Participants on Jan. 15 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Adam Lashinsky, Gary B. Smith and guests Peter Canelo and Jack Bogle. The transcript is unedited, and phonetic spellings are indicated with a (ph).

BRENDA BUTTNER, HOST:

Hi, everyone. I'm Brenda Buttner and you are connected to "TheStreet.com." We're here so you can make smart decisions when investing.

Well, lots to talk about in the stock market this week, and we have some very special guests who will help us get the Word on TheStreet.

With us from

TheStreet.com

financial Web site, Jim Cramer, who also runs a hedge fund, and Senior Columnist Herb Greenberg.

Also, two special guests. First, Peter Canelo. Peter is the U.S. investment strategist for

Morgan Stanley Dean Witter

. And Jack Bogle, who needs no introduction but he founded the

Vanguard Group

and essentially invented the index fund as we know it today. That is a fund that mirrors a market like the

S&P 500

. These investments are now wildly popular.

Vanguard's Index 500, founded by Bogle some 25 years ago, is poised to be the biggest mutual ever, more than a hundred billion in assets. And somehow Bogle also has found time to author the book

Common Sense on Mutual Funds

.

OK, welcome gentlemen. Well, we're going to talk more about the Vanguard 500 fund and index investing, but first what else but the market. Another week, another rally -- the

Dow

at an all-time high, the

Nasdaq

and S&P very close to their records.

Jim Cramer, we had interest-rate worries. We had a shakeup at

Microsoft

. We had mixed reviews for the biggest corporate merger. Nothing stops this market.

CRAMER:

This market is driven by fantastic inflation numbers, by great earnings, by terrific faith in the

Federal Reserve

, which has done a terrific job. Once again we heard Chairman

Greenspan

speak last week -- said all the right things.

I cannot be a bear here. I've watched it go up and up and up and I still remain invested. I'm still long. I'm still long technology. And I feel great about it.

BUTTNER:

Well, I know somebody who could be a bear. Herb, I see a very worried look on your face. Would could stop this market? What are you worried about?

GREENBERG:

Well, it's a question of what could stop the momentum and Jim says he sees this very positive Fed -- you know, don't seem concerned about the Fed, but Jim, I know everyone is talking quarter-point and I know he didn't say things to -- Jim, I know -- but let me ask you something. There is a point, we keep getting this new round. I first thought it was going to be three increases. If they keep increasing now and then they keep it -- when -- I'm actually wondering it becomes an issue. When does Cramer -- it's not a question of Greenberg what makes me worried -- I want to know when Cramer gets worried.

CRAMER:

Cramer, Cramer runs $300 million. I'm with a man here who runs a -- who has set up a fund that -- the largest, billions and billions -- and another man who probably controls a tremendous amount of assets. I`d rather hear from them. I'm not worried -- 50 basis points -- I'm not worried.

BUTTNER:

Jack, you've seen...

BOGLE:

I'll be a worrier; I'll be a worrier for you, Jim.

CRAMER:

All right.

BOGLE:

These kind of multiples are out of sight, and I don't think it goes on forever. And I think it's going to end, not with a whimper, but with a bang.

BUTTNER:

Soon?

BOGLE:

I don't know much about timing, but I would say sometime in the next year maybe. Maybe sooner.

BUTTNER:

Peter, where do you weigh in?

CANELO:

I think the market is going to go to 36,000 over the next five or six years. Sure, we're going to have shakeouts, but I think we're in the middle of one of the most tremendous booms in productivity that we've seen since the end of World War II. I think we're seeing explosive innovations on the Internet. I think we're going to see strong profits growth, and Jim's right -- inflation isn't there and as long as it stays subdued, I think this market can go higher.

BUTTNER:

All right, next topic, Jack Bogle's Vanguard 500 fund, if current investment trends continue, the fund will soon be the biggest in the land -- actually in the world -- with more than $100 billion in assets. And performance over the last five years, better than 28% annually.

Jack Bogle, this -- this fund was your brainchild. And people put it in the core of their portfolio, but isn't it really a tech fund in disguise? It's got, what, 30% in tech now?

