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Lou Dobbs Moneyline

Dow Falls 16.53 to 10,866.98; Nasdaq Slips 42.14 to 2,156.63; House Passes Budget Framework

Aired May 09, 2001 - 18:30   ET

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

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WILLOW BAY, CNN ANCHOR: The House gives its OK to the most sweeping tax cut in decades. This is MONEYLINE for May 9, 2001.

The Senate is set to decide on the tax plan and the entire budget tomorrow. But when will Americans really see tax relief?

On Wall Street, stocks retreat across the board as word of Cisco's first-ever quarterly loss sends chills through the markets. Cisco's trouble, along with a surprise drop in productivity, raise a key question for wary investors. Is the so-called new economy dead?

And one professor goes high-tech to bust students whose work is not their own.

ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Willow Bay.

BAY: We begin tonight with a major vote in the House of Representatives to narrowly approve the 2002 federal budget. It was a bitter session that saw the House stick to party lines. The bill now heads to the Senate, which is expected to vote on it tomorrow.

Kitty Pilgrim joins us from Capitol Hill with the latest -- Kitty?

KITTY PILGRIM, CNN CORRESPONDENT: Thanks, Willow. It has not been a pretty fight. A lot of haggling and wrangling, but at least this phase is almost through.

(BEGIN VIDEOTAPE)

PILGRIM (voice-over): The final vote on the 2002 budget resolution in the House was very tight, split along party lines. It lays the groundwork for a $1.35 trillion tax cut over 11 years, short of the $1.6 trillion President Bush had been seeking, but still enough to raise the ire of many Democrats.

REP. RICHARD GEPHARDT (D-MO), MINORITY LEADER: This budget is a farce and it's a fraud. And at the end, America deserves better than that. And we can do better than that.

REP. JIM NUSSLE (R-IA), BUDGET CMTE CHAIRMAN: So to come to the floor here today and to call this a fraud, when, for the years as the majority leader he did nothing to promote the policies, he now comes to the floor and lambastes, is an atrocity.

PILGRIM: The process was plagued with mishaps. First, a bizarre episode that included missing pages, containing key compromise language, which were mysteriously lost in a copying machine. And both sides became so irritated with the Senate parliamentarian over procedure that he was fired.

Congress is supposed to use the budget resolution as a guidepost for spending. One of the final areas to be resolved: a compromise of $6 billion in education spending over the next fiscal year. The $100 billion in tax cuts for an immediate stimulus package was a hotly contested issue. Democrats want the money to benefit lower tax brackets rather than top line tax cuts for upper income groups.

REP. RICHARD ARMEY (R-TX), MAJORITY LEADER: It should be very clear that the position of the House of Representatives is the across- the-board reduction in tax rates is the first objective of tax reduction for the American people.

(END VIDEOTAPE)

PILGRIM: The budget resolution now goes to the Senate, which is split 50/50 between the parties. But because of the bipartisan coalition cobbled together in the last few weeks, Republicans are confident that it will pass -- Willow.

BAY: And Kitty, after the Senate, then what?

PILGRIM: Well, after that, we get to the real nuts and bolts of the issue. Now, of course, President Bush has been very vocal about lowering the top tax rate to 33 percent. We also have the death tax, marriage penalty, child care tax credit -- all of those details still have to be worked out.

BAY: Lot of work ahead, as you say. Thanks, Kitty.

On Wall Street today, stocks retreated across the board after Cisco Systems last night reported its first-ever quarterly loss. That was clearly an albatross for the markets. But the damage was relatively contained, investors wary of making any big moves ahead of the Fed meeting next Tuesday.

The Dow fell for the 3rd straight session, down 16, to end just below 10,867. A bigger loss on the Nasdaq, off 42, or nearly 42 percent, closing at 2,156. And the S&P, that was down five, ending at 1,255.

The most active Nasdaq stock, no surprise, was Cisco, which lost 1 1/4 to close at $19.13. Volume was twice as heavy as normal. Allan Chernoff has been following the markets all day, and he joins us now with a look at that Cisco fallout.

ALLAN CHERNOFF, CNN CORRESPONDENT: Oh, big, indeed. In fact, Willow, as you know, last night John Chambers told us right here on MONEYLINE that he believes Cisco can return to a growth rate of 30-50 percent once the economy improves. But he didn't convince investors it'll happen any time soon. Cisco is expecting revenues this quarter to drop as much as 10 percent. That is not good news for Cisco's suppliers.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): Cisco is a major buyer of communications semiconductors, the chips that help direct Internet traffic through Cisco routers and switchers. Yet at Cisco, sales are still declining. That's likely to mean less business for the semiconductor makers. The volatile communications chip stocks were crushed today; Merrill Lynch reiterating its neutral rating on Applied Micro Circuits, Broadcom, PMC Sierra, Vitesse Semiconductor and Conexant. Conexant had just ended a credit line because its losses have broken covenants with bankers.

