business. $1.12 is what the company is anticipating. consensus is a nickel under that. this is very good news on the bottom line. as far as the top line is concerned, essentially in line if not a little wider than what the street was looking for. essentially the street was at $29.81 billion, maybe a little less than that. that indicates about a 10% sequential growth. the company is anticipating 8% as far as the fourth quarter is concerned. looking at the individual units here, this is where the good news can be found. on the enterprise and storage service, really important to business customers for hp. $3.7 billion is what the company was looking for. $3.44 billion or a little below is what some on the street were

anticipating. services essentially in line, $8.5 billion. software, lighter than expected. $847 million, personal systems group, the home of hp's personal computer business, lighter than anticipated. $8.4 billion against the 8.6 billion. imaging and printing the street was expecting weakness there. essentially hp does come in essentially in line at $5.7 billion. we are seeing some pretty good news for this company and indy indications as to why these shares have been rallying into earnings tonight. >> thanks very much. i have more information for you right now. i just got off the phone with hp ceo mark herd and i want to give you highlights of what we just talked about on the heels of this quarter report. his quote, hp is executing well in a challenging market. we are investing for growth and are poised to be an early beneficiary of a turnaround in the economy. company posting a third quarter financial results. solid says they beat street estimates on revenue and earnings per share.

cash flow up 15%. in the third quarter. solid margin expansion, company talking about strong execution across the biz. biz stabilizing across all markets. mark herd just told me moments ago, he said there's sequential improvements in key business segments, double digit growth in china, very important in this quarter and very important to the company. the company has operations all over the world but the china story tr really lifted business throughout asia. the company says for the u.s., it remain stable for the second quarter in a row. what you have going on here is a stabilizing in the united states, china very strong. europe same situation as we have been seeing. a lot of people have been focused on europe because just the other day we saw positive gdp out of france and germany. i would not be reading too much into those positive gdps in france and germany because it feels like based on what we're hearing that europe is not seeing a major change here.

but i just hung up with the ceo and he talked a lot about solid cash flow. for this quarter, just under $4 billion for operating cash flow. remember last quarter, had you $5 billion. you're talking about $9 billion in operating cash flow in two quarters, very positive. he said that the u.s. is stabilizing. i got the feeling maybe he needs to see one more quarter of pretty good stabilization in offered to really call this a turnaround. i don't know that i would say necessarily that he believes that we're seeing a real turn around here. and china was the highlight of our conversation. he said the business in china strong, double digit year over year. really helped the entire asian region. europe no change as i mentioned. another issue a lot of people are talking about is the printing business. printing was somewhat of an issue according to some analysts last couple of quarters. he said the bottom line on printing inventories are better. that is very positive today. we're happy with the printing business. margins up 100 basis points.

mark herd feeling good about the most recent quarter. let's get some more experts into the conversation. tell us what it says about the broad economy and the stoke market performance and how this sets the tone for tomorrow. brent brace lynn is with me, senior research analyst with pacific crest securities, a sector perform rating on hp. we appreciate your time. your reaction to they these numbers. >> a sigh of relief. this now confirms that the i.t. fundamentals are improving. i think the worst is now behind hp. we saw sequential growth this quarter. they're looking for 8% growth next quarter, certainly executing better on the bottom line. we're quite pleased. again, bit of a sigh of relief for investors that are looking for the tech to recover here. >> okay. so the china story was real important. mark herd just telling me that the performance in china was very strong and it really lifted the entire asian region. yesterday we had a scare that perhaps the recovery in china

wasn't what people thought. what are your thoughts on the china story and how important that is for hewlett packard? >> certainly is important and if you go back to look at the cisco report, we saw pretty good strength out of america's region. now we are seeing out of hp strength in china. those are two very important reasonings. we're seeing not only stiblization but improvement. in order for the tech market to continue to work and tech to continue to work, we need to see not only signs of stabilization but signs of improvement. looks like we're getting that now out of china and americas. >> printing, inventories better. down here. that was a positive. would you say it seems like people are still printing and the printing pis was strong based on these numbers. >> the printer side of the business, clearly the company has been focused on reducing printer inventories in the channel. that's negatively impacted their printer business. this was the last quarter they planned on reducing inventories. it sounds like based on your

