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Moneyline News Hour

Dow Falls 79.11; Nasdaq Ends Day at Another Record High; Wall Street Gives Visx a Black Eye; Greenspan Defends Fed's Monetary Policy

Aired February 23, 2000 - 6:30 p.m. ET

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 Nasdaq explodes in the biggest point gain ever, shattering a new record. When will this runaway rally run out of gas?

WILLOW BAY, CNN ANCHOR: A Greenspan grilling on Capitol Hill. We'll talk to a senator with advice for the fed: don't fix an economy that isn't broken.

VARNEY: A multibillion-dollar gamble on the strip: Kirk Kerkorian and his MGM Grand make a play for Mirage.

BAY: One huge winner today: Gateway. We'll hear from the company's CEO.

VARNEY: And a special look at the new Nasdaq all-stars. Microsoft and Dell are out. So which hot stocks are in?

ANNOUNCER: This is the MONEYLINE news hour. Reporting tonight from New York: Willow Bay and Stuart Varney.

VARNEY: Good evening, everyone. He came, he spoke, and they rallied.

BAY: Tech stocks took off after Alan Greenspan insisted he is not bent on bringing Wall Street down to earth.

The Nasdaq came roaring back after two sessions of selling and ripped through another record. It was up all day, but the buying intensified after the fed chairman offered reassuring comments in Capitol Hill testimony. The index ended up 168 points in the third, best session ever.

Charles Molineaux joins us now with more on the Nasdaq's banner day -- Charles?

CHARLES MOLINEAUX, CNN CORRESPONDENT: Well, Willow, we've seen interday volatility for technology stocks lately, but not today. The Nasdaq composite traced a steady line up to its biggest ever point gain without so much as a hiccup during Alan Greenspan's remarks in Washington. And the composite closed up 168 points, its biggest one day point gain at a new record of 4,550. Strategists say investors' faith in the earnings growth of tech stocks is undaunted, and this is where they're coming after a brief bout of weakness.

After two bruising sessions, biotechnology stocks rallied and led this market higher. They gained 5 percent. Aronex Pharmaceuticals looked nice and healthy and so does ID Biomedical, which gained 30 percent on the day today.

Computer stocks computed up a storm, gaining 4.4 percent. 3Com put in a blockbuster performance. And even Dell, which has been soft lately, toughened up, a 3.9 percent gain there.

Semiconductor stocks gained almost 2 percent as good news on January's book-to-bill ratios, lifted and chip and chip equipment makers. Altera and Lattice Semiconductors pick up nicely.

Internet stocks were another pillar of this market. They bounced back by about 8 percent. After weeks of weakness, Web-holding company CMGI recovered 14.7 percent on some positive analysts' comments. Business-to-business -- same -- surged. VerticalNet saw a nice gain: 8.6 percent. And Ventro, formerly Chemdex, took off 29 percent.

Telecom surged as QUALCOMM put in a 12.5 percent performance. And also, one of our biggest big caps gave another big lift to this market: Cisco Systems was up by 11 percent. Even financial stocks rallied -- 3.3 percent -- although bank stocks fell.

Twenty-four hours ago, we were talking about how investors are still confident enough in these technology stocks to invest during steep dips and be rewarded, subsequently, by a rally on the Nasdaq to new highs. Well, here we are -- Stuart, Willow.

BAY: Thank you, Charles, a rally they got. Charles Molineaux at the Nasdaq.

VARNEY: Now for the Dow, it was a volatile and ultimately disappointing session. As one strategist put it today, "the new money that comes into this market is going one place: the Nasdaq."

Rhonda Schaffler reports.

(BEGIN VIDEOTAPE)

RHONDA SCHAFFLER, CNN CORRESPONDENT (voice-over): Investors at the big board played second fiddle today, but hung on every word from Fed Chairman Alan Greenspan, and held on through a whipsaw session.

The Dow plunged at the open, falling 140 points before bouncing back into positive territory, which it could not hold. The Dow settled at 10,225, down 79 points. One clear sign to emerge today: the central bank chief's promise the fed is not targeting investors.

ALAN GREENSPAN, CHAIRMAN, FEDERAL RESERVE BOARD: We are not focusing monetary policy on the stock market. We are focusing it on the economy. To the extent that the stock market affects the economy, we respond to that.

SCHAFFLER: While the Dow ended with a loss, the jump in high- tech stocks did help some blue chips. Hewlett-Packard and Intel romped higher, as did chemical giant 3M. On the flip side, makers of consumer goods like Procter & Gamble and Johnson & Johnson, suffered.

The most active share on the NYSE: America Online. Two Merrill Lynch analysts raising their price targets on the stock, bullish over the Internet provider's planned merger with CNN parent, Time Warner. That lit a fire under shares of both companies. Once again, the Dow and Nasdaq ended in opposite directions.

NED RILEY, STATE STREET GLOBAL DIVISION: The Dow Jones is down from the point at which the monetary policy started to tighten. The S&P 500 is basically flat over the last year or so. It's the Nasdaq that's up 85 percent, and it's the Nasdaq that contains, what I call, the incremental engine to growth for this economy.