BOGLE:

It's got 30% in tech, but don't forget the entire U.S. stock market has 30% in tech too. It's still pretty much what it's always been -- a market fund -- although I prefer over the S&P 500 and, as it happens, the total stock market, which includes the small-caps and the mid-caps, which may not be quite so exposed as those big tech stocks are.

BUTTNER:

Herb, are you worried that investors are chasing performance? They're not looking for the low expenses that Jack instituted at the fund? So, looking at the numbers...

GREENBERG:

Actually, what I'm worried about is that people who are in the index funds, especially at these levels, still do not understand the concept of the risk of the fund.

BOGLE:

Yes.

GREENBERG:

... that the fund falling is a risk.

BUTTNER:

There is no cash cushion at all...

BOGLE:

Well, we -- let me just be clear on some facts here. When the market went off 20% two summers ago, that's, you know, a pretty good-sized decline, we still had positive cash flow in the fund. In other words, there was no evidence that people didn't understand. My God, we tell them all of the time, there's risk in it. We tell them it's the per -- it will go with the market and down with the market.

BUTTNER:

Jim, do you have index funds?

CRAMER:

No, I do not, but remember because I'm a hedge fund manager, I have no personal account. I do believe in the hedge fund concept. I read Jack's excellent book -- endorsed the book because I think it's a terrific idea. I think most mutual funds are just index funds in disguise with higher fees and more taxes.

I can't own stocks personally because it's a conflict with my fund, but if I had to do something with private money, I would go this way because most of the mutual funds don't do as well.

GREENBERG:

I have to tell you something carrying over from conversations earlier when you asked what worries me, so many people today are basically saying -- where I go -- I'm sure when Jim goes, they want a tip. And they don't want -- they think they're doing the work themselves. That's good, but they don't seem to understand -- a lot of people what they're doing -- and that again brings you back to an index...

BOGLE:

Were actually picking up a lot in the mutual fund industry and hot performance funds, funds that have done even better than the index, particularly in the last year or so. And that's where a lot of the capital flow is going now in the industry. Somewhat of a change in the last six months, and I think that's even more worrisome.

BUTTNER:

Peter, you're an active manager. What do you say?

CANELO:

Well, the concept of indexing is terrific, but what about indexing to the Nasdaq? The Nasdaq has outperformed the S&P for years. And this is the greatest strength in American business...

BUTTNER:

Well, there are more than one...

BOGLE:

Well, the Nasdaq is kind of a mess. I mean, I think it's something like 60% of the value of the Nasdaq is in five stocks, something like that. It's very heavily concentrated. And if you can take that kind of wine, drink it -- or maybe it's bourbon...

(LAUGHTER)

BUTTNER:

All right, we need a nice shot of that. OK, that's it for Word on TheStreet this week. Jack Bogle, founder of the Vanguard Group, it's been a pleasure and we look forward to having you back soon.

Peter Canelo from Morgan Stanley Dean Witter, we will see you in a few minutes when you give us your favorite stock picks. But up next, the

AOL

and

Time Warner

merger might be just the tip of the iceberg. Is Mickey Mouse next?

You need to stay tuned for this.

BUTTNER:

Welcome back.

That huge AOL-Time Warner last week is still in the headlines. But nobody saw it coming, none of the brokers, none of the traders, no reporters, not even the Chartman.

Gary B. Smith trades for a living from his home using the charting method. Gary joins us from Washington, D.C.

With us as well in San Francisco, our Silicon Valley columnist Adam Lashinsky, who reports on the story behind companies, that is, their fundamentals.

Gary and Adam do not own any of the stocks in this segment.

OK, guys, I admit I'm a little bit disappointed. I figured that between the two of you, everything is covered. I got the technical side of a stock, and the nitty-gritty.

So, how come neither of you saw that Time Warner was going to get bought?

Gary, you're in the hot seat first.

SMITH:

Did I say I didn't see it?

(LAUGHTER)

LASHINSKY:

There he goes again.

