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Moneyline News Hour

Wall Street Gets First Solid Rebound Since Harrowing Ride; Celera's Breakthrough Sparks Rally on Genomics; Starbucks' CEO Steps Down

Aired April 6, 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, HOST: Tonight, the first solid rebound since Wall Street's harrowing ride. But with investors bracing for a key unemployment report, the turmoil may not be over.

Leading today's rally: genomics. Investors once again rush to these stocks after a scientific breakthrough by Celera.

The unseen force behind this week's gut-wrenching moves: brokers calling in their loans.

(BEGIN VIDEO CLIP)

DORINE ESSEY, INVESTOR: I had gotten a phone call in the morning telling me I had to sell that day.

(END VIDEO CLIP)

VARNEY: A special report on margin calls, the dark side of borrowing to buy stocks.

And, the man behind the mochaccino, Howard Schultz, steps down at Starbucks.

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

VARNEY: Good evening, everyone. Willow is on assignment.

Tonight, a sight for sore eyes on Wall Street, a broad-based rally after a gut-wrenching three days. Investors snapped up both old- and new-economy stocks on enthusiasm over corporate profits and a biotech breakthrough.

The Dow industrials started the day in the plus column, up more than 167 in the first hour of trading. By the close, though, the blue chip average had trimmed those gains a little, but still up 80 points on the day at 11114.

The Nasdaq staged its own rally, up more than 154 early in the session. At the closing bell, the tech-heavy index was up 98 at 4267.

For a closer look at this across-the-board rebound, here's Rhonda Schaffler.

(BEGIN VIDEOTAPE)

RHONDA SCHAFFLER, CNN CORRESPONDENT (voice-over): Stocks gained some ground today in a relatively stable session, getting a lift from renewed interest in biotechs and some reports of strong first-quarter earnings. Investors stepped back in for some bargains as the market settled from turbulence earlier this week.

RICHARD CRIPPS, LEGG MASON: Very legitimate bargain-hunting. I think the stability of the market is bringing in confidence to buyers to be buying some of these stocks that have come down.

SCHAFFLER: Blue chips were largely bolstered by ALCOA, the first of the Dow industrials to report on last quarter. Shares of the aluminum company closed higher after it reported profits jumped 60 percent, far outpacing Wall Street expectations.

Investors also bought shares of General Electric, General Motors and Hewlett-Packard. But Microsoft shares continue to slide. The stock has now lost 19 percent this week.

In Nasdaq trading, biotech led the rally, fueled by word from Celera Genomics that it has completed the next step in mapping the human genome. Shares of Celera, which trades on the NYSE, soared 23 points. Nasdaq plays Protein Design Labs, Incyte Pharmaceuticals, Human Genome Sciences, and Amgen all fed off Celera's momentum.

FARAZ NAQVI, DRESDNER RCM BIOTECHNOLOGY: What we're seeing right now in the genomics stock today is some of the euphoria. You're seeing -- I mean, when you have a stock up 30, 40 percent, it's almost by definition the euphoria that's going into that and a lot of momentum players.

SCHAFFLER: A big challenge for investors remains how to balance the old- and new-economy stocks. While ALCOA's jumped on good earnings, Yahoo!'s did not. Despite beating most published expectations, Yahoo! failed to top whisper estimates, and its shares closed lower.

For now, analysts say investors are still attracted to the strong profits being reported by old-line companies.

CHRISTINE CALLIES, CREDIT SUISSE FIRST BOSTON: If we see further evidence that the market has taken these blockbuster tech earnings for granted and that they have been, of course, underestimating earnings from the old economy, that would suggest that money is still moving out of the new and into the old.

(END VIDEOTAPE)

SCHAFFLER: Market watchers refrained from calling today's performance a real recovery, noting that investors seemed a bit skittish ahead of tomorrow's key jobs report for March, which is expected to show the unemployment rate falling to a 30-year low, yet another sign the economy is running hot -- Stuart. VARNEY: Rhonda, I've heard of a couple of economists talking about a 3.9 percent unemployment rate tomorrow. Have you picked up on that?

SCHAFFLER: Well, the expectations are generally 4 percent, so 3.9, 4 percent, right in that area. And, of course, that is an unbelievable level -- not just the rate being lowered but job growth also is expected to be strong.

VARNEY: That would be a stunner indeed.

Rhonda Schaffler at the Big Board, thanks, Rhonda.

Now today's gains were much needed for Nasdaq investors.

John Metaxas standing by at the Nasdaq marketsite with more on that -- John.

JOHN METAXAS, CNN CORRESPONDENT: Stuart, it was actually somewhat of a calm day here at the Nasdaq, 1.7 billion shares, far fewer than the 2.9 billion that traded on Tuesday. But the market jumped out more than 100 points at the open on the strength of the biotech stocks, bargain hunting in the technology sector. And the semiconductors did especially well after a semiconductor industry group reported strong sales.

But unlike in prior days, the market held its gains throughout the day without that volatility. Some selling towards the end of the day over nervousness over that employment report tomorrow, but enough buying power for a recovery.

