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Moneyline News Hour

Dow Plummets 238.35 to 9,720.76; Nasdaq Dives 93.74 to 1,857.44; Investors Disappointed With Fed Rate Cut

Aired March 20, 2001 - 6:30 p.m. ET

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

WILLOW BAY, CNN ANCHOR: The Federal Reserve ends the suspense and slashes interest rates.

ALLAN CHERNOFF, CNN ANCHOR: But it's not enough for Wall Street. This is MONEYLINE.

Greenspan and company deliver another rate cut, the third this year, as the Fed tries to turn around this slowing economy.

BAY: But stocks plunge anyway, investors fearful that the Fed is way behind the economic curve.

CHERNOFF: How should investors get defensive? We'll look at where to go to find shelter in the storm.

BAY: And the media titan behind the Oscar contender "Traffic": Barry Diller on why Hollywood isn't making more good films.

ANNOUNCER: Live from coast to coast, this is MONEYLINE.

BAY: Welcome to MONEYLINE. I'm Willow Bay in Los Angeles.

CHERNOFF: Hi, Willow. Hi, everyone. I'm Allan Chernoff in New York.

BAY: We begin tonight with the Fed slashing interest rates again. Investors today were hoping Alan Greenspan would be the stock market's savior. Instead, Wall Street viewed Mr. Greenspan as a spoiler, cutting rates by a half-point rather than the three-quarters of a point that some optimists were hoping for.

Stocks plunged, with both the Dow and the Nasdaq hitting multi- year lows. The sell-off is all the more striking because the Fed has not been this aggressive in cutting rates since the last recession. We have complete coverage of the Fed's move, and the market reaction, with Terry Keenan, Greg Clarkin and we begin with Pete Viles in Washington -- Pete.

PETER VILES, CNN CORRESPONDENT: Willow, this move by the Federal Reserve simply not bold enough to satisfy Wall Street. But by the standards of the Greenspan Fed, which has fought so many wars on inflation, this has become a very aggressive war on recession.

(BEGIN VIDEOTAPE)

VILES (voice-over): For third time this year, Alan Greenspan and his colleagues slashed interest rates, hoping to breath life into the suddenly struggling American economy. The Fed funds rate, the rate banks charge each other for overnight loans, cut half a percentage point to 5 percent. The more symbolic discount rate cut half a point to 4.5 percent. Major banks followed, cutting their prime lending rates half a point to 8 percent.

But Greenspan disappointed those investors and economists arguing for three-quarter point cut, setting a new round of criticism that the Fed is not cutting rates fast enough to stop a recession.

WAYNE ANGELL, BEAR STEARNS: The Fed has itself to blame for falling behind, and it's imperative that they catch up because we otherwise are going to jeopardize economic growth.

VILES: The Fed did acknowledge the impact of the bear market on consumer spending saying, quote: "Pressures on profit margins are restraining investment spending and through declines in equity wealth, consumption."

With the Japanese economy weakening, the Fed also warned of a possible global slowdown, saying: "The potential for weakness in global suggest substantial risks that demand and production could remain soft."

The Fed further hinted it stands ready to cut rates before its next meeting, saying: "The economic situation could be evolving rapidly, and the Fed will need to monitor developments closely."

LARA RHAME, BROWN BROTHERS HARRIMAN: Now, we're going to have to look at what would push them to that intrameeting move. I think it's much more likely to be a further deterioration in the economic picture than in the stock picture. Again, the Fed does not want to be seen picking a place in the market to try to draw a line in the sand.

VILES: The Fed had raised rates one and 1 3/4 points in 1999 and 2000 and has now taken back all but a quarter point of those hikes.

(END VIDEOTAPE)

VILES: The next scheduled Fed meeting on rate hikes is not until May 15th, almost two months from now. But Wall Street is now shifting into a pretty much round-the-clock Fed watch, waiting and hoping the Fed will cut rates again before mid-May -- Allan.

CHERNOFF: Certainly, many investors hoping that as well. Thank you, Peter Viles.

In the minutes leading up to the Fed's announcement today, stocks were modestly higher. But those gains disappeared in trading after the long-awaited decision. By the closing bell, the Dow was down 238 points, at 9720. That is the lowest close in nearly two years. The Nasdaq plunged 93 or nearly 5 percent, closing at 1857. You'd have to go back to November of 1998 to find a lower close. The S&P 500 lost 28 points, or almost 2 1/2 percent.

Greg Clarkin traces today's dramatic developments moment by moment.

(BEGIN VIDEOTAPE)

GREG CLARKIN, CNN CORRESPONDENT (voice-over): 9:30 a.m.: The opening bell, but trader are already looking past it, waiting for mid- afternoon on word on the fate of interest rates.

RHONDA SCHAFFLER, CNN CORRESPONDENT: Traders are telling me they expect things to be pretty quiet heading into that 2:15 Eastern time decision.

