Moneyline News Hour

Dow Falls 119.53 to 10,864.10; Nasdaq Tumbles 122.29 to 2,660.50; Report on Employment Sends Mixed Signals to Wall Street

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

STUART VARNEY, CNN ANCHOR: Tonight: stocks tumble in Wall Street's worst day in a month; investors halted by fears over tech profits.

WILLOW BAY, CNN ANCHOR: Adding to anxiety: a jobs report showing weakness and strength, leaving investors and workers confused.

VARNEY: And: a little "Monday Night Football," a little "Thursday Night Smackdown" -- a lot at stake; make way for, XFL.

(BEGIN VIDEO CLIP)

GOV. JESSE VENTURA, MINNESOTA: This is a game, this XFL, that you young people are going to eat up because it's going to be like video football live.

(END VIDEO CLIP)

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

BAY: Hello everyone, welcome to MONEYLINE; I'm Willow Bay in Los Angeles.

VARNEY: Good evening Willow, good evening everyone; I'm Stuart Varney in New York.

Our top story tonight: the most damaging session on Wall Street since the first tumultuous days of this year. Stocks retreated all across the board, investors haunted by tech profit fears and a report on jobs that defied really easy analysis. The unemployment rate did rise in January, but far more jobs were added to payrolls than expected. The upshot: some fear the Federal Reserve may not slash interest rates as aggressively in the coming months.

As for Wall Street, the Dow actually broke above 11,000 in the first hour of trading, but sentiment steadily eroded and the index ended down 119 points at 10,864. The Nasdaq got hit much worse, down 122 points; that's more than 4 percent. It ended at 2,660. As for the S&P 500, it was down exactly 24 points at 1,349.

We have complete coverage of today's report on jobs and the market reaction with Lisa Leiter, Allan Chernoff. And we begin with Fred Katayama at the Labor Department -- Fred. FRED KATAYAMA, CNN CORRESPONDENT: Well, Stuart, the unemployment rate moved higher in January, but most of the other numbers in today's jobs report were surprisingly positive. And now some economists say there's less of a chance the U.S. will fall into a recession.

(BEGIN VIDEOTAPE)

KATAYAMA (voice-over): DaimlerChrysler: 26,000; Lucent Technologies: 16,000. Day after day, headlines of yet another massive job cut struck fears of a lurking recession. But the Labor Department reported today the nation's economy pumped out three times more jobs in January than Wall Street had expected, adding 268,000 workers to the payrolls.

MAUREEN ALLYN, ZURICH SCUDDER INVESTMENTS: It would really be hard to pull a recession out of the employment report that we saw this morning. There were 268,000 new jobs; i guess you could say, we know there are layoffs, so it's turn, turn, turn: leave one company, find another.

KATAYAMA: More than half of the payroll increase came from construction. Severely cold weather in November and December resulted in layoffs, but January's relatively mild weather put construction workers back on the job, especially outside, doing masonry and roofing work.

By contrast, layoffs in the auto sector helped raise the jobless rate 2/10 of a percentage point to 4.2 percent, it's highest level in 16 months. Slowing sales forced the automakers to shut down plants to cut inventories. Altogether, the manufacturing sector lost 65,000 jobs. The perception that jobs are less secure made workers less aggressive in demanding higher wages, so the average hourly wage was unchanged in January.

Americans, overall, worked longer hours, particularly factory workers, whose average workweek grew by 1/2 an hour to nearly 41 hours.

ANTHONY CHAN, BANC ONE INVESTMENT ADVISERS: That would tell us that there's less of a likelihood that will see real GDP come in negative in the first quarter; hence, less of a probability that we'll have a recession.

KATAYAMA: Still, some economists predict the unemployment rate could raise to 4 1/2 percent this year.

(END VIDEOTAPE)

KATAYAMA: Economists caution, don't read too much into the numbers, since January is highly affected by seasonal factors like the weather. February, they say, could show renewed weakness -- Stuart.

VARNEY: We'll watch those numbers like we always do: very closely. Fred Katayama, thanks.

Well, the key question following this report on jobs: Will the Fed be less likely to continue slashing rates in what's been the most aggressive easing campaign in decades?

Here's Lisa Leiter at the Chicago Board of Trade where the traders are wrestling with that very question.

Lisa, what are those traders saying about what this all means for the Fed going forward?

LISA LEITER, CNN CORRESPONDENT: Well, Stuart, yesterday, after that very weak manufacturing report, as we told you last night, the traders were betting that the Fed would have to cut rates between now and its next policy-making meeting on March 20. But today, after this employment report, traders lowered the odds that there will be a rate cuts between meetings, although they still think that there are more rate cuts to come between now and June.

VARNEY: The next major report that people and, indeed, the markets are really waiting for?

LEITER: Well, that would be the retail sales report, and that comes out later this month; it's for January. And as one trader told me, if that report comes out strong, the odds of a rate cut between now and the Fed's next policy meeting will be close to zero.

