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  • Author:
  • Publish date:'s DAILY BULLETIN

January 28, 2000

Market Data as of Close, 1/27/00:

o Dow Jones Industrial Average: 11,028.02 down 4.97, -0.05%

o Nasdaq Composite Index: 4,039.56 down 30.35, -0.75%

o S&P 500: 1,398.56 down 5.53, -0.39%

o TSC Internet: 1,140.73 down 4.95, -0.43%

o Russell 2000: 517.02 down 4.02, -0.77%

o 30-Year Treasury: 94 27/32 up 23/32, yield 6.525%

Companies in Today's Bulletin:

SanDisk (SNDK:Nasdaq)

Dell (DELL:Nasdaq)

Mannesmann (MNNSY:Nasdaq ADR)

America Online (AOL:NYSE)

In Today's Bulletin:

Scroll to Continue

TheStreet Recommends

o Hardware & PCs: Half-Hearted Selloff in Dell Points to PC Makers' Unfashionability
o Wrong! Dispatches from the Front: Heavy, Heavy Lifting
o Evening Update: Mannesmann Said in Talks on AOL Europe Stake; Gillette Meets Lowered Estimates
o Bond Focus: Yield Curve Inverts as Bonds Enjoy Equities' Decline

Also on

The Speculator's Corner: *New* When New Beginnings Meet Old Realities

The euphoria of the new century is actually part of an age-old cycle of hope and disappointment -- and the smart trader knows it.

The Buysider: AT&T Looks Grim in a Post-AOL/TWX World

Call him a cynic, but the Buysider doubts Armstrong's grand vision will mean real dollars for shareholders.

Europe: Europe Seeks to Link Multinational Dot-Coms With a Single


While generally supported, the proposal must first pass through a sea of red tape.

James K. Galbraith: The Credit, Where Credit Is Due

Like all Golden Ages, this one will come to an end.

Hardware & PCs: Half-Hearted Selloff in Dell Points to PC Makers' Unfashionability


Eric Moskowitz

Senior Writer

1/27/00 5:13 PM ET

Thursday served up another suggestion that the PC makers are the graybeards of tech, slipping into their stock-market dotage as investors' gaze continues to shift to young, high-octane telecom and Internet stocks.

Thus investors' lukewarm reaction Thursday to


(DELL) - Get Dell Technologies Inc. Class C Report

earnings warning Wednesday. In ultraheavy volume of 123 million shares, the stock slipped 7% after the company disclosed for the second quarter in a row that it wouldn't meet Wall Street's earnings estimates. The reaction duplicates the reaction to Dell's third-quarter warning of a few months ago, and stands in contrast to


(QCOM) - Get QUALCOMM Incorporated Report

steep 16% drop Wednesday following its own profit warning.

The relative restraint in the selloff also suggests momentum players are mostly out of the stock, raising the question of whether these stocks can expect a good run-up even if the companies do execute their business plans and if

Windows 2000

, for instance, has a successful launch.

Hip and Irrelevant

"I think the overall mosaic with Dell,






is that the PC business is becoming less relevant, if not irrelevant," said Jeff Matthews, a money manager at

Ram Partners

. Ram Partners is short Dell.

To wit: Even the PC makers that saw their stocks rally in the last year or so can attribute investors' enthusiasm to something other than their core businesses. Like disk-drive maker



, which jumped late last year as investors caught on to its VC relationships with a couple of New Tech highfliers, these companies are seen as caught in a commodity business whose next major phase is likely in some eyes to involve massive consolidation.

"I might be long a few of those stocks, but I won't be for long," says one money manager who requested anonymity and is long Dell,


(AAPL) - Get Apple Inc. Report

and Compaq. "I like investing in stocks that will be strong three to five years from now and so do many of my colleagues."

As in any maturing industry, consolidation has begun: Compaq recently bought most of computer distributor



assets, and rumors continue to swirl on the Street of a



-Compaq merger. Meanwhile, the recently strong PC stocks are seen as benefiting primarily from non-PC initiatives such as Gateway's beyond-the-box Internet strategy.

Bletchey Park

The one company that had the most evolutionary business model, Dell, is kind of an enigma right now to investors, who don't seem to know what to do with this former bellwether. Even analysts seem puzzled.

