March 8, 2000

Market Data as of Close, 3/7/00:

o Dow Jones Industrial Average: 9,796.03 down 374.47, -3.68%

o Nasdaq Composite Index: 4,847.84 down 57.01, -1.16%

o S&P 500: 1,355.62 down 35.66, -2.56%

o TSC Internet: 1,249.30 down 3.44, -0.27%

o Russell 2000: 595.47 down 6.17, -1.03%

o 30-Year Treasury: 101 10/32 down 3/32, yield 6.148%

Companies in Today's Bulletin:

Microsoft (MSFT:Nasdaq)

VeriSign (VRSN:Nasdaq)

Network Solutions (NSOL:Nasdaq)


Qwest (Q:NYSE)

In Today's Bulletin:

o Telecom: Suitors May Be Circling Qwest Despite U S West Pact
o Wrong! Rear Echelon Revelations: Losing Control of Its Destiny
o Evening Update: Microsoft Said to Hint at Settlement Opportunity
o Bond Focus: Thanks to an Ailing Dow, Treasuries Recover, Despite Rise in Oil Prices Community:

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Mutual Funds: Fidelity Growth Company Fund Doesn't Let Girth Get in Way of Gains

The $27 billion fund is posting results that rival those of small- and mid-cap highfliers.

Silicon Babylon: What Big-Money Investors


Think of the VeriSign Deal

After private briefings with VeriSign and Network Solutions, money managers offer their thoughts on the deal.

Internet: Hopes to Make Sweet Music With Online Record Deals

At Snowbird, the digital music dot-com says it's backed by all five major record companies. Also, Lycos speaks out, and retailers share online challenges.

Internet: VeriSign Investors Cringe as Stock Retreats on Deal

But many observers think the market will get over it, allowing VeriSign to resume its winning ways.

Telecom: Suitors May Be Circling Qwest Despite U S West Pact


Scott Moritz

Staff Reporter

3/7/00 8:44 PM ET

Although it insists it's committed to completing its acquisition of

U S West





stands to entertain a slew of offers from big international telcos if it can walk away.

That reality and the company's swashbuckling history suggest a number of rival big telcom firms may yet enter the fray, pressuring Qwest to walk away from the Baby Bell. That could make the action in Qwest and U S West shares, volatile already over the last week since rumors of talks with

Deutsche Telekom

(DT) - Get Report

leaked out, more interesting still.

The prospect of Qwest being in play cannot go unnoticed by a stellar list of interested parties eyeing the U.S. market, say analysts. In three years, the company has seen its value rise sevenfold as it created a new fiber-optic network, a lead in Internet data centers and a pan-European network.

"It should be no surprise that a company with this kind of growth in such a short history is going to attract suitors," says

Thomas Weisel Partners

analyst James Linnehan, who has a strong buy on Qwest and no rating on U S West or Deutsche Telekom. Weisel has no banking ties to any of these companies.

Though Deutsche Telekom, Europe's No. 1 telco, appears to be knocking the hardest on Qwest's door, analysts say other likely suitors include Japanese giant



, the world's largest telco, and

France Telecom


. All of these companies were unavailable for comment.

The nagging question is how will Qwest release itself from its U S West agreement, which has already received shareholder approval. But Qwest didn't get to a merger agreement with U S West by honoring deals: Note its work in breaking U S West's deal with

Global Crossing


, for which Qwest paid a $400 million breakup fee. In fact, the threat of financial penalties may be a mere nuisance if it's wrapped into Qwest's costs of doing business.

"I don't think it was

CEO Joseph Nacchio's true intention to break up the U S West deal, but he did mean to get U S West folks to understand that there are avenues where the deal could be broken," says

Janco Partners

analyst Tom Friedberg, who has a buy on U S West and Qwest and no rating on Deutsche Telekom. Janco has no banking ties to any of these companies.

Deutsche Telekom's ardent pursuit of a U.S. carrier stems from its disappointing international strategy and its slipping hold on its home market since deregulation took effect in Germany in 1998. DT has rather forcefully stated that its growth objective would be to enter the U.S. market, and observers say a new-generation network such as Qwest's would be a plum acquisition.

Meanwhile, back at Qwest, merging with U S West was a questionable decision to begin with, say analysts. An Internet-type fiber-optic carrier with global aspirations had little in common with a copper wire-based, 14-state rural telco.

And U S West Chairman Solomon Trujillo's abrupt decision last month to not join the combined company, and the fact that he left $16 million in compensation on the table, perhaps bespeaks a deeper dissension in the merger process.

