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Moneyline News Hour

High-Tech Stocks Take Dramatic Tumble; Japan Slips Back into Recession; Has Value Investing Turned into a Loser's Bet?

Aired March 13, 2000 - 6:30 p.m. ET

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

WILLOW BAY, CNN ANCHOR: Tonight on MONEYLINE, the Nasdaq in a nose dive. High-tech stocks take a dramatic tumble -- simple profit taking, or a sign of peril ahead?

STUART VARNEY, CNN ANCHOR: One force behind the sell-off: word that the world's second biggest economy has slipped back into recession. The trouble with Japan Inc.

BAY: A mea culpa from Warren Buffett after a disastrous year for Berkshire Hathaway. Has value investing turned into a loser's bet?

VARNEY: And a special report on recycling more than a million tons of nuclear-contaminated metal. Why the steel business doesn't want it ending up in your home.

ANNOUNCER: This is THE MONEYLINE NEWS HOUR. Reporting tonight from New York, Willow Bay and Stuart Varney.

VARNEY: Good evening, everyone.

It was a manic Monday on Wall Street.

BAY: The sound of the opening bell sparked a wave of selling after a tumultuous session in overseas markets. The Nasdaq fared the worst. The opening index fell more than 169 points, tumbling below 5000. Fifteen minutes later the index sank even lower, down more than 209 points to 4839, its lowest level of the session. But bargain hunters came in and for a moment it appeared like the Nasdaq could break out of the red. At 1:00 p.m. it was down just 20 points, but it didn't last. By 3:00 the index fell again, posting a triple-digit loss. The selling picked up and at the close the Nasdaq was off 141 points to 4907.

As for the Dow, the sell-off also began early. The blue-chip index down more than 193 points in the first half hour of trading, but an hour later the Dow turned positive and closed up 18 points to 9,947.

With our market coverage at the Nasdaq, we go to Charles Molineaux -- Charles.

CHARLES MOLINEAUX, CNN CORRESPONDENT: Well, Willow, we saw the Nasdaq's fourth worst one-day point loss today, 121 points, and this selling was broad. Almost two stocks went down for every one that went up.

Market watchers are divided over whether this was concern over Japan's economy, but it certainly started with today's sell-off in the Asia Pacific markets. Technology investors tried buying on the dips and the Nasdaq Composite went through several attempts at a rally before it fell in the last hour.

Yes, the battered biotechnology stocks led this market down and lost almost 7 1/2 percent. Advanced Tissue Sciences sagged and Chiron had a coronary on news its coronary drug bombed out in clinical testing. Telecoms got their wires crossed, Adaptive Broadband and Qualcomm both faded on the day.

Chip stocks like KLA Tencor and Linear Technology also fell more than 1 percent as a group. But the biggest of the group, big-cap Intel actually went up to a new all-time high after bullish analyst comments. So did Dell Computer after a series of analyst upgrades predicting a return to its renowned strong growth. Although, Apple was more typical, as computers fell 2 percent as a group.

Internet stocks took their lumps, too, down 2 percent. RealNetworks withdrew. PSINet lost, too. But eBay enjoyed a new round of investor enthusiasm over its business model and gained 8 1/2 percent.

How serious was what happened today? Well, strategists say this market will try to rally out of the slump and back up over 5000 probably several times this week. The question will be if it can hold there between now and Friday. If not, this could be something much more substantial than a one-day dip. Once again, we're waiting to see if those bargain hunters come in and save the day.

Reporting live from the Nasdaq market site, Charles Molineaux, CNN.

VARNEY: Well, turbulent tech stocks clearly hurt the Nasdaq, but some of the tech leaders on the Dow industrials pushed that index into the plus column today.

Rhonda Schaffler has now -- more now on today's winners and losers.

(BEGIN VIDEOTAPE)

RHONDA SCHAFFLER, CNN CORRESPONDENT (voice-over): Blue chips managed to recover from a nasty early fall, but today's advance was only modest and akin to a handful of stocks. Intel hit an all-time high on an analyst upgrade. Bottom fishers picked up Procter & Gamble shares. IBM advanced. And J.P. Morgan soared on an upbeat forecast. But the house of Morgan was more the exception than the rule.

Some banks did move slightly higher today, but most brokerages did not fare as well. In fact, there were several weak sectors today, drug stocks in particular trounced again. But the bulls say the day's advance for the Dow, timid as it was, could be a positive sign of what's to come. CHRISTINE CALLIES, CREDIT SUISSE FIRST BOSTON: It's clear this is still a very favorable time of the year for stock rebounds. Investors are going to keep contributing funds to their 401(k)s and their IRAs up until April 15th, and this does tend to allow the stock market a fairly large margin of error.

SCHAFFLER: But even as investors continue pumping money into the market, they're still selective. The much touted rotation out of the old economy stocks or traditional Dow issues into the new economy, tech related shares was evident at the NYSE: Merck, G.E., and ExxonMobil all lost ground, while Micron Technology soared more than 11 and AOL picked up 2.

CLARK YINGST, PRUDENTIAL SECURITIES: I think that this divergence, which is of some concern to us, is likely to be corrected at some point in the not too distant future. I was always taught that divergences by definition ultimately get corrected. The bigger questions to which no one has an answer and about which we can only speculate are exactly when under what conditions.

