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daily04-16-00's DAILY BULLETIN

April 17, 2000

Market Data as of Close, 4/14/00:

o Dow Jones Industrial Average: 10,305.77 down 617.78, -5.66%

o Nasdaq Composite Index: 3,321.29 down 355.49, -9.67%

o S&P 500: 1,357.31 down 83.20, -5.78%

o TSC Internet: 713.87 down 99.15, -12.20%

o Russell 2000: 453.72 down 35.50, -7.26%

o 30-Year Treasury: 106 16/32 up 2/32, yield 5.782%

In Today's Bulletin:

o Editor's Letter: The Coming Week on TSC
o The Coming Week: Intense Search for a Bottom Ahead
o The Coming Week in Europe: Deutsche Telekom's T-Online May Have Rough Ride
o The Coming Week in Asia: Putting Paradise in Peril, Rakuten Pushes Ahead With IPO

Also on

Wrong! Dispatches from the Front: The Trader Goes Truth-Seeking

In a mock interview, JJC grills a fictional portfolio manager who got creamed last week.

TheStreet Recommends

This Week in IPOs: Is the Sun Setting on This IPO Market?

Our cowboy in Colorado says, 'Go whip 'em and drive 'em.'

Banking: Sizzling Loan Growth Has Some Bank-Stock Investors Smelling Smoke

Bank stocks could find a month-long rally snuffed out should earnings growth cool.

Brokerages/Wall Street: Last Week's Selloff Is Nothing but Bad for Big Brokers

Fattened on investment banking fees and trading commissions, firms could be facing a big slimdown.

Editor's Letter: The Coming Week on



Dave Kansas


4/16/00 5:46 PM ET Across the nation, the newspapers read with grim authority. When referring to the bull market, the past tense is frequently used. The game has changed, they say. The excitement of a few weeks ago has been relegated to the past, it would appear.

Is the game truly over? Certainly, an intense amount of emotion now holds sway in the marketplace. Assurances of yestermonth are long forgotten. Every underpinning of this market is now in question. There's little doubt that the long-awaited fear and worry is upon us. The question is: Does the fear drive us deeper into oblivion or does it signal that the selling is nearly done?

At this point, it's impossible to say. Singed investors, especially individuals, have little stomach for the fight right now. And few big investors show much inclination to step in and play the hero. More shaking out is likely in the coming days and perhaps even weeks. It's a time to be selective, to hunt for seeming bargains and to not get too carried away with every snapback. We're in a grinding fight that will not easily come back to the bulls.

Monday morning will provide an interesting test. Selling continued Friday right to the bell. Some stocks are significantly off their highs, but still trade at historically high multiples. And the palpable sense of fear will provide plenty of resistance for investors on Monday morning. Watch Asia and Europe carefully -- we'll have expanded coverage of both regions leading into Monday's open. With so much heavy selling, whiffs of a turnaround may start to surface early -- but a true turnaround may take some time to develop.

Come Monday's opening bell, we'll have all hands on deck. Our columnists will be writing throughout the day, our reporters will be digging every minute, hunting for any sign. And we'll track the key earnings reports, especially


(INTC) - Get Intel Corporation Report

, this week. Most on Wall Street expect strong corporate profits, but it will take sustained, potently strong news to knock the bears back a pace or two.

In addition, we'll have extra personal finance coverage to help you sort through the mutual funds angle of the recent selling. Who is doing well, who isn't, and where are the best places to put new money to work. We'll have all the bases covered.

For those of you seeking more current research, go to the tools/quotes box on the home page to access Multex-compiled institutional research. They provide the latest skinny from major brokerage houses.

It's a bruising fight right now, but we're in the trenches with you, digging for every morsel of information that will help make you a shrewder investor. In times like these, we're not resting for a second, and we know you're not, either.

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

The Coming Week: Intense Search for a Bottom Ahead


Justin Lahart

Associate Editor

4/14/00 7:02 PM ET

Forget greed. Fear is good.

Fear is the thing that shakes the weak holders, the seekers of quick profit, the Johnnies-come-lately out of the market. Look at where the market touched bottom in 1998, 1997, 1987, and there it is, at the fever pitch.

And who is to say that's not what we saw Friday, as the


and the


lurched into their final, terrible hour? Spreads between bids and asks widened and volume dried up. The

Chicago Board Options Exchange Market Volatility Index

, a good gauge of investor worry, surged to levels not seen since October 1998. Earlier in the week, traders had griped that there was too much investor complacency over the decline. By the time the closing bell rang Friday, the traders weren't saying that anymore.

A Spike of Worry
The CBOE Market Volatility Index, at five-minute increments

But the problem with fear is that there can always be more of it, and that there will be more of it seems as much of a characteristic of cataclysmic selloffs as anything. When the stoic start selling, when the last dip-buyer gives up -- then it turns. The problem is that everybody -- your broker, your dentist, your friend next door -- knows that. And that's worrisome.