VARNEY: You know, this week we had some truly major economic reports, all the way from GDP numbers, to auto sales, to the jobs report today. What are economists saying now about the economy after we've seen all these reports -- soft landing or hard landing?

LEITER: Well, as Fred just touched on, most economists are now talking about a soft landing. Earlier in the week that consumer confidence drop and the manufacturing report had more and more people talking about recession. But today we got a report showing consumer confidence rebounded in late January, and now that has more economists and traders talking about sluggish growth rather than a hard landing, Stuart.

VARNEY: They can never quite agree, can they? Lisa Leiter in Chicago, thanks.

Let's take a look at the bond market and its reaction to that jobs report today. The 10-year note fell more than 1/2 point, and the 30-year bond, well, that lost 3/4 of a point on the day -- Willow.

BAY: Stuart, of course it's not just the bond market trying to read the mind of Alan Greenspan, but also the stock market.

Allan Chernoff joins us now from the New York Stock Exchange with a look at how the jobs report was a curveball today for investors -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Willow, stock traders over here had built up their expectations that the Federal Reserve might be providing more medicine for the economy by lowering interest rates before that next policy meeting on March 20. Those hopes were pretty much dashed by the jobs report, and that's what triggered the stock market sell-off. (BEGIN VIDEOTAPE)

CHERNOFF (voice-over): Patience is a virtue rare among traders on the stock exchange floor, so the prospect of waiting at least another six weeks for the Federal Reserve to cut interest rates again had traders dumping stocks.

TODD EBERHARD: They want the Fed to get ahead of the curve, not behind. Interest rates take a while to come into play and get into effect.

CHERNOFF: But there was no panic; many analysts say stocks had been due for a pull back. The Nasdaq had soared more than 12 percent during January, while the S&P 500 had climbed a respectable 3 1/2 percent during the month.

STUART FREEMAN, A.G. EDWARDS: We've had an aggressive move in the market -- both the Dow and the Nasdaq and the S&P, over the last three or four weeks. And I think we're seeing, on the news of another rate cut, a little bit of profit taking in this market.

CHERNOFF: Such increases had investor sentiment turning bullish, the highest reading of bulls for the Investors Intelligence survey in more than a year and a half. Sentiment is a contrary indicator, so a high bullish reading is usually bad for the market, implying that many investors have already put their money to work.

Another hurdle for the bulls: Dow 11,000. The Dow 30 topped the millennial mark in the morning but met resistance, just as it had on January 3 and on November 6. Selling was heaviest among technology stocks. national Semiconductor fell 9 percent following an after-the- bell earnings warning yesterday.

Tech selling weighed down the five biggest companies in the Nasdaq, which account for nearly 1/4 of the composite's value: Microsoft, Cisco, Intel, Oracle and Sun Microsystems.

Retailing stocks, very hot in recent weeks, also sold off.

(END VIDEOTAPE)

CHERNOFF: The consensus among many traders is that the pull-back could actually be good for the stock market. In particular, technology stocks which, some analysts argued, had been climbing back to very expensive valuations -- Willow.

BAY: OK, Allan; so a healthy pull-back. Thanks, Allan Chernoff at the Big Board.

Well, today wasn't exactly a stellar way to finish the week. The blue chips, however, still managed to end in the black for five sessions. While the Dow has more or less languished this year, it did gain ground every session this week except for today, ending up 2 percent on the week. Well, no such luck for the Nasdaq, which has had a great run in the first weeks of 2001. It fell 4 percent, its first weekly loss since the very start of the year. John Metaxas joins us now at the Nasdaq market site with a look at what rattled the tech faithful today -- John.

JOHN METAXAS, CNN CORRESPONDENT: Willow, whether you believe it's a fear that that Fed is less likely to cut on an intermediate basis or just an understandable decline from a big run-up in January, it was an across-the-board technology decline today.

Semiconductors and chip stocks leading the market lower. in the networking sector as well, which was down, the -- Cisco Systems led the market lower with a 7 percent decline ahead of its earnings report on Tuesday. Computer Networks Technology: a warning and a downgrade sent that stock tumbling. Brocade, Juniper and Ciena among the other losers on the day.

In the chip sector, profit warnings, as we've heard, out of National Semiconductor and Silicon Storage here on the Nasdaq sent those stocks lower. Xilinx, Broadcom and PMC-Sierra among the losers as well.

Internets got hit hard. Amazon.com down 11 percent on the day. A very thoughtful piece in "The New York Times" questioning their accounting of their projection for profitability later this year. Traders cited that article in the decline of Amazon, but eBay and Yahoo! were also substantially lower on the day in that Internet sell- off.

Some of the technicians are saying the Nasdaq broke some crucial support levels today which, they believe, means we're going lower -- Willow.

BAY: John what kind of news should we look for next week out of the Nasdaq?

METAXAS: Well, there are the Cisco earnings and, of course, whatever comments John Chambers has to make. He has been making a lot of comments over the past week. They'll be closely watched. Sun has an analyst meeting on Monday. And let me quickly show you the semiconductor index at 687. They says 680-690: crucial support. It has got to hold for the semiconductors to continue the recovery.

