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February 8, 2000

Market Data as of Close, 2/7/00:

o Dow Jones Industrial Average: 10,905.79 down 58.01, -0.53%

o Nasdaq Composite Index: 4,321.77 up 77.63, 1.83%

o S&P 500: 1,423.00 down 1.37, -0.10%

o TSC Internet: 1,137.19 down 3.07, -0.27%

o Russell 2000: 532.39 up 6.87, 1.31%

o 30-Year Treasury: 97 03/32 down 31/32, yield 6.334%

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

Safeguard (SFE:NYSE)

Polo Ralph Lauren (RL:NYSE)

NBC Internet (NBCI:Nasdaq

NaviSite (NAVI:Nasdaq)

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TheStreet Recommends

In Today's Bulletin:

o Internet: Polo-NBCi Deal Heralds Convergence of E-Commerce, Media Industries
o Wrong! Tactics and Strategies: Hitchin' Their Wagons to a Star
o Evening Update: IPO Priced Above Range at $13 a Share
o Bond Focus: Auctions Ahead, Bond Prices Fall

Street Sightings

Vern Hayden will be a guest on CNBC's PowerLunch Tuesday, Feb. 8 at 12 p.m. ET.

Chat with Patrick Fitzgibbons on AOL's MarketTalk Tuesday, Feb. 8 at 3 p.m. ET. MarketTalk is hosted by Sage Online. (Keyword: PF Live)

Also on

Hardware & PCs: Goldman Tech Conference: Meet Michael Dell, B2B Entrepreneur

Dell pushes its Internet strategy as old-tech firms swarm the Net.

Internet: As Web Expands, Web-Hoster NaviSite Plows On Full Speed Ahead

The provider of outsourcing services has seen its shares jump more than 40% in a week.

Jim Sweeney: Behind the Scenes in the Bond Market

Jim Sweeney offers an insider's view of the volatile bond action last week.

Tech Savvy: Incubating Success at Safeguard Scientifics

Nurturing and then spinning out smaller firms is hardly a new idea, but Safeguard has made the most of it.

Internet: Polo-NBCi Deal Heralds Convergence of E-Commerce, Media Industries


George Mannes

Staff Reporter

2/7/00 8:31 PM ET

Polo Ralph Lauren

(RL) - Get Ralph Lauren Corporation Class A Report

has built a fortune thanks in part to an idealized version of the past. Now it's building an idealized version of the future.

Monday's deal between the apparel/home/fragrance empire and the broadcast network


could very well be a blueprint for a new relationship between advertisers on one side and broadcast networks on the other. It's not just a business relationship in which a network sells advertising and an advertiser sells products, say participants in the deal. Instead, as the world moves toward high-speed Internet connections, they say, the two sides will blur.

Advertisers with strong brands, such as Polo Ralph Lauren, will become more like media companies, and media companies such as the


(GE) - Get General Electric Company Report

-owned unit NBC will, through the Internet, jump into the retail business, which they've previously left to their clients. Assuming that media companies can find enough brands big enough to hang a lifestyle on, that means investors may start having to think of media companies as e-commerce plays.


Those moves are reflected in the terms of Monday's deal to create

Ralph Lauren Media

, which expects to launch the

Web site by the end of the year. Rather than just be a place for selling clothes, will be "a destination site dedicated to the American lifestyle" featuring original content, commerce and community, according to the companies -- the sort of description which seems to put it in the same line of business as online portals like







Meanwhile, by giving NBC and related companies a 50% stake in the venture, the deal essentially makes NBC not just a company from which Polo Ralph Lauren buys advertising time, but a retailing partner which gets a cut of the clothing, perfume and accessories that sells online.

