Publish date:

daily01-04-00's DAILY BULLETIN

January 5, 2000

Market Data as of Close, 1/4/00:

o Dow Jones Industrial Average: 10,997.93 down 359.58, -3.17%

o Nasdaq Composite Index: 3,901.69 down 229.46, -5.55%

o S&P 500: 1,399.42 down 55.80, -3.83%

o TSC Internet: 1,135.58 down 82.77, -6.79%

o Russell 2000: 478.38 down 18.04, -3.63%

o 30-Year Treasury: 94 20/32 up 1 02/32, yield 6.532%

Companies in Today's Bulletin:

FreeMarkets (FMKT:Nasdaq)


Yahoo! (YHOO:Nasdaq)

Qualcomm (QCOM:Nasdaq)

In Today's Bulletin:

o Brokerages/Wall Street: Nasdaq Selloff: Timing Couldn't Have Been Worse for FreeMarkets' Underwriters
o Wrong! Rear Echelon Revelations: Finn to Be Tied
o Evening Update: Compaq Inks Inacom Deal and Budget Issues Earnings Warning
o Bond Focus: Bonds Smile at Stocks' Pain; Freddie Mac Notes in Internet Sale

Also on

Wrong! Tactics and Strategies: The Anatomy of the Selloff

Cramer explores three possible reasons for the day's events.

Telecom: Nasdaq Selloff: Qualcomm Shows the Dark Side of Momentum

The party turned nasty today as last week's darling plummeted 38 points from Monday's close.

The TaskMaster: Beginning of the Mend

Yeah, it was a painful day, but some see it as just a release of recent market excess.

Internet: Nasdaq Selloff: Yahoo!'s Turbulence Illustrates the Power, and Limits, of Price Targets

The stock ended sharply lower, but not before price-target aficionados mount a pitched battle.

Brokerages/Wall Street: Nasdaq Selloff: Timing Couldn't Have Been Worse for FreeMarkets' Underwriters


Gregg Wirth

Staff Reporter

1/4/00 10:11 PM ET

All together now in

Homeric fashion:


Three underwriters of



sizzling December IPO took the opportunity Tuesday morning to start coverage on the B2B auction company with typical praise: two buys and a market outperform. It was the first day after the end of the company's 25-day quiet period, after which underwriters and companies can say what they want.

The analysts, however, barely had time to clink their glasses together before FreeMarkets

announced in a 1:30 p.m. EST press release that

General Motors

(GM) - Get Report

was going to cancel an important contract.

The news sent FreeMarkets into free fall, dropping the stock about 20% to an intraday low of 275 just one day after it hit an all-time high of 370. The stock closed at 278 1/2, down 61 15/16, or about 18%.

For the three underwriters --

Goldman Sachs

(GS) - Get Report


Donaldson Lufkin & Jenrette



Wit Capital


-- the most flattering thing that can be said is that they didn't do their homework and were just parroting the positive vibe from a successful IPO brought by their investment banking units.

"Companies pay Wall Street firms to take them public, and usually the company ends up with favorable research coverage from the Wall Street firm. It can look like a cabal between bankers and management," says Mark Latham, project coordinator for the

Corporate Monitoring Project

, a shareholder advocacy group.

Rakesh Sood, Goldman Sachs' B2B analyst who put a market outperform rating on FreeMarkets, says he was caught unawares and calls this a "peculiar situation." But he says the fact that this contract was a risk factor was spelled out in the company's IPO prospectus. Wit's Ryan Alexander admits that he too didn't know the news was coming, but adds that he's sticking with his buy rating. DLJ Internet analyst Jamie Kiggen didn't return phone calls.

Goldman was able to use its power as a lead underwriter to get FreeMarket's management team on a conference call with about 100 of Goldman's institutional clients after the announcement, Sood says. "They walked the investors through what had happened, and I think many of the investors were appreciative that the management team was available for this call," he says.

"No one is happy when something like this happens, and we certainly wouldn't have planned something like this," says Sood, adding the company's announcement took him by surprise. Goldman is still sticking by its projections for the company and views FreeMarkets as a good long-term company, he says.

Wit's Alexander acknowledges that "revenue concentration was a risk factor in this stock. But, going forward, this is still a very solid company."

And what about people who listened to his rating? Alexander declined to say whether any investors were angry with him.

The only one of the underwriting team that avoided the misfortune of jumping on the FreeMarkets bandwagon today was

Morgan Stanley

. That firm's Internet analyst, Mary Meeker, was traveling and couldn't be reached for comment.

The GM contract represented about 17% of FreeMarkets' revenue through the first nine months of last year, but that had dropped to around 10% during the last quarter, according to FreeMarkets.