BAY: All right, John, thanks -- John Metaxas at the Nasdaq marketsite -- Stuart, what's next?

VARNEY: All right, Willow, just ahead: revving up to unveil a 13-figure tax-cutting plan. Question: Does President Bush have a chance of pushing it through? His predecessor breaks the silence on the uproar over Marc Rich. Why did Mr. Clinton pardon the fugitive trader? And later, a very different kind of Vegas show: kicking off XFL. We'll take a pregame look at an expensive gamble.

(COMMERCIAL BREAK)

VARNEY: Next week, President George W. Bush is expected to present his tax-cut legislation to Congress. Speaking at a Republican retreat in Williamsburg, Virginia today, Mr. Bush spelled out his commitment to the plan.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I come from the school of thought that, by cutting marginal rates for everybody who pays taxes, is a good way to help ease the pain of what may be an economic slowdown. I am going to make that case over and over and over again until we get a bill through.

(END VIDEO CLIP)

VARNEY: With some Democrats coming around to the idea of a tax cut, the real questions now are: How big and how soon? Joining us to discuss this is Stephen Moore, senior fellow at the Cato Institute.

Stephen, welcome back to MONEYLINE.

STEPHEN MOORE, SENIOR FELLOW, CATO INSTITUTE: Hi, Stuart.

VARNEY: Now, as someone who really watches politics and business very, very closely, what are the chances that we will get a cut in federal income tax rates backdated to January 1st of 2001? What chance is there of that happening?

MOORE: Oh, I think close to 100 percent chance. We're going to get a big tax cut this year, Stuart. It's just a question of how big it's going to be. You know, I was listening to your sound bite from George W. Bush. He sounds like Ronald Reagan a little bit when he talks about how tax cuts are essential to get this economy moving again. So I think very good chance -- it's just a question of how big this tax cut will be.

VARNEY: Now, to do that, to get that -- tax cuts in place, that means that a group of Democrats has to cross the aisle, as they did for Mr. Reagan. Now, is there a group of Democrats prepared to do that?

MOORE: Well, so far, we've only had a couple of defectors. Zell Miller of Georgia, for example, came out and said he was for this tax- cut plan. But, you know, what is happening, Stuart, is that all the political winds are blowing in the Republicans' direction on this.

If you look at the last couple weeks, Republicans never had it so good. First Alan Greenspan comes out for a big tax cut after years of being an adversary of tax cuts. Then, just this week, Stuart, the Congressional Budget Office says we have got another trillion dollars of surpluses to play with. So it doesn't get much better than this in terms of making the case for a tax cut, especially when people are seeing these headlines of layoffs. People are getting nervous about the economy. And you're seeing public support really soar for tax cuts.

VARNEY: But wouldn't you agree that today's report on jobs, showing the creation of 260,000 new jobs in January alone, that's not good news for a tax cut because it suggests there's real strength in the economy and gives the Democrats an excuse for sort of say we don't need a tax cut?

MOORE: Well, but there as lot of layoffs going on around the country, too. I've been talking with a lot of the congressmen from the Midwest. And, you know, we're in a recession right now in manufacturing, in my opinion, Stuart. So I think people are very nervous.

And the other thing, Stuart, that people are very nervous about is not just jobs, but how their stock market portfolio is doing. You know, this tax-cut idea really appeals to what I call the new investor class: the 85 million Americans who own stock and are nervous seeing about what's happening in the Nasdaq and the Dow Jones, seeing continued declines.

VARNEY: Stephen, real fast...

MOORE: Yes.

VARNEY: ... is it your opinion that we will get at least a $1 trillion tax cut, up-front-loaded, backdated to January the 1st, and it will be a cut in federal income tax rates? Do you think we are going to get that?

MOORE: Stuart, think bigger. I think closer to $2 trillion. We are going to get it.

VARNEY: Is that politically feasible, Stephen?

MOORE: It is because the non-Social Security surplus now over the next 10 years, Stuart, is $2.1 trillion. So it is feasible. If you look back at the Reagan tax cut, it got bigger over time, not smaller. That's going to happen with the Bush plan as well.

VARNEY: And that is Stephen Moore from the Cato Institute joining us from Washington. Stephen, thanks very much.

MOORE: Thanks, Stuart.

VARNEY: All right, Willow, what's next?

BAY: Stuart, Firestone gives its reasons for those faulty tires. The company releases a study of why its tires have been linked to dozens of deaths. And former President Bill Clinton defends his controversial pardon of trader Marc Rich. Wolf Blitzer joins us with that story in the MONEYLINE "News Digest."

(COMMERCIAL BREAK)

VARNEY: In tonight's MONEYLINE "Profile": Denise Rich, Democratic fund-raiser and ex-wife of fugitive trader Marc Rich, whom she married in 1966 and later followed into exile. In 1992, she filed for divorce, reportedly seeking $500 million.

