Publish date:

daily03-30-00's DAILY BULLETIN

March 31, 2000

Market Data as of Close, 3/30/00:

o Dow Jones Industrial Average: 10,980.25 down 38.47, -0.35%

o Nasdaq Composite Index: 4,457.89 down 186.78, -4.02%

o S&P 500: 1,487.92 down 20.60, -1.37%

o TSC Internet: 1,095.34 down 28.74, -2.56%

o Russell 2000: 531.57 down 11.43, -2.10%

o 30-Year Treasury: 105 08/32 up 1 13/32, yield 5.873%

Companies in Today's Bulletin:

Intel (INTC:Nasdaq)

Wesley Jessen VisionCare (WJCO:Nasdaq)

Bausch & Lomb's (BOL:NYSE)

Ocular Sciences (OCLR:Nasdaq)

Webvan (WBVN:Nasdaq)

HomeGrocer (HOMG:Nasdaq)

In Today's Bulletin:

o IPOs:'s Challenge: Turning the Last Mile Into the Green Mile
o Wrong! Tactics and Strategies: Cramer Knows It's Carnage
o Evening Update: Evening Update: Intel Sees $600 Million Decrease in Tax Provision
o Bond Focus: Treasury Yields at New Lows for the Year

"" on the Fox News Channel:

Don't miss "" as guest Thomas Madden, executive vice presidentand chief investment officer at Federated Investors, joins our panel ofwriters for this week's show. "" is on Fox News ChannelSaturdays at 10 a.m. and 6 p.m. ET and Sundays at 10 a.m. ET.

Also on

Telecom: Daytrader Charged With Concocting Press Release That Sent Lucent Stock Tumbling

Fred Moldofsky, 43, was arrested Thursday in Houston on criminal fraud charges filed by the U.S. attorney in Manhattan.

Market Roundup: Heading Straight for Brick Wall, Nasdaq Hits Brakes Right Before the Crash

The day was pretty ugly, but looked a lot worse 30 minutes before the close.

Wing Tips: What Does Julian Robertson Know About US Airways?

Something is making him hold onto those shares, a fact that intrigues this columnist.

Internet: Yahoo! Drops on FTC Inquiry

The Internet company's consumer information practices are being investigated.

IPOs:'s Challenge: Turning the Last Mile Into the Green Mile


Katherine Hobson and

Beth Kwon

Staff Reporters

3/30/00 2:59 PM ET

If you live in certain (fabulously lucky) metro areas and get an attack of the munchies, you can go to

and, within an hour, for a buck and change, receive a bag of

Jelly Bellies

via bicycle messenger.

As the company prepares to raise about $150 million in an IPO, it had better hope there are very few customers who take it up on that offer.

Kozmo's candy conundrum illustrates the central problem in the so-called last mile of e-commerce: While plenty of people love to get stuff at their homes or offices, it's awfully tough to make money delivering the goods unless you do

a lot

of sales. And recently, investors have shown little tolerance for the huge initial capital investments, and subsequent losses, that these companies produce.

Considering recent market conditions for similar e-commerce stocks, IPO watchers are skeptical that Kozmo's deal will be greeted with open wallets. Online grocers






are both under water after their recent IPOs. And



is searching for the

cash it needs to avoid going under.

The Hard Sell

"I don't think is going to be that easy of a sell," says Vinnie Slavin, a sales trader who tracks IPOs for

Cantor Fitzgerald

. "It's a very big deal to give to a bunch of guys riding around on bicycles. It's a helluva valuation put on bicycle messengers." (He's not just being figurative; some messengers do get options.) Kozmo wasn't immediately available for comment.

Even so, almost everyone agrees there's some sort of demand for last-mile e-commerce. "It's inevitable," says Andrew Mann, a fund manager with

Eureka Capital

, which has a stake in Peapod. "Too many people want it to happen."

The question is whether you can make money doing this. Take Kozmo, for example. According to documents filed with the

Securities and Exchange Commission

, in 1999 the company had revenue of $3.5 million, split about evenly between merchandise sales and video rentals. Gross profit was $1.5 million, giving it gross margins of 43%. Pretty good, no? No. Kozmo doesn't count delivery in its cost of goods sold. Add those (somewhat important) costs into the mix, and the margin plummets to minus 50%. Whoops.

