Internet World on Full-Scale Alert Following Series of Crippling Shutdowns
TERRY KEENAN, HOST: Hello, everyone. I'm Terry Keenan. Welcome to MONEYWEEK, where we try to keep you ahead of the investing curve for the week on Wall Street. The Internet world is on full-scale alert, following a series of crippling shutdowns in the past week. Computer hackers took down numerous Web sites, including CNN.com, Yahoo!, Amazon.com, new issue Buy.com, as well as eBay, and the online trading firm E*Trade. The Clinton administration will meet with Internet leaders next week to discuss these cyber-attacks, and the FBI has launched a criminal investigation.</s>JANET RENO, U.S. ATTORNEY GENERAL: We're committed to taking steps to ensure that e-commerce remains a secure place to do business, and that the Internet and cyber-technology can be the true benefit for the future that we all think it is, in terms of learning, communication, commerce and the opportunity to bring the world together, rather than split it apart.</s>KEENAN: Although the attacks did not compromise data, experts say they could undermine consumer confidence in the Net. In fact, the Dow plunged 258 points on Wednesday, in part on concerns about the series of shutdowns. Joining me now is an Internet expert that says there are real vulnerabilities on the Net, especially with online investing: Ryan Jacob, of Jacob Asset Management Fund joins us now. And, Ryan, you say this last week was a real wake-up call for investors.</s>RYAN JACOB, JACOB ASSET MANAGEMENT: It really was. I think people kind of got lulled into a sense of security, when in essence, the Internet is really a public network, and situations like this will probably happen from time to time.</s>KEENAN: How serious were these attacks?</s>JACOB: They were serious. They brought down some of the most robust, largest sites in Internet today, so it's not something to be taken lightly. I think what investors and consumers have to realize, though, is this wasn't an infiltration situation, where the servers were broken into, and files were changed or stolen. It was really more of a frontal attack.</s>KEENAN: A lot of people were under the impression that these companies had a lot of different protections, encryption devices, and all sort of software to protect their sites. How come they failed in these instances?</s>JACOB: Well, this attack was surprisingly very simple, yet effective, and that is, in essence, sending so many fake requests to the sites that it, in essence, stopped the pipes, and really, didn't allow other people to access, and they had denial of service, and really so it happened a little bit before the servers and really as people were trying to funnel in to these sites to gain information or to do a transaction. So in that sense, it was somewhat simple: Send in a lot of traffic, block up the pipes, and really shut everyone else out.</s>KEENAN: We saw Yahoo! plunge on Monday, the day that it was shut down for a couple hours, but it rebounded. Were there any losers by week's end because of this?</s>JACOB: Not really. I think it adds to the heightened volatility we've seen in sector. People are very sensitive. And obviously, this is a very serious issue, and it deserves the amount of attention it's received. I think over time, it will become hopefully not as common and more of a periodic event that, again, will just bring more attention to the fact that the Internet is public and for everyone.</s>KEENAN: You say sites that are most vulnerable, at least to the perception they may not be secured, are the transaction-oriented sites, such as E*Trade.</s>JACOB: Sure. Well, these are the sites that really will be affected from a business standpoint. Investors really will lose money, in essence, being able to buy and sell a particular security, have access to their account, and also for the reason that people do have their money with these companies, and if hacker were to get in and start fooling around with balances or able to get access to sensitive information, it could have a very, very serious impact. So far, that hasn't been the case. And security setups today are very, very good. But again, you know, with the kind of disruptions we've seen, it heightens that awareness.</s>KEENAN: Any companies that will cash in on the heightened sense of security -- need for security?</s>JACOB: Well we'll see a number of, you know, Internet security software companies, hardware vendors that offer solutions to really rectify, not only these problems, but others that may crop up as well, and Internet companies in general will spend more money on these services, because they just can't afford to have their sites brought down for lengthy periods of time, and you know, again, this will make them redouble their efforts.</s>KEENAN: Any names you'd be looking at?</s>JACOB: We're not really too positive on a lot of these companies, not because they won't see a benefit from this, but rather security is a tough market to really handle, and one that's very, very competitive and ever changing. So for us, it's a little too dynamic, and not that there aren't good investments out there, we generally steer clear of some of those names.