Moneyline News Hour

President Clinton Discusses the Budget; Dow Down Again, Nasdaq Shatters Another Record; Pfizer Wins Battle for Warner-Lambert

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

STUART VARNEY, CNN ANCHOR: Tonight on MONEYLINE, the White House plan for tax cuts, spending and debt elimination. We'll have an exclusive interview with President Clinton, his take on whether history's longest boom can last.

(BEGIN VIDEO CLIP)

WILLIAM J. CLINTON, PRESIDENT OF THE UNITED STATES: I don't pretend that we've repealed the laws of supply and demand, nor do I think we have repealed the potential for human error. So of course, it will come to an end. It probably will some day.

(END VIDEO CLIP)

VARNEY: Three months ago, the hostile move that stunned the drug industry.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Pfizer has made a bid for your company.

(END VIDEO CLIP)

VARNEY: Tonight, Pfizer is the winner in the battle for Warner- Lambert.

(BEGIN VIDEO CLIP)

WILLIAM STEERE, CHAIRMAN & CEO, PFIZER: Oh, we're very excited about it.

(END VIDEO CLIP)

VARNEY: We'll talk with both CEOs.

And Wall Street's two-tiered market: the Dow down again, the Nasdaq shatters another record.

ANNOUNCER: This is the MONEYLINE NEWS HOUR. Reporting tonight from New York, Stuart Varney.

VARNEY: Good evening. Willow is in Washington tonight and will be bringing us that exclusive interview with President Clinton. First, though, here is our top story.

At last, the bruising battle to create the largest U.S. drug company is over. Pfizer today sealed its $90 billion purchase of Warner-Lambert, emerging the victor in a three-month conflict that began as the biggest hostile U.S. bid ever and ended with the creation of a drug giant.

Allan Dodds Frank reports.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): After briefings at his New York headquarters, William Steere, the victorious chairman of Pfizer, and his vanquished counterpart from Warner-Lambert touted their $90 billion deal to create the nation's largest drug company.

STEERE: We're very excited about it. You take the fastest- growing company of Warner-Lambert and combine it with the second- fastest-growing of Pfizer, it's really an extraordinary combination.

FRANK: Smiling and waving, Warner-Lambert Chairman Loedwijk De Vink accompanied Steere on a helicopter for what must have been a bittersweet trip to Warner-Lambert's New Jersey headquarters: sweet for De Vink, because his three-month holdout got Warner-Lambert shareholders a 34 percent premium; bitter because he will leave the new company, partly as a result of his attempts to merge with American Home Products and Procter & Gamble.

LODEWIJK DE VINK, CHAIRMAN & CEO, WARNER-LAMBERT: We needed to combine and provide an opportunity to have the first-class research and innovation of products, and certainly Pfizer is providing that. And it will create a company which is tremendously exciting for all colleagues that are involved here.

FRANK: Pfizer and Warner-Lambert together have 138 drugs in development and seven drugs already selling more than $1 billion each this year. The top drug: Lipitor, the $3.7 billion anti-cholesterol drug the two companies co-market.

JEFFREY KRAWS, DRUG ANALYST, GRUNTAL: Now, when products come to the marketplace out of this huge R&D budget, they'll also have Pfizer's five-consecutive-year ranked No. 1 sales force by physicians to promote products.

FRANK: Before Pfizer takes over, Warner-Lambert will pay a $1.8 billion breakup fee to American Home Products, which backed off earlier demands for more money.

(on camera): The new Pfizer hopes to save $1.6 billion over the next three years, but is not yet ready to outline how it plans to achieve those savings. With a combined work force of more than 90,000 employees, some layoffs and perhaps even plant closures appear inevitable.

Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: And here's a check as to how investors reacted to this deal: Warner-Lambert stock today rose more than 2 1/2 points and Pfizer was up nearly $1. As for AHP, it gained 2 1/2. By the way, AHP is now a three-time loser at the merger game after failing to merge with SmithKline Beecham and also with Monsanto.

For more on the merger, we're joined now by the man who beat out AHP: that is Pfizer's chairman and chief executive, William Steere, and Lodewijk De Vink, chairman, president and CEO of Warner-Lambert.

Gentlemen, welcome to MONEYLINE.

DE VINK: Thank you.

STEERE: Thank you.

VARNEY: Mr. De Vink, I can start with you. Let me ask you why you're not going to continue as an executive with the merged company?

DE VINK: Well, I -- I, first of all, am going to focus on making sure that in these last three, four months, we're going to put cooperation in the right format with the right attitude to make sure that the combination of both companies is going to be absolutely perfect.

Then Bill had his team in place, and I believe it is most important that there is a unity of command. And I can look at making sure that if they need some advice, I'll give it. I'm very much interested in making this company very successful. It is not vote of nonconfidence. On the contrary, I believe very much it is a great company.

VARNEY: Would I be sort of accurate, halfway accurate, if I were to say that there are some senior Warner-Lambert people who are not happy at being taken over like this?