CLARKIN: 11:00 a.m.: A lackluster morning of trading. The Dow and the Nasdaq locked in tight range as Wall Street eyes Washington and the Federal Reserve.

Noon...

(BEGIN VIDEO CLIP)

JOHN METAXAS, CNN CORRESPONDENT: Things are very quiet right now. We have traded in a 21-point range today.

(END VIDEO CLIP)

CLARKIN: The Dow is equally as calm, up a handful of points.

1:30 p.m.: Less than an hour to go and traders outside the New York Stock Exchange relax while they can.

2 o'clock: Minutes to go, traders at Prudential Securities are poised.

2:13 p.m.: The news hits.

UNIDENTIFIED MALE: Fed cuts 50, hit them.

UNIDENTIFIED MALE: David, buy the 15 T's. You want to look lower here (UNINTELLIGIBLE).

UNIDENTIFIED MALE: We need to know the (UNINTELLIGIBLE)

UNIDENTIFIED MALE: Oh, markets are disappointed. Hit everything. Sell everything.

CLARKIN: ... and sell they did: Both the Dow and the Nasdaq fall, but within minutes begin to crawl back.

UNIDENTIFIED MALE: Dow's down about 25.

UNIDENTIFIED MALE: Now it's 10. Now it's 10.

UNIDENTIFIED MALE: We've got a total of 40 for sale now.

UNIDENTIFIED MALE: (UNINTELLIGIBLE) I'm seeing it now. I'm seeing bids now.

CLARKIN: But that rally disappeared. Many were expecting a bigger interest rate cut.

3:30 p.m.: The markets are falling sharply.

(BEGIN VIDEO CLIP)

RHONDA SCHAFFLER, CNN CORRESPONDENT: ... and it looks like that's the story, that it's unraveling here.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

METAXAS: We are now seven points away, here, from a new two-year low in the Nasdaq.

(END VIDEO CLIP)

CLARKIN: 4:00 p.m.: The closing bell. The Dow ends down more than 2 percent. The Nasdaq falls almost 5 percent.

(END VIDEOTAPE)

CLARKIN: And within minutes of the rate cut, traders had seized on one line of the Fed's statement. It said, "The Federal Reserve will need to monitor developments closely," and rightly or wrongly, they immediately pinned their hopes on an intrameeting rate cut on that one phrase, Allan.

CHERNOFF: Greg, what are the economists saying? What are the chances of that happening?

CLARKIN: Well, with the Fed kind of giving that heads up there, a lot folks think there's probably greater chances than it was before today, so that gave them a little silver lining, basically.

CHERNOFF: It may have something to do with what the stock market does.

CLARKIN: Exactly.

CHERNOFF: Greg, thank you very much.

Much more on the Fed decision and the market's sharp decline: We'll talk with Tony Crescenzi of Miller Tabak and Tom Gallagher of CIBC Oppenheimer.

BAY: Allan, we've known for many months that the Nasdaq was in deep trouble. But it is only in recent weeks that the Dow has fallen off a cliff as well, even approaching bear market territory.

Over the past eight sessions, the Dow has taken a triple-digit dive five times. The total point loss -- more than 1,000 points. That puts the Dow down 17 percent from its record high, just a few percentage points away from a bear market.

Now the S&P is down 25 percent. The Nasdaq, down 63 percent.

Let's go to Terry Keenan at the New York Stock Exchange with more on today's steep market sell-off.

Now, Terry, obviously the markets wanted more, but still, it's fairly unusual for stocks to go down on the day that the Fed cuts rates, isn't it?

TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, it is unusual and unnerving. The old Wall Street adage, of course, is "Don't fight the Fed," but that's exactly what this market has been doing throughout the year, particularly since that last rate cut on January 31st.

The Nasdaq has fallen 35 percent since then. The Dow down about 1,200 points. The question here is, will Wall Street find faith in the Fed again, or does the market perhaps believe that the Fed doesn't have the medicine to fix this economy, or certainly not enough of the right medicine at the right time.

BAY: Terry, traders obviously expect more cuts, but what are they expecting and when?

KEENAN: Well, no sooner than the Fed cut did everyone start to scramble to readjust their forecast of when the Fed will cut again.

As Peter and Greg mentioned, the next meeting isn't until May 20th. It gives them plenty of time to cut intrameeting. Wayne Angell, going out on a limb again today -- I spoke with him after the Fed cut rates -- he is putting an amount and a time, a half point, the second week of April, that's when he thinks that the Fed is going to cut.

But pretty much everyone, including the Fed funds futures, believes that we will get a rate cut before that May 20th meeting. The thinking is the Fed is certainly behind the curve. A lot of talk today that the Fed may have to lower its Fed funds rate eventually to 2 1/2 or 3 percent.

BAY: Terry, you've been talking to folks there all day. When do they think the selling is going to stop?

KEENAN: Everyone is just really shell-shocked. When you hear from the bears, from the bulls, I mean -- we'll start with them first, since that's the good side -- they think that we need that washout day, that capitulation, the selling.