In its IPO on Dec. 10, FreeMarkets shot up over 480% to close its first day at 280 after being priced at 48 on volume of almost 8 million shares.

Wrong! Rear Echelon Revelations: Finn to Be Tied


James J. Cramer

1/4/00 6:10 PM ET

We are big believers in recriminations at

Cramer Berkowitz

. So after a tough day like this one we sit down and analyze every position to figure out what we could have done better. I want to try to give you a flavor for what that's like.

Let's pick on


(NOK) - Get Report

. Understand that Nokia is one of our favorite stocks going into this year, so we are going to have a decent-sized position in the name. (People in our business call stocks "names" and talk about "playing" names. It is argot. I could say "companies" and "invest" if I wanted to class things up or fool you but that's not my style.)

So we came into the year with 35,000 shares of Nokia, which is about as small as we like to be in Nokia. Yesterday, into the weakness, we bought 15,000 more Nokia shares.

This morning we came in and Nokia was at 173, down 14 from where we bought some the day before. Understand this: Our basis internally is the price we went home with. So even though we might be up a zillion on some old Nokes, that's not how we think; we were down 14. That's a stunning hit. Again, understand, we do not regard a hit as something that is "realized." A hit is when you are down on a position from the day before.

We weren't going to sell down 14; we were going to buy. Why not sell? Because we like Nokia long term. Why not double down, or buy 50,000 more? Because we don't like to buy big chunks all at one price. That's just the way I was taught.

So we bought another 10,000 as a compromise, at 173. Later on the stock rallied to 180 and change. We then sold that 10,000 to trade around our core position. Sure enough, at the end of the day we bought that 10,000 back.

Join the discussion on


Message Boards.

Just so you know, in the world in which I live, in the horrible black-and-white binary world I have created for myself, the dialogue goes like this: "We stupidly

I want to give you the full-bore me neglected to sell all of our Nokia, go short Nokia and then short it some more and cover some at today's bell and maybe some more tomorrow. We could have made a fortune if only we had gotten it right."

Of course, I wouldn't actually go short Nokia. I like Nokia. But I am schooled in a thought that says you don't let stocks crush you -- you crush them. I am schooled in vicious second-guessing (something that my wife, Karen, the former Trading Goddess, never did).

Nokia crushed us today. Doesn't matter that I think it can go roaring back. The simple matter is that we are down 14 on 50,000 shares at the beginning of the year. We are being crushed by a Finnish phonemaker.

Until tomorrow.

And I don't like it one bit.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Nokia. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

Evening Update: Compaq Inks Inacom Deal and Budget Issues Earnings Warning


Tara Murphy

Staff Reporter

1/4/00 7:31 PM ET



said it has entered a $370 million cash deal to purchase some operating assets from



TheStreet Recommends


Compaq said it would use the purchase, which would help arrange computers for customers and handle its ordering procedure, to rival


(DELL) - Get Report

at directly selling PCs. Compaq and Inacom said they have also inked a three-year service, supply and sales pacts, which would allow the companies to offer their customers more services.



said its ongoing restructuring, which includes cutting 1,000 jobs, would result in the company assuming a onetime, fourth-quarter, pretax charge between $90 million and $95 million.

Budget said that, excluding the charge, it sees its fourth-quarter results meeting the six-analyst estimate of a 45-cent loss. Budget also said it would cut costs by leaving the car sales business and combining its

Ryder Truck

headquarters and field operations into its North American vehicle rental unit. The company said it plans to restructure its car rental business and expand its presence in Europe.

In other post-close news (earnings estimates from

First Call/Thomson Financial

; earnings reported on a diluted basis unless otherwise specified):

Mergers, acquisitions and joint ventures

Duke Energy

(DUK) - Get Report

said it has agreed to acquire

El Paso Energy



East Tennessee Natural Gas

, in a deal valued at $386.3 million.

Earnings/revenue reports and previews



said it expects to report fourth-quarter earnings between a penny to 3 cents a share, missing the three-analyst estimate of 10 cents a share.

International Specialty


warned investors that it expects to post fourth-quarter earnings between 8 cents a share to 9 cents, missing the two-analyst estimate of 21 cents. The company said it sees its 1999 fiscal earnings between 63 cents and 64 cents a share, falling below the two-analyst estimate of 79 cents. International Specialty blamed the disappointing forecasts on higher manufacturing costs and low inventory levels.

RCM Technologies

(RCMT) - Get Report

posted fourth-quarter earnings of 37 cents a share, beating the four-analyst estimate of 35 cents and up from the year-ago 30 cents.



reported first-quarter earnings of 25 cents a share, missing the six-analyst estimate of 30 cents and down from the year-ago 27 cents.



said it expects to post first-quarter earnings of 23 cents a share, edging out the six-analyst estimate of 21 cents a share. The company attributed the strong earnings to higher profit margins and sales.



reported first-quarter earnings of 39 cents a share, beating the nine-analyst estimate of 37 cents a share and up from the year-ago 31 cents a share.