(END VIDEOTAPE)

SCHAFFLER: Not exactly comforting for big board investors, and one reason why traders keep talking about the Dow testing 10,000. Ironically, a year ago at this time, traders were saying the same thing. Of course, then, the Dow was going up -- Stuart.

VARNEY: Yes, it was. Rhonda Schaffler at the big board. Thank you, Rhonda.

BAY: Alan Greenspan today found a receptive audience on Wall Street, but he faced some polite but pointed criticism on Capitol Hill. His second round of Humphrey-Hawkins testimony turned into a fight over a key question: Should the Fed remain militant on inflation or get out of the economy's way?

We have two reports tonight on Greenspan's challenge, beginning with Bill Dorman in Washington.

(BEGIN VIDEOTAPE)

BILL DORMAN, CNN CORRESPONDENT (voice-over): Alan Greenspan often talks about inflation as the biggest threat to the U.S. economic expansion. These days, he's having some trouble finding the enemy.

GREENSPAN: There is no evidence right now of inflation. I cannot find it, no matter where I look, with the exception of oil prices and some commodity prices rising.

DORMAN: So if inflation is not a problem, some members of the Senate Banking Committee want to know why Greenspan appears so anxious to raise interest rates.

SEN. JIM BUNNING (R), KENTUCKY: Mr. Chairman, please don't try to fix an economy that isn't broken. Don't become so frightened by success that you throw wet blankets on a fire that isn't burning.

SEN. PAUL SARBANES (D), MARYLAND: If the activity and the volatility is in the stock market, we may need to think of some way to try to address that without slowing down the whole economy.

DORMAN: Greenspan's problem with the stock market centers on what's called the wealth effect. Consumers feeling rich because of gains in the stock market are spending money faster than they're making it. All that spending is leading to imbalances in the economy, which Greenspan feels can be helped by higher interest rates. The goal? To slow down the economy enough so it can continue to grow without inflation.

GREENSPAN: The basic purpose of what we are trying to do is to sustain this extraordinary recovery, this extraordinary acceleration in growth, and a vibrant labor market.

DORMAN: Greenspan also says we have a new economy and it requires a different type of monetary policy. But some aspects of monetary policy remain the same. And Greenspan's latest message to Congress is that higher interest rates are definitely part of the plan.

Bill Dorman, CNN Financial News, Washington.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

CECI RODGERS, CNN CORRESPONDENT (voice-over): This is Ceci Rodgers.

Greenspan has earned a reputation for being difficult to understand. But today, he went to Capitol Hill, armed with a new analogy to illustrate his argument.

GREENSPAN: We are like the boat heading towards the dock, and instead of turning so we don't go slamming into the dock, we go straight into the dock, and find out that we should have turned, at least partially.

RODGERS: But it soon became clear, analogy or not, senators on the Banking Committee weren't buying it.

SARBANES: I have you on a perpetual voyage, trying to sail this economic ship of state around, you know. I don't think it's going to come into dock.

UNIDENTIFIED SENATOR: Well, maybe the wind blowing the ship into a rock is better.

SARBANES: Yes, all right, all right.

UNIDENTIFIED SENATOR: He's got to tack around the rock.

GREENSPAN: The trouble with analogies is that they always are subject to qualifications, which, if you keep working at them, they have no value whatever.

UNIDENTIFIED SENATOR: Well, welcome to the Merchant Marine Committee, Mr. Chairman.

(LAUGHTER)

RODGERS: Then, as if things weren't confusing enough.

GREENSPAN: Let me put it this way. You cannot substitute an anecdote for a syllogism.

UNIDENTIFIED SENATOR: All right.

RODGERS: So, what was Greenspan saying?

JAMES ANNABLE, WINGSPANBANK.COM: Basically, what Greenspan was trying to say was there are fixed limits in the economy, and right now, the unemployment rate -- we really don't want it to get much lower. If we try to push it lower, it's going to wreck the economy.

RODGERS: So the fed is poised to raise interest rates.

(on camera): And after navigating the choppy waters of the Senate Banking Committee, Greenspan may decide next time to leave his analogies back at the Fed.

Ceci Rodgers, CNN Financial News, Chicago.

(END VIDEOTAPE)

BAY: Later on MONEYLINE, the senator who made waves for Chairman Greenspan today: Jim Bunning of Kentucky. Why he says the Fed doesn't have a case for higher rates.

VARNEY: More than 2000 miles away from Washington today, a multibillion dollar bid took the Vegas strip by storm. MGM Grand, led by the legendary raider Kirk Kerkorian, offered to by rival Mirage Resorts, led by Steve Wynn, for $3.3 billion.

It's a potential fight that has the casino business talking and Wall Street buying. Stock in MGM Grand jumped almost 1 1/2 points, that's 1 7/8 -- 7/16 to be precise -- while struggling shares of Mirage soared nearly 25 percent. But will this bold gamble pay off? We will ask the Chief Financial Officer of MGM Grand later on MONEYLINE, James Murren.

BAY: A quick look now at some of the other stories MONEYLINE's working on for the rest of the hour. Let's start with Peter Viles -- Peter.

