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daily04-11-00's DAILY BULLETIN

April 12, 2000

Market Data as of Close, 4/11/00:

o Dow Jones Industrial Average: 11,287.08 up 100.52, 0.90%

o Nasdaq Composite Index: 4,055.90 down 132.30, -3.16%

o S&P 500: 1,500.59 down 3.87, -0.26%

o TSC Internet: 905.84 down 54.21, -5.65%

o Russell 2000: 510.13 down 8.53, -1.64%

o 30-Year Treasury: 106 26/32 down 1 17/32, yield 5.772%

Companies in Today's Bulletin:


Johnson & Johnson (JNJ:NYSE)

Honeywell (HON:NYSE)

Cisco (CSCO:Nasdaq)

In Today's Bulletin:

o Market Features: Nothing to Fear but the Fearlessness
o Wrong! Tactics and Strategies: Dreading the Margin Factor
o Evening Update: Hog Heaven! Harley Roars During First Quarter
o Bond Focus: Treasuries Walloped as Agencies Finally Find Buyers

Also on

Nothing but Net: Tech and Net Sectors Finish Down in a Sea of Red

Motorola announced it would not meet Wall Street's expectations for the second quarter.

Semiconductors: AMD Chips Away at Intel but Skepticism Still Lingers

With sales of 1.2 million high-priced chips, AMD's first-quarter revenue will break $1 billion for the first time.

Mutual Funds: Manager Hopes Elian Gonzalez Saga Means New Beginning for Cuba Fund

The closed-end Caribbean Basin fund doesn't invest in Cuba yet, but it will if the 38-year embargo ends.

Health Care: Rite Aid Soars After Winning $1 Billion Credit Line

The credit line will give the chain over $600 million for general working capital which will support turnaround plans.

Market Roundup: Nasdaq Slips Into Red for the Year, Tech Still the Culprit

The Comp looked like it was on the comeback trail, but just couldn't sustain it.

Market Features: Nothing to Fear but the Fearlessness


Justin Lahart

Associate Editor

4/11/00 8:43 PM ET

Warren Buffet

hasn't gotten a lot of respect lately, but something he once said gets to the heart of the market's current problem: "We're scared when everyone is greedy. We're greedy when everyone is scared."

Greed was certainly in ascendance this past winter and fall -- at least in the technology, media and telecom names that have come to be called, variously, TMT or New Economy stocks. From its Oct. 18 low to its March 10 high, the

Nasdaq Composite

gained in excess of 87%. It was a phenomenal run, one that drew even naysayers into its updraft.


Merrill Lynch

did its monthly poll of fund managers in March, it found that U.S. professionals were heavily invested in technology and communications services, despite twice as many believing these stocks were overvalued as those nonbelieving. Cash positions were low.

The April poll, released Tuesday, showed how much things have changed. Technology, though still loved, was not as loved as financial stocks. Communications stocks were no longer in the running. "They're moving away from the growth cyclicals and moving toward defensive stocks and things like pharmaceuticals," notes Merrill global strategist Owain Evans. "They're raising their cash positions."

In short, the fund managers have gotten more bearish -- and not just in word, but in deed. In the world of Wall Street, that is a good thing. It suggests that people are beginning to get scared and, as Mr. Buffett said, that's a good time to get greedy.

The problem, however, is that people were so incredibly bullish. Although sentiment has worsened, investors are still quite positive.

"They are getting more nervous, but only on a relative basis," says John Bollinger, president of

. "There was tremendous bullishness in the system. It's going to take quite a while to work off that severe overbought reading."

Bollinger and a lot of other market watchers have been paying careful attention to the options arena and the ratio of puts to calls. A put makes you money on the way down while a call makes you money on the way up.

In the contrarian world of market sentiment, the higher the put/call ratio the better, because it means that if enough investors are aware of market weakness and seeking protective puts, that the end surely must be near. That, in the past, has made this ratio a good way to judge market sentiment.

At the market bottom in the fall of 1998, and again this past fall, the put/call ratio spiked higher, marking the severe negativity that had come into the marketplace and, as it turned out, excellent buying opportunities.

Where's the Fear?
Equity Puts vs. Calls

Source: McMillan Analysis

Yet, nothing like that happened in the recent selloff.

"When we saw that big plunge a week ago, we didn't see any corresponding increase in demand for puts," says Todd Clark, head of listed trading at

W.R. Hambrecht

. "That's a big problem."