DAN NILES, LEHMAN BROTHERS: The pain, as it relates to a supplier to Cisco, is still not over. In fact, in a lot of cases it's just beginning, as they go through that grind up phase, in terms of squeezing the suppliers really hard.

CHERNOFF: Cisco also implied that industry inventories remain high, another bad sign for the chip makers. Any problem for the semiconductor business is a problem for companies that make the equipment that produces chips. Novellus, KLA-Tencor, Applied Materials and Lam research all fell.

Some money managers believe Wall Street has been overly optimistic in predicting a rebound for Cisco and the entire technology industry.

(BEGIN VIDEO CLIP)

DREW CUPPS, CUPPS CAPITAL MANAGEMENT: I think that the Cisco report, as well as many other reports. including Intel, Motorola, on down the list -- say that the state of technology, demand for technology right now, is very poor.

CHERNOFF: Even Cisco's competitors, some of whom are benefiting at Cisco's expense, saw their shares fall. Data networking companies, Network Appliance, Extreme Networks, Brocade, Juniper and 3Com, which warned its revenue could be lower than Wall Street expectations this quarter.

(END VIDEOTAPE)

CHERNOFF: Investors have been anticipating a turnaround for the major technology companies. That's what has driven the Nasdaq composite up 31 percent since April 4. But now, after the Cisco report, some money managers are beginning to ask: Where is the proof? Willow.

BAY: And Allan, how anxious are investors at this point to get some clear positive signals?

CHERNOFF: Well, no question. Extremely, as you can see. The Nasdaq did have a tremendous move, based on virtually no evidence whatsoever. So investors are hoping to grasp on to some good news. They're just not getting it.

BAY: Allan Chernoff, thanks.

The Cisco report, and other recent events, are striking at the core of an idea that once dominated economic thinking. The concept under fire is the so-called new economy, the theory that the economy has changed in a fundamental way and is now capable of higher levels of growth.

Peter Viles now on the growing case against the new economy.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): At its core, the new economy promised that the dismal science of economics was becoming less dismal; that technology-led gains and productivity could support a higher level of economic growth. The theory took a body blow Tuesday from Washington; a report showing worker productivity fell in the first quarter, the first drop since 1995.

STEPHEN ROACH, MORGAN STANLEY: One quarter does not make a trend, but it belies the notion that productivity is a never-ending cushion that will keep the economy afloat, will keep driving corporate profitability and stock market valuations to higher highs. In the new economy, productivity was never supposed to fall, and it did.

VILES: Another blow to the new economy: its poster child, Cisco Systems, lost $2.7 billion in the first quarter. And overall, corporate earnings appear headed for a recession, dropping 6 percent in the first quarter and forecast to fall 11 percent in the second quarter. Many economists believe this is a classic old-economy slowdown.

BOB BRUSCA, ECOBEST CONSULTING: We've had a number of high-tech CEO's come out and say that they've never seen a business environment like this. Well, they probably haven't, but that doesn't mean that they haven't existed and they're not part of the landscape. Indeed, they are part of the landscape, and the business cycle has not been repealed. This is something high-tech people have to realize.

VILES: So does this mean the new economy is dead? Not even close, argues "Business Week" editor Stephen Shepard.

STEPHEN SHEPARD, EDITOR-IN-CHIEF, "BUSINESS WEEK": So we'll have cyclical ups and downs because we have a business cycle. But the structural change in the underlying economy, because of the technology revolution, means that long-term the trend rate of productivity is higher than it used to be. And that's the essence of the new economy, and it's still alive.

(END VIDEOTAPE)

VILES: The new economy debate is not just an academic argument. It has also followed on Wall Street. That is because higher productivity growth is one of the main reasons to believe that stocks deserve to trade at higher multiples now than they have in the past -- Willow.

BAY: So, Pete, the argument then is, if there is a recession, there was no such thing as a new economy?

VILES: That may be conventional wisdom, but economists say not necessarily so. If, after a recession, productivity growth returns stronger than the historical trend, that would argue that there is a fundamental change in the economy and there's something new in the economy.

BAY: All right, Pete, thanks. Clearly there is no new economy this year, at least in the eyes of top executives. A survey of CEOs by the Business Council found that 11 percent see a recession in 2001. Now, 70 percent do not see the economy growing more than 1 1/2 percent. And just 19 percent see the U.S. faring better than that.

Ahead on MONEYLINE, some think Chicago is the front-winner to win over Boeing, but competition isn't giving up hope just yet. And later, one professor's term paper sting: using the Internet to battle plagiarism.