The bears, on the other hand, think it might be like Chinese water torture, and they're going to have to take out the big stocks. GE still trading at 30 times earnings. Some of the drugs still trading at 27, 28 times earnings. And it and won't be over until all of those stocks come down quite considerably -- Willow.

BAY: Terry, some rough going ahead, clearly. Terry Keenan at the Big Board, thank you -- Allan. CHERNOFF: Thank you, Willow.

Still to come on MONEYLINE: How the Fed's rate relief will filter through the financial system. We'll check out the impact for credit cards, mortgages and other loans.

And did this man steal millions of dollars from the nation's wealthiest? Authorities say he posed as Martha Stewart and Warren Buffett to gain access to their money.

Plus: getting defensive. Where is a safe place to put your money? We'll look at whether battered brokerage stocks are poised to rally.

Willow and I will be right back after this.

(COMMERCIAL BREAK)

BAY: When the Fed makes a change in the benchmark interest rate, there's no mandate that commercial banks follow suit on mortgages and credit card rates. But that's usually what happens, and it happened today.

Once the Fed funds rate is lowered, top banks lower the prime rate they charge to their best customers, and that triggers changes in other interest rates affecting consumer loans, such as mortgages, auto loans, personal loans, and credit cards. But because the Fed action today was widely expected, some say lenders have already priced in the move.

Now, taking a look at the mortgage math in the wake of the Fed easing: A year ago, the average 30-year fixed rate on a $100,000 mortgage stood at 8 1/2 percent. With the average rate now hovering at 7 percent, consumers can save more than $100 each month in principal and interest.

CHERNOFF: The impact of the Fed move, at least today, was felt in the markets as stocked plunged, disappointed that the Fed wasn't more aggressive.

For some perspective right now, we turn to Tony Crescenzi of Miller Tabak. Welcome back, Tony.

TONY CRESCENZI, MILLER TABAK: Thank you, Allan.

CHERNOFF: Now, let's talk about this apparent dichotomy, because bonds were up today and the stock market took it real hard. A dichotomy between the bond market and the stock market. Why?

CRESCENZI: I think bond investors tend to look at economic data more closely than do stock investors. Stock investors look at it bottoms up, so to speak. Bond investors look at the economy and macro events top down.

What this means, therefore, is that the bond market may be looking ahead and saying, well, we see a recovery, just as the Fed would, because the Fed tends to look at things in the way the bond market does. But equity investors, because of the drum -- the steady drumbeat of very negative news on the economy, corporate earnings, et cetera, I think equity investors really can't see past that.

CHERNOFF: So the stock market is focused right now on the poor earnings report while the bond market is looking ahead to a brighter economic future?

CRESCENZI: I think it is. But because the equity market is so weak and because of competition for capital -- money is flowing into bonds, because the equity market is so weak -- I think it's a matter of return of investment rather than return on investment these days.

CHERNOFF: Now the Federal Reserve in its statement talked about a decline in wealth from the stock market hurting consumption. So the Fed is saying they are concerned about this decline we're seeing in the stock market. So why aren't they doing more to help the stock market?

CRESCENZI: I think because they haven't seen the proof in the pudding. While you would think intuitively that the weakness in the stock market would hurt spending, it really hasn't significantly.

New home sales in December, for example, were at a record. Car sales this year so far running at a 17 million rate, a solid rate. So they haven't seen it yet in the actual spending figures.

CHERNOFF: And Tony, that's partly because of what the Fed is doing: lowering rates, helping people buy homes.

CRESCENZI: Precisely, because we have now a sub 7 percent 30- year fixed rate mortgage, which is below the 8 1/2 percent rate we saw a year ago. It's a big help. It's helping households to refinance their homes, for example, at a rate six times that of last year. It's putting extra money into their pockets.

CHERNOFF: Some of the stock market traders I spoke with today were saying it seems like Chairman Greenspan is way behind the curve. But is it really his job to support the market?

CRESCENZI: It never is. I think Greenspan would like to see the stock market gain because of improvements in the earnings outlook. The Fed can't provide a so-called "Greenspan put," which is protection against losses to the equity investor. What the Fed has to do is create a stable financial environment.

So far it's relatively stable. We've got a boom-bust situation on-hand. We're working through it. It -- we'll have to wait and see if it gets any worse. But right now, there's no immediate reason to get any more aggressive, and they have been extremely aggressive so far, we have to remember.

In January, their rate cuts were the biggest ever under Greenspan for a one-month period.

CHERNOFF: 1 1/2 percent since the beginning of the year -- that's quite aggressive.

CRESCENZI: Quite aggressive, and if they continue with half- point cuts, given that the American consumer is showing responsiveness to low interest rates by buying homes, for example, and by buying cars, it's clear that if rates continue to come down, there will be continued responsiveness and you'll see improvements in the economy.

CHERNOFF: Will they continue to come down?

