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February 2, 2000

Market Data as of Close, 2/1/00:

o Dow Jones Industrial Average: 11,041.05 up 100.52, 0.92%

o Nasdaq Composite Index: 4,051.98 up 111.63, 2.83%

o S&P 500: 1,409.28 up 14.82, 1.06%

o TSC Internet: 1,073.22 up 21.08, 2.00%

o Russell 2000: 503.75 up 7.52, 1.52%

o 30-Year Treasury: 96 01/32 up 23/32, yield 6.421%

Companies in Today's Bulletin: (AMZN:Nasdaq)

Cisco (CSCO:Nasdaq)

NBC Internet (NBCI:Nasdaq)

In Today's Bulletin:

o Internet: Mulling the Course of the Great Amazon
o Wrong! Tactics and Strategies: Artificial Intelligence
o Evening Update: NBC Internet Buys in Evening Action
o Bond Focus: Bonds Finish Higher, Awaiting Tomorrow's FOMC Decision

Also on

The Buysider: When the Extraordinary Becomes the Ordinary

More companies are asking us to accept investment gains as a part of their ongoing business.

IPOs: IPOs Post Another Record, Raising $3.7 Billion in January

But the strong action now could hurt down the road, some observers say.

The TaskMaster: A Gilded Edge adds big-name bankers for its secondary offering, likely boosting its chances for success.

Tish on Tech: Rest in Peace, PCs

The demise of the PC has been predicted for years, making current hand-wringing seem sort of silly.

Internet: Mulling the Course of the Great Amazon


Joe Bousquin

Staff Reporter

2/1/00 7:54 PM ET

Recent moves have


facing an unusual question as its Wednesday afternoon quarter financial report looms: Just where is the online bookseller going?

In the last week, Amazon has laid off 150 employees, a first at the Seattle-based bookseller and e-tailer. At the same time, the company has inked a flurry of deals with smaller e-tailers that will boost revenue for Amazon and traffic for its partners. Those actions arose soon after Amazon warned

last month that rising fourth-quarter revenue wouldn't aid profit margins.

For some, the convergence of those events has injected an unpleasant amount of uncertainty into a stock that was once seemingly invincible. And analysts say Amazon's stock, which has dropped 25% since Jan. 3 despite a 4.5% jump Tuesday, may slide more before it stops its tumble. This means that, once more, the actual numbers in the quarterly report will be of secondary importance.

Scared Straight


First Call/Thomson Financial

consensus of 28 analysts calls for a loss of 48 cents per share for Amazon's fourth quarter. But as is often the case with richly valued dot-coms, Amazon faces the prospect it will have to outperform simply to avoid taking a big hit in the stock market.

"This thing's scaring me to death," says Abel Garcia, manager of the $3.7 billion



Science & Technology fund, which holds Amazon shares. "I think they may be trying to do too many things at once."

For Garcia, last week's layoffs were particularly disconcerting. He points to the conflicting signals sent by layoffs at an expanding company.

"I'm a little confused; it sends kind of a mixed message," Garcia says. "Normally, growth companies aren't supposed to lay people off."

Raft of Deals

Meanwhile, Amazon has strung together a raft of deals in the last two months. The latest came on Tuesday, when Amazon roped

into a deal to pay Amazon $145 million over five years in exchange for an investment from Amazon and prominent real estate (read, access to Amazon's 16 million customers) on the bookseller's site. The deal follows similar arrangements with

(Monday, for $30 million over three years),

(Jan. 24, for $105 million over three years) and

(Jan. 21, for $82.5 million over five years). In December, Amazon announced an investment in


Analysts have generally been positive on these deals. But the analysts also raise questions about the company's inability to make money in its core e-tailing business. In short, why does Amazon the online bookseller have to act like Amazon the online investment bank to book high-margin revenue? Accordingly, Sara Farley, an analyst at


, says the deals themselves deserve scrutiny.

"One of things we're looking at with those deals is how long they can last, because they've put those companies in some pretty formidable positions," says Farley, who has a neutral rating on the stock and whose firm hasn't done underwriting for the company. " is paying Amazon $105 million over the next three years. They'll have to gain a heck of a lot of customers for the deal just to get $105 million in revenue."

Currying Favor

So what does the company say to all this? Bill Curry, Amazon's spokesman, says the $23 billion market-cap company is still in the "investment phase" of its business. "The only thing I can reiterate is that the fundamental strategy has not changed," Curry says. "Even as a result of the events of last week, we are still going toward our goal to be the leading destination for e-commerce."

Garcia, the mutual fund manager, isn't sure what to believe.

"I may add to my position if they get killed after earnings, but there's so much spin on this, I just don't know."

"I don't think all the uncertainty is priced into the stock," adds Henry Blodget, the Internet analyst at

Merrill Lynch

who made a widely bullish (and correct) call on the stock in December 1998. "But I also think it's certainly possible that they could have some unexpected good news on Wednesday." Blodget rates the stock accumulate, and his firm hasn't done underwriting for

One thing investors can be sure of: Amazon will need to answer a lot of questions -- convincingly -- on Wednesday to clear the air.