Expect to see a lot more of these types of deals in which a media company partners with a retail brand on an Internet retail site, says


new-media analyst Christopher Dixon. He calls it a natural progression in the media business, which started out as an advertising-supported industry earlier this century, and added subscription fees with the rise of cable TV. The transaction closely resembles the deal announced last week between

USA Networks

(USAI) - Get Pacer American Energy Independence ETF Report

and the

National Basketball Association

, says Dixon, in which the two are teaming up on the NBA Store in the

Web site. "I look at these announcements," says Dixon, "as an affirmation that the Internet is becoming a bona fide mass medium." Dixon has a buy rating on USA Networks, which has been an investment banking client of his firm.

Ah, Broadband

Although high-speed Internet connections to the home aren't absolutely necessary for the NBC/Ralph Lauren deal to work, that broadband, interactive future looks important to some of the people in the deal. Doug Williams, group vice president of global business development for Polo Ralph Lauren, envisions a time when customers around the country will be able to watch the unveiling of the firm's women's collection, a privilege that's now limited to the 600 or so people attending the fashion show. He also imagines Ralph Lauren-affiliated golfers teaching online. The technology to make this work might not be widespread for three or four years, Williams says, but today is the time to create the expertise to operate in that world.

Similarly, Chris Kitze, CEO of

NBC Internet


, says the site -- chock full of material related to such Ralph Lauren-like activities like golfing, sailing and travel -- will thrive in the broadband world, one in which the images in Polo Ralph Lauren's advertising will spring to life.

"We believe there's going to be a major transformation in the Web from utility to lifestyle and entertainment," he says -- the type of material that will work well in a broadband environment. However quickly that will arrive for the general population, he says, "The real question is, What is the time it takes for the Polo audience to be

broadband enabled? ... You've got to believe it's going to be faster."

Wrong! Tactics and Strategies: Hitchin' Their Wagons to a Star


James J. Cramer

2/7/00 8:07 PM ET

The surreal world of the


went totally through the looking glass for me Monday when I ventured to the Nasdaq market site in Times Square.

There, dozens of reporters and commentators comment on the action in the Nasdaq as if we are at the nerve center for the market.

Of course, it is for show: The whole point of the Nasdaq is that there is no central place for the market. No matter, it's good theatre. Reporter after reporter stood in front of the screens talking about the Nasdaq hitting an all-time high.

I ran up there because

Fox 5 News

in New York wanted to do a little market piece with me. It was an eye-opener. Like many people in the business, I follow both Nasdaq and listed stocks. I have winners and losers on my screen.

Join the discussion on


Message Boards.

At the Times Square Nasdaq show, it was like someone had gotten rid of all of the losers. All I saw were stocks up 7 and 12 and 23 points. The parade of winners is so stark as to make me think I am an idiot to invest anywhere else.

Of course, it was a great day for the NDX. Still, when the conversation drifted to the listed stocks, I found myself thinking, once again, What's the point? The big money is all being made in the four-letter names.

Could it be that managers who formerly pegged themselves to the

S&P 500

are now, after last year's tremendous outperformance, trying to mimic the NDX? Could that be the reason for the strength?

I think so. I remember when the S&P 500 first started gaining traction as a method of investment. It used to go up just like this.


(KO) - Get Coca-Cola Company Report



(PEP) - Get PepsiCo, Inc. Report



(MRK) - Get Merck & Co., Inc. Report


Exxon Mobil


would go up day after day and nobody could figure out why the heck they were rallying. Turns out that people just wanted to get a piece of the action. And the action was in the S&P.

Now the action is in the NDX and we are seeing the same sort of move.

How long will it last?

How long did the S&P 500 move last?

Years and years and years.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. 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: IPO Priced Above Range at $13 a Share


Eileen Kinsella

Staff Reporter

2/7/00 7:56 PM ET

Merrill Lynch

priced 14 million shares of


at $13 each, above the expected range of $10 to $12. The company is an Internet retailer of goods ranging from computers to books.

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

Caliper Technologies


posted a fourth-quarter pro forma loss of 38 cents a share, narrower than the three-analyst estimate of a 42-cent loss but down form the year-ago 5-cent profit.