DE VINK: Well, that's probably true in any combinations of business. But we have got to look at, first of all, our fiduciary responsibility for our shareholders, and they clearly said that this was a great combination and they have showed it today again that it was well-received. And we will find the best team to move this very, very good company on to even loftier heights.

VARNEY: And Mr. Steere, could I ask you if this battle was really all about at its heart Lipitor, you know, the anti-cholesterol drug? I think you want to make that your flagship drug, correct?

STEERE: No, not really. The -- Lipitor is a critical asset to Warner-Lambert. But Warner-Lambert is far more than Lipitor. Warner- Lambert has extraordinary medical marketing, terrific research, a full pipeline. And although Lipitor is extremely important, Warner-Lambert is far more than Lipitor. VARNEY: Pfizer with this deal is no longer a pure pharmaceutical company, because Warner-Lambert brings to the table Listerine mouth wash, for example, Schick Razors, Sudafed. It brings all the -- those consumer products to the table.

Do you want to keep those products or will you consider selling off those assets?

STEERE: Well, we certainly think those are excellent brands. They're well-managed. They make money. They're growing.

And so our plans for right now are certainly to keep those brands.

VARNEY: We hear that there's some $1.6 billion worth of savings expected over the next three years. Mr. De Vink, are you a wit worried that some -- a lot of those savings are going to come out of Warner-Lambert?

DE VINK: Well, no. Of course, I'm always worried about these things. There's nothing -- we're bringing those companies together. We'll be going without any dislocation. But clearly, we have two of the fastest-growing companies the industry.

So yes, we will have some cost savings. But at the same time, we will continue to make investments in research and sales. And I think that dislocation will be minimized. But there will be some, no doubt about it.

VARNEY: Mr. Steere, just briefly, looking down the road, President Clinton wants to limit the prices paid for drugs in the Medicare-Medicaid program.

Do you worry about that hitting your bottom line at some point in the future?

STEERE: Well, I think what the concern is not so much on price controls as it is getting more medicines to more people, and especially our older, poorer Americans. And the pharmaceutical industry is certainly in favor of that. And there's a variety of legislative proposals, from the president's to Senator Breaux and Senator Frist have proposals.

So I think there is -- there is a variety of mechanisms that are being discussed to make sure that all Americans have access to the most modern medicines.

VARNEY: William Steere from Pfizer and Lodewijk De Vink from Warner-Lambert, gentlemen, we thank you very much for joining us tonight.

DE VINK: Thank you.

STEERE: Thank you.

VARNEY: Elsewhere now, Wall Street kicked off the week on what's become an all-too familiar pattern. Blue chip stocks lost ground while the Nasdaq surged to yet another record.

Hit by losses in General Electric and Honeywell, the Dow dropped 58 points to 10905. But continuing high-tech hunger drove the Nasdaq 77 points higher. It closed at 4321, up nearly 2 percent: another record there.

For complete market coverage tonight, we have Rhonda Schaffler at the New York Stock Exchange and Charles Molineaux the Nasdaq market site.

And we start with you, Charles. Go ahead.

CHARLES MOLINEAUX, CNN CORRESPONDENT: Yes, well, Stu, we're seeing a new record here on the Nasdaq despite a dearth of economic or even earnings news. But strategists say the sense continues that companies are going to invest in technology no matter what. So investors are willing to abandon traditional blue chips for the Nasdaq.

Techs -- the tech composite surged at the open, lagged in the middle today, but never left record territory and surged dramatically at the end to close above 4300 for the first time, at 4321.

A 6 percent rocket ride for the biotechs led the market higher amidst enthusiasm over Genomics. Millennium Pharmaceuticals hit a new all-time high.

Computers had a blockbuster day as semiconductors soared 4 percent. Chip equipment makers Applied Materials and Aetna both hit new all-time highs. Intel closed within 31 cents of one. And networking giant Cisco scored another new record ahead of its earnings due tomorrow.

Telecoms enjoyed excitement over paging stocks. Paging Network was the most actively traded, up 67 percent thanks to enthusiasm over a new deal from MetroCall, which gained 11 percent.

A very mixed Internet sector gained about 1 percent. Inktomi surged, but Amazon and Excite.com fell. And strategists say in the absence of earnings or economic news, investors are looking for that growth. And even in what they expect is a rising interest rate environment, techs is where they're looking for it.

VARNEY: You know, Charles, one of these days we're going to have a session where you get your breath back. But it won't be for some time.

MOLINEAUX: It'll happen

VARNEY: Charles Molineaux at the Nasdaq marketsite, thanks very much.

While tech investors posted that record, the blue chips were stuck in their doldrums.

Rhonda Schaffler, as always, spent the day at the big board -- Rhonda.

RHONDA SCHAFFLER, CNN CORRESPONDENT: Stuart, a new week but a very familiar theme: a tale of two markets. Strong tech stocks, including a huge rise in shares of Hewlett-Packard, not enough to squash fears of higher interest rates.