In 1993, she returned to New York. There she refocused on her songwriting career, penning songs for Patti LaBelle and Celine Dion. A darling of the Democratic Party, she's donated more than $1 million in total and raised untold sums more. She insists that her fund- raising efforts have -- quote -- "absolutely nothing to do with the pardon." But that will be up to Congress to decide. Hearings begin next week.

MONEYLINE will be right back.

(COMMERCIAL BREAK)

BAY: Firestone tires are back in the headlines. More than five months after this summer's massive tire recall: a long-awaited report commissioned by Bridgestone/Firestone on what caused the problems. It still leaves some crucial questions unanswered.

Alan Dodds Frank has the story.

(BEGIN VIDEOTAPE)

ALAN DODDS FRANK, CNN CORRESPONDENT (voice-over): While not pinpointing blame, the Bridgestone/Firestone study did conclude that the tires had problems due to manufacturing, heat and underinflation. And lawyers suing the tire company and Ford say the study is more evidence that all of Firestone's Wilderness tires should be recalled.

The company says no further recalls are needed and that the five- month study by an engineering professor shows Bridgestone/Firestone is determined to sort out the problems with its tires that failed on Ford Explorers. But the study also concluded -- quote -- "Failure rates are fractions of a percent. And thus determining a single cause of for the tire failures is an unrealistic expectation."

Tab Turner is a lawyer who has already forced Firestone to settle nearly a dozen wrongful death and injury cases related to the recent tire failures. He says the study's results, while not a total whitewash, were expected. But Turner says the study refutes any suggestion that defective tires came largely from a manufacturing plant in Decatur, Illinois that was the focus of the early recalls.

TAB TURNER, TURNER & ASSOCIATES: It supports everything that we have been saying from the outset: There is no difference between these plants in terms of the production of the Wilderness tires. They fail just as bad from the other plants as they do from Decatur. And that means they ought to take the rest of the bad tires off of these cars and get them off of the market.

FRANK: And in Miami, a class-action lawyer suing Firestone agrees.

VICTOR DIAZ, PLAINTIFFS' ATTORNEY: We can not afford, going into the summer months, to have tires that have such a slim margin of safety that they will begin to fail again when people use them in the manner in which they were designed to be used.

FRANK (on camera): The lawyers say they will cite the study when they ask the courts and the federal government to recall all of Firestone's Wilderness tires still on the road.

Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: For first time since leaving the White House in almost two weeks, Bill Clinton confronts the controversy over his parting pardons.

Wolf Blitzer joins us now from Washington with the MONEYLINE "News Digest" -- Wolf.

WOLF BLITZER, CNN ANCHOR: Thank you, Willow.

Former President Bill Clinton today said he took "full responsibility" for his controversial pardon of oil trader Marc Rich. In New York City, Mr. Clinton denied that his decision to pardon Rich, made on his last day in office, was politically motivated. Rich's pardon came under scrutiny after revelations his ex-wife was a contributor to the Democratic Party.

(BEGIN VIDEO CLIP)

WILLIAM J. CLINTON, FORMER PRESIDENT OF THE UNITED STATES: It was my decision. Nobody else made the decision. But I handled it in what I thought was the most appropriate way given all the interests that were in play here. And I think if you look at it, it makes sense.

(END VIDEO CLIP)]

BLITZER: Mr. Clinton said he had consulted with the Justice Department about Rich, who has been living in exile in Switzerland. Rich had been charged with wire fraud, racketeering, tax evasion and trading oil with Iran during the U.S. trade embargo.

Here in Washington today, George W. Bush did something very unusual: He attended a private retreat of Democratic senators. Some lawmakers said they believe Mr. Bush was the first president to take part in a retreat by the opposition party. In a brief speech, Mr. Bush said he would strive for bipartisanship. Immediately following the Democratic event, Mr. Bush traveled to Williamsburg, Virginia, where Republican lawmakers held similar retreats. The president promised fellow Republicans to change the tone of political debate here in Washington.

And in Pennsylvania today, officials said a man with a machete and a baseball bat entered an elementary school and injured the principal and two teachers. Five kindergarten students also were slightly injured. Police said they arrested a suspect, but gave no motive.

And those are some of the day's top stories. Join me for more on "WOLF BLITZER REPORTS." That's at 8:00 p.m. Eastern, 5:00 p.m. on the West Coast -- Stuart.

VARNEY: All right, Wolf Blitzer, thanks very much. Let's move on to tonight's "Tech Watch": As goes the Nasdaq goes Janus Capital. Janus earned its stripes early last year, as Nasdaq exuberance helped its popular family of tech funds post truly explosive returns. But months of declining assets have clearly taken a toll. Effective immediately, Janus is slashing 468 jobs. That's 16 percent of its workforce.

A spokeswoman told MONEYLINE that Janus, perhaps like the Nasdaq, is returning to more sustainable levels. And she said that technology is rendering some jobs obsolete. More than 60 percent of Janus investors now rely solely on the Web to manage their accounts. In trading today, Stilwell Financial -- that's the parent of Janus -- fell fractionally at $42.11 a share.