conversation that they completed their inventory reduction plans now and you start to see improvement on the printer side of their business going forward. >> let pea ask you about europe. mark herd said no change in europe. sounds like a blah situation in europe despite we had positive gdps in france and germany. how important is a recovery in europe for europe and the tech sector. >> for hewlett, it's a very meaningful part of our business. our checks from reseller distributors have started to show things improving there, some of the component sflirz are also talking about an improvement there. we're probably a little more optimistic what's to come in europe. that could be the next opportunity for hp to do better going forward. >> i guess one of the big issues is the conference call and whether or not you want to put new money to work here. the stock was up 15 straight days. hewlett packard shares have obviously done well. what do you want to hear on the

conference calls? probably going to be widely attended. 800 people called in last quarter. what do you want to hear in the conference call and bottom line, would you commit new capital to hewlett today? >> as far as hp is concerned, it's the world's largest i.t. supplier. we're bullish on hardware we would have a positive bias on hp going into the end of the year. obviously, we would put new money to work into other names we thought had a better risk/reward. what do we need to hear this afternoon? we really need to hear mark herd's confidence the worst is behind him. that's what we'd like to hear that we're on the road to recovery here. >> it great conversation. we so appreciate your time. we'll see you soon. the stock is up 69% since the march 9th lows according to rich peterson. this month marks the one-year anniversary of the closing of hewlett's second biggest acquisitiac wwhich

eds. mark head telling meet synergies were very, very positive in this quarter. another exclusive, i'll be talking with the ceo of pulte homes. a sign that the housing market has finally begun a turnaround. we'll talk with the ceo of sacks to tell us when consumer spending may start to pick up. back in a moment. i'm racing cross country in this small sidecar, but i've still got room for the internet. with my new netbook from at&t. with its built-in 3g network, it's fast and small,

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welcome back. the commerce department reporting house starts fell last month but a new report indicating homeowners are becoming more optimistic about the market. diana olick is in washington with the details. >> that's right. it was really a mixed bag in the housing starts numbers today. single family bumping up a little bit and plult family really tank. take a look at numbers. single family starts rose a modest 1.7% in july from june. multifamily fell to 13.3%. builders may be juicing the single family pipeline based on

improved demand and getting the buyers in before the tax credit expires. those are spec homes. now, single family permits rose 5.8% making permits now up 34% since january. all this news better for the building industry but not the longer term condition of the housing market which is still struggling under bloated supply and rising foreclosures. >> in 2006, housing starts peaked at over a million and a half units based on builders' peshceptions of these things which we see turned out to be wrong and they fell by more than 50% after that. so the million dollar question is what's the reality and what's the perception. >> and that's what we're asking also today with the news zillow.com report. it says 60% of all homeowners believe their home lost value over the past year while in reality, 83% lost value even more shocking from the survey is that 81% of homeowners believe

their own home's value will not fall over the next six months. most analysts will tell you prices are still expected to fall 10 to 15% nationally from where they are. what is perception and what is reality and why do homeowners have so much positive attitude in this market. >> you've got to give it to them. go to the blog, realtycheck.cnbc.com. >> shareholders of pulte and centex agreed to a merger. but it comes at a time when the industry is facing strong economic head winds. joining us in another exclusive right now to discuss the union, pulte chairman and ceo, richard dugas. good to have you on the program. congratulations on this merger. >> thank you. >> and the shareholder vote here. tell me the benefits of these two getting together. >> the company is going to be able to save $350 million a year. which is going to help us to return to profitability quicker. that's the short-term benefit.

long-term, we get an excellent brand in the sent tex brand. we get lots in texas and the carolinas where we needed lots and frankly, we get a culture of a company very similar to ours. we're very excited about the combination going forward. >> what kind of sinner ji can you expect here? because you do have two different management styles. do you feel like you're going to have a little time to really get this integration going? a lot of people say pulte has been known to be centralized management where the orders come down from the corporate office whereas sent tex is very decentralized. >> we're going to have a management team that's very focused together. we've been working on the integration for 4.5 months and had a good window into how sent tex operates. and frankly, i would point out that as we go forward, it's really about making sure that our teams on the frontlines stay together. we have real plans to insure