Let's look at where we are this week so far. Here's the sharp decline on Tuesday. We've come back some 600 points from that level, but we're still down more than 300 points from where we started the week at the close on last Friday. And the analysts say something fundamental has changed here. One trader said it feels a little bit like an earthquake. You're not sure if there are more aftershocks coming, so you tread carefully. They're looking at stocks in a very different way, and they're looking more at the blue-chips, like Cisco Systems, Applied Materials, which, despite the volatility remain in uptrends. And these are the kind of stocks that are likely to have the kind of earnings that you're going to need to move forward in this kind of market.

We finish with some strong gains at the market. As you say, Stuart, it was a much-needed rally.

Back to you.

VARNEY: Yes, indeed. John Metaxas reporting.

Now today's rally spread beyond the Nasdaq and the Dow industrials, In fact, virtually every index ended the day in the black, except for the Dow utilities, which shed nearly 1 percent of their value. Take a closer look at the action: The S&P 500 index up more than 13 at 1501. On the big board, a nice change of pace. Winners beat out losers by a 3-2 margin. There were 47 stocks that hit new highs, 27 hit new lows. A stellar day for small-cap stocks as well, with the Russell 2000 soaring nearly 3 percent. It closed at 532. And as stocks went up, money came out of bonds. Both the 10- and the 30-year Treasuries gave back some of their recent gains. The 10-year slumped 12 ticks and the 30-year was down two ticks, the yield on that one 5.78.

Despite today's move higher for stocks, the Dow industrials are still down more than 3 percent this year and are some 5 percent below the high. The Nasdaq still holding on to a slight gain, up nearly 5 percent on the year, but down close to -- actually, more than 15 percent from the record.

So, is today's tech rally a sign the worst is really over, or is there more volatility still ahead?

Gregg Hymowitz joins us now with more. He's a money manager at Entrust Capital.

Gregg, welcome back.

GREGG HYMOWITZ, ENTRUST CAPITAL: Thank you.

VARNEY: There's an awful lot of people saying we're going to re- test that low this week, 3800, 3900 on the Nasdaq. What do you think?

HYMOWITZ: The beautiful thing about this business is no one ever really knows. That's the nice thing about the business, quite frankly.

VARNEY: You're an honest man.

HYMOWITZ: Yes, I'm very honest. No one really ever knows. That's the fun thing about the business. I don't think that's the case, though. I really do believe we hit an air pocket a while ago. The last two weeks, there was an earnings vacuum effectively. There was no news on earnings. And then you had some tangential news that roiled the markets -- Abby's comments, Abby Joseph Cohen's comments, the Microsoft decision, all things that I think in the midst of an earnings period would have got a lot less attention. But given that there was not a lot of earning news, there -- you didn't see really any major pre-earnings disappointments, quite frankly, and I think we just hit an air pocket. The stock started going down, momentum built, and you have, you know, 60 percent of Nasdaq volume today is individual investors. And I think people just took their gains and sold stocks.

VARNEY: Volatility, yes there, but no return to below 4000 on the Nasdaq? At least in the immediate future?

HYMOWITZ: I believe that's correct.

VARNEY: Now, we're in earnings seasons. The big ones come out next week. And there's a general consensus that the big names, the Microsofts, Ciscos, Sun, et cetera, et cetera, they'll do quite well. But what about second- and third-tier tech stocks if they do not do well on earnings? What happens to them?

What always happens with these kinds of corrections is the big companies, the real companies, the companies with real businesses come back, and they tend to come back stronger than ever. The second-tier, third-tier companies that really never had big business plans really had big business plans really do not have bright futures but was up on a lot of buzz, those stocks never come back, and they never see the higher days.

Also, it's in the advantage of the first-tier companies for this to happen. because they just have less competition. And capital markets freeze up for second- and third-tier companies. New companies can't raise capital because the venture capitalists are pulling their reins. So the leaders really have an advantage in these kinds of environments.

VARNEY: You've got a couple of billion out there, a lot of it in tech stocks. Are you mostly in the big-name, highly capitalized tech stocks?

HYMOWITZ: Yes. In the tech sector -- the way we play the tech sector, particularly as it relates to the Internet is I want to play the Internet in an agnostic way. I don't care who wins, but -- so, therefore, I want to focus on the infrastructure companies. I don't know if Ford's going to be the winner or Verticalnet's going to be the winner. I tend to think Ford and GM, the pure traditional companies, will be the winners. But I want to play the folks that are building the Internet infrastructure. So regardless of who ultimately wins, B2B, B2C, Ford, GM, Dow, I want to be there with the people that are building the infrastructure. And that's the way I think you play it.

VARNEY: So you don't care about a man like professor Jeremy Siegel of the Wharton School of Business who was on this show saying, look, Cisco is trading at 150 times expected earnings. That's too high. It's got to come down. That kind of thing -- that doesn't bother you?

HYMOWITZ: Well, look, I think at the end of the day the only true value of a security is the discounted cash flow it generates, net -- you know, present value to today. However...

VARNEY: That's the new investing philosophy, isn't it?.