(END VIDEOTAPE)

SCHAFFLER: One possible factor, a raft of economic reports coming out this week that could give investors clues about the Federal Reserve's next move on interest rates. A report on retail sales is due tomorrow and later in the week readings on both producer and consumer prices -- Stuart.

VARNEY: Rhonda Schaffler at the big board.

Now, the catalyst behind today's meltdown, a huge sell-off in Tokyo following some rather grim news about the world's second biggest economy. The Nikkei stock average plunged nearly 3 percent, though the index is still up nearly 24 percent over the past year. Today's sharp sell-off came after new economic distress signals. Japan's GDP last quarter fell at an annualized rate of 5 1/2 percent, far more than expected. It is the second straight decline and that's what many consider to be a recession.

BAY: And the sell-off wasn't confined to just Tokyo and Wall Street. Stocks tumbled across the globe, with the benchmark indexes in Taiwan, Hong Kong, Germany, and Brazil all falling 3 1/2 percent or more.

Joining us now with more, Bob Hormats, he is the vice chairman of Goldman Sachs International. Bob, welcome back.

ROBERT HORMATS, VICE CHMN., GOLDMAN SACHS INTERNATIONAL: Good to be with you.

BAY: What happened in Japan? Is the worst over or do we continue to see falling GDP?

HORMATS: Well, the economy is in trouble, but I think we're going to see better times ahead largely because there is an old economy and the new economy. The new economy is still very weak. The new economy is beginning to pick up largely through information technology and computer-related investment.

BAY: Before we talk about the new economy, when do you think we'll see a significant improvement?

HORMATS: I think the first quarter numbers and second quarter numbers will be better than the numbers we have seen, not dramatically better, but better.

BAY: So you describe the new economy as weak, so is it likely, then, at some point that new economy will gain in strength enough to help lead Japan out of this recession?

HORMATS: I think the new economy will actually lead Japan out of the recession for two reasons: one, because already there is a lot of investment in telecommunications, in the Internet, cell systems, a whole range of very positive things, and as old companies begin to utilize the new technology they themselves will become more productive.

BAY: That may happen of course in the future, but what's really kept Japan from rebounding in any significant way?

HORMATS: Well, the old economy is still the largest portion of the overall economy, and it is not an economy which has been deregulated like the American economy. They also have a lot of overhang of real estate as a result of the bubble. They have a lot of excess industrial capacity. Until they work those off or work them down and improve the banking system, which is overloaded with a lot of this bad debt, they're going to have a hard time strengthening their economy.

BAY: Banking and Japan's corporation primarily there. What about the rest of Asia, is the picture quite different?

HORMATS: The picture in the rest of Asia is a little bit better. They have benefited from selling to the United States. A lot of restructuring is going on, the banking systems have been improved, still a lot of debt overhang, still a lot of excess capacity, but they're looking better. All of Asia has very high savings rate and they're beginning to use that to help stimulate growth.

BAY: How closely at this point is Japan's economy tied to the U.S.?

HORMATS: It's really not that close. I mean, we have been doing very well over the last 10 years with a relatively weak Japanese economy. It should not bring our economy down. It would be better if they were to grow more rapidly, but a weak Japan...

BAY: But it should not bring our economy down?

HORMATS: A weak Japan should not be bad for the United States, not good, but certainly not a bad problem.

BAY: Bob Hormats, as always, thanks for joining us.

HORMATS: Good to be with you, thanks.

VARNEY: Next on MONEYLINE, a very different kind of scoop rocks the newspaper business.

BAY: We'll look at how readers and investors are responding with Tribune buying the company behind the "L.A. Times."

VARNEY: And then there's Aetna, out to divide itself to prevent being conquered, why Wall Street was less than impressed with a drastic takeover defense.

Those stories are coming up next.

(COMMERCIAL BREAK)

VARNEY: The Tribune Company today expanded its newspaper empire from Chicago to Los Angeles and beyond, agreeing to buy Times Mirror, publisher of the "L.A. Times," "Baltimore Sun" and "Newsday." It's paying about $6 1/2 billion. The deal will create the country's third-largest newspaper company and a force in broadcasting as well.

Times Mirror stock surged more than 37 1/2 points, but Tribune slumped about 6 1/2. Casey Wian has the story from Los Angeles.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN CORRESPONDENT (voice-over): The "Los Angeles Times" has been owned by the Otis and Chandler families for more than a century. Now the paper's parent company, Times Mirror, has agreed to be acquired by the Tribune company of Chicago in a deal that will put 11 newspapers, 17 magazines, 22 TV stations and the Chicago Cubs under one corporate roof.

LELAND WESTERFIELD, PRUDENTIAL SECURITIES: The new Tribune company is a multitiered diversified media company with real strength in local media. By bringing together, Times Mirror and Tribune you create cross-ownership, that is TV and newspapers, in three of the biggest cities in the country -- Los Angeles, Chicago and New York -- and that's a terrific value.