CRESCENZI: I think without question. But I think by mid- quarter, second quarter, you'll see sharp increases in car production that help filter through -- that will filter into economic data. Perceptions about the economy will shift, and I think the outlook for corporate profits for the second quarter -- and they're due out in July -- will be much better and there will be a shift from stocks to bonds.

CHERNOFF: Tony Crescenzi, that sounds very good for the stock market.

CRESCENZI: Bonds to stocks -- excuse me.

CHERNOFF: Right. Thank you very much.

CRESCENZI: Thank you.

CHERNOFF: Just ahead, the lights go off again in parts of California. We'll get a live report from San Francisco and find out how long these blackouts will last. Plus, more tough news from Silicon Valley as another tech dynamo joins the list of companies slashing jobs.

(COMMERCIAL BREAK)

BAY: For the second straight day, the lights were out in parts of California. Power authorities here ordered rolling blackouts as electricity demand climbed while supplies ran short.

For the latest, we are joined from Santa Ana, California by Frank Buckley -- Frank.

FRANK BUCKLEY, CNN CORRESPONDENT: Willow, we're in what could be described as the quiet between the storms: the first one coming at about 9:30 a.m. Pacific Time when the first series of rolling blackouts began in California, plunging hundreds of thousands of people into darkness. The second potential storm coming later this evening as the peak period approaches around 8:00 p.m. local time.

Right now, we can tell you, however, that California is not experiencing any rolling blackouts. We are in a distribution operation center for Southern California Edison. This is one of those locations where the decisions are made about what areas to plunge into darkness during these orders that come from the independent system operator to turn the electricity off in certain areas. These folks were very busy this morning as hundreds of thousands of California residents lost power. Let me show what it looked like in San Francisco this morning. As people were shopping and trying to do whatever they were doing, dining in the dark, the blackouts not blanketing all of California, however, just the certain areas that were selected by the utilities as the day rolled on.

Southern California was also affected by the power cutbacks. Traffic lights at some intersection were not working, and that brought out police officers who helped to direct traffic trough the situation. By 2:00 p.m. Pacific, the rolling blackouts were over, the independent system operator able to import enough power to restore the electricity.

But again, this evening, during those peak hours that approach 8:00 p.m., we may again experience rolling blackouts. We're not sure yet, but that's something the independent system operator will be watching. And again, they will be watching tomorrow, depending on the temperatures and the demand as to whether or not they'll have rolling blackouts tomorrow-- Willow.

BAY: OK, Frank, thanks for keeping us up-to-date on the situation.

Checking how those utility stocks did on Wall Street: PG&E off 45 cents, and Edison International down 34 cents to just over $12. Both stocks are off sharply from their 52-week highs.

CHERNOFF: In tonight's "Moneyline Movers": Jabil Circuit fell more than $2. After the closing bell, the electronics manufacturer delivered earnings that beat Street's expectations by a penny. But the company warned demand for its products is slowing, and job cuts are on the way.

Jabil's news follows a warning late yesterday from rival Solectron. That stock falling $2.40 after forecasting profit weakness and saying it will layoff more than 8,000 employees.

Linens 'N Things lost nearly 2 3/4. Bank of America downgraded the retailer on profit concerns. Some confusion as well: company executives had been scheduled to present at a Deutsche Bank investor conference today. They never showed, and the company says they never confirmed they'd participate. And one winner: Krispy Kreme Doughnuts. Its shares jumped more than $1, a two-for-one stock split took effect today. Yesterday, the company said it will open a new plant in Illinois, its first outside North Carolina, where the company is based.

BAY: In tonight's "Tech Watch": Oracle, the software giant responding to profit pressures today, reducing its work force by 1 to 2 percent, or about 800 jobs. Still, that's a bit less than some analysts expected, and much less than other tech bellwethers. Cisco, for example, is slashing 15 percent of its work force.

The news stems from Oracle's recent profit struggles. Last week, the company met lowered quarterly numbers, but warned of shortfalls ahead. Oracle fell more than $1 today to close at $14 3/8. The stock is off a staggering 64 percent over the past year.

CHERNOFF: Coming up, the final chapter in the saga of a crippled oil rig, a disaster off the coast of Brazil. Plus, lower interest rates used to bring a windfall to the brokerage business, but these days have been anything but golden on Wall Street. We'll check out why.

(COMMERCIAL BREAK)

CHERNOFF: A dramatic ending today for one of the world's biggest oil rigs. The 40-story rig, which had stood about 75 miles off the coast of Brazil, was listing in deep water, after an explosion last week. Two workers were killed and another eight are still missing. Then this morning, the rig shifted suddenly, and began to sink to the bottom of the ocean, more than 4,000 feet below. The rig's owner, Brazil's state oil company, warned that 300,000 gallons of diesel fuel was likely to spill into the South Atlantic.

