After a background report, Paul Kedrosky, a professor of commerce at The University of British Columbia and a former Wall Street analyst who focused on technology, and Mike Mandel, economics editor at Businessweek magazine, discuss the "day trading" issue and it's impact on the stock market.

ELIZABETH FARNSWORTH: And some analysis now of the Internet stock momentum from Paul Kedrosky, a former "Wall Street" analyst who teaches information technology and commerce at the University of British Columbia, and Mike Mandel, economics editor at "Business Week" Magazine. Paul Kedrosky, what's your reaction to what you just saw. Do the underlying economic realities of a company like Yahoo or the other companies that Paul was talking about justify this trading that Lynn Harvey and others are doing?

PAUL KEDROSKY, University of British Columbia: Well, it's a bit of a yes and no. I mean, unfortunately, it's a bit of a circular problem. Once the stocks start moving the way that they are, they attract a lot of interest. And that interest attracts more interest. And as long as more people are coming into the stock, more people are buying, more people are getting enthusiastic, it continues to drive the stock up -- unless, unfortunately, you're the last one in and you're sort of left holding the bag with no one else to come in and help drive the stock up. I mean, that's sort of the classic problem once you get into this business of having these kinds of momentum stocks that are driven in large part by investor - understandable investor enthusiasm for a big change - but investor enthusiasm.

ELIZABETH FARNSWORTH: It sounds like you're seeing it as a mania, not necessarily as something based on real sound economic realities.

PAUL KEDROSKY: Oh, there are big changes. The metaphor I like to use is that it's kind of like El Nino din a sense. We know that El Nino is going to make big changes in sort of North American climate patterns but I wouldn't necessarily want to bet money on how a summer day in June is going to be in Tulsa, let's say this summer. But the problem with the stock market is, and Internet changes, there are big changes afoot but we're asked to make exactly those bets. You can't necessarily or easily make the kinds of broad bets. You have to bet on specific stocks. So you have to pick your winners and hope for lag. Yet, the kind of change we are talking about, this Internet change that's really, you know, transforming the way we get information, the way we trade stocks, is such a broad change that the shifts are still very hard to discern at a stock-by-stock level. It's very hard to pick winners and losers, yet, you're forced to try to do exactly that.

ELIZABETH FARNSWORTH: Is that how you see it Mike Mandel?

MIKE MANDEL, BusinessWeek: Well, the Internet stock boom is clearly a bubble but from the point of view of the economy, not all bubbles are bad.

ELIZABETH FARNSWORTH: Define bubble just briefly.

MIKE MANDEL: Well, we're having this enormous run-up where a lot of the Internet stocks have gone up 300 percent since the fall and some have gone up by 10 times. That's clearly a bubble. But what's happening is that an enormous amount of money is being moved into fund cutting edge investment and new firms -- we don't know which of them are going to pan out. But from the point of view of the economy, what we're doing is we're pushing out the frontier really fast and that can only be beneficial. Now, from the point of view of the investor, some of these people -- like the day trader -- are going to lose big. And there is really no - there's no doubt about that. But from the point of view of the economy, it's a good thing.

ELIZABETH FARNSWORTH: Mike Mandel, before we go any further, define for me an Internet company.

MIKE MANDEL: Well, there are several different types of Internet companies. There are some Internet companies like Amazon.com that are basically trying to replace old-line companies like Barnes and Noble. Then there's other types of Internet companies like Yahoo and Ebay which is the auction -- online auction company -- which are doing something new. And if you look across the whole breadth of the Internet, what you see is there's lots of different ideas out there, lots of people trying to accomplish different things. Most of these ideas will not work. But we don't know which ones will work now. And from the point of view of fast growth, the right thing to do is to fund as many of these things as possible. In fact, this is the beauty of the U.S. economy is that we're the only economy that can fund these things so fast and across such a wide array of different ideas. And I wouldn't want to see the Internet bubble stopped at this point. To the traders, I would warn them that there is going to be a big crash at the end. But if you're looking at the fundamentals of the economy, this is a plus.

ELIZABETH FARNSWORTH: Mr. Kedrosky, do most of these companies have few on employees and no profits like the ones Paul was talking about?