PETER VILES, CNN CORRESPONDENT: Thanks, Willow. The biggest brokerage on Wall Street today finally weighed in on the AOL-Time Warner merger, and not a moment too soon for AOL's slumping stock. Ahead, why Merrill Lynch is now bullish on the biggest media merger eve?

BRUCE FRANCIS, CNN CORRESPONDENT: And I'm Bruce Francis. Some of Nasdaq's former heroes look like zeros these days. I'll tell you which high-tech flyers are saddling up to be the new horsemen of the Nasdaq.

VARNEY: And also coming up on MONEYLINE, as the Nasdaq scores another record, where's the smart money heading? We'll ask market strategist Robert Stovall.

BAY: Plus, we'll tell you about the bullish comments that put the fire back in shares of AOL.

(COMMERCIAL BREAK)

VARNEY: More now on the Nasdaq's very powerful rally and whether the Fed can do anything to stop it. Alan Greenspan today told senators and investors that the Fed was not targeting the stock market. Now that doesn't mean Mr. Greenspan won't push for higher interest rates at the next Fed meeting. But does it matter for Wall Street's highfliers?

Today's huge rally puts the Nasdaq at 4,550, a full 72 percent higher than it was before the Fed began raising rates last summer.

Joining us now, Robert Stovall, strategist at Prudential.

Bob, welcome to the program.

ROBERT STOVALL, PRUDENTIAL SECURITIES: Thank you, Stuart.

VARNEY: Would you go out tomorrow morning and buy tech stocks at these prices?

STOVALL: I think you have to. The market is telling you that that's where the money is flowing. It's been doing that for a while, as you just said. And I think that tech stocks will maintain leadership until further notice.

VARNEY: You jump on this bandwagon and ride it out of town, would you?

STOVALL: Yes. Well, I've already got positions in my accounts, and I think I'd add some more. Lattice Semiconductor, for example, is behind its group. I think that could move up substantially more. Those who haven't discovered the Nasdaq 100 QQQ, I think they should have some of that.

VARNEY: That's just a way of putting your money right into the entire Nasdaq index.

STOVALL: That's right. You really don't have to understand the component, just realize that the 14 biggest stocks on the Nasdaq -- that's Amgen and Microsoft and the rest of them -- are 50 percent or more of the Nasdaq value, the Nasdaq profitability.

VARNEY: Forgive me for saying it, Bob, but you are a certain vintage.

STOVALL: Yes.

VARNEY: Sorry to say. But are you a true believer in the new economy?

STOVALL: I think you're seeing it in earnings, and I think after inflation and interest rates, which are the two primary motivators of stock prices down and up, you have to look to earnings. And the technology stocks are probably going to increase earnings by some 30 percent or so this year as a group whereas the whole economy earnings will grow at 14 percent or less, I think.

VARNEY: Thirty percent across the sector, the technology area?

STOVALL: I -- you might say twice nothing is still nothing, as many of them don't earn anything yet. But on a percentage basis, that's where the earnings are, and also it's because of the great utilization of technology that inflation is being kept down.

Greenspan may prove to be worried about the wrong boat, so to speak, because inflation may be lower than we now expect or he new expects, particularly if oil prices come down and earnings are helped by increased productivity.

VARNEY: Last question on the stock buybacks, there have been several in the past couple of days. Is that generally bullish for the market overall?

STOVALL: It is if it's done by major companies that aren't just pulling our foot and saying they're going to buy back stock and don't do it. If it's done by large companies with good cash flows and whose stocks are down -- that was one of the things that occurred, Stuart, in late 1987 after that October crashette and paved the way for the rally in 1988.

There were over 100 stock buybacks then, and today we had some of the great companies --- the General Mills and Merck and Kimberly Clark and so on -- announcing buybacks. I think that is a foreshadower of a rally in the standard stocks.

VARNEY: Bob Stovall -- bull on techs -- thanks very much for being with us, from Prudential.

STOVALL: Thank you, sir.

VARNEY: Thank you, Bob -- Willow.

BAY: Thanks, Stuart. Coming up on MONEYLINE, shares in AOL and eBay surge after a wringing endorsement from Internet cheerleader Henry Blodget. He triggered the rally, and we will talk to him next.

(COMMERCIAL BREAK)

VARNEY: Several tech stocks hit 52-week highs today, and they include Agilent Technologies, Analog Devices, Ariba, Echostar Communications, and LSI Logic. Look at them go.

BAY: A major vote of confidence today for the pending merger of America Online and Time Warner, parent of this network. Wall Street's biggest brokerage, Merrill Lynch, issued a bullish prognosis of the deal, and that helped AOL recoup some of its losses since news of the merger broke last month. AOL and Time Warner both gained more than seven points.

Peter Viles has more.

(BEGIN VIDEOTAPE)

VILES (voice-over): Since what was billed as the deal of the century, AOL has been treated like an old-fashioned laggard, falling from 72 and change to below $50 a share, a decline of 32 percent before Wall Street's biggest brokerage came to its defense.

Merrill Lynch analysts Henry Blodget and Jessica Reif Cohen called AOL -- quote -- "undervalued by almost any measure," gave it a price target of $90, and said of its merger with Time Warner, the parent of this network -- quote -- "If any megamerger of this size can work, this one can."