WIAN: Together the companies will have 3.6 million newspaper readers and reach 75 percent of the nation's TV households. Tribune agreed to pay $95 a share for Times Mirror, about double its Friday close. Despite assurances that the combination will result in cost savings and produce higher earnings in the first year, investors are skeptical. Tribune shares lost nearly 20 percent on news of the deal.

Tribune Chairman John Madigan says he did not overpay.

JOHN MADIGAN, CEO, TRIBUNE CO.: Right now, the market's not real happy with major transactions. It's very nervous today, as you know, and I think eventually they'll see through this and realize that we paid a reasonable price to get these assets.

WIAN: The Chandler family, which owns most of Times Mirror's stock, will also get four seats on Tribune's board. Left out is controversial Times Mirror Chairman Mark Willes, who has angered "L.A. Times" staffers by blurring the lines between advertising and news gathering.

(on camera): The deal would also continue the exodus of major corporations from Los Angeles. If BP Amoco's purchase of Arco and the Times Mirror-Tribune deal both go through, Los Angeles would be left without a single Fortune 500 corporate headquarters.

Casey Wian, CNN Financial News, Los Angeles.

(END VIDEOTAPE)

BAY: Checking some other movers: Starmedia Network sank 17 1/4. Salomon Smith Barney and Merrill Lynch both downgraded the Latin American Web portal. The CEO of Starmedia called today's sell-off a huge overreaction to the downgrades.

Excite@Home gained more than 1 1/4. It launched a new broadband portal for high-speed Internet access, and Bank of America Securities called the company's stock compelling at these levels.

Infineon Technologies jumped more than 34 on its first day of trading. The chip maker is a unit of the German electronics giant Siemens.

And Superconductor Technologies soared nearly 21 on a supply agreement with ALLTEL Communications. Superconductor makes products for wireless communications and Internet access.

VARNEY: Aetna had very little luck convincing investors that it could boost its sagging stock by staving off a buyout offer. One day after the country's biggest health care and insurance giant said it would remain independent by dividing itself in two, Aetna stock dropped 5 1/4.

More on that from Allan Dodds Frank.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Aetna's turndown of a tentative takeover offer in favor of its own plan to split the company turned off Wall Street. Aetna's new chairman, Wall Street veteran William Donaldson, rejected out of hand a tentative $70 a share offer from WellPoint Health Systems and ING America Financial Services.

DAVID SHOVE, PRUDENTIAL SECURITIES: I'm not sure that if it had been a solid offer, that they would have rejected it or that they wouldn't have at least moved ahead to do a little more investigation. But this was simply a letter to go fishing, and I think that Bill Donaldson didn't want to be the fish.

FRANK: Aetna's break-up plan would create separate companies in managed health care and in financial services. The company's managed care business has 21 million customers and accounts for more than $20 billion in revenue but less than $1/2 billion in operating income. But Aetna's financial services unit, which sells mutual funds and annuities, accounted for only $1.6 billion in revenue and more than $200 million, or nearly 30 percent, of operating income.

Most of the international business, which brought in revenues of $2.8 billion with a mix of health care, financial services and insurance, will be put up for sale.

Some analysts say a break-up may not help.

WILLIAM MCKEEVER, SENIOR VICE PRESIDENT, PAINEWEBBER: I think they've made too many acquisitions over the last few years. They, frankly, have paid too much. They've executed poorly. They've made some efforts in Medicare that haven't worked. You can see it's a whole litany of things that they haven't done well.

FRANK (on camera): WellPoint and ING could still make a firmer offer, but Aetna, despite investor discontent, seems to want to make a go of it alone, at least for now.

Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: Coming up on MONEYLINE, we'll take you live to a gathering of the Internet elite.

VARNEY: Where the talk is about stock bubbles and the search for the new new thing. That's next.

(COMMERCIAL BREAK)

BAY: Checking some of the stocks that hit 52-week lows today: Cigna, Coca-Cola, EToys, Royal Caribbean Cruises and VISX.

VARNEY: The deal is off for CDNow and Columbia House, the mail- order music business owned by Sony and Time Warner, the parent of CNN. Columbia House last year agreed to buy CDNow as an online music retailer. But today, they announced the deal was dead, saying it no longer made financial sense.

CDNow has hired Allen & Company and is now exploring other strategic possibilities. CDNow stock dropped today more than a point and a quarter.

BAY: It's been called the Sundance Film Festival of the Internet: PC Forum, now run by Esther Dyson, is a gathering of some of the brightest lights of the emerging Internet economy. From venture capitalists to start-up CEOs, the hot topics at this year's forum in Scottsdale, Arizona are dot.com market valuations, and the quest for the new new thing.

For tonight's "Tech Watch," we're joined by MONEYLINE's Bruce Francis.

Bruce, what was there much talk today about the sell-off on the Nasdaq? BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): There was some concern earlier. First thing, really, just as the market was down 200 points. You have to remember, if there's a group of believers anywhere, Willow, this is it. These are the venture capitalists and entrepreneurs who got a lot of this round going. Well Esther Dyson asked the crowd, how many people think these stocks, specifically the B2B companies, are overvalued? Not a single hand stayed by their side. All the hands in the room went up. So certainly thee is, even within this industry, a concern about the valuations that we certainly see out there.