that that happens. i'm not too concerned about that. >> let me ask you about the environment today. how would you characterize business right now. >> i think home building is fairly stable right now. since early part of the year, our sales volume hasn't fluctuated very much. a lot of our public competitors are talking about stabilization. we're not here to call a bottom but seem to be experiencing some stabilization overall. >> okay. so do you think that pricing will continue to fall? >> yeah, i heard you talk about that just before i went on. my opinion is it's not going to fall a lot from here if it does fall at all. what i would say is that the statistics that the government reports are lagging indicators frankly, and what we see on the frontline day to day are a little bit more telling. and we haven't seen tremendous price declines recently nor are we forecasting big declines from here. >> do you predict we'll see an upturn in the next year with the continuing rash of foreclosures that are offering product at greatly reduced prices? >> i would say the first time

home buyer trax credit helped a lot. inventories have come down both for existing homes and for new housing. i think sometime in the next year you'll see aim problemment in market conditions. everyone talks about foreclosure and all the supply. if we get demand back in the market and it gee binz to feel like we're seeing it, we can bring the total number town down. total inventories are beginning to come down a lit. >> what does the order book look like for the fall. >> decent. we haven't given informa out about the third quarter. with our big combination with cent tex, our numbers are a combination going forward. i expect stable conditions through the rest of the year and then some improvement into 2010. >> let me ask you what the most important sort of indicator is. because people are sketchy on this. earlier this week, the company reported a second quarter loss of $189 million.

that was worst than what analysts were looking for. orders, average say prices down. are there one of those aspects beginning to show improvement? which do you think is the most important cater to look at. >> in home building, it's about six months from the time you take the order till the closing volume comes through. that applies to margins and everything else applicable to those sales. the most important indicate ser go forward sales volume. as we see that begin to stabilize, we understand kind of where we are. our combination with cent tex gives us the ability frankly to take a lot of money out of the equation. we said publicly $350 million. we want to get back to profitability. so i would say go forward, new orders are probably the leading indicator we should look at. >> does that savings include layoffs? should we expect cutbacks coming. >> about $100 million in savings from corporate savings which does include some layoffs, about $150 million in consolidation of field offices and then about $100 million in interest

payments on our debt that we intend to retire. you may have seen a press release last week where we said we're going to buy in about billion and a half dollars worth of our debt. both companies combined ended the second quarter with about $3.6 billion of cash. even wishing the debt leaves us $2 billion of cash going forward. we feel very good about our financial position. >> walk us through the country here. a lot of people say take a place like new york. prices have not kept pace. the decline has not kept pace with the rest of the country. maybe prices in new york still need to come down versus somewhere else like arizona where prices have come down quite a bit. your operations, yours and centex have large, he posh to arizona, california, nevada. where are the areas of the country you think are still vulnerable to declines. >> the best mark in the country is washington, d.c. the government is adding a lot of jobs. most builders are saying d.c. is

probably getting better. outside of that, i think you have a whole group of markets that are probably stable and a few still lagging. florida is very difficult. there's no question about that. i think the arizona market is stabilizing. and then you've got markets like texas and the carolinas that are probably fairly stable to maybe an even positive look because they didn't see the big run-up in pricing, there ever they're not seeing the same run down. you're right it's going to be mixed in terms of the recovery. it won't be all over the country at the same time. >> would you say in one year, we can talk recovery or really you just don't know? >> i don't know. but it would be my bet that we would be talking about a recovery in a year. however, i would tell you it's not going to be in my opinion a v-shaped recovery, a more slow one. we've got a lot of inventory. it's going to take a while to work through. we should not expect a rapid improvement. >> some places four or five years worth of inventory. good to have you on the program. we'll see you soon.

richard dugas, pulte's ceo and president. we'll tell you why shares of j crew are getting a nice pop today and speaking with the ceo of saks. back in a moment.

welcome back. now a look at the other stories we're following.

drug wholesaler cardinal health reporting fourth quarter profits down 14%. the company made $273 million. but that didn't match wall street expectations. the company boosts fiscal 2010 profit outlook because of strong growth in the medical shares. tonight up 2.5%. corning upgraded to outperform from perform. a target price of 19. concerns about falling demand for liquid crystal display glass is unwarranted and as a result, investors are underestimating a potential recovery by the company. stock up 4.75% on the move. j crew upgraded. the firm also hiked price target on the stock to 35 up from 25. strong fall product mix and long-term growth potential is ahead up 8%. the producer price index falling a record 6.% year over year. should wall street be worrying about deflation or is inflation

still the bigger concern? how will either impact your investments? we'll also check hewlett packard shares what they're doing after the company reported better than expected earnings and revenues. stay with us. >> here's a look at some of today's winners and losers. upbk ♪ singer:wanted to get myself a new cell phone ♪