HENRY BLODGET, MERRILL LYNCH: Clearly with the stocks going down, there's been a little bit of frustration. Certainly a lot of shareholders have been frustrated. But again, so long as it's headed in the right direction now, we feel like we've put out a good piece of work today that should keep people happy for a while.

VILES: AOL's stock slump has cut deeply into the premium offered to Time Warner shareholders. When the deal was announced, AOL's offer was worth $109 a share, a 69 percent premium. The offer is now worth $85 a share, a premium of 31 percent.

Analysts say the main problem has been the fear that the new company won't grow fast enough to please Internet investors. Still, most analysts are confident the deal will close.

TOM WOLZIEN, SANFORD BERNSTEIN: I don't think there's any potential for the deal not to go through. I think the deal will happen. It makes too much sense from a strategic standpoint for both companies.

(END VIDEOTAPE)

VILES: There has been no suggestion either company wants to renegotiate the terms of this deal, and both companies continue to express confidence in the strategy behind the merger itself -- Willow.

BAY: Peter Viles, thank you.

VARNEY: Merrill's Henry Blodget also had some positive comments on eBay. He started coverage with a buy rating and set a 12 to 18- month price target at $175, calling the online auction house a "core holding." EBay stock shot higher on that news, it was up more than 20 points.

Well, to talk about Merrill's moves today, we are joined by Henry Blodget from his firm's trading floor for tonight's "Tech Watch." Henry, welcome back to MONEYLINE.

BLODGET: Thank you for having me.

VARNEY: Now, you put out a buy both on eBay and AOL today. Let me talk first of all about AOL. You're looking for a 30 percent increase in the cash that AOL-Time Warner takes in, in the next two to three years, per year, that is, and then a 20 percent gain in the years after that. Can you tell us specifically where all that extra cash is going to come from?

BLODGET: Well, it's both revenue growth and cost savings between the companies. We think in 2001, for example, the company will get a billion dollars of cash flow that wouldn't have been there if you hadn't combined the two companies, that's coming from both revenue growth and cost control and cost energy, and as you go out, there really are a lot of really exciting opportunities that this company as a single unit can go after that either company would not have been able to go after on its own, and that's where a lot of the future growth comes from.

VARNEY: You are not worried about AOL's position being somewhat under pressure from free Internet service providers?

BLODGET: Not really. I think free has certainly made inroads in certain segments of the market. But we really think that AOL has always catered to the mass market. This is a mass consumer brand. Really, most of AOL's users don't think that $20 a month is very expensive, they don't want it for free, they just want it to be the best service and the best brand and available to the whole family. And I think that AOL will be adding a lot of services to the AOL service that really makes it worth that and probably more than that over time. So, no, we're not worried about AOL's core market as a result of the free services.

BAY: Henry, just a moment ago you mentioned new opportunities for the combined company. What sort of opportunities are going to drive that kind of revenue growth?

BLODGET: I think you can point to a lot of different ones. I think two would be interactive TV and music downloading, for example. With interactive television, AOL has recently debuted -- they haven't launched it yet -- but they recently debuted AOL-TV, which is not the Internet on TV, which is actually fairly boring, but it really is just enhanced television, so you can use your buddy lists and your chat while watching TV. It's good. They'll be able to communicate directly with you, Willow, on MONEYLINE while they're watching.

So it's an exciting product and it's one that the Time Warner merger will help a lot in terms of their rolling that out. Music downloading is something that's very difficult to do if you are either just a music company or just AOL. Now that the company owns both sides we think it will really hasten the rollout of music downloading to the consumer mass market.

BAY: Henry, is there any concern that this deal won't go through?

BLODGET: I don't think so. That hasn't come up. Obviously, when the stocks are under pressure that is certainly a logical question to ask. But really, from people in the know, there doesn't seem be a lot of that. There is frustrations certainly. I think it's taken the market a long time to really analyze the situation and get comfortable. But we are very comfortable if the deal goes through at this point, and certainly, we would own -- either companies stand alone at this level, so it's not even a concern.

BAY: Henry Blodget, Merrill Lynch, thanks for joining us tonight.

BLODGET: Thanks a lot.

VARNEY: For more on this and other tech stocks, log on to our Web site, it is cnnfn.com.

BAY: Still ahead, a double victory for John McCain heats up the Republican White House contest. We'll tell you more about McCain's win and new charges from George W. Bush, after the break.

(COMMERCIAL BREAK)

BAY: News on campaign 2000 topping our MONEYLINE "News Digest" tonight. After primary victories in Michigan and Arizona, Republican John McCain says he's building a "governing coalition" of Democrats and independents. But rival George W. Bush charged that Democrats tried to hijack the Michigan vote.

A warning to top U.S. trade officials about a landmark deal with China: the Senate Finance Committee says threats against Taiwan by Beijing are endangering the landmark agreement.

And in Albany, New York, jury deliberations have begun in a controversial trial. Four white New York City police officers are charged with shooting Amadou Diallo, an unarmed black man.