The Dow industrials ending the day just points above 10900. A different story, though, for HP. Salomon Smith Barney upgraded its first-quarter profit estimates by 4 cents a share, citing strength in its PC business and strong business in Asia.

By the close, shares of Hewlett-Packard surged more than 10 1/2 and fellow Dow component Intel gained more than 3. But it was stocks like General Electric, Honeywell International and Alcoa that pushed the blue chip average lower.

Tomorrow investors will have new report on the economy to pore over with the release of fourth-quarter productivity due out. Also due out, the latest profit reports from Cisco Systems -- Stuart.

VARNEY: Do not ignore Cisco Systems these days. Rhonda Schaffler at the big board, thank you.

Here's what we have for you coming up on MONEYLINE, we'll have the details on today's budget from President Clinton. And don't miss our exclusive interview with the president later in this hour.

Plus, a new media showcase for old money style. We'll tell you about Polo, Ralph Lauren's, dot.com deal.

ANNOUNCER: From CNN's New York headquarters, this is THE MONEYLINE NEWS HOUR.

(COMMERCIAL BREAK)

VARNEY: Turning now to some of the day's top stories outside the world of business in the "MONEYLINE News Digest," Britain warning talks with the hijackers of an Afghan airliner could drag on for days. The hijackers today released eight hostages at an airport outside London, leaving more than 150 others on the Ariana Airlines jet.

Two private planes in a mid-air collision over suburban Los Angeles just a week after that Alaska Airlines crash off the coast. Today's accident killed at least four, with wreckage falling close to freeways packed with rush-hour traffic. But fortunately no one on the ground was injured.

Los Angeles doctors predicting a complete recovery for Dreamworks SKG partner Steven Spielberg. Surgeons removed one of the director's kidneys after doctors found what they're calling "an irregularity."

And in politics, Hillary Rodham Clinton taking her Senate campaign on the road. Her first stop: Buffalo.

(BEGIN VIDEO CLIP) HILLARY RODHAM CLINTON, FIRST LADY: We're beginning to recognize how quickly New York could catch up and become a leader in the information-age economy, just as New York led the industrial-age economy.

(END VIDEO CLIP)

VARNEY: Mrs. Clinton promising to bring jobs to neglected areas.

And back in Washington, Mr. Clinton delivered his eighth and final budget to Congress, where it got a hostile reception from Capitol Hill Republicans. The overall budget totals $1.8 trillion for the next fiscal year and lays out a 10-year plan for spending the surplus, as well as eradicating the national debt.

Bill Dorman reports.

(BEGIN VIDEOTAPE)

BILL DORMAN, CNN CORRESPONDENT (voice-over): President Clinton painted his own picture of declining government debt today, presenting a budget he says illustrates fiscal discipline.

WILLIAM J. CLINTON, PRESIDENT OF THE UNITED STATES: As a share of the economy, it is now worth pointing out that federal spending is now the smallest it has been since 1966, with the first back-to-back surpluses in 42 years. Federal deficits are last century's news.

DORMAN: But federal spending remains a current story. The president's budget would boost discretionary government spending by about 4 percent.

Defense spending would top $305 billion, only the second real increase since the end of the Cold War.

Expanded health insurance would cost $110 billion over 10 years.

A prescription drug benefit for Medicare patients would add $160 billion to the budget over 10 years.

An additional Medicare benefit for high-cost catastrophic drugs would add another $35 billion over the next decade.

Tax cuts would be aimed at middle- and lower-class families, focusing on education and health care.

Republicans on Capitol Hill call the budget disappointing.

REP. JOHN KASICH (R-OH), CHAIRMAN, BUDGET COMMITTEE: I think this document is a fantasy. As far as I'm concerned, it is dead on arrival.

DORMAN: Republicans will soon present their own budget plan, likely to be heavy on tax cuts, light on government spending and eager about the budget surplus. STEPHEN MOORE, CATO INSTITUTE: What happens to all this surge of tax revenues? Is it passed back to individuals? Is it spent on populist new programs like health care, environment and education? Or do we retire the debt? This is the big enchilada when it comes to politics for the next 10 years.

DORMAN: The budget debate will also echo on the campaign trail this year.

(on camera): For investors, it's important to remember the president's budget is just a starting point of that debate. Spending and tax cuts: We'll be hearing the arguments for months to come.

Bill Dorman, CNN financial news, New York.

(END VIDEOTAPE)

VARNEY: One proposal within the president's plan is likely to spark intense debate with Congress and high anxiety within the pharmaceutical business: the prescription drug benefit for senior citizens.

Louise Schiavone reports.

(BEGIN VIDEOTAPE)

LOUISE SCHIAVONE, CNN CORRESPONDENT (voice-over): Roughly one- third of Medicare beneficiaries have no prescription drug coverage, and even more have very limited protection.