Merrill Lynch

analyst Steve Milunovich's office mistakenly put out a Dell downgrade alert Thursday morning, only to hastily replace it with an upgrade. Dell spiked up in December from 40 to 52, but fell back to 40 when investors correctly assumed that Gateway's Jan. 5 fourth-quarter preannouncement would affect Dell as well.

H-P, meanwhile, is set to report its first-quarter earnings Feb. 16, and no one quite knows what to expect. Its stock has been running up in anticipation of a strong second half of its fiscal year, but former CEO Lew Platt promised investors a robust second half early last year and it

failed to occur. The

magic of new H-P CEO Carly Fiorina seems to be overshadowing any investor concerns over meeting earnings and revenue expectations this fiscal year, which ends in September.

Work Cut Out

But if recent PC earnings news means anything -- Gateway, Dell and


(IBM) - Get International Business Machines Corporation Report

already have preannounced or reported weak earnings -- H-P is going to have one heck of a struggle to meet earnings expectations next month. Consensus estimates are for 78 cents a share, up less than 1% from the 75 cents a share it reported one year ago.

Of course, a few quarters of Windows 2000-fueled growth could give PC makers another reason to crow in the second half of the year, says

SoundView Technology Group

analyst Mark Specker, who has a buy rating on Dell and whose firm has done no company underwriting. "It's really an interesting opportunity, but I don't think we're quite out of the woods yet."

Woods? It's been more like a blizzard out there, with investors preferring to stay on the sidelines and wait for this PC storm to break. If it ever does.

Wrong! Dispatches from the Front: Heavy, Heavy Lifting


James J. Cramer

1/27/00 3:40 PM ET

The market is wearing people down. A lot of secondaries out there are coming back to haunt people. Lot of merchandise for sale. The tech trades, the little ones in the boxmakers the traders wanted, had to come off cause they weren't working. And we are digging in our heels on the financials and the drugs, the nontech stuff, which are largely unscathed today.

And we are back to building up our faves with wide scales. Picked up a little



down 10. Bidding for some


(NOK) - Get Nokia Corporation Sponsored American Depositary Shares Report

. Will soon bid 135 for




Join the discussion on


Message Boards.

I know, it doesn't inspire confidence. But it is tough to feel confident when everyone feels he is lugging stock and heavily favored names like

JDS Uniphase





can't lift.

Advantage: Bears!


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long JDS Uniphase, Motorola, Nokia and Tibco. 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: Mannesmann Said in Talks on AOL Europe Stake; Gillette Meets Lowered Estimates


Eileen Kinsella

Staff Reporter

1/27/00 9:52 PM ET



is in early talks about taking a minority stake in

AOL Europe

, the Friday edition of the

Financial Times

reported. AOL Europe is half owned by

America Online


and half by German media group


. While an equity stake in AOL Europe would not block

Vodafone AirTouch's

(VOD) - Get Vodafone Group Plc Report

offer, it would help Mannesmann's arguments that it could become dominant in the European Internet market, the




(G) - Get Genpact Limited Report

posted fourth-quarter earnings of 32 cents a share, in line with the lowered 13-analyst

First Call/Thomson Financial

estimate but down from the year-ago 39 cents. Fourth-quarter sales were $3.03 billion, down 4% from $3.17 billion in the year-ago period. Gillette said that excluding unfavorable foreign exchange rates, sales were "virtually unchanged" compared with the year-ago period.

Inflows continued to equity funds, totaling $8 billion for the week ended yesterday, according to

AMG Data Services

. Technology funds received inflows of $2.2 billion, their largest in absolute or percentage terms ever. Aggressive growth fund inflows continued to accelerate while international equity funds reported inflows. Asian emerging markets sectors showed outflows. Taxable bond funds continued to report outflows, which totaled $2.1 billion, but outflows from high-yield bond funds declined.

In other postclose news (

earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified


Earnings/revenue reports and previews

ADAC Laboratories


reported first-quarter operating earnings of 3 cents a share, missing the three-analyst estimate of 5 cents and the year-ago earnings of 18 cents.

Adaptive Broadband

(ADAP) - Get Adaptimmune Therapeutics plc Report

posted a second-quarter loss of 15 cents a share, which excludes a premium, narrower than the seven-analyst estimate. The company also set a 2-for-1 stock split.

American Annuity


said it expects to see a fourth-quarter after-tax charge of about 15 cents a share, related to a realignment within the company's operating units.

Banco Rio

(BRS) - Get Bristow Group Inc. Report

reported fourth-quarter earnings of 19.6 cents an ADR, roughly in line with the eight-analyst estimate of 20 cents.

