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Moneyline News Hour

Millennium 2000: Dow Takes Triple-Digit Dive; Bonds Tumble on Fears of Interest Rate Hike; Did Corporate America Overpay for Y2K?

Aired January 3, 2000 - 6:30 p.m. ET


WILLOW BAY, CNN ANCHOR, Tonight, the first trading day of the 21st century begins with a bang and ends with a bust. The Dow takes a triple-digit dive.

STUART VARNEY, CNN ANCHOR: For the Nasdaq, a gut-wrenching session with the index trading in its biggest point range ever.

BAY: Worry investors -- not Y2K, but interest rates. Bonds tumble with yields shooting to their highest level in more than two years.

VARNEY: And a special day in the life of the man behind the big board. How Dick Grasso got the NYSE through its first session of the new millennium.

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

BAY: Good evening and welcome to MONEYLINE.

Coming up, a live report from Tokyo where year 2000 trading will begin in 30 minutes.

VARNEY: Ah, but first inside Wall Street's wild post holiday ride. The Nasdaq rang in the 21st century the same way it rang out the 20th, in rally mode. But after opening sharply higher, the index quickly capsized along with blue chip stocks and bonds as interest rate fears pushed aside relief over Y2K The Nasdaq bounced back by day's end, but the Dow was not so lucky.

Susan Lisovicz looks at what caused the high anxiety.


SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): The first session of the century started with a relief rally. Investors celebrated a transition into year 2000 practically free of Y2K computer faults. But relief quickly soured with a rather pedestrian economic report.

The National Association of Purchasing Managers said manufacturing expanded at a slower pace last month, but that prices edged higher. Bond traders, fearing any inflation, started a selling storm that darkened the skies over Wall Street. By closing bell, the Dow Jones industrial average had dropped 139 points to finish at 11, 357. Among the hardest hit, interest rate sensitive financial stocks, including Morgan Stanley and Chase.

ART HOGAN, JEFFERIES & CO.: The pent up demand from the retail world - it appears as though the market had been closed for the better part of three days with a half a day holiday. So I think that's why you saw them punch up so strongly this morning before the 10:00 release of economic data and then the real world has come crashing in here.

LISOVICZ: Profit taking also took some of the blame. By selling stocks in a new tax year, investors don't have to pay capital gains taxes until April of 2001. But for computers, Y2K was the bug that didn't bite. Some analysts expected computer meltdowns to slow the economy to a reasonable speed.

LARRY WACHTEL, PRUDENTIAL SECURITIES: The Y2K glitch was not there and that enhances the possibility that the Fed is going to pull the trigger. Of course the economy's too vigorous. There are no Y2 glitches -- 2K glitches around, and so you see the long bond yield getting up to 6.6 percent.

LISOVICZ: For one market analyst, the quiet dawn of year 2000 was a serious wake up call. Byron Wien, Morgan Stanley Dean Witter's US investment strategist, gives better than 50-50 odds on a major market meltdown, triggered by a central bank tightening that increases short-term interest rates more than 100 basis points.

(on-camera): According to Mr. Wien, the effect of that tightening, coupled with already high share prices, will be a 25 percent slide for the S&P 500.

Happy New Year -- Stuart.


VARNEY: All right, we'll stay tuned for that. Susan Lisovicz, thank you.

Well, the Dow today may have lost nearly 140 points, but there were still some blue chips that bucked the down trend. The Dow winners in just two words: technology and telecom. IBM, Intel, Hewlett-Packard, AT&T, all Dow stocks, all scoring solid gains.

BAY: High tech winners also helped the Nasdaq end a wild trading session in the plus column. Charles Molineaux has been following the Nasdaq all day and he joins us now with more -- Charles.


Yes, technology stocks kicked off the new year with a new record all right, but getting there was a white knuckle ride on intensive market volatility and volume, 1 half-billion shares traded. We started with relief that Y2K didn't cause any meltdowns. At the open this morning, investors charged into buy after last year's strong close and in anticipation of heavy fund investment in the next few weeks. The Nasdaq surged 122 points, then sank more than 200 points from its high after those latest economic numbers hit the bond market hard and set off new interest rate concerns.

But buyers charged back in again late in the day and the market rallied to its record close. Now those interest rate concerns dragged down bank stocks more than 3.5 percent.

Zions Bancorp lost six percent on the day today. Biotechs were strong. Again, strategists say they may be joining computers and telecoms as the momentum leaders.

The industry giant Amgen rallied five percent on some positive analysts comments.

Internet stocks surged more than nine percent after bullish new figures were released on holiday shopping. Yahoo! gained 10 percent to a new all-time high. Amazon was up by 17.

Market watchers say a lot of investors still see tech stocks as delinked from the troubles in the bond market and immune to interest rate swings because they've been relying on cheap equity capital and they got another infusion of it today. Willow, Stuart.

BAY: Charles Molineaux at the Nasdaq. Thanks.