MARTIN CORRY, AARP: Twenty-first century medicine, which we're now into, is all about pharmaceuticals. Not to have prescription drugs covered really means we're delivering less quality medicine on the face of it.

SCHIAVONE: President Clinton's budget proposal includes a new Medicare option for seniors. Price tag: $160 billion over 10 years. The government would cover 50 percent of all prescription costs up to a certain cap: $2,000 in 2003, $5,000 by 2009. Initially, subscribers would pay a premium of $26 a month. Medicare beneficiaries near the poverty level would pay no premium.

The pharmaceutical industry's trade association would not comment and, as evidenced in this advertising campaign, wants to appear cooperative.

(BEGIN VIDEO CLIP, PHRMA ADVERTISEMENT)

ANNOUNCER: Let's expand Medicare coverage for prescription medicines so that all our seniors who need them can have them.

(END VIDEO CLIP)

SCHIAVONE: But it's no secret manufacturers fear that this could be the road to price controls. STEFAN LOREN, LEGG MASON: Pharmaceutical stocks have taken a big hit over the past few months. I think there's one thing that a lot of investors are forgetting right now. That's that the demand for pharmaceuticals is not entirely inelastic.

SCHIAVONE: Analysts predict that when more seniors have prescription coverage, more drugs will be sold, softening the blow of anticipated price-lowering.

While Republicans support the broad notion of prescription coverage for needy seniors, they seem determined to do it as part of a one-shot Medicare overhaul.

KASICH: Any prescription drug benefit, in my judgment, will be accompanied by Medicare reform.

SCHIAVONE (on camera): This being an election year, chances are slim to none that Democrats and Republicans will close ranks behind the president on this.

Louise Schiavone, for CNN financial news, Washington.

(END VIDEOTAPE)

VARNEY: Now just moments ago, Willow Bay spoke with President Clinton about his final budget plan, his take on history's longest expansion and Wall Street's dream run.

She joins us now from our Washington bureau with a preview -- Willow.

WILLOW BAY, CO-HOST: Thanks, Stuart.

Well, President Clinton seems quite relaxed and genuinely surprised and obviously pleased with how well the economy is doing. He said he could not have imagined it could grow this strong for this long when he first took office. We also spoke frankly about the reaction of the bond market to the Treasury debt elimination program. And I asked the president whether he would ever consider starting a dot.com company.

My exclusive interview with the president coming up in the next half hour of MONEYLINE -- Stuart.

VARNEY: All right, thanks so much, Willow.

There's a great deal more just ahead on MONEYLINE. Here it is -- including a new look for fashion designer Ralph Lauren's empire. We'll tell you about Polo.com after the break.

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VARNEY: Checking some of the stocks hitting new 52-week highs today: Hewlett-Packard right there, so too is Warner-Lambert, Cypress Semiconductor, Guess?, and of course, Cisco Systems. Checking tonight's MONEYLINE movers: MCI WorldCom gained more than 3 1/2. Salomon Smith Barney repeated its buy rating, and said the company should report strong fourth-quarter results later this week. Salomon also called its stock absurdly cheap.

Ariba: up more than nine. Bank of America raised its price target to $250 a share. It expects the B-to-B e-commerce service provider to announce a significant third-party investment.

Healtheon/WebMD: down more than 7 1/2. It had no comment on a "Wall Street Journal" article that raised questions about its accounting practices. It said the firm is stretching the limits on what it recognizes as revenue. An analyst at U.S. Bancorp said its accounting practices are similar to other Internet firms. Shares of Healtheon/WebMD down 54 percent from the 52-week high.

In our tech watch tonight, Polo Ralph Lauren aiming to win over consumers with a multimedia-marketing deal. As a designer, Ralph Lauren parlayed men's ties into multibillion-dollar lifestyle empire. Now Lauren says he's forming a partnership with NBC to take on the Web.

Susan Lisovicz reports.

(BEGIN VIDEOTAPE)

SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): Ralph Lauren has conquered the cat walk. And in the meantime, so burnished his image as the design king of American classics, that his launch into fragrance, accessories, and home furnishings has been as successful as the lifestyle it emulates.

Now, Ralph Lauren say his brand extension can carry over to prime time.

RALPH LAUREN, CHAIRMAN & CEO, POLO RALPH LAUREN: I'm going to be the head of "Friends."

LISOVICZ: Ralph Lauren Media is the new company formed by its partnership with NBC and Home Shopping Network Value Vision. NBC says they all want the same customers.

BOB WRIGHT, PRESIDENT & CEO, NBC: Twenty-five to 54 is the age group. We have -- we have equal amounts of men and women. I mean, those demographics overlay -- at least as far as I know -- overlay the product categories of Polo Ralph Lauren pretty, well.

LISOVICZ: NBC and its Internet units will commit $150 million in advertising and online distribution to the new company. The first initiative, Polo.com, will launch later this year.