"It was pretty dramatic, but it's still orderly," said

Seaport Securities

trader Ted Weisberg, as he left the

New York Stock Exchange

Friday. "I've been trading on this floor for 31 years -- 1987 felt much more dramatic."

"This wasn't as bad as last Tuesday," commented another floor trader. "It didn't seem to have the same pressure on it. Here, it was like, turn around, and you're just down another 100 points. Tuesday felt like a lot of pressure."

So it is hard to say what the coming week will look like. It is hard to say whether the bottom has been touched or, if it has not, how far there is to go. Maybe the only thing one can say is that if stocks haven't hit it, the bottom is coming soon.

"Chronologically, we're getting close to as bad as it's going to get," said John Manley, portfolio strategist at

Salomon Smith Barney

. Point-wise, however, it's hard to even venture a guess.

But Manley does believe the market has reached a point where investors have thrown the baby out with the bath water. On the

Nasdaq Stock Market

, the average stock is more the 45% below its 52-week high. That hasn't happened since 1987.

"I find myself in a very strange position," he said. "Three months ago, I was trying to defend the position that there were growth areas outside of tech and communications. Now I'm defending tech and communications."

Yet not everyone is so sure. Chartists note that there is very little support on the Nasdaq Composite, and it is hard to see exactly where investors will pick them up on a valuation basis. This is not to say that some of these stocks may not be fundamentally sound buys at current levels, but many of the newfangled valuation methods that some analysts were pushing have been discredited by the market's freefall, and under older methods there is a good deal more downside.

And there are other worries as well.

"I think the initial reaction has been that this is probably just a technical and valuation issue," said Rich Bernstein, chief quantitative strategist at

Merrill Lynch

. "Nobody wants to really say there are any fundamental issues in the technology sector. I think that's wrong."

Yes, There's More Tightening Ahead

And the chief fundamental issue may be that it looks like the

Federal Reserve will continue to tighten -- never mind what has happened to the stock market. Friday's strong

Consumer Price Index only reinforced that.

"The risks of a more aggressive tightening pace have risen given not just the CPI, but a variety of evidence that suggests inflation is creeping higher," said Richard Berner, chief U.S. economist at

Morgan Stanley Dean Witter

. "My feeling is they're still going to stick to the gradual pace, leaving the door open for further moves."

As for the wealth effect, the degree to which the Fed believes U.S. consumption has increased due to asset price appreciation, it is unlikely that the selloff in stocks has done much to change that.

"Wealth effects accumulate over time," said Berner. "And given the breadth and depth of the increase in wealth, it's going to take a prolonged downturn in the stock market to reverse a lot of that." Though Berner does note that it is hard to gauge what the psychological impact of the drop in the market has done to confidence, even if it does make the consumer less buoyant, the economy is growing at such a quick pace that it is doubtful that it could slow of its own accord. Bit by bit, the Fed will keep on hiking.

That may be a hard thing for investors to deal with. Bernstein's colleague at Merrill, equity derivatives analyst Steve Kim, talks about something he calls the "Greenspan put." When the market crashed in 1987, during the savings-and-loan crisis of the late '80s, during the Mexican peso crisis in 1994, and again in October 1998, the Federal Reserve lowered rates. It was as if the Fed were writing free put options to protect investors on the downside. Investors may have gotten used to getting bailed out, and seeing the Fed's apparent penchant to raise rates despite the selloff may come as a surprise.

"How do you discredit the Greenspan put?" asks Bernstein. "Well, we're going to see it. Because he's going to tighten." And as he tightens, the economy will slow. And as that happens, the consumer will become less ebullient. And tech companies, thinks Bernstein, which not too long ago were supposedly immune to interest rates, will see their earnings growth slow.

But despite his bearish posturing on tech, Bernstein does not believe the end is nigh, joking that people who once criticized him for being to negative will probably start saying he's too positive.

"I don't think this is going to be as calamitous as people think," he said.

Let's hope he's right.

The Coming Week in Europe: Deutsche Telekom's T-Online May Have Rough Ride


Marc Young

German Correspondent

4/15/00 12:30 AM ET

BERLIN -- Once expected to become the most popular initial public offering in German history,

Deutsche Telekom's

(DT) - Get Dynatrace, Inc. Report

Internet unit


may be in for a rough ride when it begins trading on Monday.

Wretched market conditions for technology stocks and a number of high-profile IPO flops for European Web companies are threatening to turn T-Online's sale of roughly 100 million shares for an approximate $3 billion into a disaster of epic proportions. Despite being more than 16 times oversubscribed, T-Online's shares, in gray market trading, have dipped below the top of their 26 euro ($24.83) to 32 euro pricing range. DT felt the pain from T-Online's woes Friday, as investors sold its stock 4.62 euros lower, or 6.2%, to 70.01.