VARNEY: While it was a dramatic session for the Nasdaq, it was downright depressing for the bond market. After a terrible 1999, bonds opened the year 2000 with their worst one-day plunge in nearly eight months. The 30-year Treasury tumbled nearly 1 3/4 in price and that put the yield up at 6.61 percent, which is, by the way, the highest since September 1997.

BAY: One reason behind the bond market's sell off, evaporating fears over Y2K giving investors little reason to keep their money in bonds. The new year came and went with no evidence of Y2K catastrophes. on Main Street, Wall Street or around the world.

Allan Dodds Frank looks at how the financial community fared after the ball dropped.


ALLAN DOODS FRANK, CNN CORRESPONDENT (voice-over): From the opening bell to the close, it was all systems go at the New York Stock Exchange and on the Nasdaq.

Around the world, equally easy operations, as the Y2K market- watch rolled around the world from India to Germany and Brazil. The estimated hundreds of billions of dollars spent on Y2K whipped the bug almost everywhere. Merrill Lynch was typical: no major problems detected anywhere.

EDWARD GOLDBERG, MERRILL LYNCH: People talked about maybe some third-world infrastructure that would be a problem. And certainly we have not seen that. Now we still have to wait for the opening of the markets in Japan and in London, but I have a feeling that we'll have the same kind of results over there.

FRANK: At Gruntal's New York command center, another easy day.

RANDY BRADLEY, GRUNTAL & CO.: One of the great questions is whether this investment was required. And I think for the first time in history you had a global effort where governments and companies and businesses from around the world all came together and mobilized in order to successfully impede a problem, which was the Y2K bug.

FRANK: Another Y2K problem that never materialized: runs on cash machines. The Federal Reserve pumped banks full, with three times as much cash as normal for December. Now banks, including Chase Manhattan and Citibank, are shipping much of it back.

PETER BAKASTANSKY, FEDERAL RESERVE BANK OF NEW YORK: We know of no problems with ATMs, with people being unable to get to their money or checking accounts or use their accounts electronically in any sort, or banks being unable to open. Because of the preparations and the compliance we've gone through, we seem to have gotten it all.

FRANK (on camera): By day's end, Wall Street was pretty much ready to declare victory over Y2K bugs. One caution ahead on the calendar: February 29th. But Y2K experts say they don't expect this Leap Year to be much of a hurdle.

Allan Dodds Frank, CNN financial news, New York.


BAY: Wall Street began the year 2000 without a major technical glitch, but that did not make for a winning session for the Dow. Today's blue-chip retreat was a particular letdown, because the first session of the new year tends to a good one.

Since 1990, the Dow has lost ground just twice in the first trading day of the year. The question now: What caused Wall Street to lose its holiday cheer?

John Manley, stock strategist for Salomon Smith Barney, joins us now.

John, what happened? We should have been feeling great, no Y2K problems, business is booming, what went on today?

JOHN MANLEY, SALOMON SMITH BARNEY: Exactly. The problem was the bond market backed up. That's the proximate cause, but the cause behind that is, look, the Fed has pumped the system full of money to make sure there wasn't a Y2K meltdown. That money flowed into the stock market. They're going to take some of that money back, as far as I'm concerned.

BAY: And then what happens? MANLEY: Well, I think there's a problem. I think it was a market system that was very self-corrected. The bond market would adjust very quickly to bad news and be fine. But you had stocks running, tech stocks have created a lot of wealth. The economy isn't responding to higher interest rates. And we're like a car stuck on a pack of ice. The reason bond rates are going up so fast is because the wheel keeps spinning and spinning and it's not catching.

VARNEY: Are you worried about this so-called wealth effect? You know, people feel wealthy because the stock market is up. If the stock market comes down, they won't feel wealthy, they won't spend, the economy slows.

MANLEY: You know, I'm afraid I'm turning into an economist as I get old. That's a scary thought. I know, it's a scary think, but I think it's true. After years of being told of this wealth effect and never hearing people get it right, I think, look. I think you can see what happened in the last couple of months. It's clearly there. I mean, back in October, the market was down. And I thought, look, bonds have backed up. This is going to work. The thermostat is kicking in. And it seemed to slow down, but it hasn't slowed down.

BAY: What gives us the traction to stop those tires from skidding on that ice, as you describe it?

MANLEY: I'm afraid it's where we all live. I mean, I'm afraid at some point in time the Federal Reserve is going to have to go after the stock market, and that means going after tech stocks. Now in the interim -- see, the reason it's now self-perpetuating instead of self- correcting, as the Fed starts to tighten, where do people hide? They hide in tech stocks because these are growth stocks, making the wealth effect even more. So what used to be a sort of self-correcting process becomes somewhat self-reinforcing. And that's not a good thing.

VARNEY: So it will take more than one rate hike to reign in the stock market. And at some point, even the tech stocks cave in?

MANLEY: Well, it's almost until -- you know, they say it's not over until the fat lady sings, but, I mean, it's not over until the tech stocks get hit, I think to a certain degree. Now this doesn't have to happen if the economy slows down by itself, but it's looking less and less likely that that happens. And I think what's going on for the last couple of months is not perpetuating, and it was until then. I'm not worried about speculation. It was until then, though.