HOWARD DAVIDOWITZ, CHAIRMAN, DAVIDOWITZ & ASSOCIATES: It's logical because the world of communication and the world of product and the world of media have been -- all been marrying together to deal with the seminal event of the 20th century, and that's the Internet. LISOVICZ (on camera): The Ralph Lauren empire generates $8 billion in worldwide sales, but while his brand of understated elegance is a hit on the cat walk, it has yet to win over Wall Street.

(voice-over): Indeed, Ralph Lauren's stock has plunged 50 percent from its high since going public 2 1/2 years ago,

LAUREN: Wall Street is more trendy than the fashion business. I'm not trendy. I've been around 34 years. I'm here, and I'm stronger than I've ever been.

LISOVICZ: But Ralph Lauren's launch into mass media may make his products too accessible, running the risk of diluting his carefully, cultivated image.

Susan Lisovicz, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: Polo Ralph Lauren -- I always used to think it was Lauren, but apparently not, it's Lauren -- that stock jumped 2 1/8 on this news.

To check all stock quotes and for all business and technology news, log on to CNNfn.com.

Still ahead on MONEYLINE, a tough day for a popular Internet portal. We'll tell you about Yahoo!'s high-tech headache.

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VARNEY: Tonight, Willow Bay's exclusive interview with President Clinton on the last budget proposal of his White House career. The market index that breaks all the rules broke another record today. Techs, one of the only bright spots on Wall Street, underscoring what's become a trend in 2000: the great Dow-Nasdaq divide.

First, though, our top story: the biggest and one of the ugliest takeover battles in U.S. history ended today. Pfizer buying Warner- Lambert for $90 billion in stock, beating out Warner-Lambert's original merger partner, American Home Products. It's paying AHP one of the biggest break-up fees ever, $1.8 billion. Well, the deal was announced as the CEO's of both companies shuttled back and forth between their two headquarters. The new company will be called Pfizer, and it will be headquartered in New York. Shareholders seemed glad the battle is over: Warner-Lambert rallied more than 2 1/2; Pfizer added nearly 1 point. As for AHP, it gained 2 1/2 points.

The new Pfizer will be the biggest drug company in the U.S. and the second biggest in the world, and will certainly pressure competitors to do some deal-making of their own.

Fred Katayama picks up the story there.

(BEGIN VIDEOTAPE) FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Three big mergers rocked the drug industry in just the last two months: Pharmacia & Upjohn with Monsanto; Glaxo Welcome with SmithKline Beecham; and now Pfizer with Warner-Lambert. Analysts say the stream of mergers will turn into a flood since the industry is so fragmented. The largest company in this $300 billion global industry, Glaxo-SmithKline will only command 7 percent share; Pfizer and Warner-Lambert, 6.5 percent.

LEN YAFFE, BANC OF AMERICA SECURITIES: There is significant opportunities for this industry to undergo consolidation and still not be very concentrated. We're not even close to having any sort of monopoly or oligopoly.

KATAYAMA: The most eligible bachelor in Wall Street's eyes, the company that failed to reach the altar three times: American Home Products. It boasts the biggest lineup of new drugs in its history, but what makes other companies vulnerable to a merger, their patents will soon expire.

Patents will end on some $34 billion worth of drugs in the next five years, more than double that for the entire decade of the 1990's. Those that will lose patent protections on billion-dollar drugs: Eli Lilly, Schering-Plough, and Merck.

Merck insists it doesn't need a partner, but analysts say otherwise.

MICHAEL KRENSAVAGE, BROWN BROS. HARRIMAN: With the industry consolidating around Merck it may be forced to consider a potential merger. If Viox, their new drug for arthritis, does not do exceptionally well, I think Merck may have to consider a merger.

KATAYAMA (on camera): Some of the buyers may be European firms eager to expand in the United States, the world's largest market. Novartis of Switzerland plans to list its stock on the New York Stock Exchange this year. Analysts say it could use that stock as a currency in potential deals.

Fred Katayama, CNN Financial News, East Hanover, New Jersey.

(END VIDEOTAPE)

VARNEY: The January chill has turned into the February thaw, at least for tech stocks. The Nasdaq today followed up last week's extraordinary rally with another record run-up. The index jumped 77 points and closed at a new high, 4321, with investors flocking to the stocks that have served them so well over the past year. That meant money came out of old-line stocks like 3M and Boeing, pushing the Dow industrials down 58 points, that index closed at 10905.

Rhonda Schaffler has more on the deep division on Wall Street between techs and just about everything else.

(BEGIN VIDEOTAPE)

RHONDA SCHAFFLER, CNN CORRESPONDENT (voice-over): Stocks started the week with another day of divergence. Blue-chip stocks stumbled and the Dow industrials sank, while the technology sector lifted the Nasdaq Composite to another record close. It's a pattern that has been repeated in half the trading days so far this year.