There's also the never-ending quest for the new new thing. And if there's any new new thing that's getting all the buzz this year, it's Terabeam. And I'm joined right now by Terabeam's CEO Dan Hesse.

Dan, thank you very much for being with us.

DANIEL HESSE, CO, TERABEAM: My pleasure, Bruce.

FRANCIS: Give our audience a sense of what you're doing. We don't want to get into the arcania of networking, but this is a breakthrough.

HESSE: Absolutely. Think of it as fiberless optics, everything you can do on a fiber-optic cable but doing it through the air, just shooting light through the window so you can get gigabit speeds to the desktops.

FRANCIS: So we're talking about hundreds of times faster than current businesses get but without the wires in the last mile?

HESSE: That's absolutely right. You can provision it very, very quickly. And from an economic perspective, because it's point to multipoint, we can serve many users. You don't have to buy an expensive spectrum, expensive roof rights, difficult rights of way. It's truly a breakthrough in the last mile.

FRANCIS: Now this is just the kind of business that the big networking companies like Nortel, Lucent, certainly Cisco, are very interested in snapping up these days. Are you going to stay independent?

HESSE: That's our plan. Greg Amadon, the founder, and I have very big ambitions for this company. So I don't think anybody can afford us.

FRANCIS: Do your big ambitions include an IPO?

HESSE: Probably sometime in the future. It's too early to say when that might be.

FRANCIS: Who might be threatened by this? It seems you can't offer such a big shift, a big disruptive shift, without some companies being at risk here.

HESSE: The CLECs, competitive local exchange carriers as well as the regional Bell carriers will clearly see us as competitors.

FRANCIS: You left a huge amount of money on the table. You were the head of AT&T's wireless unit. Any -- how did you get to making that decision where you could leave literally millions on the table?

HESSE: Well, you've seen here at the conference, when anybody walks into the Terabeam showroom and they see it, and they see it working, they're believers. That's what it took for me. They put a bag over my head, stuck me in the roof of a car, drove me to this super-secret place -- because actually the company's been in stealth mode for two and a half years in Seattle.

When I saw it working -- because I've been in the business 23 years. I didn't think it was possible. I've been on the equipment side, in the service side, the Internet side, the wireless side, I've been everywhere. And what they've done is something that's absolutely revolutionary. And it was an opportunity to be part of it.

FRANCIS: Dan, we're going to leave it there. Thank you very much for joining us.

HESSE: Thank you, Bruce.

FRANCIS: Dan Hesse, the new CEO of Terabeam.

Stuart, Willow, back to you.

BAY: Thanks, Bruce.

VARNEY: Still ahead on MONEYLINE, predictions of another summer of drought.

BAY: That warning from Washington and other stories just ahead in our "News Digest."

(COMMERCIAL BREAK)

VARNEY: It was a volatile session on Wall Street, but despite that we have a few stocks hitting new 52-week highs, and they include About.com. We also have Dell Computer hitting a new high and Intel, along with Rambus, yet again, and Seagate Technology.

Time now for our look at the day's top stories outside the world of business. And for that, Wolf Blitzer with the "MONEYLINE News Digest" -- Wolf?

WOLF BLITZER, CNN ANCHOR: Thanks, Stuart.

The Clinton White House may have felt as if it were under siege today, responding angrily to an attack by the National Rifle Association and facing another possible fight with the independent counsel.

The president denounced as smear tactics NRA charges that he accepts a certain level of violence to promote his political aims. And CNN has learned independent counsel bob ray is actively exploring whether to seek an indictment against Mr. Clinton after he leaves the White House in January. That as the investigation into the Monica Lewinsky and Paula Jones cases continues.

Campaign news now: On the eve of primaries in six Southern states, Vice President Al Gore accused George W. Bush of lacking a health care agenda because he's loyal to campaign donors who just want a tax cut. Bush countered that it's Gore who's compromised himself for campaign money. The Texas governor predicts a tough campaign ahead.

Also today, Washington is warning that half of the U.S. states will probably suffer drought this summer, with the Midwest hit especially hard. Government forecasters say that could mean higher food prices, less water for recreation and more fires.

(BEGIN VIDEO CLIP)

JOHN KELLY, DIR., NATIONAL WEATHER SERVICE: The outlook is bleak. Large portions of this country are going to experience continued shortages of rain.

(END VIDEO CLIP)

BLITZER: And the NFL's Dan Marino retired today after 17 years as quarterback for the Miami Dolphins. Marino completed a record number of passes in his career but never won the Super Bowl.

We'll have much more on all of these stories tonight on "THE WORLD TODAY" at 8:00 p.m. Eastern, 5:00 Pacific.

Now back to Stuart.

VARNEY: All right, thanks very much, Wolf.

BAY: Ahead on MONEYLINE, a deal that spans from Detroit, Michigan to Turin, Italy.

VARNEY: GM teams up with Fiat, out to expand its market mileage around the globe: what it means for the world's biggest car market.

BAY: And a controversy reaching critical mass: what to do with more than a million tons of nuclear contaminated metal.

Stay with us.

