[Deborah Marchini, Cnn Anchor:] For more discussion of the impact of the Time WarnerAOL deal and the fallout, I'm joined now by Jim Waggoner, market technology strategist at Sands Brothers & Company. It's great to have you back with us again this morning.
[Jim Waggoner, Sands Brothers & Company:] It's nice to be back.
[Marchini:] Gee, wow, last time you were here we were talking about the correction in Nasdaq stocks. What happened?
[Waggoner:] It certainly took place.
[Marchini:] It's over.
[Waggoner:] It's over, here and gone.
[Marchini:] Are you surprised by the market's very sharp rebound, and what do you make of it? Do you think there are fundamental reasons for a recovery now, or do you think it's just a bit of euphoria generated by a very large deal?
[Waggoner:] Well, it's probably a little bit of both. I think the announcement yesterday with AOL and Time Warner set in motion expectations for consolidation both vertically and horizontally in the business consumer space. Some of it's going to be realized, some of it's going to be speculative excess, but it certainly does set in motion corporate strategies and investment strategies for review.
[Marchini:] I walked in here about 3:00 this morning, and our producer, Nick Semensky, decided to have a little fun with me, and so when I asked him what was going on, he looked at me and he said: Well, Microsoft is now trying to outbid AOL for Time Warner. Of course, he was kidding, but how far-fetched is that little piece of humor, really?
[Waggoner:] Well, the question of Microsoft is a very, very interesting one, and, of course, some years ago Bill Gates was presented with the notion of the Internet and kind of scoffed at it. I think that's not the reaction he has today. So he's a little bit on the outside looking in, wondering where Microsoft's next step is.
[Marchini:] Where do you think Microsoft's next step is?
[Waggoner:] Well, I think, clearly, they have a giant step to take in order to match what AOL and Time Warner did yesterday. How they're going to handle it, of course, is obviously open to speculation, but I think they have to make a big move if they're going to be a player in this space. Nothing wrong with Windows and all of the software that they have, but if they want to be a player on the Internet, they've got to make a move, and I think they've got to make a move rather soon.
[Marchini:] All right. The other company that's getting a lot of scrutiny right now is Yahoo!. What, if anything, do you think Yahoo! is going to buy?
[Waggoner:] Well, it makes all the sense in the world. Again, it's the role model that AOL set: Yahoo! and others in the portal space looking for content, content, content across the board. There's plenty of it, and there are several companies out there that are large enough to satisfy that. So I think that the deal is open there. There are a number of companies that, of course, have been speculated in the press, and you can't rule out any one of them.
[Marchini:] Another one that keeps getting mentioned, of course, is AT&T;, which has spent billions of dollars, you know, basically to try to bet on cable systems being a great mode of transmission. Does it now need content too?
[Waggoner:] Certainly. It wasn't that long ago that AT&T; seemed to have the lead, seemed to be way out ahead, seemed to have everybody else in their rear-view mirror. It's changed, and changed very quickly. So AT&T; also has to make a move, whether it's immediately, or, as is the case with Microsoft, a little bit slower; that's certainly open to speculation, but they have to address the issue of content.
[Marchini:] All right. Meantime, what happened to this rotation we thought we were witnessing in the markets?
[Waggoner:] It rotated.
[Marchini:] It rotated back out.
[Waggoner:] It's the Internet age, it rotated.
[Marchini:] It rotated very quickly, and you came out of paper stocks, out of consumer cyclicals, which were protective, you know, stances for what we expected to be a strong economy with some Federal Reserve action to slow it down; and we're back into tech stocks again. How long do you think this is going to stick? And what are you doing with money, given that scenario?
[Waggoner:] Certainly. The one thing that we stress time and time again is that we don't really feel that the market is going to shift emphasis, as long as the fundamentals in the technology and Internet space are as strong as they are. It's fundamentals that are going to be driving this market, and fundamentals in the technology space are outstanding. So we saw the rotation, it's now back into technology. I do think that there's a bit of euphoria, quite a bit of euphoria, based upon yesterday's expectations in the marketplace. And if we don't see an immediate response, we don't see more takeover announcements, I suspect we'll get a settling in.
[Marchini:] Somebody's going to let the air out of that bubble.
[Waggoner:] Right.
[Marchini:] We've got a list up on the screen of some of the companies in which you are currently actively investing, including Chemdex, Entrust, Verisign, and Ariba.
[Waggoner:] Correct. This sort of gets around the issue of speculating on content, but we're still very, very much stressing the B2B space and also the Internet's security space; that's where Chemdex, in particular, in the B2B space, comes in very strongly; Entrust in the Internet security space has a long way to go. Everyone of these transactions, the recorded music, downloading of the recorded music over the Internet, which is a heart of the AOLTime Warner deal, really plays to that hand.
[Marchini:] So this some more trends worth watching. Jim Waggoner of Sands Brothers & Company, it's great to have the back with us to talk about the markets, and tech specifically. We'll see you soon.
[Waggoner:] Great, always nice to be here.