And this late news, millionaire hip-hop mogul Sean "Puffy" Combs indicted for alleged bribery. Prosecutors say Combs offered his driver $50,000 in money and jewelry to change his testimony in a gun possession case. Police say they found an illegal weapon in Comb's car last December after he left a New York club where a shooting had taken place.

VARNEY: In our next half hour, a buyout bid that may pit two high rollers against each other, MGM Grand in a play for Mirage.

BAY: And using lasers to correct vision, it seems like everyone is doing it, so why did the leading company in the business get slammed today on Wall Street? That answer coming up.

(COMMERCIAL BREAK)

BAY: In tonight's headlines, another thinly veiled threat of a rate hike from Alan Greenspan. We'll ask a member of the Senate Banking Committee why he thinks that could be a big mistake. The stakes don't get higher than this, even in Vegas. MGM Grand makes an unsolicited multibillion-dollar takeover bid for Mirage Resorts. And meet the new CEO of Gateway on the day he outlines ambitious goals that send the stock up $10.

VARNEY: But first, more on our top story, a runaway rally in techs that pushed the Nasdaq to its biggest one-day point ever. Wall Street returned to a trading pattern that has made the Nasdaq the top- performing index on Wall Street, investors buying so called new economy stocks and not much else. The Nasdaq roared 168 points higher. It set a new record close, 4550, and that erased a steep two- day slide. The index is now up nearly 12 percent for the year. Tech favorites enjoyed some eye-popping gains. Look at this: Cisco climbed more than 14. Oracle gaining 3 3/4. eBay rocketed nearly 20 1/2, after Merrill Lynch started coverage of the stock with a buy. Yahoo! jumped more than 12. Qualcomm -- look at that -- up 16 1/4.

BAY: Despite today's broad-based rally in the Nasdaq, it hasn't been the star-studded names behind this year's record run.

Bruce Francis introduces us now to the Nasdaq's new leaders.

(BEGIN VIDEOTAPE)

FRANCIS (voice-over): It's still setting records, it's still the home to some of the fastest-growing technology companies, but it's not the Nasdaq that it used to be.

ART HOGAN, JEFFERIES & COMPANY: The part of the Nasdaq marketplace that clearly is winning today is not some of the old names like the Microsofts, Intels, Ciscos and Oracles of the world. It's some of the new technologies, and new telecom and new biotech stocks that are probably going to be our leaders through the rest of the year.

FRANCIS: It's been a hard lesson for investors that had become used to a seemingly unending gallop by the traditional horsemen that have pulled the Nasdaq. As the Nasdaq piled on the gains, almost doubling in the past 52 weeks, Microsoft began lagging the index it traditionally led back in October. Similar story for Dell and WorldCom, both down for the period. To be sure, some stalwartly, like Sun Microsystems and Cisco continue to outperform the composite index.

But there's a new class of Nasdaq megacaps that have an increasing influence over the index: Wireless phone giant Ericsson, with a bigger market cap than WorldCom, is up 39 percent this year. JDS Uniphase, which makes components for networking equipment, is up 46 percent. Wireless phone service company Nextel, now worth $42 billion, is up 27 percent. And Level 3 Communications, which makes advanced data networks, is up to $37 billion, an increase of 33 percent.

But it's not just that there's new tech leadership on the Nasdaq lately, investors have been looking further afield for new opportunities.

STEVE MARCELL, ORBITEX: After the run they had last year, the valuations are generally a little bit pricey. I think people are looking for the next cheaper thing, better return, which you saw chasing more of the smaller cap stocks.

(END VIDEOTAPE)

FRANCIS: While new telecom companies are now growing into megacaps, biotech companies are some of the biggest gainers this year, but with smaller market caps overall, they've have had less of an influence so far on the Nasdaq composite. But, Willow, stay tuned.

BAY: Exactly.

Bruce Francis, thank you.

VARNEY: Now so far, we've only told you half the story. While the Nasdaq made history, the Dow suffered through another volatile day, a day that ended like many others had this year, down. The blue chips lost 79 points, though it could have been worse; earlier, the Dow was down nearly twice that. Today's drop puts the Dow down more than 12 percent from its high.

On the Big Board, they were nearly three losers for every winner. Forty-five stocks hit new 52-week highs. Nearly five times that number hits those new lows.

BAY: If investors were hoping Greenspan would take a less aggressive stand against inflation today, they were disappointed. The Fed chairman gave the same address to the Senate as he did to the house last week, and repeated the same message, that the Fed is ready to raise interest rates if the economy does not cool off. Greenspan also discussed the role of the Fed in remarks the stock market seemed to cheer.

(BEGIN VIDEO CLIP)

ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: We are not focusing monetary policy on the stock market. We are focusing it on the economy. To the extent that the stock market effects the economy, we respond to that. But it doesn't necessarily follow that as stock prices go up or go down, it will have an effect on the economy which requires us to respond.

(END VIDEO CLIP)

BAY: The bond market broke a three-day winning streak as traders focused more on an auction of two-year notes than the words of the Fed boss: The 30-year bond fell half a point, the yield at 6.12 percent, up from a three-month low. Other Treasuries were mixed. The two- year up 12/32. The five- and 10-year were both down.

Even as many senators praised Greenspan for keeping the longest running economic boom going, one had this warning.