(COMMERCIAL BREAK)

ANNOUNCER: THE MONEYLINE NEWS HOUR continues. Here again, Stuart Varney and Willow Bay.

BAY: In tonight's headlines, a white-knuckle ride for the technology faithful, as the Nasdaq slides nearly three percent.

The pressure on techs coming from an unlikely source: Japan. Its economy shrinks for the second straight quarter.

And a MONEYLINE special report on a recycling program that could open a can of worms for the steel industry.

VARNEY: But first, more on our top story: Stocks swoon from Tokyo to Seoul to Frankfurt, and the reaction on Wall Street is quick and painful. The first global sell-off of 2000 left the Dow unscathed, but it did cut deeply into the Nasdaq. That index suffered its fourth-biggest point loss ever, after tech stocks were slammed across the globe.

The Nasdaq tumbled 141 points -- that's nearly 3 percent. It had been down as many as 209 points, retreating from the record that it reached on Friday. Two big-cap stocks weighed on the Nasdaq: Oracle and Sun Microsystems. But some, in fact, bucked the trend, like Dell and Intel, which were both upgraded today. And then there's eBay, which surged 16 1/2.

The Dow industrials, they tumbled nearly 200 points at the opening bell. They staged, though, an impressive rebound. The blue chips ended the day up 18, at 9947.

Now it wasn't a profit warning or even Alan Greenspan that caused this morning's market mayhem -- oh, no. It was a sell-off that echoed across Asia on troubling news about the world's second-largest economy. Japan's gross domestic product shrank at an annualized rate of 5.5 percent last quarter, pitching the economy back into recession.

And as Greg Clarkin reports, the one sector that seems to ignore economic conditions was indeed hit hard all across the globe.

(BEGIN VIDEOTAPE)

GREG CLARKIN, CNN CORRESPONDENT (voice-over): Technology stocks tumbled worldwide after Japan reported its economy shrank late last year for the second quarter in a row. Technically, that's a recession. Nervous investors bailed out of tech stocks, fearing even a hint of weakness in Asia.

DAWN SIMON, MERRILL LYNCH GLOBAL TECH FYND: The revisions in the gross domestic product in that nation, in that area, has caused some investors a little bit of concern about whether a global recovery economically is sustainable.

CLARKIN: That little bit of worry translated into a lot of selling. Stocks in Japan fell almost 3 percent. Hong Kong shares lost more than 4 percent, and stocks in Taiwan plunged 6 1/2 percent. The selling continued in Europe, where stocks in the U.K. lost more than 1 1/2 percent, and 3 1/2 percent in Germany.

Sony typified the widespread selling. A slide that started last week turned into a 7 percent tumble in Tokyo and the U.S., and analysts say investors are jittery, looking for the first sign of trouble to sell their high-flying high-tech stocks.

ART RUSSELL, EDWARD JONES: It's hard to predict the next catalyst that's going to create, you know, the negative sentiment. But, you know, at some point there's going to be some type of shock to the system, and a little bit of bad news is going to send people scurrying out of these stocks. And there's the potential that it gets ugly real quick.

CLARKIN: And it was ugly early on for the Nasdaq. Telecoms, techs and Internets were battered. The Nasdaq was down more than 4 percent before regaining some ground. Analysts say many so-called "new economy stocks" are priced for unattainable perfection, but investors are still flocking to them.

MARK KELLER, A.G. EDWARDS: This is clearly the most vibrant, fastest-growing portion of our economy. It's just simply a matter of how much is an appropriate amount to pay for that growth?

CLARKIN (on camera): The news out of Japan unnerved investors worldwide, and analysts say now more than ever analysts need to be acutely aware of how much exposure their holdings have to events around the globe.

Greg Clarkin, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: Adding to the Nasdaq's volatility: a record-breaking merger in an industry that didn't even exist a few years ago. Business to business software maker I2 Technologies is buying Aspect Development and Supplybase for $9.3 billion. That is the biggest software merger in history. I2 is offering a 35 percent premium for Aspect. That drove the stock up nearly 12. I2 shares slumped more than 16 3/4, though the stock has been on an incredible run.

Steve Young has more.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): A business-to- business gorilla has been forged out of three companies many investors scarcely knew until recently. I2 says it's acquiring Aspect Development and Supplybase in a stock deal it values at $9 1/3 billion, the biggest software deal in history. The companies help suppliers and their customers do business more efficiently over the Internet.

SANJIV SIDHU, CEO, I2 TECHNOLOGIES: Business-to-business solutions can transform the world. It's what we call the next industrial revolution.

YOUNG: I2 and Aspect's common clients include Compaq, Motorola, Ford and Sun.

ANDREW ROSKILL, WARBURG DILLON READ: I2's strength is in the back-end applications. That is, providing decision support, supply chain management, order fulfillment and logistics functionality. Aspect Development, on the other hand, provides a great product for direct product procurement. So the two products are extremely complimentary to one another, and they're already well on their way to being integrated.

YOUNG: Analysts say the bulked up I2 is now a one-stop shop hard to match in the industry. But Commerce One, Ariba and Oracle aren't far behind. Last week, IBM formed a three-way alliance with I2 and Ariba. Big Blue will sell their software and also use it to streamline its own manufacturing.