VARNEY: Well, good news.

BAY: John Manley, thanks for joining us tonight.

VARNEY: Thank you.

Time now for a quick look at what some of MONEYLINE's other reporters are working on for tonight's program.

First up, Marina Kamimura in Tokyo -- Marina. MARINA KAMIMURA, CNN CORRESPONDENT: Thanks, Stuart.

Stock trading in Tokyo kicks off at the top of the hour. We'll bring you the opening numbers as soon as they happen.


The Nasdaq treated investors to a steep drop as dazzling as its new Times Square location. But, like the Broadway trooper it now is, the index returned to its record setting ways. I'll tell you why.

VARNEY: Still to come on MONEYLINE, find out whether those millions in holiday advertising dollars paid off for those hungry Web retailers.

BAY: Plus, the computer crisis that wasn't. We'll ask Washington's Y2K chief whether we really needed to squash a bug that hardly bit.

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


VARNEY: Let's turn now to some of the day's top stories outside the world of business.

Round two of landmark peace talks between Israel and Syria under way. President Clinton today opened fresh negotiations with Israeli Prime Minister Ehud Barak and Syrian Foreign Minister Farouk Al-Shara.

In Lebanon, a grenade attack near the Russian embassy. One man was killed and six others injured in the strike, which was condemned by Washington. Lebanon says the Russian embassy was the target.

New word on Moscow's campaign to take Grozny. U.S. intelligence reports show the Russians fired 20 Scud missiles at rebel targets over the weekend. Russia's defense ministry today saying its forces met unexpectedly heavy rebel resistance on a drive to the heart of the Chechen capital.

And in Moscow itself, the old guard forced out. Acting Russian President Vladimir Putin has dismissed Boris Yeltsin's daughter, Tatyana Dyachenko, from her job as the Kremlin's image advisor. It's Putin's first dismissal since he took over from Yeltsin on Friday.

BAY: Fears of chaos over the new millennium turned out to be greatly overblown. But some Y2K glitches did spring up around the globe.

In Italy, a computer tacked on 100 years to the prison sentences of some convicts.

In Denmark, the first baby born in the new millennium was registered by a hospital computer as 100 years old.

And the Hong Kong police reported that a Y2K glitch hit breathalyzer equipment over New Year's Eve.

Here in the United States, the Philadelphia Stock Exchange Web Site started out the morning with today's date as January 3rd, 100. The exchange quickly corrected the glitch and blamed a software compatibility issue.

And luxury chocolate-maker Godiva ran into a Y2K glitch when workers in its shops couldn't open up their cash registers.

For more, we're joined now from Washington by the White House's point man on Y2K, John Koskinen.

Thanks for joining us tonight.


BAY: If we're reporting troubles in Godiva stores, that's got to be pretty good news for you. Are we out of the woods yet?

KOSKINEN: I think we are. As you know, we've been confident for about six months that we would not have any basic infrastructure failures in this country nationally or even regionally, and if we ran into problems they would primarily be at the local level, and they'd be glitches that could be remedied and would not threaten the economy. And it's really unfolded that way. Those who predicted bigger troubles turned out to be not as accurate as the companies and the government reports that said this was pretty much what was going to happen.

BAY: What about someone reports that we're hearing that we are really not actually out of the woods until February 29th. That's not a significant concern, is it?

KOSKINEN: It's not a major concern. It turned out a lot of people did misprogram their computers, thinking that this year was not a Leap Year was not a leap year because it was a century. And the rule of centuries is generally they aren't unless they're divisible by 400, which, of course, 2000 is. So we don't think it has nearly the potential negative impact that January 1st did, but again we think it's important to monitor it to make sure that there are not any hidden systemic problems there. But our judgment is that it's not going to be a major issue.

BAY: It certainly seems as if all the planning, all the repairs worked, no major problems. But do we need to spend $100 billion to do that?

KOSKINEN: Well, I think that's a judgment that's been made individually by companies in every critical infrastructure sector, by state and local governments and the federal government. And it's a little like preparing for a hurricane. When you reinforce your house, you have to figure out how much you need to do, and if anything you're going to try to make sure that you don't argue afterwards about whether you should have done more when the house collapses.

In this case, the house withstood the storm. We got through it very well. We may have done it so well that it looked easy, but people who have been working on this problem day and night for five years will tell you that it was hard work, and we should all feel fortunate that we had the great success that we did.

BAY: And at this point, do you really believe that a potential disaster was averted by all the money spent and by, as you say, the many years of planning?

KOSKINEN: There's no doubt about it. We have information that we provided to the public from the telecommunication industry, the electric power industry, certainly from the bank and financial industries that if they had not fixed their systems, if they had just waited to see or even had spent less money and been not as thorough, today we would not have had markets that opened and ran effectively. We would not have had the ability to run a global economy the way we have. We would have had probably a financial meltdown.

BAY: John Koskinen thanks for joining us. You must be feeling pretty good today.

KOSKINEN: We all feel pretty good about the accomplishment, but it's been the workers who did the work.

BAY: Thank you.

