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daily06-09-99's DAILY BULLETIN

June 10, 1999


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Market Data as of Close, 6/9/99:

o Dow Jones Industrial Average: 10,690.29 down 75.35, -0.70%

o Nasdaq Composite Index: 2,519.35 up 44.79, 1.81%

o S&P 500: 1,318.64 up 1.31, 0.10%

o TSC Internet: 575.03 up 5.48, 0.96%

o Russell 2000: 445.19 up 1.43, 0.32%

o 30-Year Treasury: 89 11/32, down 11/32, yield 6.010%

Companies in Today's Bulletin:

Supervalu (SVU:NYSE)

Exxon (XON:NYSE)

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TheStreet Recommends

Mobil (MOB:NYSE)

In Today's Bulletin:

o Asia/Pacific: Better-Than-Expected GDP Could Buoy Japanese Markets
o Wrong! Rear Echelon Revelations: The Net and the Tin Man
o Evening Update: Supervalu to Buy Richfood; EU Probes Exxon-Mobil Merger
o Bond Focus: Long Treasury Yield Ends Day Over 6%

Also on

Tech Savvy: BellSouth's Wrongheaded Qwest, Part 2

A court rules that regional Bells can't resell long distance service from Qwest or any other third-party provider.

The Invisible Mouth: Don't Discount a Bigger-Than-Expected May Retail Number

A surprisingly big May retail print alongside material upward revisions to April data would cast doubt on the notion that the economy is all set to slow down on its own.

Mutual Funds: Divvying Up Windsor Fund Portfolio Is No Simple Task

Vanguard must manage the transfer of more than $4 billion to new co-manager Sanford C. Bernstein.

Asia/Pacific: Better-Than-Expected GDP Could Buoy Japanese Markets


Justin Lahart

Senior Writer

The buildings in Tokyo's Kasumigaseki district, an arrow's shot south of the Imperial Palace, are drab and somewhat depressing. They speak neither of the power wielded by the government ministries and agencies they house nor of the growing optimism of the people walking their halls.

Within those dingy structures, however, Tokyo observers are reporting a bit of spring in the step of Kasumigaseki's bureaucrats lately. For once, it looks as if there will be some genuinely good news to report on the Japanese economy. Thursday, the

Economic Planning Agency

will report

gross domestic product

for the January to March period. And though consensus forecasts call for a slight contraction, it is rumored the number might be better than that. The Japanese economy -- after five quarters of contraction -- may have expanded.

The first indication that this may have happened came last Friday when EPA Chief Taichi Sakaiya told reporters the agency might change its assessment of the Japanese economy in its June report -- something tantamount to saying the EPA


change its assessment. Which is what it did. On Monday, the EPA reported that the Japanese economy was no longer deteriorating and is now "drifting sideways." It's an interesting report from the people who release the GDP figures.

That was followed Tuesday by the

Ministry of Finance's

January-March survey of nonfinancial companies, which showed capital spending had fallen 10.5% on a year-on-year basis. On the surface, those are grim numbers, but compared with the October-December decline of 18.7%, they marked a healthy improvement.

The numbers look even better when adjusted for seasonal aberrations, says

Nomura Research Institute

economist Kiichi Murashima, who reckons on that basis, capital spending actually gained about 5%. That prompted him to change his GDP forecast from a 0.3% contraction -- one of the more negative forecasts in the


survey -- to a 0.8% gain. There have been murmurs that other economists were doing the same. (Fun fact: Market scuttlebutt says that Nomura's London office gets an early read on Japanese economic data. Murashima is based in London.)

On Wednesday, Akitaka Saiki, a spokesman for Prime Minister Keizo Obuchi, said he had been "informally informed" that GDP figures would be better than the previous quarter, when it fell by 0.8%.

In normal economies, stronger-than-expected GDP growth is a thing for markets to fear. It prompts inflation concerns, boosts interest-rate expectations and pushes bonds lower. Higher yields on bonds make them look more attractive compared with equities, so stocks suffer. Japan's, however, is not a normal economy.

"You have to think the opposite of how we are taught to think about economics," says Souichi Okuda, senior economist at

Nippon Credit Bank

in Tokyo. "A bad GDP will push interest rates higher, and a strong GDP will push them lower. You've got to think in reverse."

In Japan, a bad GDP -- with its implication that the economy is not flattening at all -- would mean that the government would have to accelerate its fiscal stimulus plans. More stimuli mean more bond issuance. For a market already having a little digestive difficulty, that would be a problem. "The bond market is dictated outright by supply concerns," says Martin Foster, senior analyst at

Standard & Poor's MMS

in Tokyo. Good GDP would suggest that Japanese government bond issuance will slow down a bit, something the Japanese government bond market would welcome. With bonds doing better, stock investors need only look at the meat of what GDP gains suggest: Japan is finally getting out of the hole. A strong number, says Foster, would be "a win-win situation" for stocks and bonds.