It suggests that, despite the big tech selloff, the fear that often marks the best buying point has yet to come. And that seems to correspond well with the general sense among Wall Streeters of how things are going.

"There's always been a great deal of optimism in these stocks, and I'm not sure that there's been a wholesale dumping in the issues," says


market strategist Steve Goldman. He notes that Nasdaq volume has lightened considerably, belying a general lack of interest in buying techs. "After the bottom-fishers come in, and you've had a bounce, who's going to take the ball from there?"

Yet if Wall Street is worried, it is even more confused. The differences in stock performance are severe. Although the Nasdaq is nearly 20% below its highs, the

NYSE Composite

-- the Nasdaq's Big Board counterpart -- is approaching last summer's highs.

In a market where stocks in general no longer move up and down with each other, it is unclear whether indicators such as the put/call ratio are valid. It does not help that recent volatility has made put options on Nasdaq stocks prohibitively expensive.

If there is a problem in the stock market, it may be that uncertainty itself. When money constantly shifts from one sector to the next, and then back again, it's hard to know where to put your chips.

"People just don't feel like they can figure out what's going on," Clark says. "Until you can get this rotational psychology out of the market, I think it's going to stay very, very choppy."

Wrong! Tactics and Strategies: Dreading the Margin Factor


James J. Cramer

4/11/00 3:49 PM ET

Can't rave about the action. Still feel good about

the buy in the semis away from



, but I sense that there are margin clerks on the prowl in that nasty B2B world, and those stocks seem to know no bottom.

It looks like every marginal dollar from

Commerce One





is going into






. That's fine short-term, but it is getting a little hairy for those who are in the so-called strong new stocks like






. There is a real panic going on in these stocks and there is not enough buying power to keep them up.

We are now waiting for new levels to commit any more capital and are breaking out the cards to keep us from buying anything more. On any lift we will let some of our shakier stocks go that we bought for a trade today, even at a loss. Another chance tomorrow.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Schering-Plough. 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: Hog Heaven! Harley Roars During First Quarter


Patrick M. Fitzgibbons

Markets Editor

4/11/00 7:16 PM ET

Tonight's special entree was hog. All hog, baby.

But this porcine dish was not passed through


(for you

Soprano's fans).

Nope, this baby was alive and kicking.



, maker of the biggest and the baddest of the bikes, reported stronger-than-expected earnings this evening of 26 cents a share, smacking down the 12-analyst estimate of 24 cents and easily outpacing last year's 19-cent return.

Troubled waste-services company



announced tonight that it has hired

Lazard Freres

to act as its financial adviser as it attempts to restructure its business and finances.

Last month, South Carolina-based Safety-Kleen said it would delay the release of its fiscal second-quarter results in light of an investigation into the company's accounting practices.

In other postclose news (

earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified


Earnings/revenue reports and estimates


(BFO) - Get Free Report

reported stronger-than-expected earnings of 56 cents per share, beating the 14-analyst estimate of 54 cents and topping last year's 49-cent return.

E-Tek Dynamics


, a manufacturer of fiber optic components and modules for optical networks, announced that it earned 24 cents in its fiscal third quarter versus 14 cents in the same period last year. The number beat the 16-analyst estimate of 21 cents a shares.

Wireless company

Research in Motion


reported fourth-quarter earnings of 5 cents a share, matching its results from the same quarter a year ago and in-line with the 11-analyst estimate.



reported better-than-expected first-quarter earnings this evening of 6 cents a share, compared with the 8-analyst estimate of 4 cents and the year-ago loss of 23 cents a share.

Offerings and stock actions

American Technical Ceramics

(AMK) - Get Free Report

announced a 2-for-1 stock split after the close.

Household International

(HI) - Get Free Report

has cancelled a $300 million sale of 30-year securities due to unfavorable market conditions.


Forward Air

(FWRD) - Get Free Report

tonight that it has named Andrew Clark to serve as the new CFO.

Saga Systems

(AGS) - Get Free Report

announced that president and CEO Daniel Gillis has been named chairman of the company's board of directors. Gillis replaces Carl Rickerson, who served as chairman since early 1997.

Bond Focus: Treasuries Walloped as Agencies Finally Find Buyers


Elizabeth Roy

Senior Writer

4/11/00 5:08 PM ET

The Treasury market got slammed today, as some investors decided that agency securities had finally gotten cheap enough to warrant shifting some money out of Treasuries and into agencies. Further encouraging that move, Treasuries had become extremely expensive.