BAY: Coming up: The results are in from last night's battle between CBS and NBC. So who is the ratings survivor? We'll tell you next.

(COMMERCIAL BREAK)

BAY: Last night we told you about a prime time showdown between two network titans: NBC shaking up its lineup to fend off CBS and "Survivor II."

So who won? Well, let's just say six "Friends" got stranded in the Outback. Last night, NBC offered up its supersized "Friends," 10 minutes extra, and 20 minutes of "Saturday Night Live," hoping to protect its coveted "Must See" night from the threat of "Survivor II." But "Survivor II" emerged the victor, with an average audience of 29.4 million. NBC, for the hour, had just more than 21 million, that according to early figures from Nielsen Media Research.

"Survivor II" also beat the "Friends"-"SNL" combination in the prized 18-to-49-year-old age group: yet another achievement for CBS, once considered the "Old Folks Network." So, week one, score one for CBS. We'll keep you posted, though.

VARNEY: Here's what ahead in our next half-hour: critical questions for a well-known tech name: Is there trouble lurking in Critical Path's quarterly reports?

BAY: We'll take a "Bottom Line" look at a company that made headlines this week by not laying off workers: Charles Schwab.

VARNEY: And let's hope its more interesting than Super Bowl XXXV: XFL kicking off football that some think is a little out of bounds.

(COMMERCIAL BREAK)

VARNEY: In tonight's headlines, a damaging setback to the Nasdaq's 2001 recovery: Tech stocks tumble as profit fears continuing to torment investors. Another factor troubling Wall Street: better- than-expected numbers in the report on jobs. It may be good news for workers, but it seemed to confuse investors. And a Friday so casual, you don't even have to come in. Charles Schwab: its unusual approach to cutting costs in "The Bottom Line."

But first, let's recap the market: A Friday sell-off rocks the Street. The markets deliver their worst performance in a month, in the wake of a mixed jobs report that left investors nervous that the Federal Reserve will be less likely to continue its aggressive interest rate cuts.

Early on, it looked to be a rather different story. The Dow broke through 11,000 in the morning. Ah, but the blue chips just couldn't hang on. The index down for the sixth Friday in a row. The Dow lost 119 at 10,864. The volume, a billion shares.

The Nasdaq hit even harder in the downturn. Internet and networking names pressured the index. It fell 122 points. That's more than 4 percent, down to 2,660. The volume: roughly 1.7 billion shares.

As for the S&P 500, a broader market indicator, it gave up exactly 24, moved down to 1,349.

BAY: Now a closer look at that mixed unemployment report weighing down the markets. For January, the jobless rate hit 4.2 percent, its highest level in more than a year, up from 4 percent in December. That seemed to confirm a slowing economy. But payrolls, showed a different picture. In January, a strong 268,000 new jobs were created, up from 19,000 in December.

So what does today's report tell us about the overall economy?

Joining me now, Mark Zandi, the chief economist at Economy.com. Mark, welcome to MONEYLINE.

MARK ZANDI, ECONOMY.COM: Thank you so much.

BAY: Let's start with these mixed signals. First of all, the unemployment rate. How alarming is that rise?

ZANDI: Well, it is worrisome. It's indicative of just how far the economy has fallen in recent months, and it indicates that recession risks are rising and as high as they've been since the last recession.

BAY: Now, how surprised were you, on the other hand, to see that payroll number and what does that tell you?

ZANDI: Well, I was somewhat surprised and mildly encouraged by it. I mean, it is an important statistic. It shows that we are creating new jobs, net new jobs. And that's important. It means that the economy, while it's sputtering, it hasn't stalled. If we're on the precipice of recession, we're just not quite in it yet.

BAY: So does that mean that the economy isn't as in dire straits as it seemed when you looked at those December numbers?

ZANDI: I think so. December was an awfully bad month. It was brutally cold, record cold weather. We were deep in the presidential bickering. Confidence was tumbling. It was a bad month. January was a better month. And I think that these numbers indicate that the economy continues to grow, slowly, but growth nonetheless.

BAY: Now, you say January was a better month. It's interesting, because from where we sit, we report a daily, as you know, a daily litany, it seems, of layoffs, some of them massive. Are we starting to see those layoffs reflected in the numbers, and if not, when are we going to start to see them reflected in the numbers?

ZANDI: Well, they are reflected to a small degree. Most of the layoffs really began late December or early January, and the layoff announcements occur, the pink slips aren't handed out right away. They happen over the course of several months, and in some of the large cases, over several years. So no, we haven't seen the full effects of this, and the unemployment rate, which as you reported moved up from 4 to 4.2 percent, will certainly move higher over -- over the coming months.

BAY: The markets took this as a sign that there would not be an interim rate cut by the Fed. Do you think that's the case? Does this rule out a quick cut?

ZANDI: Not necessarily, no. In fact, if the markets remain weak, if the stock market continues to push lower, if the bond market freezes up again, I think there's a very good chance that the Federal Reserve Board will be back and easing monetary policy.