</s>KEENAN: Buy.com hit on day it went public. Will that hurt its image with investors?</s>JACOB: Probably not. It probably got them a little more publicity than they already would have gotten. So I mean, it won't and, again, you know Buy.com will, I'm sure, you know, increase their systems, be able to handle this problem in the future, and really, again, just make sure their site is as secure as possible. For a new Internet company, that's even more important before they've really gotten that recognition and confidence from consumers.</s>KEENAN: OK, thanks a lot, Ryan.</s>JACOB: Thanks.</s>KEENAN: We appreciate it, Ryan Jacobs.</s>JACOB: And just ahead, it's one of the most widely recommended stocks in the world. We're going to tell you why our "MONEYWEEK" insiders say Cisco Systems is still headed higher in the days and weeks ahead. So stay with us.</s>KEENAN: A torrid rally in the tech stocks continued this past week, as investors moved their money out of bonds and blue chips stocks and into the technology sector. One of the standouts: Cisco Systems. It moved to new highs, following a strong earnings report. This week's insiders say that Cisco and other tech stocks will continue to move higher next week and beyond. Joining me now, Craig Ellis of Orbitex Management, S.G. Cowen's Charles Pradilla, and Rick White of Neuberger Berman. And, gentlemen, welcome. Rick, let me start with you. The Nasdaq powering higher. Another week, another record, led by Cisco. CS First Boston says Cisco could now become the next trillion-dollar stock -- the first trillion-dollar stock. Big, big -- that's what I say.</s>KEENAN: You laugh, but that's the way we're going. What's going on?</s>RICK WHITE, NEUBERGER & BERMAN: I think what we saw this week was really a continuation of what we have seen over the last nine months was a real disparity in the market, where technology has powered forward based on some of the underlying operating trends in those businesses, which continue to be very favorable. And then you've seen weakness in sort of financial and cyclical components in the market. Also companies that have favorable business trends, but I think the Federal Reserve looms over these companies as a potential overhang on how well the stocks can do.</s>KEENAN: And, Charles, is money clearly coming out of these traditional companies and going right into the Nasdaq?</s>CHARLES PRADILLA, S.G. COWEN: Well, it sure is. I mean, I think the risk is that old economy, the non-tech stocks and the Dow, are under interest rate pressure, either valuation-wise and/or asset allocation-wise, and the looming Fed rate increases are not good for them. Many of the Nasdaq stocks are bulletproof, because a lot of the action that's taking place is swaps of expensive pieces of paper, mergers and acquisition. And the venture capital money that's coming into what is a technological revolution is largely interest rate insensitive. Now I'm not saying that 10 percent Fed funds wouldn't beat up a few of these guys, but a difference the between 5 and 6 percent Fed funds for these venture capital guys who are looking for 10 to 20 or 30 times on money, it's not very significant.</s>KEENAN: And for the companies, they get the equity capital. They don't have to borrow.</s>PRADILLA: That's right. They're really not at the window with the prime, and they're not issuing bonds.</s>KEENAN: And, Craig, what do you make of this continuation of the explosive move we've seen into the tech sector?</s>CRAIG ELLIS, ORBITEX MANAGEMENT: Well, I think you've got chip stocks running on global economy bounces, and the concept of global economies continue to go up and it's a good place to get a lot of leverage. It's a cyclical play. And also you've got a pretty dramatic rotation in terms of what the Internet means to the investment community. Now it's about business-to-business, b-to-b, b- to-b, b-to-b -- here it over and over.</s>KEENAN: Beat over the head, right.</s>ELLIS: When you get hit so many times, you know, you should go do something about it. So all these new software names that have come into the marketplace are capturing a lot of attention. And there's lots of names in Nasdaq that are not bulletproof. I mean, Amazon's bouncing around, in and out, in and out, but you really haven't made a lot of money there. I mean, look at Dell Computer, it's fell off. So there are lots of issues hovering around some sectors of the tech space.</s>KEENAN: Charles, how do you play it, though? You like Cisco, but can get more bang for your buck elsewhere?</s>PRADILLA: Sure, I mean, there are a number of brand new enterprises. It depends what your risk tolerance is. I mean, I own Cisco because I don't know enough to buy these others. And it's clearly -- I mean Cisco is to the Internet what IBM was to the mainframe in the '50s and what Intel was to the chips. And dominant companies in a commerce-transforming revolution do well. Maybe you don't get 20-fold, but you don't have the risk and you don't have to have the technical expertise to own Cisco now. Rick, where are you playing the Nasdaq? What sectors?