Yesterday, Treasury yields dropped to their lowest levels of the year.

However the gains moderated in the late afternoon, as money flowed out of the

Nasdaq Stock Market

. There were no major economic releases, and while

Fed Chairman

Alan Greenspan gave a

speech, he didn't broach the subject of monetary policy.

The action lifted long-term yields to their highest levels in nearly a week. The benchmark 10-year Treasury note fell 27/32 to 104 17/32, lifting its yield 11.1 basis points to 5.884%. The 30-year bond fell 1 18/32 to 106 25/32, boosting its yield 10.1 basis points to 5.771%. Shorter-maturity yields rose by comparable amounts.

At the

Chicago Board of Trade

, the June

Treasury futures contract fell 31/32 to 98 12/32.

Agency securities are bonds issued by government-sponsored enterprises including

Fannie Mae



Freddie Mac


, and over the last month, they've lost a tremendous amount of value due to initiatives to reevaluate the implicit federal guarantee they enjoy.

Today, some investors decided that enough was enough. The difference in yield between a five-year agency security and a five-year Treasury, which stood at around 50 basis points early this year, ended last week around 80 basis points and briefly got to 90 this morning, before narrowing by about five basis points.

The buying of agency securities was triggered by a morning appearance by Rep.

Richard Baker

(R-La.) before the House Banking Committee. Baker is sponsor of a bill that would strip GSEs of some of the advantages they currently enjoy.

The bill is widely expected to fail, at least this year. Still, agencies have proven susceptible to tough talk by government officials. So in anticipation of Baker's testimony, agency spreads widened over the previous few sessions.

Then, in what one market analyst called a classic example of sell-the-rumor-buy-the-fact, people started buying agencies as soon as Baker's comments were made public. Baker told the committee that investors were still ignoring "repeated admonition" that agency debt is not backed by the federal government.

Buying of agencies was accompanied by selling of Treasuries because that is how traders made bets on a narrowing yield spread between agencies and Treasuries.

At the

Chicago Board of Trade

, where this transaction can be accomplished using futures contracts, the TAG (Treasury-agency) spread got as wide as 6 29/32 this morning, before collapsing to 6 4/32.

Agencies "are at really, really wide levels," said Maryann Hurley, vice president in trading at

D.A. Davidson

in Seattle. "Unless you think

Baker's legislation is going to get passed this year, they've widened so far that they really make sense."

By the same token, Hurley continued, "Treasuries have gotten extraordinarily expensive. They have the worst news for stocks built in and a whole lot of buybacks for Treasuries." The

Treasury Department

is in the process of using federal government surplus funds to retire debt by buying securities back from investors. Over the last two months, that has made long-term Treasuries in particular collector's items, and driven up their prices.

But the rally went too far, Hurley says. Unless the Treasury buys back $5 billion of long-term Treasuries this month (it bought back $2 billion last month) and further reduces its auction schedule, the market is overpriced, she says.


Miller Tabak

chief bond strategist Tony Crescenzi pointed out that signs of speculative excess had been building in the Treasury market. At the CBOT, speculators had amassed significant net long positions in Treasury futures, according to the latest biweekly Commitments of Traders report from the

Commodity Futures Trading Commission

, released on Friday. Large net long positions by speculators frequently mark high points in prices.

"These developments help to shed light on the vigor behind today's sharp selloff in the U.S. Treasury market," Crescenzi wrote in a research note.

Economic Indicators

The weekly retail sales reports rebounded sharply in the first week of April, as Easter-related purchases stepped up.


BTM/Schroder Weekly Chain Store Sales Index rose 0.9%, its biggest gain in eight weeks. The year-on-year pace rose from -2.0% to -1.2%.


Redbook Retail Average gained 1.7% during the first week of April vs. the entire month of March, and the year-on-year pace spiked to 7.6% from 0.8%.

Currency and Commodities

The dollar gained against the yen and the euro. It lately was worth 107.00 yen up from 106.43. The euro was worth $0.9584, down from $0.9624. 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 $24.14 a barrel from $23.85.


Bridge Commodity Research Bureau Index

fell to 208.29 from 208.60.

Gold for June delivery at the


fell to $283.70 an ounce from $284.00

To view the TSC Economic Databank, see:

Martin Nissenbaum, national director of personal-income tax planning at Ernst & Young, will answer your questions and lend his expertise Wednesday, April 12, from 4 p.m. to 6 p.m. EDT on TSC's Message Boards.

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