(COMMERCIAL BREAK)

BAY: In corporate news tonight, General Electric says it will hit the higher end of its earnings projections this year and will save $3 billion from its pending purchase of Honeywell. Chairman-elect Jeffery Immelt says earnings will hit, quote, "solidly above $1.45" a share.

Johnson & Johnson says it is in advanced talks to buy the diabetes unit of Inverness Medical Technology for $1.3 billion in stock. The deal values Inverness' diabetes business at $35 a share, but shareholders will also receive stock in a new publicly traded company.

Checking out those stocks, General Electric finished off 5 cents at nearly $50, J&J gained 30 cents, Inverness dropped 31 cents.

A very public competition will soon be over when Boeing announces where it will move its corporate headquarters. The aerospace giant, which had become a symbol of Seattle, said two months ago it was heading for Chicago, Dallas or Denver. The final decision may come as soon as tomorrow. But for now, Boeing is taking extraordinary steps to keep the winner under wraps.

Casey Wian has the story.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN CORRESPONDENT (voice-over): It's no secret that Boeing's 85-year run as Seattle's most visible company is about to end, but where it will end is a secret as closely guarded as any Boeing military program.

According to officials in Chicago, Dallas and Denver, the three cities vying to become Boeing's new home, and sources within the company, here's how the announcement is likely to happen. First to be informed will be Boeing's 200,000 employees around the world, most likely through the company intranet. At about the same time, Boeing chairman Phil Condit will depart in his specially equipped 737 for the host city. But to keep the decision secret as long as possible, Boeing will file flight plans to all three cities, then finalize the plan once Condit is airborne.

From his plane, Condit will call the governor of either Illinois, Texas or Colorado, and tell the winner the news, then call the two losers. Once Condit arrives in the winning city, he'll hold a news conference to inform the rest of the world.

ROB DEROCKER, DEVELOPMENT COUNSELORS INTERNATIONAL: Well, for anyone who still wonders whether business has become show business, this is exhibit a. This is the corporate version of "Survivor" or maybe even the O.J. Bronco chase.

WIAN: Already, officials in Chicago are predicting victory.

PATRICK O'CONNOR, CHICAGO CITY ALDERMAN: Well, I don't think it would surprise anybody in this group that they'd lean toward Chicago: You look at what we have to offer compared to the other cities. You know, we have -- we're the of the country, the center of transportation.

WIAN: But Dallas officials say the game is far from over, while Denver is considered a long-shot. Boeing says it wants to move its headquarters to distance itself from its commercial aircraft operations in the Puget Sound area and to be closer to the nation's political and financial power centers.

(END VIDEOTAPE)

WIAN: Boeing plans to move about half of its 1,000 headquarters employees to the company's new home. While the economic impact of that may be small, that hasn't kept the competing cities from pulling out all the stops to attract Boeing -- Willow.

BAY: Now, Casey, you just called Denver, I believe, a long shot. You know, who does the leader appear to be at this point?

WIAN: Well, if you listen to people in Chicago, there, a lot of them are already claiming victory. But Dallas is not giving up. They say that they're still confident, they've got a good shot to win.

But one thing is clear Boeing wants to move away from the main centers of its power base, so its subsidiaries could operate more independently, which that ruled out Seattle, that ruled out St. Louis and that ruled out Southern California.

BAY: All right, Casey, we'll stay tuned. Thanks.

Checking how Boeing fared on Wall Street today, up 54 cents to $65.

Checking some of tonight's "MONEYLINE Movers," Lands End gained more than four after a huge upside surprise, beating the street by 18 cents a share. One area of strength, the Internet. Sales there up 40 percent.

XM Satellite Radio added nearly 40 percent. The company, which plans to deliver 100 radio channels, launched its final satellite last night. And starting this summer, most car radios will come equipped with FM, AM and XM dials.

Sepracor up about 3 1/2. The biotech company's new allergy drug, Soltara, was accepted for formal review by the FDA. It's a boost Sepracor can certainly use. The stock is down nearly 70 percent over the past year.

Coming up, we'll hear from tech analyst David Powers about what went wrong at Cisco, and whether the onetime powerhouse can get back on track.

(COMMERCIAL BREAK)

BAY: In tonight's "Tech Watch," the future of Cisco Systems: Cisco seemed almost invincible during the late 1990s for, as they say at the company, "empowering the Internet generation." Now with the dot-coms in a tailspin, even the remaining Cisco faithful fear that the glory days are over.

Joining us now to discuss Cisco's fate, David Powers, senior tech analyst for Edward Jones in St. Louis.

David, thanks for joining us.

DAVID POWERS, EDWARD JONES: Sure.

BAY: If Cisco has lost some of its invincibility, so, too, has its CEO, John Chambers. He has been criticized these days for all sorts of things: for making bad technology bets, for making some bad products, for bad forecasting, for being too cavalier about potential customers. Are these charges fair?