(BEGIN VIDEO CLIP)

SEN. JIM BUNNING (R), KENTUCKY: Mr. Chairman, please don't try to fix an economy that isn't broken. Don't become so frightened by success that you throw wet blankets on a fire that isn't burning. (END VIDEO CLIP)

BAY: Senator Bunning joins us now from Capitol Hill.

Senator, welcome.

BUNNING: Thank you.

BAY: Some tough talk and some rather vigorous questioning today. What are you so concerned about?

BUNNING: I'm concerned about the Federal Reserve raising interest rates to the point of cooling off the economy and stopping the growth that we're having.

BAY: Do you think we're in danger now? Have we had one too many hikes already? Or is this a preemptive strike on your part?

BUNNING: No, I think it's a preemptive strike that the Fed is trying to pull. Anytime we get the prime rate of interest rates at 10 percent or above, the economy goes into a steep decline, and I don't want that to happen.

BAY: So how would you suggest Mr. Greenspan alter his policy? How would you suggest, for example, that he cool off consumer spending?

BUNNING: Why should he cool off consumer spending? That's part of the economy. It's not a bad thing. The only thing that he's doing by raising interest rates is going to cool off the economy itself, and therefore, those jobs that are created by a good economy, the surpluses that we have built into our budget surpluses here in the U.S. government are because of a good economy. He's going to stop the goose that's laying the golden egg.

BAY: Mr. Greenspan responded at length to some of your questions, suggesting that what he was really concerned about were imbalances. Were you not persuaded by his argument that he's simply trying to readjust those imbalances?

BUNNING: Well, I suggested to him that he come up with a new economic model and realize the fact that technology has really come forward and the American worker is able to produce a lot more goods and services because of the unbelievable boom we've had in technology. And he said that they do consider that, but I don't think their models are up to date.

BAY: Senator Bunning, thank you for joining us tonight.

BUNNING: I am glad, too. Thank you.

VARNEY: Now even though Mr. Greenspan all but predicted another rate hike down the road, brokerage stocks actually climbed today. Analysts say that bargain hunters rushed into the sector today after months of selling. Financial stocks on the S&P 500 are down 14 percent on average so far this year. Here's how stocks in the sector did today: Merrill Lynch up 5 7/8. Morgan Stanley Dean Witter gained nearly 3 1/2. Goldman Sachs rallied more than 4. Lehman Brothers up 1 3/4. Schwab rose more than two points on the day.

BAY: Next on MONEYLINE: MGM Grand in a multibillion dollar bid for Mirage Resorts.

VARNEY: We'll ask MGM's James Murrah why the Street should bet on this deal, and we're going try to give you the odds, when we come back.

(COMMERCIAL BREAK)

BAY: A huge bet placed today in Las Vegas: MGM Grand made an unsolicited, and it insists friendly, offer to buy Mirage Resorts. Analysts had predicted MGM would be in a buying mood after a glowing fourth quarter. But the offer, valued at 3.3 billion plus debt, was stunning in its size. Investors applauded the move. Mirage soared almost 3 1/2 and MGM Grand up almost 1 1/2.

Greg Clarkin has the details.

(BEGIN VIDEOTAPE)

GREG CLARKIN, CNN CORRESPONDENT (voice-over): MGM Grand stuns the strip and the street, offering to buy Mirage for $3.3 billion. It's an unsolicited but friendly bid for now, but has the potential to turn into one of the heavyweight prize fights Las Vegas is known for: In one corner, Kirk Kerkorian, MGM's majority shareholder with a 60 percent stake. Analysts speculated he was ready to bid for Mirage last fall. In the other corner, Steve Wynn. He's synonymous with Vegas, but hasn't given any indication he wants to sell.

JOSEPH COCCIMIGLIO, PRUDENTIAL SECURITIES: Ultimately, the real problem with the transaction is going to be what role is there for Steve Wynn and for the existing Mirage management, and is Steve Wynn willing to be second fiddle to anybody at MGM.

CLARKIN: MGM sent a letter to Mirage's board and then made it public, saying a deal would create the undisputed leader in the gaming business, and that it was committed to doing a deal on friendly terms. And at $17 a share, analysts say the offer is not only friendly, but attractive, with a better than 50 percent premium.

JASON ADER, BEAR STEARNS: Clearly, you know, if you're a Mirage shareholder, you haven't seen $17 in a long time. And if Mirage continued to pursue their existing business strategy, it could have been years that -- you know, for you to wait until you got that price. So you know, they are going to have to look long and hard at that letter and to see whether or not they could create as much value on their own.

CLARKIN: Mirage has been hurt by an expensive and underperforming casino in Mississippi, and it's $1.8 billion Bellagio Casino in Las Vegas is taking some business from its other properties. But linking with MGM would create a dominant player with few rivals. (on camera): MGM's tactic of making an attractive bid and then making it public is called by some a bear hug. The question now is, is Steve Wynn in a hugging mood?

Mirage says it will respond to the bid in -- quote -- "the near future." MGM says it has until March 8th.

Greg Clarkin, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: And for more on the deal, we're joined now by James Murren. He is the president and chief financial officer for MGM Grand, and he comes to us from -- where else? -- Las Vegas.