</s>WHITE: Well, actually, I'm starting to lean against the Nasdaq here because I think when you look at the environment, I don't -- I absolutely concur that it's transformational, the Internet is transformational, and it's going to affect business, how it's been done, and it's going to affect all our lives personally. But I think that at the end of the day we're buying stocks, not the underlying business conditions. And today, it's not a surprise that technology's a revolution. I think when you look at returns that have inured to the tech sector over the course of the last 12 or 18 months, it gives you a sense that there's quite a bit discounted in today's prices. So I think I'm being very careful about incremental commitments to the technology sector. Actually, I'm sort of starting to wallow around in basic America.</s>KEENAN: OK. All right, well we're going to break. But when we return, Alan Greenspan could move the markets in the coming days. We're going to tell you what you need to know. And a bit later, taking part in the launch of Windows 2000.</s>KEENAN: Alan Greenspan will take center stage next week, when he delivers his twice-yearly Humphrey Hawkins testimony to Congress on Thursday. Investors will certainly be trying to determine what the Fed has in store for interest rates. Also of particular concern next week, the latest readings on inflation. Monthly PPI and CPI reports are due out on Thursday and Friday. A modest rise of .1 and .2 percent respectively are expected. Long-term interest rates this past week were all over the map, but they did move back above 6.25 percent on the 30-year bond. Rising rates are impacting everything from car loans to mortgage rates. In fact, mortgage rates have been steadily rising over the past year. In the last two months alone, the average rate on the 30-year fixed mortgage has moved from about 7.8 percent all the way up to 8.4 percent. And that is the highest level since March of 1995. Charles Pradilla, is Alan Greenspan getting what he wants? Are his rate increases starting to have an impact?</s>PRADILLA: Not yet. He's confounded everybody. The longevity of the expansion, the high level of consumer confidence and the wealth effect of a lot of people making money in the market, and he hasn't made a dent. But he will. It's a very bad bet to go against Greenspan. He controls all the money and he can change the rules. He will win, and this time next year I believe we will be growing at least one percentage point less than we are now, somewhere about 3 to 3.25 percent. But I don't think he knows, I don't think anybody here knows, I don't know how many times he's going to have to raise short- term rates to succeed.</s>KEENAN: Craig, what do you think? Is the Fed behind the curve?</s>ELLIS: I think the world will continue to confound Alan Greenspan. I think this technology that's driving the communications infrastructure around the world in investment will continue to drive global economies. I will give you this prediction: I think industrial commodity prices will continue to rise. I will wager that oil prices are going to rise at the pump. I think there are going be market pundits who are going to declare that this is the end of the world. And if you look behind, you're going to have to ask yourself, what's driving it? And it's the strength of economy. And the moral of the story is if you track interest rates right in here and -- you'll lose as an investor. And I think you've got to stay invested through these periods.</s>KEENAN: Rick, if -- you know, if Alan Greenspan is confused by the world, he has to be totally confounded by what's going on in the bond market lately. What in the world is the bond market trying to tell us?</s>WHITE: Well, I think the bond market is actually giving you a somewhat contrary opinion to the ones that were expressed right now, as we've seen a rally in the long end of the curve and interest rates have come down. And I think that's really because of two reasons. The first is technical in nature, in that the Treasury said there's going to be reduced supply long in the long end. And I think the other is fundamental. And what it is saying is that Greenspan is getting, after what we've seen, is some cyclical pressure here and will raise interest rates. And the bond market is confident enough that the inflation will not reignite in a secular sense. So I think what the market is telling you is there is going to be some slowing over the course of the next six to eight months. The market is usually ahead of the economic statistics in these kinds of events, so I would definitely keep an eye on that bond market. The curve's inverted. That tells you things are going to slow.</s>KEENAN: OK, well when we return, predictions, including a look at a couple of stocks our insiders say will make you money in the days and weeks ahead.