HYMOWITZ: No, no, that's the old investment philosophy. But, however, the problem with it is what are the projections? You're going to hear disagreements whether or not you're in the first inning of the technological revolution, or are we in the sixth inning? Are we in the first quarter or the fourth quarter?

My view is, on the Internet infrastructure plays, we are probably not even in the batter's box yet, quite frankly. And, therefore, no one knows the growth rates. It's very difficult to discount cash back, and that's why have to -- and that's why many people use revenues as a proxy for earnings.

VARNEY: There are probably 20 million, 30 million, 40 million, 50 million Americans who sincerely that you are right.

Gregg Hymowitz, thanks for joining us.

HYMOWITZ: Sure.

VARNEY: Good luck.

All right, an after-the-bell surprise from Seattle, Starbucks said long-time chief executive Howard Schultz will step down, replaced by president and COO Orin Smith. But Schultz will stay on as chairman of the coffee giant. Starbucks shares had a rocky '99, but have rebounded quite sharply this year, up 55 percent. Later on MONEYLINE, we will be joined by both Schultz and the company's newly named CEO, and that is Orin Smith.

Coming up on MONEYLINE, Washington charges Lockheed with breaking export rules in its dealings with China. Did the company sell a sensitive client too much?

And is there life beyond PCs for Dell. It's founder thinks so. We'll tell you about Michael Dell's new strategy.

(COMMERCIAL BREAK)

VARNEY: Checking some of the stocks that made significant price moves today: Jupiter Communications up more than 10 1/2. The e- commerce research provider said it expects first-quarter revenue of $6.5 million. That's almost triple last year's figures.

North Face down more than 2. The company trading at 11 times its normal volume, after it said there were doubts about its ability to stay in business. The camping-gear-maker said it's having problems meeting its financing needs.

Priceline.com up more than 5 1/8. Salomon Smith Barney started coverage of the name-your-price e-tailer with a buy rating. It also set a $130 price target and said Priceline can achieve $100 billion in market cap by the end of 2003.

Despite today's gains, Priceline shares are down more than 54 percent from their high.

It'll be guilty pleas and jail time for four former vitamin company executives caught up in a scheme to fix prices. The officials from the European firms Hoffmann-LaRoche and BASF agreed to prison terms of up to four months and to pay as much as $350,000 in fines. These were the latest in 18 prosecutions stemming from a global price- fixing conspiracy involving vitamins used in a range of human and animal foods. The nation's biggest defense contractor tonight facing civil charges from Washington. The State Department says Lockheed- Martin broke export laws when it gave scientific help to a state-owned Chinese company. The company denies it did anything wrong.

Bob Beard has more on that.

(BEGIN VIDEOTAPE)

BOB BEARD, CNN CORRESPONDENT (voice-over): Lockheed Martin is in trouble over Chinese rocket launches. The State Department charges the defense giant violated U.S. arms export laws by providing China a detailed analysis in 1994 of a Chinese-made kick motor that sends satellites into final orbit. A State Department spokesman said "Any assistance to the Chinese government had the potential to be applied to missile development."

The 50-page analysis went to AsiaSat, a Hong-Kong firm, majority- owned, the State Department says, by a Chinese state-run conglomerate. The State Department says China received the report before the Pentagon could remove sensitive information, and the U.S. government didn't know about it until the Customs Service discovered its existence.

Representative Chris Cox says the revelations show some improvement in technology controls.

REP. CHRISTOPHER COX (R), CALIFORNIA: It shows that there are cops on the beat, and that technology transfer to the Peoples Republic of China is being looked after.

BEARD: These civil charges come two years after criminal allegations against GM's Hughes Electronics unit and Loral Corporation for sharing satellite technology with China. Lockheed Martin says its actions were consistent with an export license granted by the Commerce Department. Congress shifted control of satellite exports back to the State Department last year.

A company spokesman tells MONEYLINE, "National security was not harmed, no technology was exported to the People's Republic of China and Actions taken in 1994 would not be taken today."

RAYMOND MARKS, DORSEY & WHITNEY: They have every interest in trying to be exonerated of these charges. If they are not, this can very well hurt their standing as a U.S. Defense contractor.

BEARD (on camera): Lockheed martin has a month to respond to the charges. It could face up to $15 million in fines and could be barred from exporting satellite technology for three years.

Bob Beard, CNN Financial News, Washington.

(END VIDEOTAPE)

VARNEY: On Wall Street today, Lockheed Shares ended up fractionally, at 21 3/16. Meanwhile, China's big bid today on Wall Street fell flat. PetroChina Had a tepid debut, ending the day as it began, at about 16 1/2 per share. The issue, China's largest oil and gas producer, was scaled back in the face of protest from human rights and labor groups and lukewarm interest from the energy sector.

Here's what's coming up: a question -- what is making Dell shy away from the PC?

We'll be back.

(COMMERCIAL BREAK)

VARNEY: Checking some of the stock that's hit 52-week highs today, Advanced Micro Devices, AMR -- that's the parent of American Airlines, Dress Barn, Kohl's and Teradyne.