POWERS: Well, I don't think so. If you look over the long term, at least over the past decade, you know, Cisco, even though its down significantly from its high, has generated tremendous wealth for shareholders over the past several years. Clearly, the past 12 months have been extremely difficult for the company and John Chambers himself, but I think it's too, you know, it's too early to judge somebody's success, especially given just one bad year.

BAY: One of the things that Cisco was so convinced about was that its technology allowed them to review their books daily and to forecast precisely. Now, obviously with $2.2 billion in inventory write-off, that was not the case.

POWERS: Yes, it really wasn't and that's the exact question I asked the company when they preannounced results a few weeks ago, and there really was not a good answer there. And somewhat in the company's defense, this entire industry slowdown is affecting everybody in the industry, but you would have though, given how much they've talked about e-commerce and e-business and how they become much more efficient, they could have done a better job in reading the tea leaves here.

BAY: John Chambers has, in general, been extremely upbeat, but he is extremely cautious right now. How would you rate the way he is managing things at this moment?

POWERS: I think he's doing the best he can. If you look at all the companies in the industry, especially companies like Nortel and Lucent, those two companies are losing money. Cisco, at least on a pro forma basis, is still generating an operating profit. They don't have the same cash concerns as some of the other companies in the industry. So, it's just been a very difficult environment for all technology companies and especially those in communications equipment.

BAY: One of the things John Chambers told us last night, and he's been very consistently telling investors is that with a healthy economy, Cisco could achieve growth rates between 30 and 50 percent annually. Do you think that's the case?

POWERS: No, I don't. I think they're going to have to be extremely lucky to get 30 to 50 percent per year going forward over the next three to five years. In fact, I would argue that a growth rate between 20 and 25 percent is much more realistic going forward.

I think the key message here for investors is that over the past several years, Cisco has grown at a very rapid rate; over 30 percent, in some cases over 50 percent in some of the more recent quarters about a year ago. Going forward, investors really need to adjust their expectations as this becomes a much more mature company in terms of its corporate life cycle, and I think 20 to 25 percent is much more reasonable.

BAY: When you say adjust their expectations, what does that mean that you're telling investors precisely about this stock? You know, if they're holding it at 19, should they hang on to it? Should they buy more at this price? What should they do?

POWERS: Well, we have a hold rating in Cisco, so that means if you own the stock, continue to hold on to it. However, in terms of my expectations going forward and trying to moderate investor enthusiasm, I think the 20 percent growth in earnings is much more reasonable going forward. And so if you look at that where the stock is today and perhaps where it had traded at its high of around $80 a share, I think it's going to be a long, long time before it gets back to $80 a share.

BAY: Does Cisco's report make it clear that things are not turning around right now for the tech sector?

POWERS: No, it doesn't, and that's one the reasons why the stock sold off today, that's one of the reasons technology stocks sold off today. Investors were hoping that there would be some guidance from management regarding business condition stabilizing or improving over the next quarter or two. They really didn't give that type of guidance going forward. Technology stocks are up anywhere from 20 to 30 percent off their lows, and so I think we saw a little bit of profit taking.

BAY: David Powers, thanks for joining us tonight.

POWERS: My pleasure.

BAY: Coming up, California braces for more blackouts and state regulators detail their plan for rate hikes: customers who use more pay more.

(COMMERCIAL BREAK)

BAY: California residents and businesses today learned how much the power crunch will cost them. State regulators proposed a tiered increase in electricity rates. That would mean residential rates for the biggest users could go up about 35 percent. About half of households would see no increase in their bills. But businesses will see their rates by about 50 percent.

These hikes come as Californians braced for a third straight day of rolling blackouts. About 300,000 households lost power yesterday.

Coming up in the next half hour of MONEYLINE, Northwest seals a long-delayed deal with its mechanics. We'll hear from the airliner's boss Richard Anderson.

And former President Clinton hits the "Fortune" global forum, following in the footsteps of Chinese president Jiang Zemin. We'll get the latest from Hong Kong.

Plus, an enterprising professor finds a high-tech method to crack down on an age old offense, plagiarism.

(COMMERCIAL BREAK)

ANNOUNCER: MONEYLINE continues. Here again, Willow Bay.

BAY: In tonight's headlines, the House approves the 2002 budget by only a handful of votes. Next up, the Senate, which will vote on the measure tomorrow.

And red arrows on Wall Street, with tech's taking the biggest hit, weighed down by a tough report from Cisco.

Plus, outsmarting the cheaters: A college professor finds a new way to catch students passing off other people's efforts as their own.

A down day on Wall Street, with Cisco affecting trading for the second day in a row. Both the Dow and Nasdaq dropped at the open, feeling pressure after Cisco yesterday reported its first-ever quarterly loss. The Dow did manage to hit positive territory briefly, but weakness from the likes of Intel, Microsoft and Home Depot pushed the Dow into the red at the close. The Dow finished off 16 points at 10,866.