BAY: On U.S. shores, a different kind of trouble struck the Mall of America today. The mall, which the biggest in America with 500 stores and about 100,000 visitors daily, was closed by police early this morning. This, after a fugitive named Anthony Zappa was spotted on surveillance tape entering the complex. Police SWAT teams spent the day searching for the fugitive, and the mall remained shut as of early this evening. No word yet on the financial cost to the Mall of America.

CHERNOFF: Coming up on MONEYLINE, more on today's decision by Alan Greenspan and his band of policy-makers.

BAY: The Fed slashes interest rates again; is it enough to engineer a soft landing for the economy?

CHERNOFF: It wasn't enough to inspire a rally on Wall Street; we'll look at why lower interest rates, so far, have failed to lift stocks.

BAY: Plus, a special interview with one of the king makers in the entertainment business: Barry Diller. We'll get his thoughts on why Hollywood doesn't make better movies. Those stories and more coming up on MONEYLINE.

(COMMERCIAL BREAK)

CHERNOFF: In tonight's headlines, after weeks of waiting and wondering, the Fed makes its move, cutting short-term interest rates by 50 basis points, not the three-quarters of a percent some had been hoping for. That sent stocks reeling. The Dow fell to its lowest level in nearly two years. The Nasdaq, its lowest since November 1998.

And it's a case of identity theft. A Brooklyn man is under arrest for allegedly stealing personal information, and millions of dollars, from some of the richest people in America, among them, Martha Stewart, Oprah Winfrey, and Warren Buffett. We'll have the details. BAY: But first, more on our top story: The Fed rate cut, the third one this year. The Federal Reserve cut the Fed funds rate, which banks use to make overnight loans to each other, by 50 basis points to 5 percent. It also trimmed the discount rate to 4.5 percent.

In its accompanying statement, the Fed said that, quote: "Persistent pressures on profit margins are restraining investment spending and through declines in equity wealth, consumption."

And the Fed also pointed to further trouble ahead, saying that: "The potential for weakness in global economic conditions suggests a substantial risks that demand and production could remain soft."

The reaction from Wall Street was fast and furious. Blue chips, which had traded higher before the news, sold-off dramatically, ending down 238 points to 9720. An even worse showing on the Nasdaq, which sank 93 points, or nearly 5 percent to 1857. Those losses extended to the broader market. The S&P 500 slid 28 points on the day.

Checking some of the major movers: IBM, Intel, Microsoft, JDS Uniphase and Cisco all lost ground today.

CHERNOFF: A cut of half a percent is not what the stock market was hoping to hear from the Fed, and the market clearly responded with a big thumbs down. Fed rate cuts are not jump-starting stocks as investors had hoped they would.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): The major indices fell into negative territory on news of the Fed's action, and kept sinking through the afternoon. Traders said the half a point of economic medicine from the Fed had already been anticipated, and the market had been hoping for more.

JON BURNHAM, BURNHAM SECURITIES: There's been so much hype about the Fed lowering the rates by more than 50 basis points, as much as 75, even a full point.

CHERNOFF: With stocks in a bear market spiral, there is growing talk among traders that the Federal Reserve chairman may be responding too slowly to economic distress.

ARTHUR CASHIN, UBS PAINEWEBBER: Alan Greenspan has been wearing this cloak of infallibility for several years now, a decade, and they are beginning to wonder, could it be possible that the Fed somehow miscalculated? And that in itself is worrisome to the market.

CHERNOFF: Normally, when the Federal Reserve cuts interest rates, the stock market goes up. That's what happened immediately following the Fed's surprise half-point rate cut on January 3rd. But the next day, the markets began tumbling and kept falling after the Fed made its second cut on January 31st.

The Dow is down 9 percent since the first rate cut. The Nasdaq Composite down 19 percent during the same period of Fed easing.

JIM WAGGONER, SANDS BROTHERS: In the technology sector, which is driving this economy downward, that people are very much concerned about where the bottom is. Managements have not been able to pinpoint or give any guidance as to where they think the bottom might be reached.

CHERNOFF: History is on the market's side. Since 1921, the Fed has engineered a series of three rate cuts in a row 13 times, excluding the current round. Every time except in 1930, before the depression, the Dow rallied, gaining an average of 7 percent after three months, 12 percent after six months and 21 percent one year later.

(END VIDEOTAPE)

CHERNOFF: The problem this time is that corporate America has been spitting out a steady stream of negative earnings announcements, and some traders argue the market won't begin rallying until it begins hearing good news on profits.

BAY: Terry Keenan has been looking into that negative sentiment, and a very worrisome development today for the markets. She joins us now from the New York Stock Exchange with tonight's "Behind the Numbers" report -- Terry.

KEENAN: Well, Willow, while some observers say that the Dow still has a few hundred more points to go before officially entering a bear market, a man who follows the Dow perhaps closer than anyone else says that today is the day that the Dow's 19-year bull run finally came to an end.