VARNEY: Tired, too, probably.

BAY: Yes.

VARNEY: Still ahead on MONEYLINE, we'll check the results of the holiday ad blitz by those Internet start-ups.

BAY: Did millions in marketing dollars translate to a business boom? That story and more coming up.


VARNEY: Here is a partial list of just some of the stocks hitting new highs today: BroadVision, then comes DoubleClick; EMC, a new high there, as well as Vitesse Semiconductor. Last on the list is Yahoo!

And Yahoo! also tops tonight's "MONEYLINE Movers." DLJ added the Internet search engine to its focus list. First Union also raised its 12-month price target to $600 a share.

Oracle, up more than six, also a 52-week high. Bank of America upgraded the software maker and said its leading the e-business charge into the new economy. Analysts also expect increased demand for Oracle software, now that Y2K fears have subsided.

Tommy Hilfiger, down more than 2 1/2. CS First Boston downgraded the apparel maker and lowered its 12-month price target to $32 a share.

JDS Uniphase gained nearly 26 3/4. It announced a two-for-one stock split after it just split its shares last month. In 1999, shares of the fiber-optic equipment maker jumped 830 percent.

BAY: In other corporate headlines, a $2 billion deal gone bust. Kansas City Power and Light has pulled the plug on its three-year-old planned merger with Western Resources. Kansas City blamed problems at one of Western's subsidiaries and a sharp decline in the value of the deal.

And General Motors plans to unveil three new vehicles at the upcoming auto shows. GM is expected to unveil two sports-utility hybrids as well as its own civilian version of the Hummer all-terrain vehicle. Its stock gained nearly two today.

VARNEY: Word tonight of the winners and losers in the holiday advertising splurge by e-commerce companies. TV viewers were flooded with ads for little-known Internet companies over the holiday season, but the money those companies spent didn't necessarily translate into more customers.

Fred Katayama reports.



UNIDENTIFIED ACTOR: News of the world.


FRED KATAYAMA, CNN CORRESPONDENT (voice-over): This ad for was one of the most widely seen on TV this holiday season. But despite the blitz, the company didn't pull in a lot of customers, ranking 63rd in the number of visitors to its Web site. The lesson many start-up firms learned: Spending big bucks on TV doesn't necessarily trigger a flood of customers.

FIONA SWERDLOW, JUPITER COMMUNICATIONS: A lot of those users, particularly newer users, were looking for messages of trust. So it was only natural for them to go to trusted brands that they know from off-line, shopping, online.


SINGERS (singing): has tons of toys


KATAYAMA: Although Internet-only companies like Amazon and eBay dominated Mediametrics's list of the most-visited Web sites, nearly half were established brands. Among retailers selling a variety of goods, the fourth most-visited virtual store was old-line placed sixth.

Other bricks-and-mortar retailers making the top 50 include Barnes & Noble, Toys "R" Us, Kay Bee Toys, Kay Bee Kids, TicketMaster, Best Buy and Wal-Mart.

But some analysts say it will be a month from now before they can draw any conclusions.

MITCHELL BARTLETT, DAIN RAUSCHER WESSELS: We'll really know who the winners and losers are when they report the revenue numbers. That's important because so many of these sites may be generating visitors, but they're not really converting those visitors into purchasers.

KATAYAMA: Analysts predict that in the future investors will increasingly look to online retailers to show results from advertising.

(on camera): And Internet start-ups may have little time to establish their brands. Jupiter Communications predicts that three years from now, 94 percent of online sales will be shifted sales, items bought online instead of at physical stores. That shift gives the advantages of a familiar brand to traditional retailers rushing to go online as clicks-and-mortar enterprises.

Fred Katayama, CNN financial news, New York.


VARNEY: Well, now, let's check how some of those major e-tailers fared today in terms of the stock price., eBay, Barnesandnoble all higher. EToys fell more than a point to 25 1/8, and that is down 70 percent from its 52-week high. America Online soared more than 7 1/4. It said holiday sales by its members more than doubled to $2.5 billion.

BAY: Well, MONEYLINE will be right back.

VARNEY: We shall return.


BAY: Checking some of the stocks that hit 52-week lows today, H.J. Heinz, Kellogg, Freddie Mac, Keycorp and Dime Bancorp.

And finally this half hour, today saw the final daily strip of "Peanuts." Cartoonist Charles Schultz is putting down his pen to focus on treatments for colon cancer. In today's swan song, Schultz thanked fans and editors for giving his "Peanuts" strip its 50-year run. Schultz said that most of all he'd miss the image of Lucy pulling away the football just before Charlie Brown tried to kick it.


BAY: That's his favorite.

VARNEY: I remember that very well, with fondness, too.

BAY: Exactly.

VARNEY: In the next half hour of MONEYLINE, the opening trades of the new year are moments away in Japan.

BAY: We will go live as the first business day of the year 2000 dawns on Tokyo.

VARNEY: Back on Wall Street, a punishing session for blue-chip stocks as the New Year's buzz wears off real quickly.

BAY: But punishment would be an understatement to describe what happened to bonds today in their worst session in nearly eight months.