I think the clear message the Fed sent us last month was they are going to do everything that they possibly can to forestall recession. So if confidence starts to slide further, they're going to step in at the nearest opportunity to ease monetary policy.

BAY: OK, Mark, we'll let that be the last word. Mark Zandi, thanks for joining us tonight.

ZANDI: Thanks for having me.

BAY: Coming up next, HMOs, one sector with what looks to be a clean bill of health. We'll take a look. And later, forget the Super Bowl: Here comes the XFL -- sexy cheerleaders and all. But will it catch on?

Stuart and I will be back in a moment.

(COMMERCIAL BREAK)

VARNEY: Taking a look at some of today's big movers: first off, Tommy Hilfiger. It was up 1 3/4. Two analysts upgraded the stock today after it beat lowered expectations yesterday. The retailer says its "back-to-basics" strategy is now on track to salvage declining sales.

And then we have Amazon.com, down nearly two. That's more than 11 percent on the day. The online retailing giant confirmed that it is pulling the plug on unprofitable items in an effort to keep its promise of posting operating profits this year. Church & Dwight, maker of Arm & Hammer household products, fell almost four after admitting 2001 results will fall short of forecasts.

And the biggest loser of them all on the Nasdaq, Professional Detailing -- it plunged 46 1/4. That's a crash by any other name. Glaxo Smithkline, the world's largest pharmaceutical company, ended its contract with the drug marketing firm, forcing Professional to slash 2001 estimates.

BAY: Shares of Critical Path plunged more than 60 percent in premarket trading, but the stock never opened for regular trading on the Nasdaq. The company, a leader in Web messaging software, says it is probing its accounting practices.

Steve Young joins us with the details -- Steve.

STEVE YOUNG, CNN CORRESPONDENT: Willow, Critical Path has been flat-lining since this morning when the Nasdaq wouldn't let the stock out of the starting gate. Because of the accounting mess, several brokerages -- including J.P. Morgan, Lehman Brothers and Cowen -- changed their rating to market perform or neutral. A smaller firm, Josephthal & Company, actually uttered the "s" word. That would be "sell."

Critical Path is a relatively thinly traded stock, but the San Francisco company that designs e-mail systems has oodles of big clients, including eBay, Sony and Nortel. The company now says it misstated the facts January 18th in announcing a fourth-quarter net loss of $11 1/2 million. The loss could be much worse.

Critical Path has formed a special committee to probe the way the company books sales. Analysts are concerned the issue may affect other reporting quarters. The company's president and vice president of worldwide sales, they've been put on what's called "administrative leave."

(BEGIN VIDEO CLIP)

BERT HOCHFELD, JOSEPHTHAL & CO.: Just over two weeks after a company issues a press release to the effect that the audited financial statement that they had provided is inaccurate, to say the least it's shocking. It's extremely troubling.

(END VIDEO CLIP)

YOUNG: In preopening action before the halt, Critical Path stock had imploded all the way down to about 4 bucks a share. Looking at a 52-week chart, you'll understand why a class-action investor suit is expected. The stock's worth about 3 percent of what it was a year ago.

Just one week before the January earnings announcement, Critical Path's CEO, Doug Hickey, addressed investors at a Merrill Lynch conference, leaving them confident the company would hit its numbers -- Stuart.

VARNEY: All right, that's Steve Young reporting. Thank you very much, Steve.

Overall, it was a negative week for the Nasdaq. Question: Is the tech comeback over? Our next guest thinks the Nasdaq may have gotten ahead of itself.

Drew Cupps is the president of Cupps Capital Management, and he joins us now. Welcome back, Drew.

DREW CUPPS, PRESIDENT, CUPPS CAPITAL MANAGEMENT: Thanks, Stuart. Good to be here.

VARNEY: Now, generally speaking, not just the Nasdaq, but generally speaking, you've not very optimistic about the stocks in the near future, are you?

CUPPS: Well, I think I'd stress the near future. I think that the Nasdaq in particular really got ahead of itself. Everyone pulled out their little rule book once we heard that rates were being cut and said, oh, we buy cyclicals and retail stocks and technology stocks. And I don't know if it's that -- that nice and neat going forward. And I think the stocks ran.

There's a lot of bad news in front of us, and I think that we can expect a little bit of a retracement.

VARNEY: I hate to repeat a story we've been doing for much of the time tonight, but would you change your mind if in place was a tax cut retroactive to January the 1st? Would that change your mind about the outlook near-term?

CUPPS: Well, I think it would be another boost in the arm, another -- it would probably -- it would probably help for another short-term rally. It won't, however, change the macroeconomy. There's still going to be some hard news to digest.

So I think that the important thing is to get a little more aggressive in portfolios, but not to chase stocks. It's not going to happen all at once.

We're all talking about a second half before the economy gets better, and that's a long time between now and then.

VARNEY: There are still a lot of big-name stocks, technology stocks and others, that are truly beaten down, cut in half or worse. Are there any that you would be jumping on right now, and if so, which are they?