But while good Japanese GDP may be a welcome thing for super-bizarro Japanese markets, it will not be a good thing for the U.S. Some who think that the

Federal Open Market Committee

will stand pat on rates at its meeting June 29 and 30 argue that the Fed wants to make sure ailing foreign economies are on better footing before doing anything. "If it looks like places like Japan are getting their act together, that will exacerbate the fear in the U.S.," says Josh Feinman, chief economist at

Deutsche Asset Management

. "It adds fuel to the notion that things are turning up."

Wrong! Rear Echelon Revelations: The Net and the Tin Man


James J. Cramer

Boy, have we ever forgotten why we got into the Net in the first place. There have been so many deals and so much money raised and so much competition coming to the Web, that it all seems a little disembodied, almost unnatural, to us all.

The consensus rap has evolved from wonder of the universe to "None of these companies is going to make a dime and it is all a bunch of hype" almost overnight. The old media guys and the old store guys and the old everybody else has discovered the treasure trove of dollars that is dot-com. And now most new Web stocks are copycats or limp shadows of the real "non-e" thing.

The bankers have created more dot-coms than we will ever know what to do with. (I know, I am now a "profiteer" too, having lost my believer status when we went public.) Ultimately, the schematic of the current market's mind reads like "I wish I had never heard of the Internet, give me some


(GP) - Get GreenPower Motor Company Inc. Report


That's why I was so thrilled to hear Howard Charney, a top


(CSCO) - Get Cisco Systems Inc. Report

honcho, explain the revolution of the Net in a fresh way during a talk I was lucky to attend at the

National Investor Relations Institute Annual Conference


Darn, I hated following that guy. He was so exciting, so juiced, so ready to explain what the Net has in store for us in e-commerce, e-work and e-play that I demanded


stop selling Cisco no matter where the bonds traded (he listened to me but not before lightening up at a higher level).

Out of nowhere Charney made me remember why the Net has it all for an investor. It was like Charney could bring back to life the magic of the Net before the

Michael Ovitzes

and the


(DIS) - Get The Walt Disney Company Report

tracking stocks and the

Barnes & Nobleses

(BKS) - Get Barnes & Noble, Inc. Report

reared their nonprofitable heads. He made me remember that the Net, when integrated with audio and visual, has the capacity to generate gains wherever it touches, provided that a company embraces it the way Cisco has embraced it. The Net to Charney, if I may be so bold as to appropriate his thoughts grafted on to my own, is like the oil can to the

Tin Man


The Wizard of Oz

. It turns the metal statues into living, breathing organisms.

What would that Tin Man pay for that oil can in the open market? What's it worth? Pretty hard to quantify. If you recognize that the oil, when spread through every joint of the economy, transforms the heap of tin, then you have understood the Cisco vision of where the Net is taking us.

But all is not well on the Net front in the stock market. We are trying to figure out now everyday, which can contains oil and which can contains water. And if we keep reaching for cans of oil and we get water, these dot-coms will paralyze our portfolios forever.

In fact, if you had to think of a way to keep the dot-com market rusted into lifelessness, you would be doing exactly what corporate America is now. You would float stock in an enterprise that deliberately seeks to lose money in order to keep more people from getting cheap access to capital on the Net. You would spin off any sort of Web enterprise to the public to keep it from hurting your own enterprise while it sates every conceivable investing dollar that might have been available for valid Net enterprises. You would be sure that

(AMZN) - Get Inc. Report

was the last Amazon and no one would ever "Amazon" an industry again.

Here, I have to fall back on what I am most familiar with -- old and new media -- and how the old guard is now reacting to the overnight change in the landscape. (I don't go there because of



the stock; I go there because it is what I know best.)

Not coincidentally, I always figured that other media establishments DELIBERATELY kept their Web sites free in order to discourage

and others from starting up. As long as they kept their free content, who could ever develop a business while charging for content? Who would ever take that gamble except some lunatic? In fact, at one point I toyed with an antitrust suit to open the books on these guys to see if a predatory pricing case could be made against them for giving away goods that have market value in order to frustrate competition. I still think it would be a dynamite case for an aggressive prosecutor.

(In our case, what the media didn't count on is that people pay 100 times as much for wires that compete on screens against

, allowing us to undercut those traditional institutional vendors with a price point that amounted to peanuts for the individual investor. The ridiculously expensive pricing umbrella extended over this industry by the oligopoly of



Dow Jones




gave us the opportunity to ramp up in their faces. )

But now the blurring is beginning. As fast access to the Web penetrates the home, the newspapers and magazines of the world have become no-growth businesses, with all of the incremental circulation going to the Web.

Soon, the public at large will arbitrage the price difference between the fully featured, free, personalized site updated instantly and the static, bulky, ink-stained relic that appears, sometimes late, at the end of your driveway. I mean, what is the deal with the fresh free site vs. the paid stale paper? Do you pay more for day-old bread at the bakery than you do with stuff right out of the oven? I know I don't.