(LAUGHTER)

SMITH:

No, you know what happened, you know Adam is always bugging me, he says you know, Gary, you're right 100% of the time. And so here's one -- this is the only one I've ever missed. But what I did was take a look at the chart as of last Monday. So, this is the first day after the merger, Monday a week ago, as it turns out. And I looked at the chart and you know, could I have spotted if this was -- was this in play? And to be honest with you, if someone had asked, I would have said this is just one dull stock in congestion. It's not going anywhere. Avoid Time Warner. So, I will say

mea culpa

-- historically, I missed this one. I never saw it coming, and anyone that owned Time Warner was a lot smarter than I.

BUTTNER:

I like a man who admits to his mistakes.

(LAUGHTER)

And Adam, what's your excuse?

LASHINSKY:

Well, the fundamentalists wouldn't have gotten it either, but they might have been right if you had taken a fundamental look at it. It's very hard to predict a takeover by looking at the fundamentals. Really, half of the time you're going to be wrong. And you're just trading on rumor anyway. Having said that, Time Warner was very well positioned. It's got a lot of the kinds of properties, especially the cable properties and the moviemaking properties, that the Internet industry likes.

Now, having said that, at $83 a share, the stock has gotten about to where good, aggressive fundamental analysts thought it would be by the end of the year. So, it's there anyway. Could have been a good buy but didn't see the takeover coming.

BUTTNER:

OK, so you both missed this one, but now, Adam, a chance for redemption. Lots of talk about more medium mergers on the horizon. What's a possible takeover candidate? What do the fundamentals say?

LASHINSKY:

Well, as soon as this deal broke, a lot of people said

Disney

, maybe

Yahoo!

will buy Disney. After looking at the fundamentals, I really don't think so. There are a lot of pluses with Disney. It's got terrific television programming, especially that millionaire show. And it's got a great brand including Mickey Mouse, probably the best brand out there. However, plenty of minuses with Disney, especially slow growth. And it's got, you know, some high-level defections recently. And the other -- the real problem with Disney -- it's got a lot of very expensive fiscal assets. Do you really think Yahoo! wants a theme park or a cruise ship?

Having said that, they could sell it. That might make it look a little better.

BUTTNER:

OK, Gary, go ahead and chart Mickey.

SMITH:

Yeah, well as usual Adam totally misses the point here.

(LAUGHTER)

What I look for in a chart, especially one that might be a takeover candidate, is the change in tone or tenor, a long downturn that's been broken, a stock that's built a base and sprung up. With Disney, you have both.

Here you have -- I took a look at the weekly chart -- here you have a long downtrend. In fact, the double bottom also and here's a stock that has sprung up right into about the mid-30s. It's pulled back a little bit -- this past Friday I think into the low 30s. I think now is a good low-risk chance to buy. Maybe it gets bought; maybe it doesn't. But I like Disney in the low 30s. I don't like it in the high 20s. So, it's one of those nice risk/reward scenarios...

LASHINSKY:

Gary, are you saying the chart says that it's going to get taken over...?

SMITH:

Well, the chart says that something is happening...

BUTTNER:

It shows an entry point.

SMITH:

Yes, exactly. The chart says maybe it gets taken over; maybe business is turning. So, I think right now is a good time to buy Disney.

BUTTNER:

OK, Gary and Adam, thanks and we will see you again next week.

SMITH:

Thanks, Brenda.

BUTTNER:

And after a short break, Jim Cramer predicted on this show that

Intel

would hit 100. That prediction came true Friday, but is there still more upside for the stock? Stock Drill is next.

BUTTNER:

Welcome back. It's time now for Stock Drill.

Back with us is Peter Canelo from Morgan Stanley Dean Witter. The two stocks he thinks you at home should take a close look at are

Citigroup

and Intel. Peter's firm does transactions with Intel on some occasions.

Jim and Herb are also back to put those stocks to the test. Herb does not own either stock, but Jim is long Intel.

Peter, thanks for joining us again.

CANELO:

My pleasure.

BUTTNER:

OK, your first pick, financial powerhouse Citigroup, is at its 52-week high though. How much more of a run can it have in a rising interest-rate environment?