First Data

(FDC) - Get First Data Corporation Class A Report

reported fourth-quarter earnings of 55 cents a share excluding items, a penny better than the 13-analyst forecast, and up from the year-ago earnings of 48 cents. The results were overshadowed by an accidental release of the company's outlook filed a day early with the

Securities and Exchange Commission

. The company said it expects to deliver earnings per share in the range of $1.95 to $2.02. But that was not a surprise as details of the company's outlook, meant for disclosure to investors at a conference at the


in New York tomorrow, were posted in an SEC Form 8-K today.

Indus International


said it expected a loss in the fourth-quarter and had lowered third-quarter profits amid an in-depth review of its financial results. A preliminary review of its third-quarter revenue practices showed it overstated revenues by about $5 million, all of which was related to licensing fees.



posted a net loss, before charges of 17 cents a share, narrower than the four-analyst expected loss of 19 cents a share, but wider than the year-ago loss of 13 cents.

PP&L Resources

(PPL) - Get PPL Corporation Report

said it sees 2001 earnings of $2.95 to $3.00 a share, above the 12-analyst estimate of $2.65.

Sterling Commerce

(SE) - Get Sea Limited American Depositary Shares each representing one Class A Report

said it expects earnings of 33 cents to 34 cents a share for the first quarter and expects a $50 million charge related to the sale of its


business unit. Including the charge, the company said it expects a loss of 27 cents to 28 cents a share. The 13-analyst estimate calls for earnings of 31 cents.

Veritas Software

(VRTS) - Get Virtus Investment Partners Inc. Report

posted fourth-quarter pro forma net income, which excludes purchase accounting adjustments, of 18 cents a share, ahead of the 24-analyst estimate of 15 cents and up from the year-ago 9 cents. The company also set a 3-for-2 stock split.

In other earnings news:

Mergers, acquisitions and joint ventures

Merger partners

Bell Atlantic




(GTE) - Get Gran Tierra Energy Inc. Report

offered, as expected, to spin off most of GTE's Internet business to gain regulatory approval for their deal.

Separately, Bell Atlantic said it won a contract worth up to $1.4 billion from the

Government Services Administration

, to provide telecommunication services to U.S. federal government agencies in the Washington area.

First Commerce Bancshares


said it is in discussions with

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

which might lead to its acquisition. The talks currently place a value on First Commerce of about $480 million, or about $36 a share. Shares closed up 5 7/8, or 19.6%, to 37 today in regular trading.

SBS Broadcasting



United Pan-Europe Communications


will invest another $162 million in SBS. UPC will purchase another 3 million common shares for $54.125 a share in cash in a private placement, increasing UPC's stake to about 18%, or about 6 million common shares.

Offerings and stock actions

Centennial Bancorp


set an 11-for-10 stock split. The extra shares will be made available on March 3, to shareholders of record Feb. 11.

EverTrust Financial


set a buyback of up to 449,313, or 5%, of its outstanding shares.

InterTrust Technologies


set a 2-for-1 stock split for shareholders of record Feb. 10.

Suncor Energy

(SU) - Get Suncor Energy Inc. Report

set a 2-for-1 stock split and said it would add to a major expansion of its business by spending $525 million on the current operation and starting up a new one nearby.

Bond Focus: Yield Curve Inverts as Bonds Enjoy Equities' Decline


David A. Gaffen

Staff Reporter

1/27/00 4:24 PM ET

The bond market crossed the

streams today.

Another day of outperformance by the benchmark Treasury bond caused inversion in the yield spread between two-year notes and 30-year bonds after the futures closed at 3 p.m. EST, a sign strategists often take to indicate that the economy will slow in coming months. It comes one

day after the 30-year bond rallied to yield less than the five-year note, and it's the first time the two-year/30-year spread has inverted since June 1990.

At 3:30 p.m., the twos/30s spread was just barely inverted, with the two-year note yielding 6.51% and the 30-year bond yielding 6.508%. That's down from an 11-basis-point difference at 8:30 a.m. this morning. Treasuries, which spent most of the day underwater, recovered in the afternoon due to a dive in the equity market. The 30-year Treasury was lately up 27/32 to 95 1/32, with the yield down 6.2 basis points to 6.508%. The 10-year note was down 5/32 to yield 6.68% and the five-year note was down 8/32 to yield 6.65%.