CUPPS: I think it can be misleading to think about where stocks have came from. They came from levels that were truly unsustainable. There were extenuating circumstances last year. And I don't think it's useful or helpful to think about where they're coming from, but rather where are they today: What kinds of earnings multiples, what kind of revenue multiples are they trading at?

And I think that at best most technology stocks are around fair value. Take a Cisco, for instance: still trading at 40 times next year. And yet the markets are very much in turmoil, their end markets. So perhaps it's fair value, but it's not a screaming buy, I don't believe.

VARNEY: All right, Cisco, not a screaming buy. Who would have thought we'd hear that? Drew Cupps, thanks very much -- Willow.

CUPPS: Thanks, Stuart.

BAY: In tonight's sector focus, HMOs soar on hopes of higher earnings. Unitedhealth, second only to Aetna in size, beat the Street by 3 cents today in what analysts called "a stellar quarter." UNH also upped forecasts for the full year. Most other HMOs are slated to report next week, and Wall Street expects an onslaught of upside surprises.

The biggest winners today, United Health, WellPoint and Cigna all up more than four. Oxford added more than two, and Aetna finished higher as well.

VARNEY: All right. Next on MONEYLINE, want to stay loyal to your company? Take the day off. Charles Schwab making waves with its plan to slash costs and keep workers. We'll be back with Charles Schwab in "The Bottom Line." That's next.

(COMMERCIAL BREAK)

BAY: Now "The Bottom Line," our regular Friday feature inside one company commanding headlines. Tonight Charles Schwab. It seems like every day for weeks we've gotten word of substantial layoffs at companies big and small. But this week, Schwab, America's biggest discount broker, came out with a creative and controversial way to cut costs while still holding on to employees.

Bruce Francis has "The Bottom Line," from San Francisco.

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): It's a tough job, but someone's got to do it. To help save money, Charles Schwab -- the man, the brand, the discount brokerage legend -- is taking the day off and asking other executives to do the same.

Schwab is spending his first Friday off at the Pebble Beach Open. Schwab employees who aren't directly involved with customers will be taking Fridays off.

It started out as an order, but Schwab downgraded the move to a strong hint when lawyers thought better of it.

A company memo says: "It's not mandatory, but you will be joining us in cutting costs if you don't come in."

And senior executives are complying with the letter, if not the spirit, of the program.

Steve Scheid runs Schwab's retail operations. UNIDENTIFIED MALE: You're not going to be worked on Friday?

STEVEN SCHEID, VICE CHAIRMAN, SCHWAB RETAIL GROUP: I said I wasn't -- I said I wasn't going to be in the office.

(LAUGHTER)

But I'll -- I'll being stay tuned into our service levels and what's going on in the field.

FRANCIS: Schwab is also asking key executives to take pay cuts ranging from 10 to 50 percent. But analysts note that the moves will not save Schwab much money.

GUY MOSZKOWSKI, SALOMON SMITH BARNEY: It got a lot of press. It's less than $10 million, which is not a lot of money even during one quarter for a company like Schwab.

FRANCIS: But so far, Schwab is avoiding layoffs.

SCHEID: This is not a time to be laying off people, in our view. This is a time to remind ourselves we're a service company. Service companies win by creating stronger capabilities. We're in a war about capabilities long term.

FRANCIS (on camera): Analysts say that right now it's a good idea that Schwab isn't closing branches, like this one, or laying off employees. Schwab will need them, the thinking goes, when the market comes back.

(voice-over): Trading volume in the stock market overall has been healthy. Combined NYSE and Nasdaq volume in December was 15 percent higher than the average monthly volume for the first quarter of 2000. But at Schwab, it's a different story. December's volume was 24 percent below that average.

MOSZKOWSKI: There's been a shift in the mix away from retail trading and toward institutional trading. And one of the things that happened is that a lot of retail traders got so badly burnt in the Nasdaq tumble.

FRANCIS: Individual investors are doing less trading, but they're adding net new assets, more than $170 billion, at a level comparable to Merrill Lynch, the biggest U.S. program.

RICHARD STRAUSS, GOLDMAN SACHS: Schwab has actually been very consistent in terms of bringing new money in though many different environments, and that is really the -- what I look at more than anything.

FRANCIS: But not all investors are heeding that advice. After outperforming Merrill Lynch as a stock in early 2000, Schwab shares have taken the low road, dramatically underperforming Merrill. It didn't help that Schwab just reported a double-digit year-over-year drop in quarterly profits. MOSZKOWSKI: As we see the pendulum swinging back toward retail trading, we see that retail investor getting more actively involved again, I think that, you know, we can start to see much better earnings momentum for Schwab, and that's the type of thing that could get me more interested.

FRANCIS: And it's just the type of thing that would get Schwab executives off the links and back to work on Fridays.

Bruce Francis, CNN Financial News, San Francisco.

(END VIDEOTAPE)

VARNEY: Coming up, Myron takes issue with the Fed, or as he likes to say, being a gentleman, he takes umbrage with Mr. Greenspan. He is suggesting that Mr. Greenspan's rate cuts were too late. Myron's next.