CANELO:

Well, I think the interest-rate environment is probably at a peak here. Inflation is just not coming through. I'm not sure the Fed is going to be as aggressive as other people think, and banks generally are so cheap. And this is one that's held up much better than others, and I think technically it's just breaking out.

CRAMER:

Well, Peter, I'm trying to understand the bank universe here. Why should an individual buy the one that at its 52-week high when you've got banks --

First Union

, which I do own --

Bank One

, which are so low that they would seem to represent much better value.

CANELO:

Well, you could argue that there are better values, but I think it's going to take some time to exploit them. I think institutional managers, big money managers are going to move to these first, because they know them...

CRAMER:

The best ones...

CANELO:

... they have more confidence. And I think the argument here is that the expansion of the global economy will be very good for other earnings. They're moving into the Internet. I think they are a model for a financial service firm, brokerage, banking, insurance. I think money managers are going to like this stock a lot if these interest rates settle down.

CRAMER:

OK.

BUTTNER:

Many, did the Street like Intel in its earnings report last week a lot. Do you think there's still more upside potential?

CANELO:

Oh, yes, I think half of Wall Street is still very negative on it. Let me say this: I think a lot of tech stocks have blown off for a while. But I'm so optimistic about the long-term prospects for technology that I want to buy the ones that really haven`t gone up as much...

GREENBERG:

Peter, one thing with Intel, they reported what appeared to be blowout earnings, but the quality of those earnings, when you really take a close look at it, wasn`t as high as you'd perhaps expect. What do you think about that?

CANELO:

You -- I stink you better look forward rather than backward because I think what's going to happen here, they're going to diversify the acquisitions, Level One, Dy-Logic (ph), the telecom products companies. They're going to get into networking. They're going to get...

GREENBERG:

They're getting some lower-margin businesses right now. Their gross margins are falling and some of that is from the...

CRAMER:

Gross margins aren't falling. The gross margins are holding at 61%. That's falling?

GREENBERG:

But they're expected -- I see that they're expected to fall, Jim, that there's some -- there is some concern over gross margins from some of the analysts...

CRAMER:

That isn't -- I don't know where you say they're expected to fall.

GREENBERG:

Well, from some of the analysts I read. But I'm concerned about the quality of the earnings basically because...

CRAMER:

Why, because they had venture capital...

BUTTNER:

Revenues are leading (ph) expectations...

GREENBERG:

Because the question with this company is, they have venture capital gains that they're getting from selling stocks. Is that the first...

CRAMER:

The

CMGI

all have a $50 billion market cap...

GREENBERG:

This isn't CMGI. Wait a minute, what is it? Is Intel a hedge fund or is it a chipmaking company?

Come on, Jim...

CRAMER:

The greatest manufacturer in...

GREENBERG:

It's a great manufacturer Jim, but when they're not meeting the expectations based on their chipmaking business, but from charges...

CRAMER:

I wish you could short a stock so you would short it.

CANELO:

But again, let's look forward. The combination of a global expansion, the fact that we have a new Windows 2000 program, the fact that this Y2K thing is behind us...

BUTTNER:

They've got supply problems. So,

Gateway

switched over to their rival

AMD

because they couldn't get products.

CRAMER:

Because demand is so strong.

CANELO:

Demand is so strong. Now, I think once this Y2K thing is out of the way, a lot of pent-up demand for enterprise-wide technology systems is going to come on stream and they're going to be one of the primary beneficiaries.

CRAMER:

What kind of multiple can this stock have?

We know

Sun

now changed to the astronomical (ph) multiple (ph)

Cisco

. Where -- can you give a 50, 60 multiple on Intel?

CANELO:

I think the multiple could probably expand about 25% from here or more.

BUTTNER:

Price target?

CANELO:

Well, we've just met one of our intermediate price targets, but based on multiple and the earnings prospects, I think there's another 20% in the stock easily.

BUTTNER:

All right, that's it for Stock Drill. Peter Canelo, thanks for joining us. We will be watching Citigroup and Intel to report on their progress when you visit us next.