He's Richard Russell, editor of the "Dow Theory Letter," and an astute follower of the average for more than 40 years. Although few noticed as it happened, he said the Dow crossed an important milestone this afternoon as it closed below 9796. That was a low that the Dow set for all of last year.

And as this chart shows, this is first time that the Dow has closed below its low of the prior year since the bull market began 19 years ago in 1982. According to Russell, today's close makes it official. He declares that the bull market is dead and that the Dow is headed sharply lower.

Well, why listen to Russell? Well, he has called this market collapse perhaps better than anyone else out there. In June of last year, he described the three stages of a bear market. The first stage, he says, is attrition, as individual stocks crater, but the averages hold up OK.

Remember how Lucent, AT&T and Microsoft all broke down one by one last year? Well, phase two is the phase that we are currently in, according to Russell. During this time, the entire market falls, as earnings and business conditions decline, and investors begin to sense that something is wrong. This is often the longest phase of a bear market, according to Russell. Phase three is when investors give up on stocks, and extreme fear prevails. Only then, says Russell, will the bear market be over, and a new bull market born. Well, how long will it take? Russell says that most bear markets last about 1/3 to 1/4 as long as the bull market that proceeded it. You can do the math, but it means that we could have a few more years of this bear market, at least according to one guy out there who has called it right so far -- Willow.

BAY: Terry Keenan, that is grim news. Terry at the Big Board, thanks.

So, if all that is true, and the bull market is dead, what should investors be doing? Joining us now: Tom Gallagher, head of equity trading at CIBC Oppenheimer. Welcome.

Let me get your take on today, first of all. Why did the market sell off after the Fed news?

TOM GALLAGHER, CIBC OPPENHEIMER: Well, I think we all got tricked out, to tell you the truth. I think there was a lot of talk about 50 basis points or 75 basis points, and that -- whether one was going to help the market or not, and I really think what happened was, the sellers were waiting around for this rally that was going to come after 75 basis points, or after 50 basis points, and nothing really happened. There was no rally to sell into, so I think we sort of saw almost a panic stage of selling, just get me out.

You know, Richard Russell is talking about the third stage. I think we saw the second and third stage in the last couple of weeks.

BAY: And is part of that panic, as you've described it, the feeling that maybe Mr. Greenspan -- feeling on the part of investors -- that Mr. Greenspan is behind the economic curve?

GALLAGHER: Well, I think investors are very selfish about this, and they expect the Fed to help the stock market, and I don't think that that's the Fed's function.

And I think the Fed has been doing a very good job for a long period of time and navigating us through some serious difficulties, and we managed -- a lot of us have managed to make a lot of money as a result of it.

We have some difficulties now, and I think he's steering us through it, and I think that it would be the worst thing in the world for the Fed to respond to what that stock market wants.

BAY: When you look at this bull market, when you look at the Dow, can you conclude that this bull market is dead?

GALLAGHER: Well, I'm not smart enough to know whether the bull market is dead, or whether this is the bottom. I can tell you instinctively, I think that we're in an emotional phase, where people are just -- people have lost all hope.

It's almost the opposite of where it was a year ago, where instinctively, everybody at a cocktail party was listening to when are they going to 10 -- when are they going to double from here? What's the next dot-com? I think overall, Greenspan has a good handle on the economy. The economy is not in as serious trouble as Wall Street thinks it is, and his job and his function is to oversee the economy, not the stock market.

BAY: So, what should investors be doing here? Should they be buying cautiously? Should they be selling? Should they be sitting on the sidelines?

GALLAGHER: I think there are two types of investors. There's the investors that buy every day and like to think that they know what's going in the market and trade, and I'm sure they have all been humbled this past year. I think for those investors, they should realize that the casino opens every day, but the odds are in the house's favor.

For everybody else, who is really in this for their kid's college education or for their retirement, the IRA, their pension fund, they should try not to get involved in the day-to-day gyrations of stock market.

Greenspan has done a good job so far, my guess is that he will continue to do a good job over the period of time that he's in there, and that investors, although it's difficult right now, to understand -- it's difficult to be able to stay there, you got to stay there.

If you were involved in the dot-coms and those stocks, forget it, you're wiped out already.

BAY: Tom, we'll let that be the last word.

GALLAGHER: Thanks, Willow.

BAY: Tom Gallagher, thanks for joining us -- Allan.

CHERNOFF: Next on MONEYLINE: brokerage stocks. They're said to go up when the Fed is taking interest rates down, so why isn't this happening this time?

And in tonight's Oscars week report, Barry Diller. He's back in the movie business. We talk one-on-one with the media mogul.

(COMMERCIAL BREAK)

CHERNOFF: In tonight's "Sector Focus": brokerage stocks, traditionally a safe haven as interest rates come down, the sector has faltered this year, plagued by the dramatic market slowdown. Adding salt to the wound, merger activity, one of Wall Street's biggest revenue sources, has plunged 66 percent from a year ago. That trend was clear today when Goldman Sachs reported a drop in quarterly profits. In trading, the sector turned south after the Fed announcement. Fred Katayama takes a closer look at what's ailing brokerages and whether they are poised for a rebound.