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welcome back. producer prices down just under 1% in the month of july. impacted by nearly 2.5% drop in energy. the report taking some of the edge off of inflation concerns. but does it give a boost to the caves deflation. >> my next two guests tony fratto, a former white house deputy press secretary and cnbc contributor. john lonski with moody's investor services. inflation or deflation, which is the issue? >> i think it's inflation. i haven't seen signs of deflation yet. cpi still is in pretty good shape and you know, really if you look at the risk, we have all these liquidity programs out there, zero policy rate from the fed. i think the risk is definitely on the side of inflation. >> we still see deleveraging

going on. >> going to happen for sometime. the fed knows how to deal with deflation and not afraid of it yet or they'd be talking about expectations a little bit more than they are. they're very primitive tools to deal with deflation. we may see disinflation, you know, some lower prices. maybe even some deflation, but not a broad deflationary spiral. >> what do you think, john. >> i don't know how you can talk about being worried about price when it's real estate deflation that was one of the principal drivers behind the latest recession. we'll still very much kempbd about price deflation as it relates to rale assets. commercial real estate price deflation shows absolutely no signs of letting up. that's creating a lot of problems for the regional banks. that's the least of my worries is inflation especially with wages flats to lower. we are also looking at the deepest year-to-year drop by

employment income since the 1930s. consumers can't afford higher prices. >> we've got a savings rate better than 6%. give me your sense where we are right now. the market obviously the stock market has been rallying since the lows of early march. is it reflecting reality? >> it may be. i mean, i think a recovery is here. a recovery perhaps startsed in the month of july. but my sense is that both the equity market and the corporate credit market have priced in a recovery by business sales or corporate revenues that has yet to materialize. my other sense is that the equity market and corporate bond market are going to be proven correct and given all this cost cutting it's not going to make much of an increase by business sales to bring about outsized gains by profitability. >> tony, what do you think. >> i think firms can do very well coming out of this recovery. the question is how sustainable it is. they have cut costs to the bone.

they've -- all of their production costs cut to the bone. very little growth in the economy will result in profits for them. i think the market is reflecting that. over time, you have to ask the question what sustains that and right now the consumer is so battered, still trying to pay down debt. the consume ser still out of work largely. we see forecalosures up. it's going to be awhile before the consumer can provide the final demand fur a very strong economy and strong market to go with it. >> that being said, let's face it, home sales are growing again. we're looking in the second quarter maybe a 25% annualized increase by housing starts from the first quarter, almost a v-shaped recovery for housing. there's a lot of penitentiary up demand. we're looking at the lowest ratio of auto sales to employment on record. so we may be surprised at the upside for consumer spend. i don't think it's all going to be realized but i am looking for material growth by consumer

spending and the overall economy looking forward. >> we just said the consumer didn't have money for to make those purchases, john. >> no, some consumers do. credit worthy consumers have the savings and they're going to respond to attractively priced merchandise. >> we are going into 2010. what is the risk of any strength being choked off by different new policies coming out? tony, you are a former government official in the bush white house. are you comfortable with the policies with what's going to happen in 2010 as it relateses to the economy? taxes are going up. >> i wouldn't be comfortable if i was the democratic party going into the 2010 elections because you are going to see still elevated unemployment. that's going to stay through 2010. we know that tax increases are coming. then we have the fed trying to pull off essentially the triple lindy of policy making trying to extricate themselves from these programs and trying to manage monetary policy going into next

year. that's a very, very difficult and tricky thing to do. it's likely they'll make a mistake. >> gentlemen, great conversation. we really appreciate your time. tony, john, we'll see you soon with another update on the economic performance. we get that update next, as well. saks up next. the first on cnbc interview with the retailers boss, the ceo will join me. when he thinks consumer spending will begin to recover. back in a moment. ccffñññññññ

welcome back. cost cutting and inventory management two reasons saks managed to beat the street's expectations forces the second quarter. the company did lose money posting a loss of 39 cents a share, a net loss of 54.million. it was smaller than street expectations of a loss of 52 cents a share. today's news sparking an upgrade on the stock out of jpmorgan from $6 to $7 a share. now we break down the quarter with saks ceo steve said off. welcome. >> good to see you. >> can you characterize the quarter for us? >> i think it was a good quarter for us in a very tough environment. we trolled what we can control. we controlled inventory, expenses, and i think and capital spending. we came out quite well in what is obviously a very difficult consumer environment. >> what do you need to do going