As we told you last night, Saudi billionaire Prince Alwaleed over the last six months has pumped $1 billion into Compaq, Eastman Kodak, Xerox and America Online. But in a statement faxed today to Reuters and a German news agency, the prince said he was still cautious about the tech sector, and wouldn't get caught up in dot.com fever. Still, it appears his select group of beaten-down techs enjoyed a bit of a royal bounce today. Compaq, for example, up more than 1 1/2 points. Kodak gained a point. Xerox was up nearly 2. And AOL, which is acquiring Time Warner, CNN's parent, that was up a point and a half as well.

The experts inside Goldman Sachs have come out with their high- tech hot list, better known as "the super 7." Judging by the companies chosen, Goldman apparently believes the bigger the better to ride out recent volatility. On the list: Cisco Systems, PMC Sierra, Teradyne, Oracle, EMC, First Data and Dell Computer. Five of those stocks ended the day sharply higher, but no such luck for two of the biggest on list: Cisco and Dell; they both ended the day on the downside.

Now that's a disappointment for Dell, which has persevered this week in the face of all of this Nasdaq turmoil. Dell's stock has staged an impressive recovery this year, in part because chief executive and founder Michael Dell has made clear that he's trying to move the company beyond just PCs. And today, Dell laid out in detail how it plans to do just that.

Bruce Francis has more on Dell's dramatic strategy shift in tonight's "Tech Watch."

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Dell computer makes more money on desktop PCs than any other company in the business. But PC prices are declining, and sales aren't growing like they used to.

So now, the company is focusing on hardware and services for the Internet, which they believe to be a $370 billion market by 2003. Among Dell's initiatives: servers and storage for Internet infrastructure, especially for dot.coms; collaboration with hosting and other companies that run Web software operations for those dot.coms; and e-business consulting. Those new areas promise to be more profitable than desktop PCs, which still account for 58 percent of Dell's revenues. But shareholders won't receive all the benefit.

KEVIN ROLLINS, DELL COMPUTERS: Net net, I think they are going to be more profitable. We may take some of that profit, however, and invest.

FRANCIS: Still, analysts approve.

ANDREW NEFF, BEAR STEARNS: We would rate this a very good move for Dell. It basically is an extension of what they're doing.

FRANCIS: Dell is partly targeting fast-growing Internet startups, at a time when investors are worried about a shake-out in those companies.

ROLLINS: I think we are going to be OK, and we won't necessarily have to take that risk within Dell, within our company, but it's clearly an issue.

FRANCIS: But with Dell stock struggling to regain its footing after two major earnings stumbles over the past year and a half, nothing would be more risky, analysts say, than just sticking with plain old PCs.

STEVEN FORTUNA, MERRILL LYNCH: This is a company which, quite frankly, three years down the road will probably have only about a fifth of its revenues from desktops, and that's really where all the bearish sentiment is right now.

FRANCIS: CEO Michael Dell believes that the new initiatives will help the company double revenues. But he just won't say how long that might take.

Bruce Francis, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: Up next on MONEYLINE: The heat rises in Miami as the father of Elian Gonzalez arrives in the United States. We'll have that story and more in our news digest.

(COMMERCIAL BREAK)

VARNEY: Time now for a quick look at some of the day's top stories outside the world of business.

Jim Moret has that in our MONEYLINE news digest -- Jim.

JIM MORET, CNN ANCHOR: Thank you, Stuart.

Lawyers for Elian Gonzalez' Miami relatives say their custody talks with the government have collapsed. That word came late today after the arrival of Elian's father in the United States. Juan Miguel Gonzales and his family landed in Washington. The father's lawyer says his client is looking forward to a high-level meeting tomorrow.

(BEGIN VIDEO CLIP)

GREG CRAIG, ATTORNEY FOR JUAN MIGUEL GONZALEZ: We're hopeful that we're going to have a meeting with the attorney general and the commissioner of Immigration and Naturalization tomorrow in the course of the day, and we're looking forward to that.

(END VIDEO CLIP)

MORET: In Miami, crowds gathered again today outside the home of Elian's relatives, whose lawyers held a news conference of their own late today. John Zarrella has the latest -- John.

JOHN ZARRELLA, CNN CORRESPONDENT: Jim, the family of Elian Gonzalez here, the distant relatives, have been informed by the INS that they will be losing the temporary-care status of the boy now that his father has arrived. Attorney representing the family say that the INS did not agree to any of their terms or conditions. How the transfer will take place or when it will take place has still not been determined.

Word has begun filtering to the about 100 demonstrators, protesters here in Miami, but so far, they remain peaceful, they remain calm -- Jim

MORET: Thank you, John. We'll have more on this and other top stories on the "THE WORLD TODAY," 8:00 p.m. Eastern, 5:00 Pacific. Now back to you, Stuart.

VARNEY: All right, thanks very much, Jim.

Next on MONEYLINE, all about margin calls, the calls you do not want if you're an investor. We'll be back.