A tougher session for the Nasdaq, the index losing nearly 2 percent on the day. Chips and software issues particularly hard-hit. In the end, the Nasdaq dropped 42 points to 2,156.

A sell-off in the broader markets as well. Down more than five to finish at 1,255.

As we noted, Cisco was in the spotlight, driving much of the action today on the Nasdaq. Greg Clarkin joins us now from the Nasdaq marketsite with a look at the big movers there -- Greg.

GREG CLARKIN, CNN CORRESPONDENT: And Willow, you know, technology investors are really anticipating and hoping that they would get some definitive statement out of Cisco as to the state of technology in the overall global economy. That didn't happen. So what they decided to do today was basically lock in some of the profits on some of these tech stocks that have been having real strong runs in the last month or so.

Let's take you back here to the wall, give you an idea of how severe the weakness was today from Cisco. A big, big ripple effect. You saw almost major sector finishing lower on the day.

Take a look at the Philadelphia semiconductor index. It was down 3.4 percent. We saw PMC Sierra, one of those communications chip companies -- and they supply pieces to Cisco -- that stock was off 9 percent on the day.

The AMEX networking index: obviously weighed down by Cisco's loss as well as a lot of the other networking stocks. Good example: Extreme Networks, down 6.2 percent today.

Moving down to the Internet index: A lot of folks just kind of took profits in this sector today, trying to lock in some of the profits from the recent run-up. Priceline.com, a good example.

If you go back last week, this stock was trading at about $8 a share. Today, it finishes at $4.76 a share, losing 8.3 percent on the day. So, that gives you some sense of how broad the selling was today.

Now, that said, a lot of folks on the Street say they weren't too upset or too worried by today's trading. There didn't seem to be any severe downward pressure on the Nasdaq when it hit session lows in the early going. At one point, it was down 57. It made a run for break- even in the early afternoon hours, came within a handful of points of that only to weaken again in about the last two hours of trading and close with a 42-point loss.

Willow, that'll do it from here. Back to you.

BAY: All right. Thank you, Greg.

We head now over to the Instinet trading floor. Jen Rogers is tracking the action after-hours -- Jen.

JEN ROGERS, CNN CORRESPONDENT: Willow, not an incredibly bullish session here after the bell, but we were able to get a couple of names into the green. Let's start with Global Crossing, a telecommunication carrier, coming out and posting a narrower-than-expected loss. Still, compared to the first quarter a year ago, the loss was nearly double. Sales were up, though, and the company stuck to its guidance for capital spending for the year of $10 billion. Investors seemed to like that. Nearly a 4 percent gain to $14.35.

EMC, another name to the upside. The storage name coming out after the bell and announcing a stock buyback plan of up to 50 million shares. Stock up more than a dollar here to 4,213.

And finally, Rambus: this name to the downside by more than a quarter to $12.54. It was down nearly a dollar in the regular session as well. Late in the trading day, we got word that the company had been found guilty of fraud in the case involving the German chipmaker Infineon. Rambus is a company that licenses technology to boost the performance of memory chips. The company has a number of legal battles brewing. It says it will appeal this verdict and the punitive damages, but it was not able to make it into the green here after hours -- Willow.

BAY: Jen Rogers, with all the after-hours action, thanks.

After months of speculation, Microsoft finally set a date for its Windows XP launch, its most important product in six years. Still, the October 25th debut is somewhat of a disappointment. Many analysts were hoping XP would hit the shelves sooner, in time for the back-to- school season.

Steve Young has the story.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): After denying industry reports of probable delays, Microsoft is now promising Windows XP will go on sale October 25th, flaunting the deadline right down to the second.

That's still a several-weeks slide. It means the company's most important operating system in more than half a decade will be on sale during the December holiday season, but it won't be loaded on new PCs or in stores to sell as an upgrade when the school year rolls around.

ROB ENDERLE, GIGA INFORMATION GROUP: Well, it could be significant, primarily not so much because they miss back to school, but because of what's happening over on the corporate side. Corporations require a lot of lead time to test and deploy a new product.

YOUNG: Enderle estimates that could cost Microsoft billions in the quarter.

Senior executive Jim Allchin chuckled when he was asked on a conference call if there are enough new features to make Windows XP worthwhile. Analysts say it's vastly improved. But what most people are likely to appreciate is what they won't see. This new Windows doesn't get easily spooked and crash. The company spent some $200 million on its last marketing extravaganza for the launch of Windows 95. Analysts expect Microsoft and its partners will spend a billion dollars promoting its new software.

GEORGE GODFREY, A&N AMRO: XP will be eventually the biggest product that Microsoft sells. The question is, how fast does it ramp up?