Jim, welcome to MONEYLINE.

JAMES MURREN, PRESIDENT & CFO, MGM GRAND: Well, thank you very much, Stuart.

VARNEY: Let's see if I've got this right: If you do this deal, you will have Bellagio, Golden Nugget, Treasure Island, Mirage. You've already got MGM Grand, you've got New York, New York. You will own a large chunk of the Las Vegas strip, won't you?

MURREN: Well, we would, but I'd have the order different. I'd start with our properties.

(LAUGHTER)

VARNEY: When's the bust going to come in Las Vegas. Every time I go there I see another 5,000-room hotel. I figure, "When is the end coming for this boom?" Any predictions.

MURREN: Well, I tell you I was dead wrong last year. I thought '99 was going to be a tough year for Las Vegas; we had so much capacity hit the market at one time. And darn it, you know, we confounded the skeptics again, and our visitor volume was up more than our rooms, and we had a great year in Vegas.

We've been down this road back in '89 and '93 and '97, and again last year. And there's no sign of really slowing down. The irony, of course, Stuart, is that a year and a half ago Wall Street was worried that too much capacity was going to hit Las Vegas and get out of the stocks. And now they're worried that not enough is going to hit and get out of the stocks. It's -- you can't win, I guess.

VARNEY: There's a lot of competition for the gaming business from all kinds of sources in America, and valuations on gaming companies are down. Do you think it might set off a wave of consolidation with the bid you've made?

MURREN: Well, you know, we're in that wave. I think we're right on the crest of it. And I think you'll see more of them actually. There has been quite a bit of consolidation. We made a great acquisition last year. We bought Prima Donna Resorts in a very accretive deal, probably the most accretive in the history of this industry.

But you know, I think you will see more deals. I think if the deals make sense financially -- and this one does -- I think you'll see more of them.

VARNEY: Why should Steve Wynn sell? He is, after all, one of the prime movers in making Las Vegas what it is. Now why should he sell out?

MURREN: Well, you know, this is really, as your program mentioned, it's really intended to be a friendly offer, to combine two powerful companies. And I think that, you know, when we look at it, we see two plus two, and it equals seven, eight nine, and not 4.

And you know, if anyone were to sit down and assess this, look at the combined quality of the assets, the people, the customer base, the growth prospects, I think people would conclude that the combined entity is just worth more. And those board members are shareholders. Our shareholders are important to us, and we think it's better for the shareholders.

VARNEY: There is strong speculation that to keep this deal friendly, as the Nevada Gaming Commission would like it to be friendly, definitely not hostile, that you'll put some more money on the table. Is there more money available for a higher sweetened bid?

MURREN: Well, as you said, this is a 56.3 percent premium over last sale in a group that's down, in a market that's choppy, I think -- and cash. You know, cash talks. That's a significant offer from a very strong company financially. And we fully intend this to be a friendly combination.

And I'll make it quite clear: that that is exactly what it means. We have no hostile intentions toward Mirage.

VARNEY: All right, James Murren, CFO and president of MGM Grand. We thank you very much for being with us.

MURREN: Thank you very much, Stuart.

VARNEY: Thank you, sir.

BAY: Coming up, the leading laser treatment to correct vision gets burned on Wall Street.

VARNEY: And we'll tell you why cheaper fees for doctors has clouded the future for Visx.

(COMMERCIAL BREAK)

BAY: In tonight's "MONEYLINE Movers": Sotheby's gained 3 1/4 on speculation that its largest shareholder, A. Alfred Taubman, will sell his stake. Over the weekend, Sotheby's president and CEO resigned, and Taubman stepped down as chairman.

Nextel Partners jumped 2 3/4 on its first day of trading. It's a digital wireless company that is partly owned by Nextel Communications.

And investors took a shine to Tiffany, the stock up more than two after Goldman Sachs added it to its recommended list.

VARNEY: A new CFO named by the Internet bidding service Priceline.com. They named their price and scored Heidi Miller, the CFO of Citigroup. She will succeed Paul Francis. He's moving to the board of intellectual property firm Walker Digital, established by Priceline's founder, Jay Walker.

Priceline, up more than $4 in light after-hours trading.

BAY: A huge drop today for the leading maker of laser vision correction systems: Visx took a big hit after the company said it was slashing the licensing fees by 60 percent it charges to doctors in an aggressive attempt to gain market share. The news took Wall Street by surprise, and Visx stock sank more than 5 1/2. Other companies involved in laser surgery, Summit Technology lost 4 1/4, Lasersight down nearly two, and Bausch & Lomb slipped 1 1/2.

Susan Lisovicz has more on what's in store at Visx.

(BEGIN VIDEOTAPE)

SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): New York eye Specialists charges about $4,000 to $5,000 an eye for its laser vision surgery. The manufacturer of the laser equipment used in those procedures used to get a $250 licensing fee for each eye. Now that fee has suddenly dropped to $100. And some doctors say they expect that reduction to be passed along to patients.

DR. KEN MOADEL, MANHATTAN EYE, EAR & THROAT: There are certain entities which are establishing very high volume, lower-cost centers which may be able to add a 5 to 10 percent savings to the patient.