(BEGIN VIDEOTAPE) FRED KATAYAMA, CNN CORRESPONDENT (voice-over): The slowdown in IPOs and deal making could hurt earnings of Wall Street brokerages hard in the first quarter. It clearly hurt Goldman Sachs, which beat consensus forecasts, but saw its quarterly profits fall 13 percent. Overall revenues rose, but investment banking revenues slid more than 7 percent. Underwriting revenues plummeted 36 percent. Analysts say investment banks like Goldman are getting hurt and retail brokerages could suffer even more in a market that's gone from bull to bear.

DEAN EBERLING, KEEFE, BRUYETTE & WOODS: What we're hearing from the regional brokerage dealers, from the full-service New York firms, that the retail business, particularly over the last month, has slowed up. That really has us concerned because we haven't seen a market downturn in retail activity in over a decade.

KATAYAMA: Interest rate cuts by the Federal Reserve traditionally boost brokerage stocks, but the AMEX Securities Broker Dealer Index has fallen 17 percent so far this year, despite the rate cuts in January, as investors fretted about the weakening earnings outlook.

Profits could weaken over the next two quarters, but analysts say brokerage stocks are a good buy for long-term investors, since they're cheap, and they tend to rally one year after interest rates are cut.

JIM MITCHELL, PUTNAM LOVELL: Long term, this is a growth business. It's a 15 percent to 20 percent grower over the next five years and, you know, I think this is when you make money in these stocks is when no one else wants them.

KATAYAMA: Back at Goldman Sachs, the firm says it focuses on controlling costs amid the economic and market slowdown. It expects to hold staffing at current levels but will continue to cut under performing employees.

(on camera): Some analysts say, look for big layoffs at the securities firms in the summer or fall. Brokerage houses typically cut 20 percent to 25 percent of their staff in bear markets. That adds up to around 70,000 workers.

Fred Katayama, CNN financial news, New York.

(END VIDEOTAPE)

BAY: Coming up, the man behind one of the hottest properties in the running for Oscar gold, Barry Diller, on risk and return in Hollywood.

(COMMERCIAL BREAK)

BAY: Barry Diller, one of the most powerful and colorful players in Hollywood. As chairman and CEO of USA Networks, he presides over a multimedia empire that but these days it's USA Films that's making news. The movie studio behind "Nurse Betty," "Being John Malkovich," and "Traffic," nominated for five Oscars including Best Picture. And it's prompting headlines like "Barry Diller's Back in the Movie Business," and "One of Hollywood's Titans Returns to the Big Screen."

So, when I sat down with Barry Diller, the man credited with creating the "Movie of the Week," the mini-series, and producing hits like "Raiders of the Lost Ark," I asked him, is Diller back?

(BEGIN VIDEO CLIP)

BARRY DILLER, CHAIRMAN & CEO, USA NETWORKS: Well, I mean, we have a small film company, so to say that, back in. I mean, we're -- let's say if the water is 80 feet deep, we're three and a half inches below the surface. I mean, we have a film company and it started out fairly well, but it's not, though, our destiny to be in the highly geared film business; I mean, it doesn't make any sense for us.

BAY: So what is this little fish in the big pond, as you're describing it, do?

DILLER: Well, it makes movies that are interesting. It makes movies where, in fact, the investment risk is never going to be particularly high.

BAY: Which means?

DILLER: You mean in (UNINTELLIGIBLE)?

BAY: Yes.

DILLER: Well, $30 million probably, something like that. I mean, depending on what it is, you can probably stretch that bacon a bit further, but in fact, we're never going to go for big risk and the issue for us is: can we do interesting things within that? Now, so far, we've been able to do that, and we've got an interesting profile of films that we've done.

BAY: How hands-on are you in this part of the business?

DILLER: I'm not involved in say, the daily process; I don't look at films as they progress. But I do think, I certainly would read the script of a film we wanted to make. I certainly would get engaged in what I hope is the creative conflict that ought to arise when you're deciding whether to make a movie or not. Because, I think that rubbing that really hard and as noisily as you can, and then really listening to what comes out, gives you a better ability to make a film that is going to be interesting if it passes through some tortuous process in terms of making a decision. I like that process and I like participating in it, so that's kind of about all I do.

BAY: There are some changes, some newer players: you know, MGM; again, another one of those...

DILLER: I would say they're a very old player.

(LAUGHTER) BAY: Old players.

DILLER: Reincarnated, long -- they used to say and it's true, you can't kill a movie company with a stick, and God knows they've tried over the last 30 years.

BAY: Where I'm going with that is, are things any more interesting here or less?

DILLER: Well, I don't know. You know, I think the interesting thing about the movie business is how few generally interesting movies it seems to spurt out every year. There really are lots of really talented people in the process. But it does not do particularly good work. The movie business is much over-researched. I mean, it's insane; and it's stupid research, too, because it doesn't really teach you anything. And the whole research process is deeply corrupt.