VARNEY: Those stories and more are coming up for you.


VARNEY: A New Year and a new round of selling in the Chicago bond pits. Long-term yields soar to levels not seen since 1997. One- hundred billion dollars, the cost of killing the millennium computer bug. Question, did corporate America overpay for Y2K? And we'll go behind the scenes at the Big Board and show you how Dick Grasso and his troops kicked off a third century of trading at the New York Stock Exchange.

BAY: But we begin tonight at the Nasdaq. And measured in points, it's most volatile session ever. 1999's best-performing stock index traded in a 203-point range. But when all the whipsawing was done, the Nasdaq began a new millennium as it ended the old one: at a new record high.

Bruce Francis has more.


FRANCIS (voice-over): On the first trading day of the year, the Nasdaq lurched around as if it were still partying way too hard. The Nasdaq composite index zoomed up at the open only to plummet more than 200 points, a record trading range. But then it endured a bull and bear tug-of-war for the rest of the session, finally ending up 61 1/2 points, to a new record.

Traders credit lots of new money coming into the new market, chasing a short list of hot stocks, with no new issues to steal the fire.

MICHAEL BALOG, BANC OF AMERICA SECURITIES: What you have is, as I say, would be termed a sweet spot, where generally, stocks would have an upward bias, and you would see the kind of buying on dips that you've see today.

FRANCIS: Internet stocks were big winners, amid growing evidence that market leaders will have strong sales from the holiday season. Even Fogdog Sports, which had languished since its IPO last month, leapt 56 percent on strength of an analyst recommendation. But with demand like that, you can bet that Wall Street has more supply in the pipeline. The dormant IPO market is expected to start roaring back to life next week without, as David Menlow notes, a significant pause for the Nasdaq's dizzying run.

DAVID MENLOW, PRESIDENT, IPOFINANCIAL.COM: This is going to be a very bad situation for the IPO market, and we are calling for the IPO market to fall apart like a cheap watch before the end of the first quarter.


FRANCIS: That heavy calendar of IPO activity could help absorb some of this investor capital that's now flowing into the markets so heavily. That IPO activity, some say, could help put the brakes on the rapidly rising Nasdaq -- Willow.

BAY: Bruce, when might we expect to see the tapping of those brakes?

FRANCIS: We'll start seeing these IPOs start flowing into the market next week. Once that market really starts getting going, look for a correction, possibly somewhere they say around the beginning of the month, maybe mid-February but everyone can just see this coming around the corner.

BAY: Beginning of the month, mid-February. OK. Bruce Francis, thank you.

VARNEY: All right, the Dow Jones industrial average began the new year by backing off its record setting end to 1999.

Susan Lisovicz is standing by live at the New York Stock Exchange with the closing numbers for us -- Susan.

LISOVICZ: Hello, Stuart.

It also was an active day of trading day here at the New York Stock Exchange. The Dow Jones industrials jumped a bit in the early going, building on 1999's record close, but that New Year's rally didn't last long, as long term interest rates in the bond market surged to levels not seen in nearly 2 1/2 years. The Dow dropped nearly 200 points this afternoon, before finishing down 139, at 11357.

Not surprisingly, interest rate-sensitive financial stocks hit the hardest. American Express losing 9. J.P. Morgan falling nearly 5 1/4. GE, another Dow loser, down 4 3/4.

But the blue-chip techs, the standouts. IBM jumped more than 7. And Intel, up more than 4. The S&P 500 index lost 14 points, or almost 1 percent. On the Big Board, for every stock that rose, more than two fell. And the trend continues. New lows are still outpacing new highs. One-hundred and ten stocks rose to new 52-week highs, but 141 fell to new lows.

Despite today's sell-off, many traders are still bullish for the near term. Some still expect to see the so-called January effect, with some fresh 401(k) money pouring in. Also, techs may still be having a lot of upside potential. Many companies postponed technology spending ahead of the Y2K rollover.

But of course, one thing that could derail this supercharged market: higher interest rates. And traders say the question is not if the Fed will raise rates, but when and by how much. Morgan Stanley's Byron Wien today predicted a series of rate hikes totaling a full percentage point by the end of 2000 -- Stuart.

VARNEY: Susan, Byron Wien is a powerful man, indeed, on Wall Street. If he says that rates are going to go up one full percentage point, what does he say the effect will be on the stock market?

LISOVICZ: Pretty dramatic, Stuart. He's predicting a decline of the S&P 500 25 percent.

VARNEY: All right, fair enough. Susan Lisovicz, at the Big Board, thank you, Susan.

Now the tone of today's market was not, in fact, set in New York, but in the -- there you go -- but in the Chicago trading pits, where interest rates in the bond market truly soared.

Ceci Rodgers reports from Chicago.


CECI RODGERS, CNN CORRESPONDENT (voice-over): Good news on Y2K means bad news for interest rates and bonds. With global markets up and running glitch-free, investors who had parked their money in the safety of U.S. Treasuries sold those bonds and bought riskier higher- yielding investments. Bond prices tumbled, sending interest rates soaring to their highest levels in more than two years, and decisively above 6.5 percent.