Historically, an inverted yield curve signals the market's anticipation of tighter, more restrictive Fed policy, low inflation and a slowing economy. But with the

Treasury Department

planning on buying back $30 billion in long-dated securities later this year, demand for falling supply has been the dominant

theme expressed as the 30-year bond rallied to yield less than the 10-year note and five-year note.

"I would look at fives and 10s as the market," said Michael Krauss, chief technical strategist at

Chase Securities

. "They are not acting well at all. The Fed still has a loaded gun and the bond market does not have a lot of upside."

But with the inversion impending, there was more talk about the market's expectations for the economy and the

Federal Reserve

. (Inversion means the longer-dated security yields less than the shorter-dated security.)

"Everyone is discounting the fact that it might be a reflection of a rational response to a potentially aggressive Fed action," said Mitch Stapley, chief fixed income officer at

Kent Funds

in Grand Rapids, Mich. "With a twos/30s inversion, fundamentals are more driving the long end than simply these technical things."

With the

fed funds futures

traded on the

Chicago Board of Trade

pricing in 75 basis points of Fed rate hikes by July, it's hard to argue that the market doesn't expect forceful action from the Fed. Though the Fed is taking a gradualist approach by raising the fed funds target 25 basis points at a time, officials' public comments seem to indicate determination to slow the economy.

"The Fed probably will take an inverted curve as meaning they need not overdo it here," said Peter Kretzmer, senior economist at

Bank of America

. "They'll have confidence that their medicine is starting to work."

But the gradualist approach, according to Krauss, while ultimately achieving the Fed's goal of draining a bit of economic strength, isn't going to give the Treasury market relief soon. He thinks long bond yields will rise to 6.80% to 6.90% before improving in the summer.

"It's not bullish for the right reasons historically," said Krauss. "This is the first time we've ever had buybacks. Right now, this is not bullish because the Fed is being very gradual."

The market is awaiting tomorrow's one-two combo of the fourth quarter

Employment Cost Index

, an important measure of wage inflation, and the fourth-quarter



CME to List Agency Options


Chicago Mercantile Exchange


said it plans to list new contracts tied to the growing market for notes issued by the country's largest home lending agencies. The new five- and ten-year agency note futures and options contracts will be sized at $100,000 and listed with quarterly expirations. It plans to launch the contracts during the first quarter. The announcement comes after the CBOT made a similar

announcement this week.

Economic Indicators

The market initially weakened after a 4.1% increase in

durable goods orders

for December, which far outpaced the market's expectation for a 0.8% increase, according to


. The strength in durable goods is inflated due to an incredible 16.2% increase in transportation orders in December after a 3.8% decrease in November. Orders for civilian aircraft were the chief reason for the 16.2% increase. Those orders increased 53.3% in December, and that's extremely unlikely to be repeated two months in a row.

Excluding transportation, orders rose 0.7%, after a revised 2.5% increase in November. Excluding defense, orders were up 3.5%. On a year-over-year basis, durable orders rose 8.9%, according to the

Commerce Department



initial jobless claims

rose 1,000 to 266,000 from a revised 265,000, which becomes the lowest reading for claims since December 1973. Economists were expecting 278,000 in jobless claims, according to


. The four-week moving average fell to 288,000 from a revised 290,250 the previous week.


Conference Board's

help-wanted index

rose to 86 in December from 85 in November.

The ECI is expected to rise 0.9% in the fourth quarter, according to


consensus estimates. "I think the ECI will be fairly benign," said Kretzmer. "If that occurs, the trend we see will continue, in terms of the curve flattening and inverting."

Currencies and Commodities

The dollar was stronger against the euro and weaker against the yen. It fell to 105.09 yen, from 105.71 yesterday. The euro fell below parity with the dollar and continued to weaken, lately at $0.9881, from $1.0009 yesterday.

Crude oil for March delivery at the

New York Mercantile Exchange

fell to $27.32 a barrel, from $27.84 yesterday.


Bridge Commodity Research Bureau Index

rose to 211.69 from 211.08 yesterday.

Gold for February delivery at the


rose to 287.1 from 286.5 yesterday.


Street Sightings

James J. Cramer will be on Fox News Channel Friday, January 28 at 7 a.m. ET "Fox & Friends;" 5 p.m. ET on "Your World with Neil Cavuto;" and 7 p.m. ET and "Fox Report with Shepard Smith."

Copyright 2000,