With Dutch Internet service provider

World Online

and leading U.K. travel Web site

trading roughly 50% lower than their respective IPO prices, and techs getting hammered the world over in recent weeks, Deutsche Telekom hasn't been presented with ideal floatation circumstances.

But unlike the two aforementioned companies, T-Online has a few factors going for it, which over the medium term could help it become a technology-sector gem despite a muted IPO.

As Europe's largest Internet service provider in the region's largest potential market, T-Online could prove to have an extremely bright future. Moreover, with the backing of Europe's largest telecom, investors may feel more confident about the company's long-term prospects than those of other, largely unknown Web start-ups.

And there are many people who have a lot riding on the success of T-Online's share sale. Besides floating its Internet unit, Deutsche Telekom wants to sell another tranche of DT stock in the summer and hopes to list its wireless operation,


, later in the fall. Thus, it can't risk alienating investors next week. The banks involved also have a vested interest to see a bloodbath avoided.

"Things may not be ideal," but with their plans for more DT shares and T-Mobil, "the consortium will likely be compelled to nurse things along," says Robert Halver, an equity strategist for

Delbrueck Asset Management

in Frankfurt. Halver believes that, despite the nasty market conditions, "the long-term prospects for technology shares remain good."

That's not to say things won't get ugly for T-Online in its first tender days trading on the

Neuer Markt

in the coming week. Thin trading volumes ahead of the Easter holidays could exacerbate the normally volatile nature of the technology, but postponing the IPO wasn't an option for Deutsche Telekom. "That would have been taken as a sign of weakness," says Halver. "At this point they just have to push on through."

Just how many investors decide to push along with DT and T-Online will be known at the closing bell Monday.

The Coming Week in Asia: Putting Paradise in Peril, Rakuten Pushes Ahead With IPO


Kaya Laterman

Japan Correspondent

4/15/00 12:35 AM ET

TOKYO -- If you were running an Internet company in Japan right now, would you go public in these market conditions?

If you are

Hiroshi Mikitani

, president of cybermall

Rakuten Ichiba

, the answer is a resounding "yes."

Mikitani's three-year old company, the name of which is literally "Paradise Market," provides a Web site for over 2,000 retailers to peddle goods ranging from sausages to bathroom sinks to


handbags. Reaching more than 600,000 registered shoppers, Rakuten is one of the only pure Internet plays in Japan that boasts a profit. The firm earned profits of $2.4 million on sales of $5.7 million in 1999 and some experts say sales will nearly triple by the end of this year.

These numbers obviously put a positive spin on Rakuten's public offering this coming Thursday. The firm expects to rake in 49.5 billion yen ($468 million), which would be a record for a Japanese start-up going public, when it lists on the


market. But will investors also benefit?

"Although I think the firm is unique, Rakuten has two things against them right now," says

ABN Amro

strategist Darrel Whitten. "First, the Net bashing is obviously not going to help. And if you think about it, the bashing started with online retailers."

Whitten says the fast rise in Net shares in Japan, as well as elsewhere, was caused in part by optimistic growth expectations as ambitious investors looked not a half-year or year ahead, but rather a half-decade or decade into the future. If investors are re-evaluating those assumptions now, how does one gauge Rakuten's growth potential?

Although the Internet bonanza is still going strong in Japan, Rakuten's high IPO pricing -- a whopping 33 million yen a share -- is another strike against it. Moreover, six out of the seven stocks listed on the

Tokyo Stock Exchange's

high-tech and venture market


are currently trading below their offering price.

Nevertheless, many retail analysts give Rakuten a thumbs up. The Web site is now among the 10 most popular sites in Japan, with approximately 3 million hits per day. With about 200 new retailers looking to list their products on the site each week, the firm reportedly has to turn down most of them or slap them on a waiting list.

"I admit it's not the best time to have an IPO but investors have been waiting for Rakuten to list for about a year," said one analyst at a European firm. "If the market is not willing to embrace all Net firms like it used to, why wouldn't you look at Rakuten when it has profits, a sound business plan and a growing customer base?"

With shares of Internet incubator


and mobile-phone-seller-cum-Internet play

Hikari Tsushin

more than halved in just two months, the warm and fuzzy feeling in Japanese Net shares has surely disappeared for the time being. However, maybe Mikitani knows something the rest of us don't. Formerly an investment banker at the

Industrial Bank of Japan

, he also holds an MBA from


. He says he wants to use the profits to expand into other Internet-embracing countries such as South Korea, Taiwan and Singapore.

One wonders how long it will take for those to be spun off as their own cyber paradises.

Copyright 2000,