forward for the rest of the year in terms of inventories. a lot of people expecting the inventory out there remains significant. >> we feel quite good where we stand. we came out of the quarter with an 18% decline in comp store inventories and looking for same store sales in the mid to high single digit declines for the fall. so the relationship of supply and demand is actually quite good as far as we're concerned going into the fall season. >> going into the fall season, what's most important here and tell me what the trends have been in terms of the consumer? are they clamping down on luxury spending? are they shiftinging in terms of their priorities? what they want to buy, where they're looking for value. >> i think since last fall, you've seen a slowdown in luxury that's been worse than the other sectors. right now we're in a little bit of an l where you saw a very steep decline and it stabilized at a lower level. it didn't getting worse. maybe a little bit better in july but it's not demonstrably

changed. i think you'll start to see comp improvement come fall just because you're off of a lower base. the consume ser looking for value, fashion, looking for special items. as you see less inventory in the stories i think you're starting to see consumers respond to saying hey, i'd better get it now because it won't be there later. the consumer loves brands and like luxury. a lot of consumer research coming out saying the consumer doesn't want to trade down in brands. they like the brand and like a better value and whether it's in buying on sale or getting better value pricing from the brands out there. >> how significant are the price cuts going to be? are you going to be taking prices down? >> i think what you're finding is a lot of vendors are providing more in the way of opening price point products. it's still within the brand matrix, still within the brands they love but you are seeing more entry price points as well as the high end special products. >> the international markets

here, can you give us a sense what's going on around the world? earlier i spoke with the ceo of hewlett packard. he said china was very strong. do you see asia as an important component in terms of growth for your company? >> not for pups we have a small licensed business overseas primarily in the middle east and mexico. we're very focused on the domestic markets. worldwide other than some of the chinese and asian markets you're seeing slowdown around the world. >> europe is still pretty weak. >> not as weak as the united states. in france and england, for example, you're seeing a benefit of some of the tourism that left new york and went to london. >> what are you expecting for back to school? >> i think you're going to see an improvement on a reported% change just again because of the lower base. we're not assuming that the underlying trends are going to get a lot better in the fall. we've managed our inventories and managed our costs appropriately. if it does get better and it's largely for us tied to how the stock market does, if people

start believing that the higher -- that performance the 9,000 trend is going to be there for a long time, i think our consumer will be back. >> isn't that interesting that the stock market dictates behavior in so many cases. we've had a very strong stock market recently. >> absolutely. i think if people believe that it's here to stay, that it's going to improve from this level. i think it's going to bode well for luxury. >> so do you see an immediate reaction when you've got a pretty firm stock market, do you see behaviors change. >> i don't think you see it immediately. it's a lag effect because of the psychological effect of do they believe it's here to stay. if the consumer believes it's going to be staying, i think you'll get a longer term effect. >> a lot of people have been talking about consumers hoarding their cash, a savings rate up to 6.5, 6.9 or so. are you seeing that? >> i've seen the luxury consumer shop their closet and curtail purchases. they're still buying special items. >> right now, we're seeing shoes and handbag start to improve in

terms of performance. they're starting to come back. if it's a special piece, they're buying it. so i'm seeing signs of life. but you're not seeing the level of behavior that you saw before the stock market collapsed. >> let me ask you about the credit markets. there are figures out that say you've got $1 billion in debt due in the come three years. as you push toward profitability, how do you -- how do you deal with the debt load going and the maturations ahead? >> well, i think from our perspective in terms of our debt load, we have essentially, we have $20 some million due next year, $140 million due in '11. we have $500 million revolver that expires in another couple years. we feel very good about our ability to weather the storm regardless of what happens. >> so do you plan to come to the market in any way in terms of improving the balance sheet. >> right now we're tracking to be free cash flow positive. so we feel very good where we

are. we raised $120 million in a convertible offering earlier this year and just did a shelf registration that would give us access up to $400 million. we'll monitor conditions. right now we we'll monitor conditions. right now we feel good about where we sit. >> you talked about the value propositi proposition. you have 54 discount stores? >> yep. >> if the consumer continues to look for value and trade down and we sort of bump along the bottom for a while, would you expect to turn more of your stores into discounters? ? >> oh, i wouldn't see us changing the regular stores to off-fits. we see growth in the channel, five to six stores a year. right now there's an overlap between the full line and the office store, so it's a very different customer base, but we see an opportunity for growth in the outlet channels. >> i was reading one quote. i guess bernard arouno, saying

you cut customers, people believe whatever they buy is going to lose value. >> i think luxury is all about exclusivity, limited distribution and limited supply, and one of the things you're starting to see with the reduction in the inventories is a reduced supply equation, and the attitude that, boy, if i don't buy it now, it's not going to be there, and that's what luxury's all about. >> for sure. mr. sadove, good to have you on the program. thank you very much for your insight. >> thank you. >> we appreciate. it see you soon. steve sadove, seo of saks. compact discs may not be the key to the music world any longer.