The Dow has come off its worst January in years and isn't faring much better than February, the index sinking more than 5 percent since the new year began. The Nasdaq started with a slide after a bang-up 1999, but has since soared, cruising consistently over the Dow and up more than 6 percent this year. But analysts note the Nasdaq is powered by only a fraction of companies in the composite.

ROY BLUMBERG, SHEER ASSET MANAGEMENT: In the case of the Nasdaq, you know, there's a limited number of stocks that are driving that average because of their weighings, and as long as they keep moving that average will keep moving on the upside.

GRACE FEY, FRONTIER CAPITAL MANAGEMENT: You just have this tremendous surge in this very narrow segment of the market, granted that small and mid-cap stocks are beginning to perform better, but it's in the technology sector.

SCHAFFLER: Another investment vehicle is looking brighter: gold. Despite a down day for the metal some analysts say gold is attracting more interest as an alternative to equities.

RICHARD CRIPPS, LEGG MASON: It's clear that in terms of commodity inflation from gold prices to raw materials to energy it's moving higher. So I think that gold prices are reflecting that and reflecting I think some of the risks that are in the financial system.

SCHAFFLER: Right now of course, the biggest risk overall to the financial markets is inflation. And the concern is rising commodity prices coupled with rising labor costs provide the Federal Reserve with even more ammunition to raise rates.

Rhonda Schaffler, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: Today was another example of just a handful of stocks moving higher, while the rest languish. In fact, losers beat out winners on the big board by a 3-to-2 margin. And there were 79 stocks that hit new 52-week highs, but look at this, 136 hit new lows. Among the big movers today: Hewlett-Packard rocketed 10 1/2 to a new high after Salomon Smith Barney hiked its earnings estimate. Cisco also at a high, up more than 4. Apple and MCI WorldCom also rallied. The day's big loser was in fact General Electric.

A strong outlook for chip sales lit a fire under chip manufacturers today, worldwide sales of semiconductors jumped nearly 19 percent to a record $149 billion last year, and an industry trade group says it now expects chip sales to grow 21 percent this year and another 20 percent in the year 2001. Stocks like Applied Micro Circuits surged more than 28 points, and other chip stocks on a tear: Broadcom, Tri-Quint Semiconductor, PMC Sierra, LSI Logic, all up sharply. Next on MONEYLINE, our exclusive interview with President Clinton on the economy's unprecedented run, the recent turmoil in the bond market, the dot.com craze, and life after the White House. A very special MONEYLINE interview with the president coming up next.

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VARNEY: In tonight's MONEYLINE "Focus": a special interview with President Clinton on the day he sends his farewell budget to Capitol Hill. Mr. Clinton this morning unveiled his $1.8 trillion blueprint for fiscal 2001, which includes a near 4 percent increase in spending on education, health care and other initiatives. Mr. Clinton also pledged to make America debt free by 2013.

Well, just minutes ago, Willow spoke with the president and she joins us now from our bureau in Washington -- Willow.

BAY: Thanks, Stuart.

Well, earlier I sat down with the president to talk about his budget, the economy and Wall Street's astonishing run.

I began by asking him whether he'd ever imagined when he took office that we'd witness the kind of prosperity that we're witnessing right now.

(BEGIN VIDEOTAPE)

CLINTON: The truth, I guess I didn't, because I never thought about it. I literally never thought about, you know, how long the longest expansion was in history.

But what I did believe is that there was this enormous pent-up potential in the American people because of all the restructuring of industry that went on in the tough years of the 1980s, because of the power of technology which has only grown exponentially since I've been in office, because I thought the American people understood the global economy and were willing to work hard and not make excessive wage demands and, you know, get their pay increases as their companies grew.

All that turned out to be true. And I just thought if I could remove the government-related obstacles to growth by getting the deficit down and getting interest rates down that good things would happen.

But I, no, I can't say that I even thought -- it never crossed my mind that it would happen.

BAY (on-camera): Do you really believe this is a new economy? Because, as you know, many on Wall Street say this is a boom like others we've seen and it will come to an end. What in your mind distinguishes it as different, other than its length?

CLINTON: I think there are two things that are different here. First is the role of technology. And let me say, I'm like the people on Wall Street to the extent that I don't pretend that we've repealed the laws of supply and demand. Nor do I think we have repealed the potential for human error. So, of course, it could come to an end and probably will some day.

BAY: Do you worry at all, though, with our enthusiasm about this prosperity, with our genuine excitement over the technological revolution that we're witnessing, that we are convincing folks that this really is a boom without end?

CLINTON: Well, I think that's what Chairman Greenspan's trying to caution against. He's trying to make sure that we don't go so fast we play it out prematurely. And I think that's what he's tried to do in the years we've worked together.

I think it's important not to over promise, not to over claim. But I also believe all the evidence is that there's still a lot of creativity left, there's still a lot of room for new investment, there's still a lot of room for growth if we remember the fundamentals: keep investing in science and technology, keep investing in education and training, keep paying the debt down, and keep the markets open, and keep expanding our markets.