MICHAEL BOSS, IBJ LANSTON FUTURES: We just traded through it today like a hot knife through butter. We haven't seen these levels for a long time. I think 6.75 would be the next natural yield point.

RODGERS: With Y2K worries waning, traders believe the Federal Reserve is now poised to raise interest rates again.

Signs of a strong economy abound. A key survey showed that manufacturing expanded in December for the 11th straight month, although at a slower pace, and prices manufacturers pay for raw materials rose.

WILLIAM SULLIVAN, MORGAN STANLEY DEAN WITTER: All the evidence shows the economy finished 1999 with a lot of strength, a lot of momentum, and that's continuing perhaps into the opening quarter of the new year. That's put the bond market on the defensive, and we're beginning to anticipate some tightening in monetary policy.

RODGERS: But some economists say growth is not likely to accelerate any further, and bond traders are overreacting to the perceived threat of inflation.

GAIL FOSLER, CONFERENCE BOARD: We've passed the peak if we look at absolute growth rates, and I think there's very little real inflation threat on the horizon. And at the most, I would see the Fed raising another 25 basis points.

RODGERS: But that's a minority view. Most Fed watchers think rates could rise by a half a percentage point and perhaps more. (on camera): The key to who's right could come in Friday's report on payrolls and wages. It's the last detailed look at the job market before February's Fed meeting.

Ceci Rodgers, CNN Financial News, Chicago.


BAY: Up next, we'll hear more from that top-ranked contrarian economist Gail Fosler.

VARNEY: She and Allen Sinai offer their forecasts for the year 2000, when MONEYLINE continues in just a moment.


BAY: Just moments ago, the Tokyo Stock Exchange opened for its first trading day of the year 2000. For a look at how Japanese stocks are faring in the early going, Marina Kamimura joins us now live from Tokyo -- Marina.

KAMIMURA: Hi, there, Willow.

Well, a great day for the Nikkei so far. It's up 116 in the first few minutes of trading now; that's nearly a percent. The Nikkei's broke through the 19,000 barrier already, something it had real trouble doing last year.

A good -- analysts are expecting good things so far. Of course, the Nikkei did finish off at record high for 1999 at the end of the year, finishing the year up 37 percent. Also no huge Y2K glitches expected, Testing over the weekend went very smoothly. Only one non- Japanese bank and 15 brokers are reporting minor computer glitches, but it doesn't look as though they're going to affect trading here so far -- Willow.

BAY: Marina, was Y2K as significant a problem in Tokyo? Did it receive as much attention? And was as much money spent to repair the problem as here?

KAMIMURA: There has been a lot of attention focused on Y2K, particularly over the last year. What we can say about the financial sector, in particular, though is they have been paying attention for the last couple of years. In fact, more than $7 billion was thrown at that sector, trying to address those problems. And as you can see, with those tests that went through this weekend, Tokyo, at least, the financial institutions here say that they are ready, in fact, to deal with any computer problems. And we don't expect any here today or in the year to come -- Willow.

BAY: Thank you, Marina Kamimura from Tokyo.

VARNEY: The passing of Y2K has been a non-event for financial markets and the corporate world, which puts the U.S. economy on track for its longest expansion ever, a record set during the Vietnam War. Joining me now with their outlooks, Allen Sinai of Primark Decision Economics here in New York, and Gail Fosler, of the Conference Board, joining us from Washington.

By the way, "The Wall Street Journal" today named them the nation's top two economic forecasters.

So, Gail and Allen, congratulations and welcome to MONEYLINE.

FOSLER: Thank you, Stuart.


VARNEY: Gail, if I can start with you, as, by the way, you were the number one in the poll there, so congratulations, indeed, to you. Can I ask you this question: Does our current prosperity extend all the way through the year 2000?

FOSLER: Absolutely. I think if there's a surprise, it's really that we're going to see the economy slow in the middle of the year, but then I think we're going to see a big reacceleration in the second half, and we're going to end the year very strongly, just as we ended 1999 .

VARNEY: Do you think we can get the unemployment rate below 4 percent?

FOSLER: Well, I think we can get it marginally below 4 percent. You know, we're really at a period where we've got a big demographic wave that's coming into the workforce, so that's going to kind of keep the labor force growing. So you know, 4 percent, 3.9, 3.8, but I don't think any big surprises. We're not going see 3 1/2 again.

VARNEY: Allen Sinai, let me turn you for a moment, because that was a very rosy forecast from Gail Fosler. Let me talk to you about interest rates. Do you believe the Fed is going to progressively raise rates in the first half of this year.

SINAI: Yes, unfortunately, they're going to have to do that in the name of preventing future inflation from getting higher than what they want. I think we'll see at least two quarter-point doses of tightening, and they may have to do more.

VARNEY: So bond yields could go to 7 percent possibly?

SINAI: Six and three quarters to 7 is where they ought to settle out. At some point during the Fed tightening, we'll be able to see beyond that, to 2001, some slowing, some stabilization of inflation risk, and I think the bond yields will stabilize. Seven percent plus, I doubt that; 6 3/4, 7 looks more like it.