YOUNG: The Redmond, Washington company is finally getting ruthless. It's killing Clippy from Windows XP, that animated help technology most people hate.

(BEGIN VIDEO CLIP, MICROSOFT PROMOTIONAL VIDEO)

UNIDENTIFIED ACTOR: Next to Microsoft Bob, you are the most annoying thing in computer history.

COMPUTER VOICE: You know Bob. He's a friend of mine.

(END VIDEO CLIP)

YOUNG: Microsoft Bob, which bombed, was a so-called "social interface."

(END VIDEOTAPE)

YOUNG: That was supposed to make software easier to use. The product manager, by the way, was Melinda French, known better these days as Mrs. Bill Gates.

There's a lot better buzz on Windows XP.

BAY: So what is the buzz on Windows XP?

YOUNG: Good product. Lots of features. Most people won't discover most of them, and it'll get out there but later than the company wanted.

BAY: And what is Microsoft -- I mean, we heard -- we heard about what the delays will cost. But what is Microsoft anticipating this will add to their bottom line?

YOUNG: Well, it's going to displace some of its other products. There will be incremental revenue, as well. It's going to be the most important product the company has probably in the following quarter.

BAY: In the following quarter. OK, Steve, thank you.

Despite losing ground today, Microsoft's stock has racked up some impressive gains recently, up 62 percent so far this year.

Our next guest says recent strength in tech stocks, like Microsoft, is a sign a bull market may be around the corner. Joining us from Albany to explain, Hugh Johnson of First Albany Securities.

Hugh, welcome.

HUGH JOHNSON, FIRST ALBANY SECURITIES: Thank you very much.

BAY: A bull market is around the corner: What are you seeing as the most convincing signs?

JOHNSON: Well, it might not be around the corner. We might have actually passed the end of the bear market and the beginning of the bull market on March 22nd. But the primary trend is probably still negative.

If you look a little more closely, Willow, and you see things that you only see in the initial stages of a bull market. And you mentioned one of them. Investors are buying technology stocks, consumer cyclical stocks, industrial stocks, the stocks of companies that require some recovery in the economy for their earnings to do well.

You see small-company stocks doing better than large-company stocks, that also systematic of a bull market, not a bear market. And then you see technical things such as the yield curve steepening, quality spreads in the bond market narrowing. That's technical, just means investors are taking more risks. And that again symptomatic of a bull market.

BAY: And what are the -- what are the good bear market stocks telling you? Are they fueling your argument?

JOHNSON: Yeah, they really are. When you take a look at the stuff that did well last year, for example: utility stocks; health- care stocks, such as drug stocks; consumer staple stocks, such as food, food retailers, household products companies. They're slipping down the so-called "performance spectrum" and are performing more poorly this year. And again, the investors are migrating to the more economically sensitive, and sending us a message, a signal that things are lousy for the economy right now, lousy for earnings right now, but just wait, by the third or fourth quarter of this year, things are going to get better.

BAY: By the third or fourth quarter. Why are you so sure that this rally that we're seeing now is sustainable given what you describe as a lousy economic environment and actually a lousy profit environment?

JOHNSON: The main reason being, Willow, is that the conditions that ordinarily are the reasons investors take greater risk, the reason investors migrate to the economically sensitive have already fallen into place: The Fed is easing, money conditions are very good. There's enough money to drive both the economy and the market. And I'm starting to see some leading indicators for the economy turn up.

All of that is the kind of stuff that makes me a little bit more optimistic and makes me also think we've got to think about a bull strategy more than a bear strategy.

BAY: Now, that is change for you, because the last time you joined us at the of March you were not prepared to suggest that investors start nibbling, start buying. You're suggesting that now?

JOHNSON: That's right. That's exactly right. It is a change. And what I'm simply suggesting is that you start to migrate. I don't -- I don't think investors should make, you know, a wholesale change in their portfolios. It's too early to do that. But start to add a few stocks to your portfolio.

BAY: Such as?

JOHNSON: Well, I would look at consumer cyclicals, which I mentioned are doing well, a company like Target. I look in the technology area. I'm a little bit worried about it still, but a company like EMC, which to me looks like it's -- it's undervalued.

Take a look at an industrial company, a Tyco, for example.

I think there are lots of companies that look relatively inexpensive and will do well if I'm right and this is the early stages of a bull market.

So start to move in that direction.

BAY: OK, a bullish Hugh Johnson tonight. Thanks, Hugh.

JOHNSON: You're welcome.

BAY: Coming up, a high-profile meeting at a controversial forum in Hong Kong. What did the president of China and the former U.S. president talk about? Plus, the final chapter in a four-year ordeal for Northwest.