Some analysts caution that while business-to-business e-commerce stocks are now in vogue, Wall Street sentiment could swing back to business-to-consumer issues, which were hot last year.

ANTHONY NOTO, GOLDMAN SACHS: I think we'll see the same thing this year, where B2B is very hot right now, and by late summer, early fall people are going to swing back to the forgotten B2C sector to the leaders.

YOUNG: But business-to-business bulls disagree.

(END VIDEOTAPE)

YOUNG: They say business-to-consumer e-commerce gets just razor- thin profit margins, while the business-to-business market is bigger, less cyclical, and the profit potential is huge -- Willow.

BAY: Steven, we'll find that out when those profits start to come in. Steve Young reporting -- thank you.

VARNEY: All right, let's turn now to another deal, one that could give General Motors an even bigger share of the global car market. GM and Italy's Fiat are buying stakes in one another. It's a bid to cut costs and expand. Fiat shares jumped about a point and a quarter on that news. No change for General Motors, though. There had been speculation that DaimlerChrysler would buy Fiat, but now if Fiat sells to anyone it will have to be GM.

Fred Katayama has more on that.

(BEGIN VIDEOTAPE)

FRED KATAYAMA, CNN CORRESPONDENT (voice-over): The Italian automaker known for its economic sports cars and the Ferrari's first cousin is tying up with the maker of the rugged Suburban. General Motors is swapping 5 percent of its stock worth $2.4 billion for a 20 percent stake of Fiat's auto business. Analysts say GM had to pay a big premium for the weak automaker because there are a few independents left.

High price aside, GM says this deal will help it slash costs in Europe and Latin America.

JOHN SMITH, CEO, GENERAL MOTORS: We see significant opportunities to reduce costs, and we believe that that's absolutely necessary in order to compete in this global arena.

KATAYAMA: The companies will set up two joint ventures focusing on those two regions. They'll combine their engine and transmission plants that employ 40,000 people and buy parts together. They expect that'll produce annual savings of $1.2 billion by the third year.

EFRAIM LEVY, STANDARD & POOR'S: Today's transaction with General Motors and Fiat is a good deal. There are several benefits that they get from having a joint venture compared to having an outright merger. They get to have immediate savings and purchasing by their volume.

KATAYAMA (on camera): Fiat, the world's seventh-largest carmaker, needed GM's investment to stay independent. But GM has first dibs to buy the remaining 80 percent of its Italian partner should Fiat decide to sell.

(voice-over): For now, suddenly cost-conscience Fiat isn't about to sell GM on the idea of joining them on the racing circuit.

UNIDENTIFIED MALE: If I can give you a suggestion, stay out of the formula one. It's an expensive toy.

Fred Katayama, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: A high-profile departure, that could hurt a major profit machine at Merrill Lynch: Jack Levy, who helped build Merrill's merger business, is leaving after 22 years at the investment bank. Merrill says Levy has resigned to pursue other career opportunities. Levy is the second powerful banker to leave Merrill this year. Merrill's head of technology investment banking, Mark Shafir, resigned last month.

VARNEY: The contentious search for a new leader for the International Monetary Fund may have come to an end. The White House this afternoon said it would support -- it would support the German candidate Horst Koehler. This capped a four-month struggle to fill the post, during which time the Clinton administration had rejected another German official. The job, by the way, traditionally does go to a European.

BAY: Next on MONEYLINE, if it's not working for Warren Buffett, what hope is there for his investment philosophy?

VARNEY: A special look at the future of value investing. That story's coming up next.

(COMMERCIAL BREAK)

BAY: In tonight's "MONEYLINE Focus": hard times for the world's greatest investor. Warren Buffett this weekend released his annual letter to shareholders, concluding that 1999 was the worst performance of his Berkshire Hathaway tenure. Buffett is just the best-known victim of a broader market trend: the all-out rejection of so-called "value investing," the search for solid companies with bargain basement stocks.

Peter Viles reports.

(BEGIN VIDEOTAPE) WARREN BUFFETT, BERKSHIRE HATHAWAY: The Internet's a passing fad.

(LAUGHTER)

PETER VILES, CNN CORRESPONDENT (voice-over): Give Warren Buffett credit: He hasn't lost his sense of humor. But in the past year, the most famous value investor in America has lost $50 billion: on paper at least. Berkshire Hathaway shares are down 44 percent.

BUFFETT: To tell the truth, value investing hasn't been working very well for me lately.

(LAUGHTER)

VILES: At least Buffett has company. Hedge fund manager Julian Robertson has also taken a beating. His Tiger Funds are off 13 percent so far this year.

Big value funds -- such as Putnam's Growth and Income, Fidelity's Equity Income, and Windsor Vanguard -- have all lost more than 11 percent this year. By contrast, the average performance for big tech funds is a gain of 38 percent, which is why investors are pulling money out of value funds and piling into technology.

SCOTT BLEIER, PRIME CHARTER LTD.: The real world companies get the double-whammy of no new money flows and money actually coming out to chase the performers.

VILES: On Wall Street, the debate is whether value investing is poised for a comeback or at risk of going the way of the rotary dial telephone and the milkman.

