April 3, 2000

Market Data as of Close, 3/31/00:

o Dow Jones Industrial Average: 10,921.92 down 58.33, -0.53%

o Nasdaq Composite Index: 4,572.83 up 114.94, 2.58%

o S&P 500: 1,498.58 up 10.66, 0.72%

o TSC Internet: 1,107.07 up 11.73, 1.07%

o Russell 2000: 539.09 up 7.52, 1.41%

o 30-Year Treasury: 105 25/32 up 17/32, yield 5.846%

In Today's Bulletin:

o Editor's Letter: The Coming Week on TSC
o Software: Microsoft Stock Likely To Be Judged This Week Too
o The Coming Week: Better Than Hell
o The Coming Week in Europe: Disconnected

Also on

Wrong! Dispatches from the Front: An Ill Wind Blows Down Microsoft Lane

The failure to reach a settlement means no good for anyone.

Tech Savvy: The Next Big, and Probably Bad, Week for Microsoft

The failed negotiations don't bode well for the company, tech stocks in general, and probably the market overall.

This Week in IPOs: Scientists Successfully Clone Biotech IPO

Biotechs are being carbon-copied like sheep, but wireless deals are where the money is this week.

The Coming Week in Asia: Getting More Confident



, a key economic report, will likely show that Japanese firms are less gloomy.

Editor's Letter: The Coming Week on



Dave Kansas


4/2/00 1:15 PM ET

Can the market get any crazier? Sometimes one wonders. After a brief respite, it was wildly volatile again last week. Tech stocks got slammed and the


swooned. What does the future hold? More trouble, or a return to the bull market path? As ever, we'll focus our coverage on finding the answer to that all-important question.

With the quarter-end comes the highly anticipated earnings season. While

Alan Greenspan

and his fellow


heads will try to grab the spotlight, market attention will most certainly start to focus on corporate profits. By most accounts, the numbers should look strong. But in the current environment, forward-looking thoughts will be more important than ever. Our staff of reporters and columnists will be keeping a keen eye on the earnings picture as the season comes into focus.

Sometimes I wonder if this crazy market action stems from the impending tax day. Many investors are grappling with unfamiliar tax issues, and that may have some pulling money out in anticipation of paying off Uncle Sam. In order to help you better understand complex tax situations,

Tracy Byrnes

, our resident tax expert, and

Martin Nissenbaum


Ernst & Young

will host a chat on Tuesday, April 4 at 5 p.m. ET. The chat is free, but you need to register at

Many of you expressed interest in our

Online Broker Survey. If you haven't yet checked it out, I encourage you to do so. It's a comprehensive analysis of your votes -- the biggest ever survey of online investors. While other surveys pontificate from on high, our survey reflects the views held by investors like you. We'll continue to monitor the online brokers, and if you have input please feel free to send it in to us at

From the market to your broker, we're focused on making sure you get the information you require to be a better investor. If you have any questions, comments or suggestions, feel free to email me at I'll always respond, and I'll do my best to make sure your issues get addressed.

In the meantime, get ready for another exciting week of investing with!

L'Etoile du Nord

Dave Kansas


Dave Kansas is editor-in-chief of In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

Software: Microsoft Stock Likely To Be Judged This Week Too


Angela Privin

Staff Reporter

4/2/00 9:18 PM ET


(MSFT) - Get Report

will likely face two rulings this week -- one from a federal judge and one from investors. Both are likely to be harsh.

Analysts expect the software maker's stock will get smacked by investor concerns about the severity of Judge Thomas Penfield Jackson's ruling, which could come as early as Monday, in the ongoing antitrust suit brought by the

Justice Department

. Judge Jackson's ruling became a virtual certainty Saturday when a federal mediator gave up his efforts to steer Microsoft and government attorneys, which include 19 state attorneys general, toward a settlement. (


wrote Saturday about the talks ending.)