Kozmo isn't helped by the fact that its average order size is only about $15, says Ken Cassar, analyst with

Jupiter Communications

. To make this kind of delivery service financially viable, it's key to increase order size or to figure out a more efficient delivery system to make all those little orders worthwhile. Evie Black Dykema, an analyst with

Forrester Research

, recommended in a recent research brief that Kozmo boost prices, the same way convenience stores charge more than supermarkets.

Bicycle Race

Geography is another question mark. Kozmo plans to expand beyond its existing NYC, Seattle, San Francisco, Boston, Washington, D.C., and Los Angeles markets into 10 more, and analysts say it will be interesting to see how demand -- and costs -- shake out. "Bikes are only feasible in New York City and a few other areas, and when you talk about cars, you're getting into much higher costs," says Darren Chervitz, senior analyst with the

Jacob Internet Fund

, which hasn't invested in any of the last-mile companies.

A competitor,


, now operates only in New York, though it, too, is planning to expand (and go public, though it hasn't set a timeline). Urbanfetch says its average order is $50, thanks to a focus on higher-end items like Palm Pilots and gift certificates. (In a recent court dispute, now settled, Kozmo accused Urbanfetch of stealing its business model after posing as a potential investor.)

To its credit, Kozmo has the backing of

(AMZN) - Get Report


Chase Venture Capital Associates



. (Another

Chase Manhattan



Chase Capital Partners

, and Softbank are investors in


, publisher of this Web site.) And it has alliances with


(SBUX) - Get Report

(for video drop boxes) and

Ticketmaster Online-CitySearch



Everything Must Go

But even brand-name support can't help a stock in an ailing sector. "It's a brutal market to go out now," says Tom Taulli, an IPO analyst with

. "You look at Webvan and they've got a hot all-star team, lots of money -- and the stock is at distressed levels right now."

Kozmo's IPO will hardly be the last word on the last-mile companies. This sector continues to attract new ventures:

offers meal delivery and is testing a movie-delivery program with


(BBI) - Get Report

, while

, a Bay Area start-up, plans to offer dry cleaning pick-up and delivery (plus environmentally safe cleaning techniques). And the online grocers continue to soldier on.

But under current market conditions, investors are talking about the last-mile companies more like a particularly interesting science experiment rather than a stellar investment opportunity. And "interesting" and a buck fifty will get you a subway token. Or, if you prefer, a box of candy from Kozmo.

Wrong! Tactics and Strategies: Cramer Knows It's Carnage


James J. Cramer

3/30/00 6:26 PM ET

We could sense carnage today. It comes in strange forms.

Friends who don't Instant Message you back. An unwillingness among people to joke or laugh about some of the declines. A belief that

Julian Robertson

would get the last laugh as he took a tremendous swipe at the market, similar to the unanswered right uppercut

Mark Mobius

threw at the market the day before. (Again, don't take it out on


. Do you mean it shouldn't try to get in to see Julian Robertson? Do you mean it shouldn't have let him talk about what drove him from the business?)

We saw some people lose their years in these last few days. People who were up 60%, 70%, 80% now struggling to stay ahead of the


. Fund managers who figured that this week would be a frolic now can't believe the amount of devastation that can be wrought in four days worth of trading.

And of course we saw people who were so afraid to pay the tax man on Monday now have that worry taken away -- you don't have to pay taxes on capital losses.

Could these add up to a fear bottom? I don't know. So much damage has been done to so many stocks that I can't believe we just go right back up. Stranger things have happened, however, and we are headed into earnings, which, at least for the fundamental few in what seems now like a technically driven retail world, should be very strong.

Carnage breeds rationality, but only if you stay in the game. If you took a lot off the table -- as we did and we talked

about -- it seemed right to buy a slug of stock today. I guess we will know real soon, though, as these days our trading days start at 4:30 a.m. with plenty of action in the


(NOK) - Get Report

and the



and the




See you then.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Nokia and Sonera. 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: Evening Update: Intel Sees $600 Million Decrease in Tax Provision


TST Recommends

Tara Murphy

Staff Reporter

3/30/00 9:10 PM ET


(INTC) - Get Report

said an

Internal Revenue Service

review of its tax returns throughout 1998 would end in revisions that would slice its first-quarter tax provision by $600 million, or 17 cents a share. The semiconductor chipmaker attributed the revisions to an "intercompany allocation of profits." Excluding the $600 million reduction, Intel's fiscal 2000 tax-rate forecast of 31.7% remains intact. Intel expects its first-quarter earnings will beat the 33-analyst estimate of 69 cents a share.