(COMMERCIAL BREAK)

VARNEY: In tonight's headlines: a medical breakthrough produces a stock breakout. Shares of Celera Genomics soar as the company unlocks the mystery of life: the genetic code.

The SEC and Alan Greenspan are worried about it. But do investors understand the risks of buying stock with borrowed money? A special MONEYLINE report on margin debt.

And a very different trend developing in the corporate debt market. It's drying up.

First, though, more on our top story, confidence returns to techs, at least for today, as the Nasdaq stages an impressive rebound. Investors poured money into big-cap names like Hewlett-Packard, Oracle and Sun Microsystems as the focus shifted toward the first-quarter earnings season. The Dow industrials also on the up side as a broad range of old and new economy stocks advanced. The blue chips, the Dow industrials, up 80 points, though they had been up 154 at their high of the day. Volume on the big board an impressive better than 1 billion shares.

But on a percentage basis, the Nasdaq had a much better day. The index climbed more than 2 percent, or 98 points. Hewlett-Packard, one of the few tech stocks to escape this week's turmoil, jumped nearly 5 1/2 points. Oracle, Sun Microsystems and eBay also up sharply. Yahoo!, however, slumped more than 11 1/2 after the Internet portal failed to meet Wall Street's most optimistic earnings forecast.

Meanwhile, the great divide between the Dow and the Nasdaq isn't so great anymore. Since the beginning of the year, the Dow has fallen 3 percent; the Nasdaq is up about 5 percent.

One major factor behind today's Nasdaq advance: a biotech breakthrough, Celera Genomics became the first to finish sequencing the human genome. It said today it has decoded 99 percent of human DNA, the basic blueprint of life. The news galvanized a sector that was severely punished in the recent Nasdaq rout. Celera's stock rocketed 22 3/4, but even with that huge move, the stock is down nearly 50 percent from its high.

Steve Young now on what this medical milestone means for science and to Wall Street.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): Celera's news that it has catalogued the basic building blocks of human genes means the company may have widened slightly its lead on a competitor and a government consortium also trying to map the human genome.

DR. CRAIG VENTOR, PRESIDENT, CELERA: Over the next several weeks, we'll be completely assembling the chromosome structures and then we'll be having a major annotation jamboree to find all the genes.

YOUNG: The announcement isn't the end, just the beginning of understanding gene functions, but the market treated the news like the holy grail had been found, hurdling any kind of genomics stock higher.

RICHARD VAN DEN BROEK, CHASE HAMBRECHT & QUIST: This day was known to be coming ever since really December of last year was when Venter announced that it would be by -- I think the goal then was like Q3 2000, and then it got moved to June, and all of a sudden he surprised everyone and did it today. But this does not -- doesn't come as a surprise other than the timing.

YOUNG: One of Celera's competitors, Human Genome Sciences, says investors need to become more educated about placing their money in a very complicated business.

DR. WILLIAM HASELTINE, CEO, HUMAN GENOME SCIENCES: There are differences, important differences amongst the companies. All companies in a segment are not the same and I think it's important for investors to look in detail at what they're investing in rather than what sector they're investing in.

YOUNG: Most biotech analysts caution there will be no payoff in the form of marketable drugs for several years. Analysts say retail day traders were first to flock to genomic stocks.

ERIC SCHMIDT, BIOTECH ANALYST, SG COWAN: The individual investors led the rally that occurred in the January-February time frame. I think institutions for the most part are playing catch up. YOUNG (on camera): Schmidt says it should be possible to start separating winners from losers in about a year. That's when genomics companies are expected to start making announcements that say less about science and more about money making deals.

Steve Young, CNN Financial News, Washington.

(END VIDEOTAPE)

VARNEY: Celera's news lifted two stocks that are linked to the company: PE Corporation, that's Celera's parent, it was up 5, and PE Biosciences, another division of PE, surged more than 6 points. Other genomic stocks roared higher, as well, they include: Incyte Pharmaceuticals, up nearly 14, Millennium Pharmaceuticals surged more than 30, Human Genome Sciences rallied 4, Abgenix rose nearly 41, Protein Design Labs climbed almost 36 points -- that's a rally.

It could, of course, take years before we learn just how significant Celera's discovery is and its impact on medical science. Joining us now from San Francisco is Jim McCamant, he is the editor of the "Medical Technology Stock Letter."

Jim, welcome back to MONEYLINE.

JIM MCCAMANT, EDITOR, "MEDICAL TECHNOLOGY STOCK LETTER": Thank you.

VARNEY: Now, Celera stock today was up over 22 points. It has completed the sequencing of one human being's genome. Question: Will Celera make any money out of this development?

MCCAMANT: It's too early to say. I mean, they will actually make a little bit of money because they're selling licenses to look at their genes earlier than they're released to the public, I think $5 million dollars per corporate partner. Of course, that pales behind the $7 billion or whatever market cap the company has now.

VARNEY: Are these genomic stocks overvalued, undervalued, properly valued, where do we stand at this moment?