(COMMERCIAL BREAK)

BAY: Next week on MONEYLINE, market heavyweights set to report profits even as earnings season winds down: How they fared during a rough period for the economy, how the market is reacting -- all next week on MONEYLINE.

VARNEY: There are some, indeed, there are many on Wall Street who think that Alan Greenspan can simply do no wrong. But he does have his critics, and one of them is our financial editor Myron Kandel. And here he is.

You realize it's near blasphemy to say that Alan Greenspan got it wrong? You know that?

MYRON KANDEL, CNNFN FINANCIAL EDITOR: That's true, and I'm an admirer of Alan Greenspan. However, where -- We discovered today when we got those employment figures that the the economy fell off a cliff in November and December, when we saw the job creation figures revised sharply downward.

Now, when the Fed met at the beginning of December, it said, we're going to change the bias from worried about inflation to worried about a softening economy, but we're not going to change interest rates, we're not going to cut interest rates. We know now that the Fed should have cut then.

And of course, they tried to catch up with that unexpected cut the first week in January and then the cut the other day. So the Fed is trying to catch up very fast, but I think it missed the boat in December.

VARNEY: All right. Other critics say he missed -- or rather he got it wrong earlier in the year by keeping on raising rates too late into the year. What do you say to that criticism?

KANDEL: Well, you know, he -- he stopped -- they stopped raising rates in May. Back in May, the economy was still going gangbusters. So we can't say -- hindsight is easy. We can't say they were wrong then, because there weren't those signs that the economy was going to really fall into a slump back then.

So give him credit for not necessarily making a mistake then. They probably, now we know, should have cut in December.

VARNEY: A very minor criticism then, right?

KANDEL: Right.

VARNEY: We'll let you do that. Thanks, Myron.

And coming up on MONEYLINE, as the NFL season ends, another league begins: a preview of the new XFL -- a bit of Vegas, wrestling, football all rolled into one. But first, "Ahead of the Curve": some of what you need to know tonight ahead of next week's trading session.

Willow and I will be right back.

(COMMERCIAL BREAK)

BAY: Checking some of what could make headlines on Wall Street next week: watch for quarterly reports from Dow component Disney and tech giant Cisco as well as Pepsi and Worldcom. Plus more on the economy with fourth-quarter productivity and costs.

To stay a step ahead of the markets, tune into "AHEAD OF THE CURVE" at 5:00 a.m. Eastern right here on CNN.

Well, just when you thought the season was over, a new football league debuts tomorrow. It's got a renegade spirit, a fleet of cheerleaders and some unusual backers.

Peter Viles reports.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): Start with one of the oddest couples in business: wrestling king Vince McMahon and General Electric chairman Jack Welch, whose kingdom includes NBC. Accentuate the violence by eliminating rules like the fair catch...

(BEGIN VIDEO CLIP, COMMERCIAL)

UNIDENTIFIED MALE: No fair catches.

(END VIDEO CLIP)

VILES: ... put the governor of Minnesota in the announcer's booth...

GOV. JESSE VENTURA (I), MINNESOTA: This is a game, this XFL, that you young people are going to eat up, because it's going to be like video football live.

VILES: ... and toss in plenty of sex and you've got the XFL, an eight-team football league that makes its debut in Las Vegas on Saturday.

LINDA MCMAHON, CEO, XFL: We've sold over 500,000 tickets: 80,000 of those are season tickets. We're at about, oh, somewhere between 60 percent and 70 percent of our advertising inventory sold, and we haven't even played the first game yet. So we think we're well on our way.

VILES: So what makes this league different from the others that failed in the past?

McMahon's track record for tailoring television to young men and a business model that makes no effort to steal NFL talent. Salaries are capped at roughly 50,000. In the NFL, they average 1.1 million.

Television rights fees: NBC paid 50 million to own half the league. The NFL charged three networks a total of 18 billion over eight years.

Ownership: the XFL, a joint venture of the WWF and NBC, owns all eight teams. The NFL's 32 teams are separately owned.

So how to judge the new league? TV ratings.

NEIL PILSON, PRESIDENT, PILSON COMMUNICATIONS: I think the real benchmark will be like week four. If the week four ratings are well below weeks one, two and three, and the pattern seems to be declining, then I think the league has a significant problem.

VILES: But is it real football?

MCMAHON: It's 100 percent football on the field. Las Vegas does have a line. There are folks betting on this game.

VILES (on camera): It is true: You can bet on the XFL in Vegas, but there's a catch. If you bet on NFL games, they'll take a bet of up to $100,000. But casinos right now won't take more than $1,000 bet on the XFL. They want to wait a while and see exactly what it is that Vince McMahon has up his sleeve.

Peter Viles, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: And we'll be keeping an eye on that. That is MONEYLINE for this Friday. I'm Willow Bay.

VARNEY: And I'm Stuart Varney. Good night from New York. "CROSSFIRE" is next.

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