(COMMERCIAL BREAK)

BAY: Former President Bill Clinton met Chinese President Jiang Zemin on the sidelines of the "Fortune" Global Forum today. To say that relations between China and the U.S. have been shaky would be an understatement, but despite the tensions, Mr. Clinton's one-hour conversation with Mr. Jiang was described as friendly in nature. Seven hundred corporate leaders are taking part in the forum, sponsored by CNN parent AOL Time Warner.

CNN's Lisa Barron has the latest.

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LISA BARRON, CNN CORRESPONDENT (voice-over): Talk of spy planes and military hardware sales is not high on the agenda here. The hundreds of executives at the "Fortune" Global Forum in Hong Kong are far more interested in discussing investment opportunities in China and the reality of doing business there.

With the three-day business conference in full swing, political conflict is taking a back seat to economic development.

TIMOTHY MAIN, CEO, JABIL CIRCUIT: There isn't a more important bilateral relationship than the U.S. and China today, and our political leaders really need to be courageous to work out the issues so that we can all work together on the economic issues.

BARRON: Chinese President Jiang Zemin, for one, earned full marks for his keynote address on Tuesday, in which he set out his nation's commitment to reform.

ERNEST GREET, PRESIDENT, ASIA PACIFIC STEELCASE: I think people were interested in it. They found it very upbeat and basically right on.

BARRON: Chinese businessmen and officials also seemed to be dancing around the verbal duel between Washington and Beijing.

MORETON BINN, CEO, ASIAN BUSINESS SOLUTIONS: They really don't want to get lost into planes and the United States government and whatever. They want to build their country, and they take it -- I guess it plays up less here than in the states. When I go to the states, it's always there. It's on TV, it's in the papers and here, it's just the opposite.

BARRON: As for America's corporate elite, it seems to be business as usual.

BRYAN MOSS, GULFSTREAM AIRCRAFT: If you step back and take a look at some of the events of the past couple of weeks and take a broader perspective, the risks are still acceptable.

RICHARD FURY, CEO, GAS & POWER BP: This whole region is growing at a much faster rate than the rest of the world. The Chinese economy in particular has been growing at a very high rate, and companies like mine want to participate in that growth.

BARRON: At the end of the day, say many here, it's no longer even a matter of choice.

BINN: You have to deal with China. I mean, you can't dance around it. Russia is not here. It's a major country. It's a lot of territory, 1.3 billion people that have a of resources. They're spending money like mad.

BARRON: Many here say there will be even more reason to maintain strong economic ties with Beijing once China accedes to the World Trade Organization. Most here say the sooner it joins, the better.

Lisa Barron, CNN, Hong Kong.

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BAY: Coming up on MONEYLINE, a deal years in the making at Northwest Airlines. We'll talk with the CEO of Northwest, Richard Anderson, on an agreement with mechanics and more. MONEYLINE will be right back.

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BAY: In tonight's "Sector Report": airlines. After 4 1/2 years of stalled talks, Northwest mechanics today overwhelmingly approved a new contract. Under the deal, mechanics get a nearly 25 percent raise over the next four years, making them the highest paid in the industry.

Northwest fell fractionally on the news, on a quiet day for airline issues. Nonetheless, CEO Richard Anderson said the deal marks a new era for the airline. He joins us now.

Richard, welcome to MONEYLINE.

RICHARD ANDERSON, CEO, NORTHWEST AIRLINES: Thank you.

BAY: Why are you calling this a new era?

ANDERSON: Well, for the first time in the decade since the employee stock ownership plan in 1993, Northwest has long-term agreements in place with all of its employee groups. We have labor peace across the property for the first time in a decade.

BAY: President Bush intervened to prevent a strike. The CEO of Delta has said that he gets indication that the federal government will intervene if there's the threat of a strike there. Should President Bush, should the government be intervening in these labor disputes?

ANDERSON: Well, that should be a last resort. In every instance, I know at Northwest, our first desire is to settle our agreements across the negotiating table with our labor unions. But the Railway Labor Act has been in existence for most of the past century, and from time to time in the course of negotiations, it's appropriate under the terms of the Railway Labor Act for the president to intervene and use the vehicles that that act provides to be certain that agreements are reached without impacting communities and consumers with service disruptions.

So, from that standpoint, while it's a last resort, it's entirely appropriate under the terms of the act.

BAY: Clearly, this is positive news for the company, but what will the economic impact of rising labor cost, you're giving those mechanics a pay hike, mean to the company, particularly when you're faced with slowing demand?

ANDERSON: Well, we anticipated the settlement and the range of the settlement that we reached with our mechanics. We included that in our cost numbers and our forecast numbers that we gave the Street in the beginning of the year. On the whole, in 2001, excluding the extraordinary charges, we see unit cost up overall for the airline and for Northwest about 3 1/2 percent.