CLINTON: I think if you stay with that -- obviously something could go wrong, but I think that we -- if we're not over promising, and we're on a steady course, I think we'll continue to have growth.

BAY: Your final budget was delivered to Congress today. On the surface, at least, it looks as if you're loosening the reins on spending a bit, revising the spending caps. Why should Americans want their government to spend a little bit more in 2001?

CLINTON: Well, first of all, we -- the last couple of years, we spent more. And last year, the Congress just shredded the spending caps. They just did it by calling certain normal expenditures emergencies. So this is basically a straight-forward budget.

I took the spending levels of last year and I said, Let's not pretend anymore that we don't want to add at least inflation to education, to medical research, to the environment, to health care. We know we're going to do that. So let's project for the next five years that we'll have last year's spending plus inflation, then we'll argue about the categories of growth.

But I think Americans should want us to invest more. We've cut spending for quite a long while. As a percentage of our economy, federal government spending is the lowest it's been since 1966. The size of the government is the lowest it's been in 40 years. So what we should do now that we've trimmed down, now that we've got a surplus, we should keep paying the debt down. But we ought to invest more, I believe, in education, in science and technology, in health care to help parents balance the needs at home and at work. And I think we can afford a modest tax cut, which I also believe is important. BAY: John Kasich, chairman of the House Budget Committee, declared your budget dead on arrival. How tough a battle are you likely to face?

CLINTON: That's what they said in '99 and we got most of it. That's what they said in '98 and we got most of it. If our crowd will -- if people that agree with me, and they're not all -- not confined solely to the Democrats. We have almost 100-percent support, I think, in our party for our budget approach because we believe we should invest more in education; we believe we should invest more in health care.

But I think that there are also quite a number of Republicans who agree with us.

CLINTON: So I think, you know, if we just relax and stay tough until the end of the year we'll be fine, just like we have in the last several years.

BAY: Think it's likely we'll see an easing of the marriage penalty? I know that's a hot topic of conversation right now.

CLINTON: I do. And I've tried -- because I want to have a genuinely constructive atmosphere, I put a proposal to them on the marriage penalty, because I know that's something they've always thought was important, too. And all I asked them to do was to confine their bill to the marriage penalty issue and to give a little relief to people on the lower income of the scale, too. Their marriage penalty bill, in addition to easing the marriage penalty, has a whole lot of other stuff in it.

So if they'll meet me halfway, we'll work -- we'll work something out. I think there's a fair chance we'll get that.

BAY: It was an interesting situation last week, caused largely by the surplus. As you know, the Treasury announced plans to buy back some of its debt and reduce the supply of new debt. It caused a fair amount of turmoil in the bond markets. Were you surprised by that kind of reaction in the bond market?

CLINTON: A little bit, only because we had made clear several weeks before that we might want to buy some of our debt in early. If we just had -- you know, if it had been the first time it had ever been mentioned, I wouldn't have been so surprised.

And there is, you know, a debate going on now about whether it's even a good thing for us to pay ourselves out of debt, because there's some people that believe we have to have enough publicly held debt to establish the bond market, which is a -- if you will, a barometer for the overall financial framework of the capital markets.

But my concern is we financed this expansion privately, there is quite a lot of private debt outstanding -- it doesn't look at all troubling today because there's so much private wealth outstanding -- but I just don't want to run the risk of the thing getting out of balance. CLINTON: So I think as long as we're growing this way, the government should continue to pay down the debt. And we have to buy in the bonds to do that.

BAY: On a more personal note, you are clearly a believer in this new economy. If you were starting a career today, would you be tempted to start a career on the front lines of this revolution?

CLINTON: Absolutely.

BAY: You would?

CLINTON: Absolutely. It's so exciting. I mean, you talk to all these young people, you know, they're out there and they come up with these ideas and they have access to capital and they do things. And then when they -- a lot of them make a phenomenal amount of money in almost no time, but they also -- they hire people. They're interested in contributing to the strength of society. They're not -- I never bought this Generation X argument; most of these young people really care about the overall health of America. And they're -- and they're -- and I think the idea of having an economy that really is running on ideas is a very exciting prospect for the future.

BAY: Tempted, perhaps, to run a dot-com?

CLINTON: Yes, well I would be. If I were -- I were starting again, I would be. You know, I'm probably too old to do it now. I'll have to find something else to do in a year or so. If not, I'll think about it then. But I'm not too sure I'm not too creaky around the edges to do it.

BAY: Word is they could use some experience in the dot.coms.

(END VIDEOTAPE)

BAY: I also spoke with the president about his post-White House agenda. Topping the list: supporting his wife in her bid to win a U.S. Senate seat in New York. Mr. Clinton said he'll spend a lot of time in New York after he leaves Washington, but he'll focus on his presidential library, where he hope to put all that technology he's so excited by to good use.

VARNEY: Willow, did the president say anything about the McCain insurgency and whether that would pose a real threat to the Democrat candidate in November?