PAUL KEDROSKY: Yes. I mean, generally speaking that's the case. Most of these companies are, in the case of Amazon, your report gave the example of amazon not having any stores, having relatively few employees. That's the great strength in sort of the Internet model is that you can get rid of a lot of the costly things that make it, according to sort of the theory of these companies, the costly things that make it harder to be profitable. If I don't have to have stores, then I don't have to have employees in Europe to sell books there and I don't have to have stores there, shouldn't that make it much less costly for me to do business? So, one of the primary sort of selling arguments in these companies is cost reduction; that they'll help to take costs out and that should make it easier to grow, faster for them to grow and, you know, at least in theory, more profitable. But, as we've seen in the case of Amazon, the online bookseller, the top line has grown quickly but the bottom line has grown in the opposite direction at least as quickly.

ELIZABETH FARNSWORTH: Why doesn't it seem to matter that there's no profit?

PAUL KEDROSKY: Well, because people are buying futures. There is this general sense that we are all very enthusiastic about some big changes. They are affecting the people who sort of have a lot of influence on what you and I talk about. It's affecting the media and the way that the media collects information and learns about stories and transmits those stories. It's affecting the people who trade stocks, as you saw in your story. So the people who set the prices of stocks by trading them are in a kind of circular fashion, actually feeling the impact of the Internet every day so it's almost unavoidable. So this enthusiasm feeds on itself because it affects everything we do and all we learn about the stocks and how we trade the stocks, so no matter how you might want to pull back, you are confronted every day with this thing called the Internet and so people constantly look for ways to make money off this thing that's in their face all the time.

ELIZABETH FARNSWORTH: Mike Mandel, give us some historical perspective here. Is this like the end of the 19th century when the railroads changed everything about the way goods were distributed in this country?

MIKE MANDEL: It's like the end of the 19th century. It's like the 1920's when you had an explosive stock market, which was fueled by the rise of the auto industry, radio, the rise in the movie industry. And understand was that there was an enormous amount of money pouring into these new industries and the economy ended up tanking at the end. On net, the run-up of the 1920's basically created the economy of the next 50 years. And then you had the 1929 crash, which was turned into a Depression by bad policy by the Federal Reserve. But from the point of view of creating a new economy of the 1920's, this is -- what we're seeing now with the Internet boom is the closest thing we've seen since then.

ELIZABETH FARNSWORTH: But when you say that you're expecting the bubble to burst, you are not talking about a huge burst like 1929.

MIKE MANDEL: We could have a pretty big burst. I would think that we're going to have a bigger burst than people expect. The people who are day trading now expect a relatively small fall. Could you have a big fall. I don't expect it to last. I expect the long-term growth of the economy or even the medium term growth to be very good, but you can't avoid the fact that when you have runups like this, even though they're ultimately beneficial for the economy, even though they boost growth, you are running things up faster and further than they can support in the long run. This is clearly a bubble, but it's a beneficial bubble.

ELIZABETH FARNSWORTH: Interesting. Do you agree with that, Mr. Kedrosky, that it's a beneficial bubble, that it actually is working to the benefit of the whole economy in the long run?

PAUL KEDROSKY: Well, you know, that's kind of -- Joseph Schaumputer, an economist, sort of makes the same argument, that the great thing about capitalism is this kind of creative distraction. We throw a lot of cash into the system, it changes the system, good things come out the other end, so, broadly speaking, I agree with that. The particulars, good bubbles bad bubbles, there are a lot of people that are going to be hurt when inevitably many of these stocks come back to something approaching a value supported by what the business actually does as opposed to someone saying I'm an Internet company and so is my wife - it's sort of the Monty Python skit routine - and which is an awful lot of what's driving us along - it's just the use of verbiage. So when we return back to the underlying business models, an awful lot of stocks are going to crash back to earth and an awful lot of people who think they can get out quickly as the day trader interviewed earlier suggested they could, will find that just isn't going to happen. Whether they are sympathetic or not is another question.

ELIZABETH FARNSWORTH: Thank you both very much for being with us.