Wesley Jessen VisionCare


said it turned down

Bausch & Lomb's


$34-a-share bid for the company, citing its dedication to its proposed $562 million stock deal with

Ocular Sciences

(OCLR) - Get Report

. Wesley Jessen said Bausch & Lomb's offer doesn't top Ocular's bid, which according to Wesley, would create about $30 million in cost savings.

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

Advanced Micro Devices

(AMD) - Get Report

said it has opted not to sell its network product division because of growing demand. The chipmaker said it would still sell certain communications product unit assets. The unit supplies integrated circuits for telecom infrastructure programs.


Federal Communications Commission

gave its final OK to the merger of

Bell Atlantic



Vodafone AirTouch's

(VOD) - Get Report

wireless businesses. According to the FCC, the joint venture will operate under Bell Atlantic's



Infonet Services



Deutsche Telekom

(DT) - Get Report

agreed to a five-year deal that calls for Infonet's global network services to be sold under the Deutsche Telekom brand name. According to the companies, the deal would mean a $1 billion increase in revenues for Infonet.


Justice Department

gave its stamp of approval for



to acquire the

San Francisco Chronicle

, after Hearst sells the


to a local publisher,




Federal Communications Commission

said it gave the thumbs up to

VoiceStream Wireless


acquisition of

Aerial Communications


. VoiceStream has already closed its purchase of


and said the three merged companies would provide service to more than 200 million customers.

Earnings/revenue reports

Dave & Buster's


reported fourth-quarter earnings of 30 cents a share, beating the six-analyst estimate of 25 cents but down from the year-ago 39-cent profit.

Hutchinson Technology


warned investors that it would post a second-quarter loss between 40 cents to 45 cents a share, which includes a 3-cent restructuring charge. The five-analyst estimate expects the disk drive supplier to report a 24-cents loss.



warned investors that it would post second-quarter earnings between 13 cents to 15 cents a share, greatly missing the three-analyst estimate of 46 cents a share. The labor management systems supplier blamed the shortfall on slow orders following the aftermath of Y2K concerns.

Orbital Sciences


, a space systems maker, warned investors that it would post a fourth-quarter loss between 48 cents to 55 cents a share, wider than the nine-analyst estimate of a 38-cent loss. The company said the results for the quarter and year would be postponed due to an accounting discrepancy. Orbital expects to post a loss for fiscal 2000 between $2.05 to $3.25 a share, also wider than the nine-analyst estimate of $1.41 loss.



cautioned investors that it could report first-quarter earnings between $1.20 a share to $1.25, possibly missing the six-analyst estimate of $1.25 a share.

Union Carbide


Chairman and CEO William Joyce said its first-quarter earnings would edge out the two-analyst estimate of 54 cents a share, forecasting that the report would come in closer to its fourth quarter's 68-cent profit. The company is set to be acquired by

Dow Chemical

(DOW) - Get Report


The U.S. attorney's office said that a daytrader who submitted a fake press release to a



message board, triggering a decline in

Lucent Technologies


share price, was charged with securities fraud. Fred Molodofsky was presented in a federal court in Houston, Texas, after he allegedly posted a phony press release, which mimicked Lucent's first-quarter earnings warning from Jan. 6, warning investors that Lucent would miss earnings estimates. According to prosecutors, Lucent shares suffered a 3.6% decline one day after the release went up. Molodofsky traded 6,000 shares of the company the day he posted the release.

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

The Night Watch.

Bond Focus: Treasury Yields at New Lows for the Year


Elizabeth Roy

Senior Writer

3/30/00 5:45 PM ET

The Treasury market got a huge lift today from falling stock prices and widening credit spreads, which are taken at least in part as signs of impending economic weakness. The rally pushed intermediate and long-term Treasury yields to new lows for the year.

The move occurred in spite of a big upward revision to the fourth-quarter economic growth rate. In its final revision to the data series, the government concluded that


grew at a 7.3% rate during the fourth quarter, the fastest pace since the first quarter of 1984, when it grew at a 9.0% rate. The previous estimate was 6.9%. Economists polled by


had forecast a revision to 7.0% on average.