VARNEY: Would that be enough to put a dent in the stock market's rally?

SINAI: Well, I think during this process, we'll have a sizable correction in the stock market. We may have started that today actually, 10 to 20 percent. I'm not quite as pessimistic as Mr. Wien, but I think 10 to 20 percent is a reasonable correction for the stock market. VARNEY: Gail Fosler, you mentioned that the economy is going to stow slow a little as we head toward the middle part of the year. By how much is it going to slow down, and what's going to cause it?

FOSLER: Well, we, you know, we are not -- no tree grows all the way to the sky, and the economy really has been slowing, although at very high rates, over the past couple of years. It's really remained at about the 4 percent range, and we're getting a little ahead of ourselves. We've had a lot of inventory build going into the end of the year through the beginning of the year. We tend to get a trade deficit widening in the first part of the year, and these adjustments for the last few years have really all come to rest in the second quarter, when we've had surprisingly slow growth.

So you know, I disagree with Allen in the sense that we're going to see these successive rate increases. I think the Fed is really going to wait to see how the economy performs this year and whether there's an inflation threat that goes along with the growth pattern.

VARNEY: I know that our two guests are both economists, but I am going to ask a question about the stock market. In the 20 seconds we have left, will the Nasdaq hit 5,000 this year? Gail, you're number one in the poll -- you first please.

FOSLER: The Conference Board doesn't do stocks. I am going to turn that one over to Allen.

VARNEY: A diplomat as well. All right, Allen, will you tackle that one?

SINAI: No, I think we'll see 5,000 and above. I don't know whether -- I think we'll see that, and we'll probably make a run for 13000 on the Dow this year.

VARNEY: And there we end it, Gail Fosler and Allen Sinai, thank you very much, indeed, for joining us here on MONEYLINE.

SINAI: Thank you.

BAY: Still to come on MONEYLINE: the bug that cost billions to squash.

VARNEY: But did the U.S. spend too much to beat the threat of a Y2K computer crisis? We'll be back with that in just a moment.


VARNEY: In other headlines, Bell Atlantic's still confident it will enter the long-distance market in New York this week, despite AT&T's federal lawsuit to block its plans. Bell Atlantic has scheduled a news conference tomorrow morning to announce its customer plans. Bell Atlantic down 1 5/8. AT&T gained 2 5/8.

In a separate battle, Fox Television pulled its local programming off Cox Cable in several markets, including Texas and suburban Washington. The move comes after Fox failed to reach an agreement with the cable operator to carry two of its specialty channels when Cox upgrades to digital service. Cox calls the request extortion.


JIM ROBBINS, CEO, COX COMMUNICATIONS: This is simply about Fox pushing signals onto our consumers, whether our consumers want them or not. And we said, we finally had to draw the line in the sand and say, hey look, we're not going to subject our customers to these cost increases for a couple of unknown channels.

TOM TYRER, FOX TELEVISION: We don't want anyone to not have access to Fox programming, if we can do anything to prevent it. So in this case, we're resolved to continue to discuss this issue with Cox Cable. We would just hope that they would agree to the same partnership that everybody else has agreed to.


VARNEY: My Tyrer, by the way, was speaking into his speakerphone.

Shares of Cox ended the day up 1/8. News Corp, which owns Fox Entertainment, lost nearly a half point.

And management changes at Mattel. CFO Harry Pearce will retire in March. The toy giant also announced that former Sega executive, Bernard Stolar, will become president of Mattel's interactive division.

BAY: Barely a flutter so far from the Y2K computer bug. In fact, the problem has been handled so smoothly that some are wondering if it wasn't overstated in the first place. And did U.S. businesses and the government really need to spend $100 billion to prepare for it?

Peter Viles reports.


PETER VILES, CNN CORRESPONDENT (voice-over): Instead of being hailed as heroes, the Y2K fixers are facing questions: Was it really that big a problem? Did American businesses really need to spend $100 billion to kill the bug? The securities industry alone spent roughly $5 billion.

DON KITTELL, SECURITIES INDUSTRY ASSOCIATION: If we hadn't spent any of the money? The markets wouldn't have opened today. What's that worth? And you know, by the same token, if we had spent half the money, would the markets ave been half open? I don't know.

VILES: The government's Y2K czar estimated overspending at 5 percent to 10 percent. And defended it.

JOHN KOSKINEN, PRESIDENT'S COUNCIL ON Y2K: I think ultimately, if anybody erred on the side of spending a little too much to make sure the power stayed on, that telecommunications plant systems still ran, and that nuclear plants had no problems, I suspect that that was probably money well spent.

VILES: There was talk of Y2K dividends. General Motors spent $410 million in what it described as a healthy house cleaning of its computer systems.

DAN COSTANTINO, GENERAL MOTORS: I think we've got a better understanding of how our business should operate and how it interrelates. And I think we've got a great opportunity to eliminate a lot of the redundancies and the unnecessary costs in both our infrastructure and applications.