LISOVICZ: But shareholders of the company that spent $100 million developing the laser technology aren't as enthusiastic. They're squinting at Visx, now down to a 52-week low: this in a year that had already sent the stock plummeting after an International Trade Commission ruling weakened the Visx patent.

Many analysts said they were shocked by the price reduction.

ROBERT FAULKNER, CHASE HAMBRECHT & QUIST: What Visx really invented here was a way to capture value by charging a per procedure fee rather than just selling the laser. That was big innovation and it was huge value. And that's why the company reached a market cap of $6 billion at peak, but without promise of that recurring revenue, the value overall is a lot less.

LISOVICZ: But Visx, which has a market share of about 70 percent, says it saw its growth leveling off and needed to take action.

MARK LOGAN, CHMN. & CEO, VISX: This is driven by our customers who have been telling us that they think there's a huge market out there at a lower procedure price. To help them facilitate that and gain this market growth, we have reduced our licensing fee.

(END VIDEOTAPE)

LISOVICZ: Visx says the short-term hit in profits will be more than made up by a bigger customer base. Right now in after-hours trading, Visx shares and those of competitor Summit Technology up about a dollar each. Summit says it will adopt a new pricing scheme similar to the Visx plan -- Willow.

BAY: Large and obviously very competitive marketplace.

LISOVICZ: You have got it.

BAY: Susan Lisovicz, thank you.

VARNEY: All right, coming up, Gateway makes a series of deals, but will that be enough to triple sales within five years.

BAY: We will put that question to Gateway CEO Jeffrey Weitzen.

(COMMERCIAL BREAK)

BAY: Gateway went on a tear today, after the company unveiled two big alliances to boost its sales. A deal with Sun Microsystems will provide business customers with Gateway's computers, and another pact will allow Gateway to open 1,000 outlets at OfficeMax stores. This as Gateway comes out with a bold forecast that sales will more than triple to $30 billion by 2004, with most of its profits coming from outside its core PC business. Investors seemed to like the news, the stock soared more than 10 today.

To talk about Gateway's future, we're joined from San Diego by Jeffrey Weitzen, chief executive at Gateway. Jeff, welcome back.

JEFFREY WEITZEN, CEO, GATEWAY: Thanks, Willow, it's good to be back.

BAY: Let's start with the obvious question that investors seem to like, how are you going to triple sales by 2004?

WEITZEN: Well, basically, we have been at a pretty good run rate over the course of the last couple of years, and we're taking actions to do a few things. One is really to take a step function in terms of our distribution capability. Obviously, we announced two fairly significant alliances today, one with Sun and one with OfficeMax, which is really going to allow us to reach far more customers than we do in our current mode.

In addition to that, we have been building our beyond the box capabilities over the course of the last year and a half. Those are things that are related to the computing experience, but aren't the computer itself. That has been driving a tremendous amount of growth and it's been driving a tremendous amount of our profitability.

BAY: Have you been surprised by the kind of growth that you're seeing in the non-PC business?

WEITZEN: Well, we feel that we're really well-positioned. And a lot of the decisions that get made around the box itself really get made at the time that the box is purchased, and then obviously there's after market there as well. And so what we have really done is, we have taken our position as a PC supplier and basically leveraged that so that when you buy that PC, why not buy Internet access and software and training and services, all of those kinds of things right at the time that you buy the PC itself?

BAY: How important is the access to their corporate clients that you get with this Sun deal? Is that a market you would really like to see Gateway expand?

WEITZEN: Well, that isn't really a principal target market of ours. We're much more focused in the consumer and small business market. But we do have product that can go up and satisfy a lot of needs in the large end corporate space. What Sun really allows us to do is be able to move our product up there without having to develop the tremendous sales and service and support infrastructure that it requires to service a customer of the global 2000 range.

BAY: Jeff, on a more personal note, you're getting a fair measure of credit for what folks are calling a turnaround at Gateway. Today, one analyst described your approach as Machiavellian, and he meant that as a complement.

WEITZEN: Well, I guess I should take it as a complement. You know, it's certainly not a one-man band here at all. There has been a legacy at Gateway actually long before I came here of being very focused on the customer, very focused on solutions, and over the course of the last two years, since I have been here we have really built a great team that's helped us put a lot of those beyond the box capabilities in place, and it's working.

BAY: Jeff Weitzen, thanks for joining us to night.

WEITZEN: Thank you.

VARNEY: Up next, "Ahead Of The Curve," some of what you need to know tonight before those markets open up again tomorrow.

BAY: You are watching MONEYLINE.

(COMMERCIAL BREAK)

VARNEY: Tomorrow, Wall Street gets a signal about the pace of big ticket spending. We'll get the durable goods orders report. It's a volatile indicator and it's expected to decline maybe 2 percent. On the earnings front, news from The Gap, Intuit and VA Linux, they'll report. Keep an eye on Priceline. That stock jumped in after-hours trading on news that it hired away Citigroup's CFO.

BAY: That is MONEYLINE for this Wednesday. I'm Willow Bay.

VARNEY: And I'm Stuart Varney. Thanks for joining us.

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