New Century Energies


said its has tapped its vice chairman, president and COO Wayne Brunetti to replace its retiring chairman and CEO Bill Helton, as of Mar.1. The board appointed Helton as chairman emeritus. Brunetti is set to serve as CEO after New Century merges with

Northern States Power

and will take on the role of chairman after Northern States chairman Jim Howard leaves his post one year after the deal's closing.

For a look into this evening's after-hours trading action, please check out's

The Night Watch.

Bond Focus: Bonds Smile at Stocks' Pain; Freddie Mac Notes in Internet Sale


Elizabeth Roy

Senior Writer

1/4/00 5:40 PM ET

Bonds rocketed on heavy volume today for almost no reason other than the sharp selloff in stocks.

The stock selloff was positive for bonds because bond investors have come to see the stock market as the main determinant of what the


will do with interest rates in the months ahead.

The economy is growing too fast for the Fed's comfort -- 5.7% annualized during the third quarter -- and bond investors are afraid that if it doesn't slow of its own accord, the Fed will raise the

fed funds rate

. A rapidly rising stock market is seen as aggravating the situation by creating wealth and pumping up consumer confidence, which together fuel consumer spending, the main driver of economic growth.

The market: Join the discussion on


Message Boards.

"People have become concerned that strength in the stock market is helping to propel the growth of the economy, because it creates wealth and makes consumers happy and confident," said Kevin Logan, senior economist at

Dresdner Kleinwort Benson

. "When stocks go up, it increases the probability that the Fed's going to raise interest rates."

Fortunately for bond investors, stocks don't always go up. The huge rout they suffered today lifted bond prices smartly. The benchmark 30-year Treasury bond gained 1 1/32 to 94 20/32, trimming its yield 8.4 basis points to 6.537%. Shorter-maturity notes fared even better, shedding 9 to 11 basis points of yield.

"This is going to be the story for the next few weeks, probably: Stocks vs. bonds," Logan said.

The rout in stocks, even if it continues, won't keep the Fed from lifting the fed funds rate 25 basis points at its next meeting on Feb. 1-2, as it strongly

hinted it would after its last meeting on Dec. 21, Logan said. "They have to come through" in order to maintain their credibility, he said. But a prolonged retreat by stocks might be able to keep the Fed from instituting its first 50-basis-point hike since 1995.

Of course, it has to be noted that

yesterday's carnage in the bond market, primarily in reaction to the trouble-free passage into the 21st century, hoisted yields to their highest levels in more than two years. So perhaps it wouldn't have been surprising for buyers to enter under any circumstances.

At the same time, the negative price action in bonds lately is at least partly responsible for the downturn in stocks, particularly

bank stocks.

Also, the midday

announcement out of the White House that

Alan Greenspan

will be nominated to a fourth term as Fed chairman could only be construed as positive for bonds, since confidence in Greenspan runs high.

But at the end of the day, it was all about the stock selloff,

Morgan Stanley Dean Witter

money market economist Kevin Flanagan said. "Was there short-covering? Were we oversold? Was the Greenspan nomination positive? Sure, all that helps. But I think 90 to 95 percent of it was coming from the stock market, and any residual was coming from those other factors combined."

Freddie Mac Notes to Be Marketed Via Internet

Freddie Mac

will sell international bonds later this week in what it is calling the first such issue to be marketed via the Internet.

Freddie's five-year Reference Note, sized in the $4 billion to $6 billion range, is slated to be launched tomorrow and priced on Wednesday. In a launch, underwriters start taking investor orders for the securities.

The issue is being underwritten by

Merrill Lynch


Salomon Smith Barney


Warburg Dillon Read

. Merrill and Warburg will use Internet systems, in addition to traditional methods, to take and process investor orders for securities, company spokesman Doug Robinson said.

Kenworthy Leaves Prudential Funds Group

Barbara Kenworthy

, portfolio manager at

Prudential Investments

who has managed fixed-income investments for 30 years, resigned the mutual fund company as of Friday, Dec. 31, according to company representatives. A spokesperson said she was leaving to pursue other business interests.

Kenworthy was co-manager of

(PGVAX) - Get Report

Prudential Government Income and


Prudential Government Securities Trust/Short-Term Intermediate Series. She joined Prudential in 1994 from


, where she was president and portfolio manager of several funds. Kenworthy has been managing and analyzing U.S. and foreign bonds for 30 years, according to Pru's Web site.

Prudential Investments, based in Newark, N.J., has over $135 billion in fixed income under management.


David A. Gaffen


Copyright 2000,