"I can't recall another case where someone has made that statement before the deal is done," says Michael Smith, an analyst at the

Stratecast Partners

division of

Frost Sullivan

, which consults for most of the major telecommunications companies. "For Trujillo to state in no uncertain terms that he and Nacchio couldn't come to a resolution of key differences is a clear indication of trouble."

Billionaire railroad tycoon and leading Qwest shareholder Philip Anschutz "is not someone who collects assets like trophies," concludes Friedberg. "If he can maximize his value and move on to the next thing, he will."

Wrong! Rear Echelon Revelations: Losing Control of Its Destiny


James J. Cramer

3/7/00 4:58 PM ET

Those of us who remember "Marlboro Friday" in 1993, when

Philip Morris

(MO) - Get Report

started a massive cigarette price rollback, got a shiver today when


(PG) - Get Report

spoke the truth. You really have to go back to that awful event seven years ago to remember when so many portfolio managers have been so faked out by a great American company.

Understand that this P&G thing was from left field. During the fracas when P&G was thinking about buying every drug company in the world, P&G went out of its way to reaffirm its earnings estimates. Like Philip Morris in 1993, this was just a bolt of lightning on a pretty sunny day. And if you hid under the Clorox or Colgate tress you got whacked, just as you did in the other brands in 1993.

But there was one big difference: Philip Morris brought that one on itself. P&G felt like the pitiful helpless giant hobbled by a fifth-rate power (costs) when it was on that call. P&G lost control of its destiny today, and the result was a stock that simply wilted as sure as a bar of Ivory in a rainstorm.

At the risk of sounding like a broken record, if there is more risk in P&G than






but much less reward, which are you going to be in? All of that price-to-earnings flotsam and discount-to-normalized-earnings jetsam didn't save you today.

It cost you. Big time.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Brocade. 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: Microsoft Said to Hint at Settlement Opportunity


Eileen Kinsella

Staff Reporter

3/7/00 7:53 PM ET


(MSFT) - Get Report

could have a chance to settle the antitrust case brought against it by the

Justice Department


Chase H&Q

software analyst Walter Winnitzki said following a briefing by Microsoft's new CFO, John Connors. Winnitzki told


"there was a feeling there was a near-term opportunity to have this settled, some language being given that they wouldn't have any change in culture or structure."

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

Comverse Technology


reported fourth-quarter earnings of 60 cents a share, beating the 15-analyst estimate of 57 cents and the year-ago 44 cents. The company also announced a 2-for-1 stock split.

Engage Technologies


reported a second-quarter loss of 52 cents a share, wider than the six-analyst expected loss of 49 cents and the year-ago pro forma loss of 15 cents. The company also declared a 2-for-1 stock split.


(KSS) - Get Report

posted fourth-quarter earnings of 72 cents a share, above the 18-analyst estimate of 69 cents and the year-ago 58 cents. Kohl's also said it expects comparable same-store sales growth in the mid-single digits for March and April combined. In the same period last year, Kohl's said it saw same-store sales increase an average of 10.6%. The company said it was comfortable with first-quarter earnings estimates of 24 cents to 27 cents and the 12-analyst consensus of 26 cents.

National Computer


posted fourth-quarter earnings of 35 cents a share, a penny better than the 12-analyst estimate and up from the year-ago earnings of 30 cents.

Consumer products company


(PYX) - Get Report

said it is comfortable with expectations that it will deliver strong sales and earnings growth in the first quarter of 2000 and for the year. The current six-analyst estimate is 25 cents a share for the first quarter and 85 cents for the year.

TMP Worldwide


reported fourth-quarter earnings of 15 cents a share, beating the 11-analyst estimate of 12 cents and the year-ago 5 cents.

Offerings and stock actions


(CHIR) - Get Report

said its board authorized the repurchase of up to an additional 5 million shares of its common stock.

Lehman Brothers

priced a 10 million-share IPO for

FirstWorld Communications


at $17 each, the top of the estimated $15-to-$17 range. The company provides network-based Internet, data and communications services.

General Dynamics

(GD) - Get Report

said its board voted to authorize the buyback of up to 10 million shares of the company's issued and outstanding common stock.

Taubman Centers

(TCO) - Get Report

said it will repurchase up to $50 million of its common stock.

Bond Focus: Thanks to an Ailing Dow, Treasuries Recover, Despite Rise in Oil Prices


Elizabeth Roy

Senior Writer

3/7/00 4:26 PM ET

The Dow's pain was a boon for most of the Treasury market today.