As the

Nasdaq Composite Index

tumbled in its fifth-largest point loss ever, the benchmark 10-year Treasury note gained 23/32 to 103 9/32, dropping its yield 9.6 basis points to 6.053%, the lowest since Nov. 17. The 30-year Treasury bond surged 1 12/32 to 105 7/32, cropping its yield 9.5 basis points to 5.878%, the lowest since May 28.

Only the two-year Treasury note's yield remained in its recent range, though it too declined substantially. The two-year note gained 5/32 to 100 1/32, dropping its yield 8.3 basis points to 6.483%. The two-year note is more directly influenced by the

fed funds rate

, which stands at 6% and is expected to rise to at least 6.25%, than longer-maturity issues are.

At the

Chicago Board of Trade

, the June

Treasury futures contract gained 1 3/32 to 97 6/32.

Falling stock prices benefit the Treasury market through a variety of intersecting channels. Some of the money that left the stock market presumably flowed into the bond market. Also, fear of additional losses in the stock market makes Treasuries, where losses happen on a smaller scale, more appealing as an alternative. Finally, falling stock prices invite speculation that economic growth will slow significantly, a scenario under which bonds should outperform.

The Treasury market also benefited from pain in the riskier bond markets, especially the agency bond market. Swap spreads, a proxy for the risky bond markets, have been scaling to new heights every day for the last week, indicating loss of appetite for those products.

It's not unusual for swap spreads to widen when the stock market is aching. But some Treasury market analysts remain hesitant to embrace widening swap spreads as a positive sign for their market, in part because exogenous factors have been affecting swap spreads, and in part because much of the evidence shows that the economy continues to grow at a rapid clip.

"Trends and probabilities tell you the market can't do much better in light of economic conditions," said Tony Crescenzi, chief bond market analyst at

Miller Tabak

. And yet, it feels very risky to bet against the Treasury market when the stock market is wobbling, swap and credit spreads are widening, and long-term yields are lower than short-term yields -- a sign that some investors see even lower long-term yields ahead. Crescenzi described his current view as "bearish, but with respect for these signals that could become very meaningful."

To boot, Crescenzi said, heavy volume in the cash bond market today and yesterday shows that "you do have real money behind this trade," as opposed to being a speculative, futures-driven phenomenon.

The problem is that at least a portion of the underperformance of risky bonds is attributable to factors that Crescenzi says have "no predictive value." Chief among them: government initiatives to reevaluate the advantages that agency issuers enjoy over other corporate issuers.

In the meantime, even people who are bullish on Treasuries over the long term (through, say, the end of the year) are having trouble justifying current prices. "I think the market's in very good shape in the months ahead, but it's ahead of itself on a near-term basis," said Michael Krauss, chief technical strategist at

Chase Securities


Krauss sees the 10-year note's yield at 5.75% at year-end, and the 30-year's at 5.50%. "But I wouldn't be surprised if the next 20 basis points were toward higher yields." The initiatives to reduce the supply of Treasuries "will maintain an underlying bid, but the market has come too far too fast in the month of March," Krauss said.

A move up in yields over the next six weeks wouldn't be surprising, Krauss added. Historically, Treasury yields have often risen through April and into May, when the Treasury's quarterly auctions of new notes and bonds roll around. The impending supply causes prices to fall.

Economic Indicators

In other economic news, the weekly tally of

initial jobless claims

rose slightly to 266,000 from a revised 263,000 the previous week. But the four-week average of first-time claims for unemployment insurance dropped to a new generational low of 268,000, indicating that the labor market remains extremely tight.

Also, the

Help-Wanted Index

slipped to 88 in February from 89 in January. A year ago it stood at 93.

Currency and Commodities

The dollar weakened against the yen and the euro. It lately was worth 105.44 yen, down from 105.73. The euro was worth $0.9612, up from $0.9514. For more on currencies, please take a look at



Currency Watch column.

Crude oil for May delivery at the

New York Mercantile Exchange

rose to $26.70 a barrel from $26.45.


Bridge Commodity Research Bureau Index

rose to 211.39 from 210.31.

Gold for April delivery at the


rose to $279.10 an ounce from $278.70.


Copyright 2000,