MCCAMANT: Well, I think probably some of them are clearly overvalued. Celera probably fits into that category. Some of them are under -- might even be undervalued if you take a long-term look, but we haven't been recommending much in that particular area. The price moves today talk more about the volatility of the biotech sector this year than they do the importance of the news. As you pointed out, Celera is still almost 50 percent below its high just a month ago.

VARNEY: If you talk about making money in this area you have to talk about patenting and there's some confusion about who can patent what at this point. Can you clear it up for us?

MCCAMANT: Well, I don't think anybody can clear it up definitively because the Patent Office is going to have make some decisions and the courts are going to have to make the decisions. I think the operating understanding right now is that you're not going to have useful patents unless you have a full-length gene and at the same time you apply for the patent describe what the use of that gene -- in other words, what the proteins produced and what that protein does in the body. And there's no reason for thinking that the Human Genome Sciences and Celeras of the world are going to be particularly good at doing that. So I think it's a -- still an open question as to who is going to have the most valuable patents.

VARNEY: If I, generally speaking, invest in tech stocks and I want a core holding, I am going to look to Oracle, Cisco, Microsoft, Dell, et cetera. If I want core holdings in genomics, which two or three stocks would you recommend?

MCCAMANT: Well, I think that if you want to get involved with a modest amount of risk, Incyte, which is going to plan to be the Microsoft of the genomics world. They're going to sell software, they're going to sell access to all the databases that they have. I think that's the least risky way of participating in genomics. But I think you're much better off getting into the biotech sectors, or companies that have profits, or companies that have products close to the market and they're benefiting...

VARNEY: Well, Jim, are there two or three that really stand out as solid and likely to be major capitalized companies?

MCCAMANT: Well, of the ones that are profitable, Chiron is our favorite. We think it's the -- has the best pipeline of any of the major biotech companies with the possible exception of Genentech, which has gotten very pricy, fully valued, too. And then you can go down, though. Some of the companies that are working on cancer, things like ImClone Systems, which could have a product on the market within the next 12 months, Isis Pharmaceuticals, the leader in antisense, which incidentally is proving to be very valuable technology for understanding what the genes do.

VARNEY: Jim McCamant, I have got to interrupt, but we have all been writing this down furiously. We thank you for joining us, Jim McCamant, the "Medical Technology Stock Letter." Thanks, Jim.

MCCAMANT: Thank you.

VARNEY: One other note on Celera: it may be about as new as a new economy company can be, public less than a year and one of the stars of the red-hot genomics sector. But the company does have old economy roots: as we mentioned it's a unit of the PE Corporation, better known as Perkin Elmer, a manufacturing conglomerate that dates back to the early 1930s. Perkin Elmer was reinvented into a bioscience upstart by chief executive Tony White. White took over in 1995, and saw great potential in one of Perkin Elmer's businesses: equipment to analyze DNA -- good story.

Another strong sector today, chip stocks, boosted higher after an industry group said worldwide chip sales jumped to nearly $15 billion worth in February. That's 33 percent higher than last year. Also boosting chips, positive comments from Warburg Dillon Read. The investment bank said the sector's recent turnaround is still in the beginning stages, and said it's positive about the cycle's duration and strength. Warburg Dillon Read upgraded Texas Instruments, National Semiconductor and LSI Logic to a strong buy today, all three stocks up sharply. Also higher, Cypress Semiconductor and Advanced Micro Devices.

Next on MONEYLINE, the man who reinvented how America drinks coffee. Howard Schultz, and the executive who's taking his place as chief executive of Starbucks, Orin Smith. They'll join us in just a moment.

(COMMERCIAL BREAK)

VARNEY: Starbucks: It is a Seattle landmark that dates back to the early '70's. But it wasn't until the '80's when Howard Schultz joined the company, that Starbucks emerged into a retail phenomenon: turning old fashioned coffee into a high end experience.

Today, the company announced that Schultz would assume a new role as chairman and chief global strategist, handing the chief executive reigns over to chief operating officer Orin Smith.

Starbucks also reported that sales rose 10 percent at stores open at least a year.

Both of Howard Schultz and Orin Smith join me now from Seattle.

Gentlemen, welcome to MONEYLINE.

HOWARD SCHULTZ, CHAIRMAN, STARBUCKS: Thank you, Stuart.

VARNEY: Forgive me, Howard, but I have to start with a difficult question for you. You, sir, were hospitalized, I believe, briefly in November of last year.

SCHULTZ: Right.

VARNEY: Is your shift in roles at the company anything to do with medical reasons at all?

SCHULTZ: No not at all. That was a minor problem. The shift in roles really takes full advantage of what Orin has been doing the last couple of years as a great CEO and president. And seamlessly, he will assume the rule of CEO and I think gives me the opportunity to try and work with our partners to accelerate our global business because the opportunity is so extensive.

VARNEY: Let me press one point, your company -- your stock was downgraded this week by a couple of analysts. Has company performance under your rule -- has it had anything to do with that, your move to a different rule?