VILES: The securities industry said the spending will help in the switch to stock pricing in decimals, will help speed the settlement process for stock trades, and help cope with increased trading volume.

RICK LANE, U.S. CHAMBER OF COMMERCE: The money would have been spent sooner or later to upgrade systems. It may have pushed the time frame up a little bit, but in fact, what we have, going into this new century, is a pretty much up-to-date system that will allow us to really be competitive in this new world market.

VILES (on camera): Privately, some business leaders were grumbling that they're in a no-win position. They'd be blamed for any Y2K problems; now they face questions about spending too much to kill a bug that they're not even certain is dead yet.

Peter Viles, CNN Financial News, New York.


VARNEY: And checking tonight's other "MONEYLINE Movers": Tandy up 4 7/8. Morgan Stanley Dean Witter upgraded the Radio Shack operator to an outperform. It cited the recent pullback in Tandy's stock price. Amgen is up 2 7/8. PaineWebber added the biotech firm to its highlighted list. And Deutsche Bank Alex Brown raised its price target to $82 a share for Amgen. Ariba up 14 3/8. Bank of America made positive comments on the entire business-to-business industry. It said Ariba should be a key beneficiary of the explosive b-to-b industry.

VILES: But in tonight's sector focus, an influential analyst at Merrill Lynch is not as hot on the b-to-b market. Henry Blodget at Merrill Lynch expects a pullback in b-to-b Internet stocks in the first quarter of this year. Today, he said competition and lack of profitability will lead to a shakeout in the sector. But Blodget is still optimistic on some of the leading Internet companies, including CMGI, America Online, Internet Capital Group, Yahoo! and, all of which moved sharply higher today.

VARNEY: Coming up, we'll go behind the scenes at the country's largest stock exchange...

BAY: ... with the man charged with shepherding the New York Stock Exchange into the new millennium.


VARNEY: A crucial day for the New York Stock Exchange. With the world focused on Wall Street for signs of Y2K disruption, the Big Board marked the first trading day of the new century.

Greg Clarkin has more on that.


GREG CLARKIN, CNN CORRESPONDENT (voice-over): The chairman was in a tux. A company called Qwest made a splash. And the Dow opened above 11000. Welcome to a new century of trading, ushered in by New York Stock Exchange chairman Richard Grasso.

RICHARD GRASSO, CHAIRMAN, NYSE: In the late 1960s, when I started at the Exchange, what we today trade in a week would have been more than a year's volume, and the marketplace was a very difference one. It was not driven by technology.

CLARKIN: Technology that has made big volume routine. Volume on the first day of trading in January 1900 was 400,000 shares. Today, close to one billion shares traded. And trading went off without a hitch today. No Y2K glitches to report, just smiles and handshakes for Qwest Communication CEO Joe Nacchio. His company left the Nasdaq for the NYSE. He became the first opening bell ringer in the millennium.

JOSEPH NACCHIO, CEO, QWEST COMMUNICATIONS: I grew up in New York City. I went to high school, college here, walked the canyons. Never in my life would did I imagine I never I would do this.

CLARKIN: The NYSE is not new to Jim MaGuire. He's been here since the '70s.

JAMES MAGUIRE, CHAIRMAN, HENDERSON BROTHERS: What's good for General Motors is good for the country. That was the expression in those days. IBM, of course, the old Tandy, American Telephone. Those were the leaders, the bedrock stocks.

CLARKIN: Ted Weisberg remembered his first day, in 1969.

THEODORE WEISBERG, CEO, SEAPORT SECURITIES: I was 29. I was just a kid down here. And I looked around, and everybody looked old to me, and I was sort of a pain in the neck to everybody.

CLARKIN: Both men, along with generations of investors, grew up at the NYSE. Its trading floor has gone from this to this. The opening and closing bell used to be a formal affair. Now there's enough glitz and glitter for Hollywood.

(on camera): For the record, the Dow is up better than 26,000 percent last century. And while no one inside the NYSE would offer any prediction as to what this century holds, all did agree that thanks to America's love affair with Wall Street, they expect to be even busier this millennium than last.

Greg Clarkin, CNN Financial News, New York.


BAY: Up next, "Ahead of the Curve," some of what you need to know tonight before the markets open tomorrow.

VARNEY: You're watching MONEYLINE.


BAY: Now that Y2K went a-OK, here's what Wall Street will be focusing on tomorrow. The National Association of Securities Dealers is expected to vote on whether to go public. And look for the latest reading on the housing market, with November construction spending.

VARNEY: Also coming up tomorrow, we'll speak to Ed Yardeni, chief economist at Deutsche Bank. He predicted a Y2K recession, with the U.S. economy shrinking more than 4 percent this quarter. What is he saying now? Find out tomorrow on MONEYLINE, please.

BAY: That's MONEYLINE for this Monday. I'm Willow Bay.

VARNEY: And I'm Stuart Varney.

Up next, CNN's 100 hours of millennium coverage continues, with Bernard Shaw and Judy Woodruff. Thanks for joining us.

BAY: Good night from New York.


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