Down rather sharply early in the session, the benchmark 10-year Treasury note and shorter-maturity issues moved into positive territory once the

Dow Jones Industrial Average

factored in the far-fallen price of

Procter & Gamble

(PG) - Get Report

and never looked back.

But the erstwhile benchmark, the 30-year Treasury bond, ended lower despite the

Treasury Department's

announcement of details of its plan to buy some of its securities back from investors.

Today's only major economic report, the revision to fourth-quarter

productivity and unit labor costs

numbers, was better than expected. Nonfarm business productivity rose at a 6.4% rate during the fourth quarter, the

Bureau of Labor Statistics

reported, not 5.0% as originally estimated. That is the fastest pace since the fourth quarter of 1992, when productivity rose 7.4%. Economists polled by


had forecast a pace of 6.3% on average.

Unit labor costs, which moderate when productivity accelerates, fell at a rate of 2.5%, not 1.0% as first estimated. That's the biggest decline since the fourth quarter of 1992, when unit labor costs fell at a 3.9% rate. The consensus forecast was for a 2.2% decline.

Historically, both the stock and bond markets have rallied on improving productivity and unit labor costs data. But in his


testimony last month,



Alan Greenspan

suggested that from a bond-market perspective, rising productivity has a dark side.

Because it makes investors willing to pay higher prices for stocks, rising productivity encourages consumer spending in excess of the economy's current ability to produce, even as it works to keep the economy from overheating. That is potentially inflationary.

"The problem is that the pickup in productivity tends to create even greater increases in aggregate demand than in potential aggregate supply," Greenspan said. "This occurs principally because a rise in structural productivity growth has its counterpart in higher expectations for long-term corporate earnings. This, in turn, not only spurs business investment but also increases stock prices and the market value of assets held by households, creating additional purchasing power for which no additional goods or services have yet been produced."

So the bond market shrugged off the productivity revisions, even dropping some as the

S&P 500

futures rallied.

Then, at 9 a.m. EST, the Treasury Department announced that its first debt buyback in 70 years will take place on Thursday. Acting through the

Open Market Desk

of the

New York Fed

, the department will buy up to $1 billion of 30-year bonds maturing between February 2015 and February 2020. The department had previously announced that it would buy back up to $30 billion of securities this year, in increments of about $1 billion.

The buyback program is one of the ways the Treasury Department is dealing with the federal budget surplus, which reduces its need to issue bonds. Simply reducing new issuance has the disadvantage of impairing the liquidity of Treasury securities.

From that point on, though, the action was "all about the Dow,"

Warburg Dillon Read

Treasury market strategist Mark Mahoney said. "It helped fives and 10s, which have been stinking up the place the last couple of days, get a better bid," he said, referring to the five- and 10-year notes.

Money sometimes flows into the Treasury market when stocks sell off on the theory that a sustained decline in stock prices has the potential to limit the amount by which the Fed will raise the

fed funds rate

in the coming months.

At the same time, though, the rally in oil continued, lifting its price to a new multi-year high, with negative implications for inflation and thus for the interest-rate outlook.

The benchmark 10-year Treasury note, which traded down as much as 10/32 this morning, ended up 10/32 at 100 30/32, trimming its yield 4.3 basis points to 6.371%. The 30-year Treasury bond, down as much as 20/32 after the buyback announcement, ended down 2/32 at 101 12/32, lifting its yield a fraction of basis point to 6.148%.

At the

Chicago Board of Trade

, the June

Treasury futures contract fell 2/32 to 94 25/32.

Economic Indicators

Also today, the

BTM/Schroder Chain Store Sales Index

rose just 0.1% in the first week of March. The

Redbook Retail Average

fell 0.3% during the first week of March relative to February.

Currency and Commodities

The dollar fell against the yen and gained against the euro. It lately was worth 106.17 yen, down from 107.43 yesterday. The euro was worth $0.9589, down from $0.9592 yesterday. For more on currencies, please take a look at



Currency Watch column.

Crude oil for April delivery at the

New York Mercantile Exchange

hit $34.13 a barrel, up from $32.18 yesterday.


Bridge Commodity Research Bureau Index

rose to 215.61 from 214.49 yesterday.

Gold for April delivery at the


reached $293.70 from $289.40 yesterday.

Street Sightings:

Chat with Brenda Buttner Wednesday, March 8 at AOL's MarketTalk, hosted by Sage at 4 p.m. ET. (Keyword: AOL Live)

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