BAY: I asked him that. He would not acknowledge that it would pose a real threat. He did acknowledge that there are similarities in their economic plans, but said there were still plenty of differences for American voters to consider. He said it is too early to predict how things will change, and he has learned after all these years in presidential politics that for certain things will change -- Stuart.

VARNEY: All right, Willow, we'll see you back here in New York tomorrow we hope.

BAY: OK.

VARNEY: OK, much more business news just ahead, including some of the day's biggest movers.

That's next.

(COMMERCIAL BREAK)

VARNEY: Checking some of tonight's other movers, Silknet Software soared nearly 45 points. Kana Communications will buy the software maker for just over $4 billion in stock.

Ortel, down more than 9. Lucent Technologies will buy the fiber optic device maker for $3 billion in stock. Analysts said traders felt the offering price was too low.

Ciena up 5 1/4. Morgan Stanley started coverage with an outperform rating and a $100 price target. It called Ciena a leading fiber optic networking firm. Shares of Ciena have soared more than 240 percent over the past year.

High hopes for the Linux operating system sparked a $1 billion buy-out today. Corel said it will buy the software maker Inprise in an all-stock deal. The combined company will have a market value of nearly $2.5 billion and will employ about 1,000 software developers.

Shares of Inprise ended the day up more than a quarter point.

Phillips Petroleum and Chevron plan to hook up their chemical businesses. The 50-50 joint venture will have assets of more than $6 billion. The combination will also result in 600 job cuts. Shares of Phillips Petroleum up a point, Chevron up a half point on the day.

Another marriage in cyberspace rounds out the deal-making on this merger Monday. Internet infrastructure firm Akami Technologies will buy Intervu for nearly $3 billion in stock. Shares of Intervu soared more than 12 on the day's deal, Akamai Technologies down 6 3/8.

As Bruce Francis reports, investors are placing a big bet on the need for Internet need.

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Both Akamai and Intervu believe that the Web performs best when content is closer to you, the end user. That common approach is one reason why Akamai is buying Intervu for 2.8 billion in stock.

PAUL SAGAN, PRESIDENT & COO, AKAMAI: They have a great customer base, hundreds and hundreds of customers for whom they deliver audio and video. We thought by bringing them on to our platform we would accelerate the growth of Akamai and the growth of audio and video delivery on the Web.

FRANCIS: Akamai's clients include cnn.com, Apple Computer and Yahoo!. When a computer visits one of those sites, the server at that dot.com sends a message to Akamai servers. Akamai servers then send ads, graphics and small programs like stock tickers to the computer user. Akamai's technology selects the server that is closest to the user.

Intervu specializes in streaming video and audio, like AOL MovieFone.

(BEGIN VIDEO CLIP, MOVIE PREVIEW, "THE TALENTED MR. RIPLEY")

ANNOUNCER: Thomas Ripley lived a solitary life.

(END VIDEO CLIP)

FRANCIS: When a computer user visits an Intervu-powered Web site, Intervu streams a video or audio signal that can be either grabbed off the air by a satellite or stored somewhere on a server. That stream is sent to Intervu's network of servers, which can then deliver the signal to the computer user.

As more computer users get high-speed connections to the Net, demand for video streaming is expected to soar.

Analysts praise Akamai's move.

MARK LANGER, JP MORGAN: This is a great deal for Akamai. I think it's important at this stage in its development for it to continue to grow itself by acquiring potential competitors, companies in adjacent spaces. And that's exactly what Intervu provides them.

(END VIDEOTAPE)

FRANCIS: Akamai is not yet profitable, but the company says the acquisition will accelerate revenue growth. And Akamai says it will continue to look for other acquisition targets. And with high-flying stock prices, they can do that.

VARNEY: They will indeed. Bruce Francis, thanks very much.

FRANCIS: My pleasure.

VARNEY: Now we have a partial answer as to what disrupted Yahoo!'s Web site for several hours earlier today. A company spokeswoman said that Yahoo! was the victim of an outside computer attack. The unknown hackers bombarded Yahoo! with mock demands that caused a kind of traffic jam and temporarily brought down some of the company's data centers in California. Yahoo said that its information and data was not compromised, nor did the attack penetrate Yahoo!'s computer system.

We'll have more MONEYLINE for you coming up in just a moment.

(COMMERCIAL BREAK)

VARNEY: Now checking some of what could move the markets for you tomorrow, investors will have the latest figures on worker productivity. They're out at 8:30 a.m. Eastern. U.S. Treasury Secretary Lawrence Summers expected to testify about the budget.

And on the earnings front, watch for the latest results from Aetna, Cigna, CVS and Hasbro. However, the really big report comes late tomorrow, after the bell. Cisco Systems expected to report its fiscal second-quarter results. Analysts expect a profit of 23 cents a share with revenue of more than $4 billion.

That is MONEYLINE for this Monday. I'm Stuart Varney.

"CROSSFIRE"'s next.

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