What happens in it I think makes people, in terms of their editorial choices, get them all seaweeded up. Because of that, I think that the editorial process is hurt; it's not pure; it's not based on instinct; it's not based on what, do I like? What's interesting to me? What moves me? What makes me laugh? Or whatever. It's all projections.

In terms of the whole process of films, it's become, like many things, in a sense, over-professionalized in all the wrong editorial ways, so long-winded, but there it is.

(END VIDEO CLIP)

BAY: There it is. My talk with USA Networks CEO Barry Diller. Tomorrow, we'll continue our special series, "Oscars Inc.; the Business of Hollywood."

CHERNOFF: Very interesting. Coming up on MONEYLINE: Greenspan, interest rates, and the markets. We'll cover the bases with CNN's financial editor Myron Kandel. That's next.

(COMMERCIAL BREAK)

CHERNOFF: Joining me right now is CNN financial editor Myron Kandel. Myron, what do you think of the Feds action today?

MYRON KANDEL, CNNFN FINANCIAL EDITOR: Well, Allan, a few years ago, Alan Greenspan warned about irrational exuberance and the stock market ignored him. Today, investors were indulging in irrational expectations, and Greenspan ignored them.

And what happened, we know, was that last hour, a big drop in stock prices. The market really, investors really disappointed. Most people were expecting half a point, but they were hoping for three- quarters of a point. I think the one glimmer of hope is the possibility that the Fed will cut rates again before the next meeting. I think they will.

CHERNOFF: So, tit for tat. Thank you, Myron -- Willow. BAY: Allan, up next, is it a case of stolen identity among America's richest people?

Plus, "Ahead of the Curve": What you need to know tonight before those battered markets open again tomorrow. Stay with us.

(COMMERCIAL BREAK)

BAY: OK, a few things that could move the markets tomorrow. Stocks will begin the day at their lowest level in years. The Dow is near a two year low; the Nasdaq at its lowest level since November 1998.

One report that could influence trading, the consumer price index for February is expected to rise .2 percent. Remember, January's report came in much stronger than expected and that contributed to a nasty day in the markets.

Plus, watch for quarterly reports from Micron Technology, 3Com, and brokerages Morgan Stanley Dean Witter, Lehman Brothers and Bear Stearns.

Finally, tonight, a Brooklyn man is under arrest, alleged to have used cyberspace to steal the identities of some of the county's the rich and famous. Prosecutors say he got his hands on million of dollars from people like Oprah Winfrey, Martha Stewart and Warren Buffett.

Steve Young has the story.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): New York City police Tuesday told the tale of a Brooklyn busboy accused of using the Internet to give the likes of publishing mogul Martha Stewart, media magnate Michael Eisner, and former presidential candidate Ross Perot the business.

They arrested Abraham Abdallah and another suspect earlier this month. They emphasize Abdallah's role in the alleged scam to scoop up the personal identity information of more than half the "Forbes" 400 richest list, using a Web browser on a PC connected to a cell phone.

COMM. BERNARD KERIK, NEW YORK CITY POLICE: He tried to gain access to 217 of those people's personal accounts in some form, maybe their credit card accounts, their bank accounts, stock holding accounts.

YOUNG: "The New York Post," which broke the story, said other victims of identity theft included Oprah Winfrey; director Steven Spielberg; and Microsoft co-founder Paul Allen, who told CNN through a spokesman he's cooperate with authorities.

Others have had no comment or say they don't believe they've been swindled. Police say the suspect stole $100,000 in computer hardware, software, as well as funds, and were angling for millions of dollars before they were caught in a sting.

Abdallah had been arrested many times before, and following his arrest in the 1980s, even agreed to help federal authorities. He made a videotape on how to avoid identity theft.

(on camera): The federal investigation is just getting underway into the case of the "Forbes" folks who may be at special risk.

BRIAN GRIFFIN, DIR., COMPUTER TECHNOLOGY INVESTIGATIVE GROUP INTL.: They probably don't control their money. They have an accountant looking at it monthly, probably assistants who have access to those accounts. So, it's much easier for somebody else to squeeze in the door and perpetrate in the system.

KERIK: He was soft-spoken. He was polite. He was courteous.

YOUNG (voice-over): As Martha might say, being rich, it's not always a good thing.

Steve Young, CNN Financial News, New York.

(END VIDEOTAPE)

CHERNOFF: And a programming note, watch "LARRY KING LIVE" about an hour-and-a half from now. I'll be joining Larry as he focuses on the economy, the Fed and the market. That's "LARRY KING LIVE" at 9:00 p.m. Eastern time.

BAY: OK, Allan, we'll be watching. That is MONEYLINE for this Tuesday. I'm Willow Bay in Los Angeles.

CHERNOFF: And I'm Allan Chernoff. Good night from New York. "CROSSFIRE" is next.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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