We also see, at the same time, significant reductions in our distribution cost. Northwest has cut significantly commissions paid to Internet travel sites, and we see significant offsetting costs in the form of distribution cost reductions, and we also have delivery of new airplanes coming online that are going to significantly reduce our production cost on the ASM side of the house. So, all in all, it's part of our plan, and we feel comfortable with where our cost structure is headed. We have typically had among the best cost per ASM in the airline industry, if you look over the past five to 10 years, and we intend on maintaining that kind of cost advantage in the industry.

BAY: When you look out on the horizon, what are you seeing in terms of demand, first of all, domestically with your business travelers, because that's been a tough spot for all the airlines?

ANDERSON: Well, Willow, you've hit the nail on the head. I mean we continue to see softening from our large corporate accounts across the domestic sector and you know, even internationally. We think that we've seen some bottoming of that phenomena. We haven't seen it worsening over the course of the past four to six weeks. January for us was a record breaker and then we saw a precipitous drop in February, almost as if everyone came back from vacation and started seeing economic trends they didn't like.

We think that's bottomed and we're seeing a little bit of firming in premium class internationally, as we move into the summer, so we are hopeful. At the same time we in early April, right after I became CEO took about $200 billion in cost reduction and revenue initiatives as an insurance policy.

BAY: Let me just ask, you mentioned the summer, last summer was a horrendous one for air travelers. Should air travelers have any reason to expect that this summer will be better?

ANDERSON: Yes, because the FAA is taking extraordinary action with respect to the air traffic control system. If you look at the horrendous issues that we faced last summer in this industry and you tracked it back to weather events, I'd submit to you that the issue is the air traffic control system in bad weather days. And the FAA continues under the leadership of Secretary Minetta and Jane Garvey to take some fairly extraordinary action. So, we're hopeful that we're past the kinds of problems we saw last summer.

BAY: And so, no doubter travelers. Richard, thank you for joining us tonight on MONEYLINE.

ANDERSON: Hey, thank you for having me, Willow.

BAY: Coming up on MONEYLINE, the computer age solution one professor employed to stop a classic problem: student plagiarism.

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BAY: Sneaky students, beware. One professor has a computer program ready to catch you.

Plus "Ahead Of The Curve:" Some of what you need to know tonight ahead of tomorrows trading. Stay with us.

(COMMERCIAL BREAK) BAY: Taking a look at some of what could move the markets tomorrow: In Washington, the Senate votes on the fiscal 2002 budget resolution, which the House narrowly passed earlier today.

And Fed Chairman Alan Greenspan will speak to the Chicago Fed. The topic: the financial safety net.

More on the economy, with weekly jobless claims expected to remain near a five-year high. Plus watch for quarterly reports from Aetna, Pixar Animation and Safeguard Scientific. And IBM holds its semiannual analyst meeting here in New York City.

Finally tonight, high technology over the past year has been under siege, the target of Madison Avenue jokes and investor derision. But one college professor has clearly harnessed the benefits of the digital age. He used his own high-tech know how in an unexpected way: To nab students who don't want to do their own work.

Fred Katayama explains.

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FRED KATAYAMA, CNN CORRESPONDENT (voice-over): It's finals week at the University of Virginia, but it could be the final day for some students. A physics professor has snared more than 120 students suspected of plagiarizing. He unearthed them by doing what they did: using the computer.

LOU BLOOMFIELD, UNIVERSITY OF VIRGINIA: Theft becomes easy, and it's not even clear to all people what is theft. And now the loop is closing, where, yes, it's become easier to plagiarize, but it's also become extremely easy to catch plagiarism.

KATAYAMA: A disgruntled student tipped him off about the prevalence of plagiarism in his class. So he wrote a software program that scans papers and finds phrases that match those in a database of older term papers. That probe turned up papers in which at least 500 words were stolen. And that's just plagiarism of other classmates' work.

(on camera): But many students also steal off the Internet. A Rutgers University survey of 21 colleges found that 10 percent of students turned in papers that were partially lifted off the Web. Stealing is simpler in a world of cut and paste.

(voice-over): Students can buy papers from Web sites. But to fight back, some schools are installing anti plagiarism software and using computerized detection services.

DON MCCABE, RUTGERS UNIVERSITY: I don't think there's any question that some of the new developments in technology are going to help catch people who are engaged in plagiarism. But I can assure you based on comments that I get from students that I've surveyed, that most of them feel they can still beat the system in a variety of different ways. KATAYAMA: And some educators fear that colleges will inherit a new generation of students more prone to cheating. A survey of high school students nationwide found that more than half admitted they lifted some material from the Internet. It's ironic that this cheating scandal took place at Virginia. UVA was founded by Thomas Jefferson, the drafter of the Constitution, and it prides itself on running the oldest student-run honor system in the nation.

Fred Katayama, CNN Financial News, New York.

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BAY: That's MONEYLINE, "CROSSFIRE" is next.

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