Wrong! Tactics and Strategies: Artificial Intelligence


James J. Cramer

2/1/00 10:03 PM ET

The toughest thing about days like today is the pure artificiality of it.

We know, for example, that



wasn't rallying 7 points because someone got all fired up about a big fat router. We know that Cisco, a week before a quarterly report, isn't talking. This is a company that plays by the rules. It's tight as a drum at Cisco right now.

It was pure program buying that drove it.

But here is our favorite stock rallying a lucky 7 and what are we supposed to do? Today at 3:45 p.m. we had the most surreal debate on the trading desk. Some of us wanted to sell stock at the bell with the idea of buying it back lower once the buy program was completed.

Others, namely me, regarded it as heretical. I am willing to bet that either through artificial program buying or through real demand, Cisco will see these levels again -- if not go higher. So what is the point of selling?

We compromised and let a little go.

Join the discussion on


Message Boards.

In markets that are heavily driven by programs because the program buyers and sellers are machines that don't have to be sensitive to price or discipline, it is extremely difficult to keep good stocks on.

The real challenge is to keep your good stocks and sell your losers, or the ones that can't move if everything goes right. You think you can buy these stocks lower after the programs are completed but sometimes you


get a chance to buy back the good ones.

We know that Cisco is a stock that trades in clumps. Other than that miserable pullback on Oct. 7, 1998, a result of that wrong


downgrade, there hasn't been much of an opportunity to sink your teeth into some cheap Cisco. All of the big clumps have been like today, when the stock looked like it would never look back.

So we were torn today. As I write tonight on the way home from work I worry about many things, but my biggest worry is that Cisco


retreat and I won't get to replace that stock I sold at the bell.

Guess you can say that's a high-quality problem.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Cisco. 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: NBC Internet Buys in Evening Action


Tara Murphy

Staff Reporter

2/1/00 8:10 PM ET

NBC Internet


said it has agreed to purchase privately held small business Web site

, in a stock deal worth roughly $225 million. The terms also call for NBC Internet to take's outstanding options. The deal should be completed in the first quarter. The acquisition comes in the wake of the boom in Internet B2B services.



reported fourth-quarter earnings of 4 cents a share, edging out the four-analyst breakeven estimate and up from the year-ago basic loss of 45 cents. The company also set a 3-for-1 stock split.

In other postclose news (earnings estimates from

First Call/Thomson Financial

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

Mergers, acquisitions and joint ventures

Aspect Communications


said it has entered a $55 million cash deal to purchase closely held software company


. Aspect said that as a result of the acquisition, it expects to assume a one-time, post-tax first-quarter charge between 7 cents to 13 cents a share. The deal calls for Aspect to buy all PakNetX common and preferred shares and warrants and convert PakNetX's stock options into Aspect options.

Earnings/revenue reports and previews



reported fourth-quarter earnings of 39 cents a share, beating the five analyst estimate of 36 cents and up from the year-ago 26-cent profit, which included items. Despite the solid fourth-quarter results, the company warned investors that it might miss the first-quarter three-analyst estimate of 30 cents a share due to severe weather conditions and integration problems effecting productivity.

Commscope said it remained confident however, that it would meet the seven-analyst estimate of $1.53 a share for fiscal 2000.

Copper Mountain


said it posted fourth-quarter earnings of 13 cents a share, beating the eight-analyst estimate of 8 cents a share and up from the year-ago pro forma profit of 4 cents.

Integrated Electric Services


warned investors that its would report first-quarter earnings between 6 cents to 8 cents a share, greatly missing the eight-analyst estimate of 33 cents a share. The company blamed project setbacks and market conditions for the disappointing outlook.

Leucadia National


said it sold its 10% equity interest in

Jordan Telecommunication Products

and will record a pretax $25 million gain in the first quarter.



reported pro forma second-quarter earnings of 20 cents a share, edging out the six-analyst estimate of 19 cents and up from the pro forma year-ago profit of 16 cents. The company also said it would assume a one-time third-quarter charge between $10 million to $12 million to broaden its online learning services.

Offerings and stock actions

Brush Wellman


said it would form a publicly traded parent company for its businesses. According to the plan, Brush Wellman and its other domestic and global investments would become fully owned divisions of the new parent which would be known as

Brush Engineered Materials




said it set a 2-for-1 stock split.

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

The Night Watch.

Bond Focus: Bonds Finish Higher, Awaiting Tomorrow's FOMC Decision


David A. Gaffen

Staff Reporter

2/1/00 4:16 PM ET

Treasuries galloped back today after sagging in Monday trading, rising in what strategists described as a position-building session ahead of the results of the

Federal Open Market Committee's

two-day meeting, which began today.

After a mild selloff following the release of the strong

Purchasing Managers' Index

, the market regained its footing. The PMI showed its highest reading for its prices paid component in almost five years.