</s>KEENAN: OK, time now for predictions. And joining our MONEYWEEK insiders is our financial editor, Myron Kandel. And, Myron, another week, another record on the Nasdaq.</s>MYRON KANDEL, CNN FINANCIAL EDITOR: Well you know, we really have this bifurcated market, which has really been surprising. I think the Dow stocks have been oversold, so I expect them to bounce in the next week or so. But after that, I'm looking -- before the end of March, certainly, I'm looking for a pullback that could be as much as 10 or 15 percent. So short term, I'm more optimistic on the blue chips, but after that, I get a little worried.</s>KEENAN: And nearing correction territory on Dow.</s>KANDEL: Yes.</s>KEENAN: Rick, predictions?</s>WHITE: I think that the pressure that we've seen on certain traditional America -- old economy America has made a lot of stocks very interesting values. So I think that by the end of the year, I think we're going to see interest rates a little lower than 6 percent, I think we're going to see a rally in the energy sector, and I think some of the consumer stocks that have been hit, companies like Carnival Cruise or Cendant, probably going to be a lot higher by the end of year.</s>KEENAN: And you like the oils as well.</s>WHITE:: That's right. I think you can almost pick them in the oils.</s>KEENAN: OK. Craig, your prediction?</s>ELLIS: I think the global GDPs across the world are going to be higher than people think. I think they're going to continue to drive higher. I think interest rates will not be the thing that holds this market back, just the same story as in 1999. I think you're going to have to make some rotations. But beyond that, I think you want to be fully invested in some of these new technology sectors.</s>KEENAN: Any names?</s>ELLIS: I think the software space is very, very compelling, whether it's Oracle or some of the new names, such as Tibco or Active Software, and I think some of the new telecom companies are emerging in this world. Telespy (ph) Cellular, a pure-play cellular on Sao Paulo, Brazil, we would be all over that, and for you value players, go look at AT&T.; AT&T; does something with Microsoft sooner rather than later.</s>KEENAN: Charles, you have the last word.</s>PRADILLA: Well, I think that Greenspan engineers the soft landing, and that sometime by the latter part of this year the long bond -- the 30-year Treasury is around 5 3/4, and that in context, we're going to have an explosive latter part of the year after some kind of a speed bump before the summer.</s>KEENAN: OK, somewhat in agreement with Myron there.</s>PRADILLA: Yes.</s>KEENAN: OK, thanks, gentleman. And thanks to Charles Pradilla, Craig Ellis,</s>WHITE: White, and of course Myron Kandel, who'll be back with us next week. And just ahead, opportunities in the new-issue market. A pair of stocks going public next week that are expected to post some impressive gains. We'll tell you which ones to look for when MONEYWEEK returns.</s>KEENAN: Time now for a look ahead to next week and what investors can expect in the coming days. Our Susan Lisovicz is here with the last word. Susan, give us the preview?</s>SUSAN LISOVICZ, CNN CORRESPONDENT: Hey, Terry, lots of things for investors to watch out for. As you mentioned, Alan Greenspan testifies before Congress on monetary policy. In addition, a few key economic numbers due out. Thursday, the producer price index for January will be released. On Friday, we'll get the consumer price index. On the IPO front: Choice One Communications, a provider of broadband data and voice telecom. It's hoping to raise about $139 million. IPO experts say this stock will likely rally when it begins trading. Another new issue expected to go higher: Internet Loan Company Lending Tree. And finally, expect plenty of hype when Microsoft releases Windows 2000 on Thursday. The official launch will take place at the Windows 2000 conference and expo in San Francisco. But consumers can attend launch events throughout the country, courtesy of Microsoft. You'll be able to access Windows 2000 programs and compatible hardware products. By the way, Windows 2000 will set you back $319 exactly -- Terry.</s>KEENAN: And a long-awaited release. Microsoft shares were weak in the last week, so it will be interesting to see how they perform next week with that release.</s>LISOVICZ: Absolutely. Michael Dell also one of the keynote speakers, in addition to Bill Gates.</s>KEENAN: OK, we'll be looking for that. Thanks a lot, Susan. Susan Lisovicz, And for more on Windows 2000, be sure to tune into the MONEYLINE NEWS HOUR with Willow Bay and Stuart Varney. On Thursday, MONEYLINE will have a CNN exclusive interview with Microsoft's chairman and CEO Bill Gates. That is on</s>MONEYLINE, 6: 30 Eastern, weeknights on CNN and CNNfn. And be sure to join me, Bill Tucker and Daryn Kagan for "In the Money," weekdays at 11:00 a.m. on CNN and CNNfn. On Monday, we're going to take you to the toy fair here in New York with a preview of this year's hottest toys. And that will do it for MONEYWEEK. I'm Terry Keenan. Thanks for joining us, and have a great weekend.