TONY DWYER, KIRLIN HOLDINGS: Typically, when people talk about the end of value investing as we know it, it's a good signal that we're near a bottom, and I think in the old economy stocks we are.

VILES: That sounds logical, but not everyone agrees. Jeff Applegate of Lehman Brothers argues that cheap old-economy stocks may not be good buys at current levels. His logic is that higher rates and an economic slowdown threaten their profits, and the Internet is creating a separate deflationary tornado that squeezes pricing power and profits.

In years past, investors would be hanging on every word Buffett had to say in this debate. This year his credibility, however, has been hurt by his continued reluctance to invest in technology and by numbers like these: Washington Post, down 12 percent; Wells-Fargo, 18 percent; and Coke, Freddie Mac and Gillette, all off 30 percent or more. That's a list of some of Berkshire's biggest holdings.

One company absent from the list: Walt Disney. Sometime last year Buffett sold at least half of Berkshire Hathaway's 51 million Disney shares.

(END VIDEOTAPE) VILES: So what is Buffett saying about his battered portfolio? This weekend he wrote to his shareholders: He still likes the companies he's invested in, but he says the stocks in those companies have not become cheap enough to tempt him to buy more -- Willow.

BAY: So no change in strategy?

VILES: None whatsoever.

BAY: Thank you, Peter.

VARNEY: All right. When we come back, we're going to continue this tech versus value debate. We'll talk with Douglas Cliggott.

BAY: That's next.

(COMMERCIAL BREAK)

VARNEY: Here's the question of the day: Did today's technology sell-off create a buying opportunity or a wake-up call? My next guest says now is not the time to be chasing tech. Instead, he sees opportunities in energy and consumer stocks.

Joining us now is Douglas Cliggott. He is U.S. equity strategist at J.P. Morgan.

Douglas, welcome back.

DOUGLAS CLIGGOTT, J.P. MORGAN: Thanks for being here.

VARNEY: Let's clear this up: You would not at this point put any fresh money into the technology sector, correct?

CLIGGOTT: That's correct. We have no problem with the fundamentals. There's very strong revenue growth. That's very strong earnings growth. But when we look and see that over the past 12 months the Nasdaq has increased by more than 100 percent, over the past three months it's increased by over 50 percent, it's very difficult to make a judgment call that the risk-return profile is one that you want to embrace.

VARNEY: On this program, on Friday night, Professor Jeremy Siegel at the Wharton School of Business suggested there was a very sharp and sudden correction coming for tech stocks. Do you agree with that? Would you go as far as that?

CLIGGOTT: I think the risk of a correction is high and the reason for thinking that is, in our view, we've broken away from those fundamentals now. It's all about money flows and momentum.

Often when stocks break, they fall, as we saw with Procter & Gamble, but then underlying earnings gives you a floor where a lot of technology stocks are trading right now. Should the momentum break, they could easily fall 50, 60, 70 percent before you get any kind of valuation floor. VARNEY: Those are frightening words indeed, but your position would be start looking for real value in those oldline companies, those consumer stocks, for example -- Procter & Gamble, you mentioned that -- you'd be buying them at this price.

CLIGGOTT: We would, and we wouldn't say avoid tech, but I think so many portfolios are more than half technology now...

VARNEY: Yes.

CLIGGOTT: ... we would say 25 to 30 percent in tech. Buy energy. That's where the earnings momentum is. And as a lot of these big global-branded consumer goods companies, their share of prices break down, we think that's where the interesting buying opportunities are.

VARNEY: And you think that is the trend in the marketplace in the immediate future: some money coming out of those high-flying techs and going in back into the -- I was going to say lower grade; I don't mean that -- but the beaten-down, ordinary, everyday, old-economy stocks.

CLIGGOTT: That's what higher interest rates usually do.

VARNEY: They'll do it this time: We shall see, however.

Douglas Cliggott, J.P. Morgan, thanks very much for joining us.

CLIGGOTT: Thank you, Stuart.

VARNEY: OK.

BAY: A bit of a reality check for one sector today. After weeks of sizeable gains, biotech stocks came back down to Earth, along with other sectors, the group led lower by shares of Chiron, which lost more than 23 percent. Today, the biotech firm reported disappointing results in a human test of its treatment for coronary artery disease. CS First Boston also downgraded the stock, based on its recent price gains.

Shares of Chiron ended the day off more than 13. Other biotech firms also lower: Immunex sank 27 1/4, MedImmune down nearly 21 1/2, Biogen lost almost four, and King Pharmaceuticals off 8 1/2.

VARNEY: Ouch.

When MONEYLINE returns, a plan to decontaminate thousand of tons of heavy metal draws the ire of the industry that helped make it.

BAY: A MONEYLINE special report, next.

(COMMERCIAL BREAK)

BAY: The Department of Energy is in the process of shutting down the plants that helped build America's nuclear arsenal and win the Cold War, 113 sites, most of them nuclear weapons-related. But a decade after the Berlin Wall came down, America faces lingering fallout from its 45-year standoff with Russia: what to do with hundreds of thousands of tons of contaminated metal.