The 30-year Treasury was lately up 21/32 to 95 29/32. The yield fell 5 basis points to 6.436%. The 10-year note was up 10/32 to 6.62%. The five-year note, up 2/32, still has the highest yield on the Treasury yield curve, at 6.669%, and the two-year note was up 1/32 to 6.596%. A rally in European bond markets also contributed to the upswing, according to sources.

All 30 primary dealers polled by


are expecting a 25-point hike in the

fed funds rate

tomorrow, to 5.75%.

"The market is preparing for a relief trade," said Tony Crescenzi, chief fixed income strategist at

Miller Tabak

. "They feel the Fed is going to go 25, and there could be a trade higher. It could catch some people short." Today's strength was somewhat typical of a market readying itself for a Fed meeting -- particularly after it overreacted in the weeks leading to the meeting on jitters over a potential 50-basis-point hike. Realism having asserted itself, its now regarded as a very slim possibility. Mike McGlone, vice president at

Aubrey G. Lanston

, said the market isn't ready for 50 basis points.

After tomorrow's meeting, it may have to start weighing the possibility that the Fed may get more aggressive, if historical patterns regarding the

National Association of Purchasing Management's

index hold true.

The PMI fell to 56.3 in January from a revised 56.8 reading in December. However, the prices-paid component, which measures what manufacturers are paying for goods used in production, soared to 72.6 in January from 68.3 in December. The survey shows price inflation is emerging in manufacturers' production costs.

This is the highest reading for the price-paid index since April 1995, when the index hit 74.5. In 1994, the index surpassed 70, and late 1994 the prices-paid index breached 80 four straight times, coinciding with an aggressive round of Fed tightening. The same happened in 1988, according to David Orr, chief capital markets economist at

First Union


"This adds to the likelihood that in March we'll follow with another

Fed increase," said Orr.

The NAPM index indicates expansion when above 50 and contraction when below 50.

Fed officials, in comments, have warned of impending hikes, but they've been careful to intimate that the committee's approach will probably be gradual, to avoid destabilizing the markets. (


previewed the Fed meeting in a

story earlier today.)

Speculators Way Short

However, some may be thrown off course if the Fed hikes just 25 basis points, and traders will be there to take advantage. The

Chicago Board of Trade's

Jan. 25

Commitments of Traders

report shows a record short position among speculators in the bond market, who are historically lousy at timing the market. According to the report, provided by the

Commodity Futures Trading Commission

, noncommercial traders are net short 71,094 contracts, an all-time high, compared with 61,020 for the week ended Jan. 18.

The CFTC measures exposure to futures by hedgers (also active in the bond market and use futures to hedge their risk) and speculators (not active in the bond market and who absorb risk from hedgers). If the speculators are forced to cover their short positions, it would compound a relief rally.

"Many are taking that report seriously," said Crescenzi. "It's the type of information that leads people to think that there's going to be more short-covering if Fed does just 25. Last time it hit a record in

October, the market followed with a 5-point rally."

European bond markets rallied overnight due to a decline in the


Eurozone PMI, its version of the

Purchasing Managers' Index

, which was down in January to 55.6 from 57.7 in December. The yield on 10-year German Bunds fell to 5.46% from 5.52% yesterday. The yield on 10-year British gilts dropped to 5.59% from 5.72%.


Senate Banking Committee

approved the renomination of



Alan Greenspan

, sending it on to the full Senate for confirmation Thursday.

Traders are also looking forward to tomorrow's refunding announcement. The

Treasury Department

will announce details of its quarterly refunding auction, which will include the sale of five-year, 10-year and 30-year Treasuries the second week of February.

Economic Indicators

The 72.6 reading for the prices-paid component marked the fifth consecutive month the prices-paid index has been over 60, and the ninth month in a row over 50. In January, 42% of purchasing executives reported paying higher prices and 5% reported paying lower prices, according to NAPM's


Multiple components of the index, however, declined in January, including employment, supplier deliveries, exports and imports.

Construction spending

increased 2% for the month of December, according to the

Census Bureau

. Economists as polled by


were expecting no change. The value of construction put in place increased to a seasonally adjusted annual rate of $730.3 billion in December, up from a revised $716 billion in November. November's 2% gain was a downward revision from an original 2.6% gain.



weekly chain store sales report was down 0.2% for last week, after a 1% increase the previous week. The

Redbook Retail

average was revised down to a 1.6% gain in sales for the month through Sunday, vs. December, compared with 1.7% last week.

Currencies and Commodities

The bond market was supported by the recent rise in the dollar against the yen, lately at 107.79 from 107.40 yesterday. The dollar fell against the euro, with the euro recently at $0.9725 from $0.9693 yesterday.

Crude oil for March delivery at the

New York Mercantile Exchange

rose to $28.30 a barrel from $27.64 yesterday.


Bridge Commodity Research Bureau Index

fell to 209.71 from 201.46 yesterday.

Gold for April delivery at the


was lately down, at 285.4 from 286.2 yesterday.


Street Sightings

Adam Lashinsky will be hosting ZDTV's Silicon Spin Wednesday, Feb. 2. See the community page for more information.

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