And of course, Judge Jackson most likely will find that Microsoft broke the law, given that he last year issued findings of fact that severely criticized the company's business practices. He then would hold other hearings to determine the company's punishment.

Meanwhile, Microsoft's stock had risen on hopes that the company would reach a settlement with the government and head off penalties such as a breakup, considered the most severe possibility. The stock climbed 2.9% from March 22, just before settlement talks

heated up, to March 31, while the


fell 6%.

Microsoft's weakness would come at a tough time for the market. It's already volatile, and tech stocks took a beating last week, with the Nasdaq falling 7.9%. The


, of which Microsoft is also a part, would feel the weakness too if the Redmond, Wash.-based company's stock slumps. The Dow slipped 1.7% last week.

Some analysts, however, see the stock's hit as a proverbial chance to buy. "The stock will trade down initially, but this is a tremendous buying opportunity," says Sanjiv Hingorani, an analyst at

Brown Brothers Harriman

in New York. Hingorani is sticking to his short- and long-term buy ratings. (Brown Brothers doesn't underwrite stocks.)

But uncertainty hung heavy over Microsoft's stock for months as investors awaited Judge Jackson's ruling and then watched to see whether the two sides would reach a settlement. And the appeals process most likely will bring with it more uncertainty.

Microsoft on Saturday indicated that it was readying itself for appeals. In a statement, CEO

Steve Ballmer

said, "We continue to believe that we have a strong legal case, and that the judicial system will ultimately rule in our favor."

William Epifanio, an analyst at

J.P. Morgan

, figures that Microsoft's stock will settle into a trading range after its initial hit and until the company files its first appeal. (J.P. Morgan hasn't performed recent underwriting for Microsoft.)

"There will be many more stages of appeals," adds Chis Galvin, an analyst with

Chase H&Q

, which hasn't performed recent underwriting for Microsoft.

But over time, some analysts are betting that investors will grow weary of the appeals process.

"When the appeal process starts, we will see some relief in the stock price," says Epifanio, who believes appeals will start this summer.

"When investors realize that this will be a lengthy process, the stock will again start to trade on company fundamentals, which are quite good,'' adds Hingorani. According to


, analysts expect that Microsoft's earnings will climb 21% this fiscal year, which ends in June, and 15% in fiscal 2001.

Some analysts even wonder whether the appellant courts will be more lenient than Judge Jackson. But even that is uncertain. "This is a tough one because we are not talking about fundaments, but legal outcome, which we can only speculate about," says J.P. Morgan's Epifanio.

The question will be whether this is just too much uncertainty for investors.

The Coming Week: Better Than Hell


Justin Lahart

Associate Editor

3/31/00 7:12 PM ET

When Wall Street filled out its last ticket, turned off the screen and pushed its chair back under the desk on Friday, it was in no mood for reflecting on the week that had been, with its crushing selling in anything tech.

It was in no mood for thinking about how fund managers had raced to get recently fallen highfliers off their books before quarter end, nor was it in the mood for trying to figure out what role margin calls may have played in the downturn.

The only thing it was in the mood for, really, was a good stiff drink.

And there we'll leave it, sitting at the bar at the Whitehorse Tavern, playing "Lyin' Eyes" over and over again on the jukebox and waiting for its friends from


, who promised they would show up.

The coming week will probably be better. Many weak holders -- investors who were piling into the market for a quick buck -- have been shaken out, and all those fund managers who were busy selling to spruce up their end-of-quarter statements will be looking to put new cash to work.

But though things may settle, it is probably a mistake to think that things will go back to the way they were before. The latest shakeout suggests that the days of indiscriminate gains in hot sectors are probably over. The market's focus has changed.

Thursday, when the

Nasdaq Composite

fell 4% while the

New York Stock Exchange Composite

only slipped 0.6%, a crucial day for John Bollinger, president of


"There are two ways a market can go down," he explained. "Money can be withdrawn or money can be rotated. Money came out of the Nasdaq stocks, but it didn't go to the sidelines. That rotation was enough to prevent the decline from spreading beyond the Nasdaq."