Cox Radio


reported fourth-quarter earnings of 30 cents a share, beating the two-analyst estimate of 28 cents and up from the year-ago 24 cents. Cox also said it set a 3-for-1 stock split.

Harleysville Group


said it will cut 370 jobs and said fourth-quarter operating profit would be well below the same quarter last year. The company said it expects to report earnings between 25 cents and 27 cents a share, well below the year-ago 49 cents. The current seven-analyst estimate calls for earnings of 27 cents.


(LZB) - Get La-Z-Boy Incorporated Report

reported third-quarter earnings of 41 cents a share, a penny ahead of the six-analyst forecast and up from the year-ago 33 cents a share. The company said the results from the latest third quarter reflect its June 1 acquisition of

Bauhaus USA

, with about $100 million in annual sales; and its Dec. 28 buy of

Alexvale Furniture

, with about $60 million in annual sales.



posted fourth-quarter earnings of 46 cents a share, which is in line with the two-analyst estimate. The year-ago report was 50 cents a share, which included a tax benefit gain.

Watsco Energy

(WSO) - Get Watsco, Inc. Report

reported fourth-quarter earnings of 13 cents a share, missing the 10-analyst estimate of 18 cents and down from the year-ago 16 cents. The company expanded its share buyback program to repurchase up to an additional 1.5 million shares.

Yankee Energy


posted first-quarter earnings of 63 cents a share, which includes a merger charge of 14 cents a share. The two-analyst estimate called for earnings of 78 cents, while the year-ago earnings were 74 cents. The company said warmer than normal weather conditions reduced earnings by 17 cents a share in the latest first quarter and 16 cents a share in the same period a year ago.

In other earnings news:


Merrill Lynch


announced a $32.5 million settlement with 14 California government agencies dubbed the "Killer Bs," wrapping up major legal actions against the brokerage stemming from Orange County's financial collapse in 1994.

The Killer Bs earned their name in 1995 when they balked at Orange County's plan to repay them for the losses incurred when the county investment pool failed. Instead they chose "Option B" and filed their own lawsuit against Merrill for its alleged involvement in the bankruptcy.

Photogen Technologies


said John Smolik resigned as chairman, CEO and president as part of a companywide restructuring. The positions will be filled on an interim basis by Timothy Scott, who previously served as vice president and COO.

Bond Focus: Auctions Ahead, Bond Prices Fall


Elizabeth Roy

Senior Writer

2/7/00 4:19 PM ET

The Treasury market lost ground today, an unsurprising development after last week's big rally and ahead of this week's auctions of new notes and bonds. Especially auctions that follow so closely on the heels of a massive repricing of the Treasury market that has many investors very confused.

Also, the pricing of a $5.25 billion corporate bond from

Vodaphone Airtouch

(VOD) - Get Vodafone Group Plc Report

-- with interesting results, in light of the recent changes in the Treasury market -- sapped demand for Treasuries.

With no economic data on the docket, bond traders focused primarily on the Treasury auctions, which start tomorrow.

The market: Join the discussion on


Message Boards.

The so-called quarterly refunding consists of three auctions: $12 billion of five-year notes tomorrow, $10 billion of 10-year notes on Wednesday and $10 billion of 30-year bonds on Friday. If dealers can push the market lower ahead of the refunding, they can pick up the new notes and bonds at lower prices. So it's standard for the Treasury market to go down before the refunding.

What's not standard is for the Treasury market to undergo a complete makeover in the weeks before the refunding. In the last few weeks, the Treasury yield curve has inverted, sending long-term yields lower than short-term yields. That has happened because short-term yields are being held up by the


, which last week hiked the

fed funds rate

and indicated it would probably do so again in the near future. Meanwhile, long-term yields moved lower after the

Treasury Department

elaborated on plans to curtail the supply of long-dated issues. Relative scarcity drove their prices disproportionately higher.