SCHULTZ: Well, I don't think so. I think the stock is up almost 80 percent for the year, and it was downgraded because the stock had reached the target levels of the analysts. We just reported double digit comps not only for March, but for the quarter: the first time in years. Our business is quite strong. We're opening up two new stores every day. And most importantly, in terms of the globally opportunity, it's open ended. I've said publicly, we believe we can have 20,000 stores worldwide. And with only 350 stores outside of North America, I'm going to begin to spend my time doing very similar things that I did in the early stages of the domestic opportunity, helping to really bridge the gap between the opportunity and our existing business.

VARNEY: Orrin Smith, you've been at the company some time. Are you planning any kind of a major shift in strategy for Starbucks when you take over the helm.

ORIN SMITH, CEO-DESIGNATE, STARBUCKS: No, Howard and I have co- authored the strategy of the company for many years. So we are in sync on what the strategy is. We're proceeding to develop it and execute it. We have this enormous opportunity globally. And we also have a tremendous growth opportunity domestically that still to be realized.

VARNEY: You know, there's an association of coffee producing countries, it's basically a coffee producers cartel, a bit like OPEC and oil. They have been holding meetings recently. They are going to take coffee off the market trying to get the price up 30, maybe 40 percent. Do you see that as a real threat to your future pricing capability?

SMITH: I don't at this point in time. They have held meetings on and off over years since 1989 when the coffee organization dissolved. And they haven't been able to put that back together yet. I don't have any particular reason to believe now that they will be any more successful in that than they have been in the past.

VARNEY: Quick question about an Internet strategy. Starbucks came up with one. It was a failure, the stock tanked. Are you going to revisit that Internet strategy, revamp it, do something different?

SMITH: We have an Internet strategy now. It is focused upon our existing businesses and support thereof. We will continue to leverage the various assets of the company, such as our retail stores as we have done with "Cosmo." But we don't have any attention at this point in time of developing a major presence on the Internet.

VARNEY: Howard Schultz, best of look with your new role and Orin Smith, we congratulate you on your promotion. Gentlemen, thanks for joining us.

SCHULTZ: Thank you, Stuart.

SMITH: Thank you, Stuart.

VARNEY: OK, sir, now Howard Schultz is handing off the chief executive responsibilities just as Starbucks is staging an impressive Wall Street rebound. The stock fell today, but it's still up 55 percent so far this year, recovering its losses after a brutal sell- off last year. VARNEY: And coming up, the hidden threat to stock market stability. Buying stocks, on borrowed money. We'll look at what happens when your broker wants that money back, fast. A special MONEYLINE report on margin calls, next.

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VARNEY: On the corporate front this evening, the head of Germany's Dresdner Bank said he will step down, one day after calling off a planned merger with Deutsche Bank. Chief Executive Bernhard Walter announced his departure as rumors swirled that Dresdner is being courted by banks on both sides of the Atlantic.

And Peregrine Systems today took a big hit on Wall Street, after the business software-maker said late yesterday it would buy Harbinger for more that $2 billion in stock. Two brokerage houses downgraded the stock, concerned that Peregrine was paying too much. Peregrine ended down 21 1/4, that's a 36 percent loss. Harbinger gained nearly 2 1/2.

Now checking some of tonight's other stock moves, I3 Mobile up nine points on its market debut. The company provides content, such as sports and weather, to wireless devices.

Tellabs down nearly 3. The telecom equipment-maker warned first- quarter earnings were misforecast by up to five cents a share. Tellabs cited higher component costs.

Bank One down almost 3. PaineWebber cut this year's profit forecasts and said while Jamie Diamond's appointment as chief executive is a long-term positive, there is no short-term fix to the bank's troubles. Over the past year, Bank One's shares have fallen more than 41 percent.

In tonight's "MONEYLINE Focus," a disturbing trend that may guarantee more market volatility: margin calls. The wild swings in the indicators this Tuesday were nothing short of astonishing, the Dow trading in a 700-point range, the Nasdaq 630 points. But they came as less of a surprise to market pundits, who've been warning about the explosive growth of margin debt, when investors borrow money from brokers to buy their stocks. When brokers demand the money back, as many did on Tuesday, investors are forced to sell and sell fast.

Fred Katayama looks at how one investor managed when she got the call.

Dorine Essey is retired, but she's on the vanguard when it comes to investing. She has been trading stocks on-line for years. She often borrows money to buy stocks, an increasingly popular technique called buying on margin.

Fred Katayama looks at just how one investor managed when she got the call.

(BEGIN VIDEOTAPE) FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Dorine Essey is retired, but she's on the cutting edge when it comes to investing. An active online trader for years, she often borrows money to buy stocks, an increasingly popular technique called buying on margin.

ESSEY: I like investing on a margin because it gives me opportunities to make more money at times.

KATAYAMA: The billions of dollars that investors like her have collectively borrowed to buy stocks helped fuel the market's run-up to record highs. But all that borrowing has also accelerated the decline on the way down, as brokerages that lent the money call for it to be repaid,

DAVID POTTRUCK, CO-CEO, CHARLES SCHWAB: Margin calls at Schwab are running more than normal.