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welcome back. let's look at the business headlines of the hour. general motors adding about 60,000 vehicles to its third and fourth quarter production forecast. in response to increased sales driven by the government's cash for clunkers program. more than 1,300 union jobs will be reinstated as a result of the production increase. digital music downloads keep gaining market share on cds. according to npd group, digital downloads now make up 35% of the u.s. music sales compared to 65% for cds.

that's up 5% from a year earlier. npd predicts digital sales will nearly equal cd sales by the end of next year. apple continues to be king of the digital music world with itunes accounting for 25% of all online music sales. blockbuster plans to offer movies that can be watched on motorola phones, their first move into mobile video as it looks for new revenue sources amid falling store traffic. we head to the nasdaq market site in new york city now with melissa lee and a preview of "fast money" at the top of the hour. hi, melissa. >> at the top of the conference, the hewlett-packard conference call. all the after-hours headline as well as how the stock is moving. also, there was an aggressive call on the smartphones. is that a call you should buy into? apple, r.i.m., palm all on fire, but are they too hot to touch? and a interview with the ceo of intersill. do they see demand for chips for flat-panel tvs and mobile phones? first on cnbc interview top of

the hour. >> see you in a few minutes. up next, we'll look into tomorrow and check on hewlett-packard shares on the heels of the earnings. opportunity sales event,xus gon you can do both. special lease offers now available on the 2009 es 350.

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before we say goodnight, let's take a look at the day on wall street. it was a pretty good broad-based rally. dow jones industrial average finishing above 9,200 again with a gain of 82 2/3. goldman sachs was up 2%, jpmorgan up better than 2%. bank of america and others as well up between 1% and 3% in the banking sector. nasdaq did well. technology on the move, on the up side, up 1.33% on the nasdaq, 25 points higher at 1,955 and the s&p 500 picking up about 10 points, about 1%. hewlett-packard reported earnings after the close tonight. they were better than expected, both on the earnings per share number and the revenue. stock is up just fractionally here as we say goodnight. have a great evening, everyone. thanks so much for being with us. "fast money" is up next. i'll see you tomorrow. hewlett-packard earnings come in a penny above estimates at 91 cents a share.

ceo mark hurd says business is stabilizing. a judge reversed the options back-dating the conviction of former brocade communications ceo reyes. reyes is facing a 21-month prison sentence. sony is cutting the price on the game koens yoel to $291 and introducing a slimmer version next month. that's cnbc.com news now. i'm julia boorstin. "fast money" with melissa lee starts now. is a bull market back on or was today's turn-around just a head fake? "fast money" traders say don't be fooled, protect your profits. tonight we'll show you how. live from the nasdaq market site, i'm melissa lee and these are your "fast money" players. tonight, the one tech story no one knows about but everyone should. also, why the shanghai stock index may matter more to your money than the dow. and steve grasso, the governator gives the one gross story that even a recession cannot kill.

first, the "word on the street" now. pete, we had a chat on the "halftime report." how was your day since then. >> i think the day panned out about how we hoped it would be, some kind of rebound. we got a nice rebound, and the options, mark haines, everybody's talking about the volatility index. plate tell you, there was not panic yesterday. we talked about that. and today was a great result. you see the volatility index pulling back towards 26 because of the fact that the protection's been put in place. it kept people from calling up steve grasso to sell their stocks. because of that, i was able to hold onto some of the stocks that i wanted to hold on, the bucyruss of the world, where i believe the global growth story, i believe in china, asia, those markets. because of that, i want to hold onto those stocks, but i've got the options there to hold onto me to keep it going. >> i've definitely seen shorties come back in the market, but as pete said, no aggression on the self side. these guys are not panicking. >> so it was orderly. >> it was an orderly sell-off, it was a slow decline, it was on light volume.