The radical shifts in Treasury valuations have some investors perplexed enough that they may stay away from this week's auctions, said Mike Franzese, a trader at

Zions First National Bank

in Jersey City. "Normally, we have good participation in the auctions from certain customers, but our sales force is not getting anything," he said.

"People are trying to find their footing," Franzese said. "Maybe the

30-year bond is decoupled from the rest of the market, or maybe the worst is behind us," and the 30-year issue will come back into a more normal position relative to its shorter-maturity counterparts.

The 30-year Treasury bond ended down 27/32 at 97 5/32, lifting its yield 6.5 basis points to 6.339%. The 10-year note fell 18/32, lifting its yield 8.3 basis points to 6.641%. The five-year note dropped 10/32, lifting its yield 8 basis points to 6.735%. And the two-year note shed 2/32, lifting its yield 3.5 basis points to 6.665%.

At the

Chicago Board of Trade

, the March

Treasury futures contract ended down 24/32 at 94 12/32.

Very light volume in Treasuries today, which is unusual before a refunding, "suggests there's probably more downside potential going into these auctions," said Ken Logan, managing analyst at

Thomson Global Markets

in Boston. Also arguing in favor of continued weakness in Treasuries is last week's big rally, which short-covering accounted for much of, Logan said. "The short squeeze probably erased a lot of the market short-based, and it probably needs to be restocked."

"I see it mainly as an unwinding,"

Barclays Capital

senior economist Henry Willmore concurred. At least some of the people who covered shorts in the Treasury market last week did so mainly as a precaution, Willmore said. "Because they didn't know how far it could go." Once the squeeze seemed to have played itself out, the selling from possibly overvalued levels could resume.

Vodaphone Rejects Long Bond as Benchmark

The Treasury yield curve may have inverted, but that doesn't mean corporate borrowers can save any money by going long.

Today's Vodaphone deal illustrated that the corporate yield curve maintains its positive slope -- longer-maturity issues yield more than shorter-maturity ones. Vodaphone sold $1.75 million of five-year bonds, $2.75 million of 10-year bonds, and $750 million of 30-year bonds. The five-years were priced to yield 7.663%, the 10-years to yield 7.84% and the 30-years to yield 7.99%. Contrast that to the Treasury curve, where the five-year note yields more than the 10-year, which yields more than the 30-year bond.

The results point up that "there's nothing really fundamental behind the

Treasury curve inversion," said John Atkins, market analyst at

. If there were, there would be some degree of participation in the trend by the other bond markets, he said.

Meanwhile, the inversion of the Treasury curve has created a problem for the corporate market. When corporate bonds are sold to investors, the key number is the spread to Treasuries; in other words, how much higher is the corporate bond's yield than a comparable Treasury's? If the Treasury curve is inverted and the corporate curve is not, spreads to Treasuries will be abnormally large for the longest-maturity issues.

To get around the problem, corporate bond underwriters started with the Vodaphone deal to price 30-year and other long-maturity corporate bonds off the 10-year Treasury rather than the 30-year Treasury. For example, Vodaphone's 30-year bonds were priced 143 basis points over the 10-year Treasury, compared to a 128-basis-point spread for the 10-year bonds. It's merely a convention and doesn't affect the issuer's cost of money. But it clearly illustrates the increasing irrelevance of the 30-year Treasury bond.

Economic Indicators

There were no economic releases today. This week's highlights are preliminary

productivity and unit labor costs

for the fourth quarter, tomorrow, and January

retail sales

on Friday.

Currency and Commodities

The dollar rose against the yen and the euro. It was lately worth 108.67 yen, up from 107.20 on Friday. The euro was worth $0.9802, down from $0.9825 on Friday.

Crude oil for March delivery at the

New York Mercantile Exchange

fell to $28.45 from $28.82 on Friday.


Bridge Commodity Research Bureau Index

fell to 211.60 from 213.24 on Friday.

Gold for April delivery at the


gave back earlier gains to close at $304.50 an ounce, down from $313.00 on Friday.


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