KATAYAMA: Here's how margin debt works: Say the investor wants to buy $10,000 worth of stock of company A. Depending on the stock, he can borrow up to half of the purchase price. So he forks up $5,000 and borrows the rest from his broker. The interest rate runs roughly one to two percentage points above fixed long-term mortgage rates.

At most brokerages, if the portfolio plunges more than 30 percent from its original value -- so the account is now worth, say, less than $7,000 -- the broker makes what's termed a margin maintenance call. By calling on the phone, sending a message by e-mail or overnight mail, the broker tells the investor to repay the debt by putting up more cash, selling the stock or transferring stock from another account into the margin account for collateral. The investor then has a few days to meet the call -- that is, make up for the decline.

ASH RAJAN, PRUDENTIAL SECURITIES: Sometimes, firms will reserve the privilege of selling off the positions to bring up the investors net worth if the investor could not be contacted after some, you know, concerted effort.

KATAYAMA: Doreen got a margin call for $870, due this past Tuesday. She sold some shares of Compaq computer to cover that. But, as you'll recall, Tuesday, the Nasdaq plunged 574 points at midday, shrinking the value of her portfolio that's loaded with tech stocks, and that prompted another margin call.

ESSEY: This came out, and 2047.

KATAYAMA: Her brokerage, DLJ Direct, e-mailed her that night, telling her to pony up. But she did not see the message then, because she was taking care of her ill husband.

The next day:

ESSEY: I had gotten a phone call in the morning telling me that I had to sell that day.

KATAYAMA: So Wednesday, she unloaded 100 shares of Intel and 500 more shares of Compaq. But DLJ apparently thought that was not enough.

ESSEY: That afternoon, after the markets closed, I went in and looked, and they turned around and sold 86 more shares of my Dell Computer.

KATAYAMA: Critics say margin debt has exploded to alarming levels. In just the last six months, it has shot up 50 percent in the United States to more than $265 billion.

(on camera): Margin debt only makes up 1.45 percent of the total value of the stock market, the highest level since October of 1987, the month of the last big crash.

(voice-over): Back in Miami, Doreen's still bullish on tech stocks. But her experience this week has made her more cautious.

ESSEY: I'm going to cut down the amount of margin that I do.

KATAYAMA: Fred Katayama, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: MONEYLINE will be right back.

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VARNEY: It's getting tougher for companies to borrow money, even as interest rates in the Treasury market have been falling.

Ceci Rodgers reports from Chicago.

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CECI RODGERS, CNN CORRESPONDENT (voice-over): After setting a record in the first quarter, the number of new bonds issued by U.S. corporations is slowing to a trickle. The main culprit, a wider gap between what corporations must pay in yield to attract investors to their debt and what the Treasury pays. Investment-grade corporates now yield about 8 percent on average, some two percentage points more than comparable Treasuries. That's wider than the spread during the 1998 financial crisis, when the credit markets all but shut down.

Though there's no crisis now, the wider spreads are impacting the borrowing decisions of corporate treasurers.

DANA JOHNSON, BANC ONE CAPITAL MARKETS: They're saying to themselves, well, nothing bad has happened in my corporation. Why should I be willing to pay these higher spreads? And they're sort of saying, maybe I'll wait until those spreads retreat. I don't think those spreads are going to retreat.

RODGERS: The reason: The Treasury's surplus is allowing the government to buy back long-term bonds, reducing the outstanding supply of such issues and artificially driving their yields down. But that's not the whole story. Stock market gyrations are raising concerns about future corporate profits. WILLIAM SULLIVAN, MORGAN STANLEY DEAN WITTER: Because this volatility in the stock market connotes a slower economy, perhaps some moderation in earnings growth, and corporate debt issuance is a little bit more difficult in that environment.

RODGERS: Another risk factor for corporate bonds: sharply undervalued old-economy companies have been buying back their own shares and issuing debt to finance those purchases.

Amid all the changes in the debt market, should investors buy corporate bonds or Treasuries?

JOHN LONSKI, MOODY'S INVESTORS SERVICE: My impression is that once these uncertainties are set aside, we should see an improvement in the performance of corporate bonds vis-a-vis Treasuries.

RODGERS (on camera): Another plus for corporates: After inflation, they pay a real rate of return of around 5 percent, making them an attractive alternative to money funds and bank deposits.

Ceci Rodgers, CNN Financial News, Chicago.

(END VIDEOTAPE)

VARNEY: Up next, "Ahead of the Curve," some of what you need to know tonight before those markets open again tomorrow. You're watching MONEYLINE.

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VARNEY: Here's what could move the markets tomorrow, first and foremost, the March employment report, due out at 8:30 a.m. Eastern. Economists predict 400,000 new jobs were created last month alone, and the unemployment rate may edge lower to around 4.0 percent. Also on tap tomorrow, Alan Greenspan expected to speak about technology and the economy at 12:30 p.m. Eastern Time, the Fed chief speaking before the Civic Entrepreneurs Organization in St. Louis.

That's MONEYLINE for this Thursday. I'm Stuart Varney. Thanks for watching us. Good night from New York.

"CROSSFIRE" is next.

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