The federal government has a plan to recycle it, but as Louise Schiavone explains in this special report, there is one industry that says radioactive steel will ruin its reputation and its profits.

(BEGIN VIDEOTAPE)

LOUISE SCHIAVONE, CNN CORRESPONDENT (voice-over): LTV Steel in Cleveland, Ohio is a typical steel-producing operation where scrap is mixed with iron ore and the final product emerges in consumer goods from soup cans and cars to construction materials. About two-thirds of all steel made in the United States is derived from recycled materials.

TERENCE CIVIC, LTV STEEL: Steel and metal products are highly recyclable.

SCHIAVONE: But this plant is typical in another way, it's constantly on the lookout for radioactively contaminated metals.

CIVIC: As this material continues to be released, we expect that the amount of radiation will continue to build up, and as we continue to recycle, the levels will increase.

SCHIAVONE: Put simply, steel mills don't want materials exposed at any stage to radioactivity, because continued exposure even at low levels can increase the risks of cancer or genetic defects to workers and the general public. The problem is radioactive scrap metal can and has been recycled into shovels, table legs, protective lead aprons and more.

PETER HERNANDEZ, AMERICAN IRON AND STEEL INST.: We're concerned the public will not accept any radioactive-contaminated material in consumer goods.

SCHIAVONE: Over the next few years, 126,000 tons of radioactive scrap metal will be emerging from this nuclear weapons plant in Oak Ridge, Tennessee. It's the old K-25 plant which supplied enriched uranium for generations of nuclear weapons, including the bomb dropped on Hiroshima.

JAMES MCANALLY, BRITISH NUCLEAR FUELS LTD.: We're moving about 150 tons a week right now that is being decontaminated and released into general consumption.

SCHIAVONE: A company called British Nuclear Fuels is under U.S. government contract to dismantle and recycle metal from an Oak Ridge building equal in space to 66 football fields.

STEVEN RICHARDSON, DEPT. OF ENERGY: It's a multi-year contract and they're in the several early years, but to this point in time I think we're satisfied, yes.

SCHIAVONE (on camera): There are natural and allowable levels of radiation in the everyday environment from rocks to radio waves. British Nuclear Fuels asserts the final product of their processing meets these levels.

MCANALLY: Then we survey it and check every square inch of it to make sure that it is totally clean, and then we put our name on it so that if anybody has any question on it, they know where the metal came from.

SCHIAVONE (voice-over): Most of the radioactive metal coming out of Oak Ridge is surface-contaminated carbon steel. Six thousand tons of some of the most contaminated material, nickel, has been ruled off- limits pending a review by the Nuclear Regulatory Commission, but that's not good enough for the steel industry. They don't want any metal from any of the DOE sites in the general stream of commerce.

TOM DANJCZEK, STEEL MANUFACTURERS ASSN.: The government has a responsibility here not to contaminate the scrap supply stream with the nation's larger recycler.

SCHIAVONE (on camera): One major U.S. steel recycler, which asked not to be identified, tells MONEYLINE that it shut the door on scrap deliveries from Oak Ridge three years ago after two truckloads set off their radiation alarms.

(voice-over): While there are established radiation limits for liquids and gases, the Nuclear Regulatory Commission has not established limits for solids like steel. In fact, DOE Secretary Bill Richardson has asked the NRC to address this issue, and in a recent memorandum established "a Re-use and Recycling Task Force which will conduct a review of department policies regarding the release of all materials."

LTV in Cleveland hasn't taken scrap from Oak Ridge, but is well acquainted with the general problem, because radioactively contaminated scrap comes from a variety of sources such as hospitals and research labs.

CIVIC: There are no standards right now for cleaning. There are no standards now for monitoring. Until that -- those standards are developed, material that shouldn't be released can be released.

SCHIAVONE: The steel industry and consumers agree it's best to keep radioactively-contaminated metals out of the general recycling stream. And with $40-$60 billion in annual sales, the steel industry says even a 1 percent loss in confidence of steel would translate into a yearly business loss of half a billion dollars.

Louise Schiavone for CNN Financial News, Washington.

(END VIDEOTAPE)

BAY: Up next, "Ahead Of The Curve."

VARNEY: Some of what you need to know tonight before those markets open up again tomorrow.

(COMMERCIAL BREAK)

VARNEY: Disappointing economic news from Japan sparked today's sell-off. Tomorrow, Wall Street will be focused on the U.S. economy. At 8:30 a.m. Eastern, the latest figures on retail sales are due out.

Also, you might want to keep an eye on the share price of Dell Computer and Ariba, because after the bell the two companies announced a B2B e-commerce alliance.

Also watch AT&T, tomorrow its shareholders will vote on whether to create a tracking stock for its wireless operations.

And then on the earnings front: Oracle, Martha Stewart Living, AnnTaylor and Saks all expected to report. And we'll be talking to the CEO's from two of those companies tomorrow: Oracle's chief Larry Ellison, he's going to join us, and Martha Stewart. That is tomorrow on MONEYLINE.

BAY: Well, that is MONEYLINE for this Monday. I'm Willow Bay.

VARNEY: And I'm Stuart Varney. "CROSSFIRE" is next.

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