Bollinger laid a lot of the blame for the selloff on portfolio managers who, he said "didn't want to show how much they relied on high-tech and volatile issues, so they bought quality growth." He reckons that move into quality growth -- companies that are growing quickly, but in a more quantifiable manner (e.g. they have


) -- will probably persist.

Bollinger is not alone in thinking this.

"You basically had a market that has gone through kind of a blowoff in tech stocks," said Rao Chalasani, chief investment strategist at

First Union Securities

. "At the same time, you're looking at the discovery of the Old Economy stocks."

Chalasani thinks there are some choppy days ahead, but if the Nasdaq can hold recent levels it can stabilize and move up -- but not in the same manner that it did in the fourth quarter and early this year. "If the Nasdaq makes a new high, it will be based on higher quality stocks going up, not the whole market going up," he said.

Counting Jobs

The economic event of the week will probably be the March

employment report

, but it will be hard to make sense of. The problem is that starting in March, the U.S. Census goes on a hiring spree, and that can wreak havoc with the numbers.

"We're looking for a headline of 400,000 jobs added, but for 110,000 of those to be predictions," said Mike Cloherty, senior economist at

Credit Suisse First Boston

. Not that he is brimming with confidence in this forecast.

"Nobody has a good grip on when these people hit the data," he said. "The Street forecasts are all over the place." He's not kidding.

Morgan Stanley Dean Witter

reckons that 300,000 jobs were added.

Salomon Smith Barney

, an incredible 625,000.

The Coming Week in Europe: Disconnected


Marc Young

German Correspondent

4/1/00 12:30 AM ET

BERLIN -- Connecting to the Internet is all about speed. Unfortunately, the initial public offering of

Deutsche Telekom's

(DT) - Get Report

Internet unit,


, didn't come fast enough.

The beginning of the subscription period for shares of Europe's largest Internet service provider, to occur in the coming week, follows closely on the heels of some spectacular IPO flops for some of Europe's top Web companies. Dutch ISP

World Online

, U.K. travel site

and portal and search engine

Lycos Europe

have all dipped below their initial prices despite the incredible amount of hype surrounding each company's stock market debut.

The T-Online share sale will come in the form of a capital increase, with the funds earmarked for expansion of its present 5 million-strong customer base. Well established in German-speaking countries, T-Online will likely try to expand aggressively in other parts of Europe.

Deutsche Telekom should have little problem selling the 100 million shares -- which account for 9% of the total -- even though some analysts are calling T-Online's expected issue price of around 35 euros ($33) too high. Deutsche Telekom's big name and massive marketing effort should ensure that the sale is many times oversubscribed. However, the current malaise that has hit European Web stocks certainly will be on many investors' minds as T-Online begins to trade on the Neuer Markt in Frankfurt on April 17.

"The prevailing Internet euphoria is no longer sufficient to buoy the price of every issue indiscriminately," says Robert Halver, an equity strategist for

Delbrueck Asset Management

in Frankfurt. "The selection of specific issues in the growth segment is of decisive importance." Although Delbrueck has no investment banking relationship with Deutsche Telekom, the company remains one of Halver's top sector picks.

The initial sale of Deutsche Telekom shares a few years ago is widely regarded as a key event in fostering Germany's fledgling equity culture. Since then, German investors have embraced technology and telecommunication shares, just like their U.S. brethren. Only a few weeks ago big-name IPOs were seen as a way to make easy money by many first-time equity investors. The





, more than doubled on its first day of trading in early March in an initial offering more than 33 times oversubscribed.

Now, only weeks later, T-Online will still likely have a successful IPO, but it won't be the cakewalk it once might have been. Should Deutsche Telekom get greedy and set a price the market considers too high, T-Online could quickly be punished just as the other high-profile European Web stocks were.

Copyright 2000,