When we come back, a stock that could almost double in the next few months. Which one is it? You need to hear predictions right after this.

BUTTNER:

OK, here's what you've been waiting for. Time for our gang here to make predictions for what's ahead in the stock market.

Back with us from

TheStreet.com

, Jim Cramer and Herb Greenberg. Also chiming in today in Washington, Gary B. Smith, and in San Francisco, Adam Lashinsky.

OK, let's start with Jim. What have you got?

CRAMER:

All right,

IBM

-- a lot of guys knocking it; I'm long it. The guys who are knocking it, they're wrong. IBM is going to report a better-than-expected quarter this week. I say stay long IBM.

BUTTNER:

Well, you love the old tech.

CRAMER:

I do love old tech.

SMITH:

You know he loves -- he loves the bottom fish is what he loves.

CRAMER:

Yes, I'm a real flounder...

(LAUGHTER)

... now it's still...

SMITH:

If it's down, he's buying it.

(LAUGHTER)

BUTTNER:

OK, Herb.

GREENBERG:

I know it's not popular to knock this fabulous company called Intel -- I'm not knocking them. But I am saying that if the quality of their earnings do not substantially improve and they don't show that they're getting so much of their money out of selling securities, Jim, that at some point people are going to notice this and they're going to -- it's going to affect the stock and the stock could fall.

BUTTNER:

They are selling a lot of their stock.

CRAMER:

I sentence him and his family to be short Intel when...

(LAUGHTER)

SMITH:

I want to be in the Herb Greenberg short fund.

(LAUGHTER)

BUTTNER:

OK, Gary B., Gary B., how about you?

SMITH:

All right, all right I took -- this is a Jim Cramer special. I took a look at the chart. I don't see what all the hullaballoo is about. I think AOL is going to be over $100 by May.

CRAMER:

Yes.

BUTTNER:

Trading in the low 60s about now. By May?

SMITH:

By May.

CRAMER:

House of pain right now, house of pleasure next year.

SMITH:

Absolutely.

BUTTNER:

OK, Adam, weigh in here.

LASHINSKY:

Microsoft, ever mindful of public relations as we saw last week, will settle its antitrust litigation with the

Justice Department

before its Feb. 17 launch of Windows 2000.

BUTTNER:

But will it...

LASHINSKY:

That's less than five weeks away.

BUTTNER:

... will it be broken up, though?

LASHINSKY:

I don't think so.

BUTTNER:

Um, what do you betting, Jim?

CRAMER:

I don't know. I'm trying to think about whether I should buy the February calls (ph) after listening to what -- I'm actually, literally thinking maybe I can get the January call (ph) -- this was a big call that was a big call that Lashinsky just had.

BUTTNER:

Right.

CRAMER:

He had a good piece earlier this week on

TheStreet.com

. I'm thinking maybe he knows something.

SMITH:

But he hedged as usual.

CRAMER:

Maybe he knows something.

SMITH:

He's hedging.

LASHINSKY:

It would run, you know, Jim, it would run up if that were to happen. Everybody knows that.

BUTTNER:

Gary, a couple of words on Microsoft.

SMITH:

Yes, well, first of all I think Adam is hedging. I love the stock though and I like the chart. I would be a buyer right now.

BUTTNER:

All right.

CRAMER:

Good...

BUTTNER:

And we want you to have the final say on those predictions. Come to our television page on

TheStreet.com

Web site. Let us know what you think.

Or you can send us a question or comment about the show. We do read and answer all of our email. And every day our columnists and reporters write for

TheStreet.com

Web site to give you the information you need to make good decisions when investing. Go to the site anytime for the best and most up-to-date stock-market information.

All next week there are some big earnings reports that could drive the market.

TheStreet.com

Web site will have the info you need to stay ahead of the game.

Thanks for joining us for this edition of "TheStreet.com." We will see you here again next week. Don't forget the markets are closed Monday for the Martin Luther King holiday. But when trading starts back up on Tuesday, we hope you invest wisely.

END

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