The last-ditch effort of the old guard is to flood the market with tracking stocks and spinoffs and oddball classes that let you share in the losses of the Net, while the old guard milks the old cash cow while it lasts. But so far the people aren't buying it. Doesn't matter; the folks doing these abominations pay full-boat fees and have a ton of clout. Their deals will get done on the backs of the investing public.

In the meantime, a tremendous amount of money has been raised for what I call the nonproprietary portion of the Net. That's the kind of shopping where I can go to a site and get the cheapest price around the globe on the latest


laptop. There have to be 10 publicly traded companies doing that kind of ordering, and I don't see a whit of value there.

Similarly, how many CD companies do we need? How many book companies do we need? How many drugstore companies do we need? And how can anybody make any money when every single one of these companies has raised $100 million to beat the brains out of the other guy.

As this Net shake-out continues, I am steering clear of a company that doesn't have multiple revenue streams and that is trying to make all of its business from advertising. I think that's a crummy model, one that is doomed to be no more lucrative than the penny-savers you can't get rid of.

I want to be invested in companies that don't have 10 other well-financed competitors doing the exact same thing. And I want to be invested in consolidators, companies that have decided to take matters into their own hands and crush competition when its cheapest and easiest: by acquisition and closure.

But the one thing I do not fear is that the companies that have never done the Net or are just getting started right now will beat already entrenched Net players. I am confident that the onslaught by the old guard will eliminate any capital left to invest in the Net, obliterate it so fast that the dot-com cycle will be through by the end of this year.

Capital will get expensive again and enterprises will burn through their money and have no place to go for more.

Then, when that window gets closed, we will look at what is left and begin to marvel anew at how much the Web can do, and how well it can do it, and how much more improved it will be when all of the new technologies I see on the horizon get integrated into our day-to-day Web use. And we will begin to make money again owning the best Web brands and those who are using the Net to oil, not water, the Tin Man. ******

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long TSCM. 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: Supervalu to Buy Richfood; EU Probes Exxon-Mobil Merger


Heather Moore

Staff Reporter



, the nation's largest food distributor, agreed to buy

Richfood Holdings


in a deal valued at $1.5 billion, including the assumption of $642 million in debt.


European Union's

antitrust authority, citing concerns about reduced competition, said it launched an in-depth probe into the proposed merger between


(XON) - Get Intrexon Corporation Report




. The latter has two joint ventures in Europe.

In other postclose news (earnings estimates from

First Call

; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews

Department 56

(DFS) - Get Discover Financial Services Report

warned that problems using a new order collection and processing systems probably would cause the company to miss its goal of 1999 earnings growth in the mid-teens. The four-analyst view called for full-year 1999 earnings of $2.78 a share vs. the year-ago $2.45.



reported second-quarter earnings of 31 cents a share, 2 cents above the nine-analyst forecast but below the year-ago 35 cents.

Wallace Computer Services


posted third-quarter earnings of 49 cents a share, in line with the three-analyst outlook and higher than the year-ago 41 cents. The company also said it sees fourth-quarter earnings of 43 cents to 48 cents. Analysts are calling for 46 cents vs. the year-ago 43 cents.

Mergers, acquisitions and joint ventures

BOC Group

(BOX) - Get Box Inc. Class A Report

said its

BOC Edwards

business unit agreed to buy



Chemical Management

division for about $38 million.



said it dissolved its 1998 alliance with


regarding its



Offerings and stock actions



said it will repurchase up to 10 million shares over the next 24 months. The company also said it suspended further development of its Avlis technology, and that the move will result in a 1999 charge of 25 cents a share. USEC said its full-year 2000 operating earnings should be similar to 1999's $1.20 a share.


Telecom analyst Frank Governali has left

Credit Suisse First Boston


Goldman Sachs

. The Portland, Maine-based Governali, an

Institutional Investor

All-Star analyst since 1989, brings two other analysts with him.



said it reached an agreement to end litigation with California over the company's California physician management assets, including operations of its

MedPartners Provider Network


Bond Focus: Long Treasury Yield Ends Day Over 6%


Elizabeth Roy

Senior Writer

Treasuries fell again today on very little news, pushing the benchmark 30-year bond's yield to a close over 6% for the first time since May 12, 1998.

Heavy new-issue supply in the corporate and federal agency arenas was the main catalyst for the latest lurch to the downside, which was accompanied by very light volume and no economic news of note.

Minneapolis Fed


Gary Stern

, a voting member of the


monetary policy committee this year, made

remarks that were dovish in comparison with

yesterday's comments by

St. Louis


Richmond Fed


William Poole


Alfred Broaddus

, neither of whom votes this year, but it didn't seem to matter.

For traders, it was a yawner of a day. They are focused on the next spate of economic data for May, which starts Friday with the

retail sales

report and the

Producer Price Index

, and concludes next Wednesday with the

Consumer Price Index


housing starts


industrial production


Then, on Thursday, Fed Chairman

Alan Greenspan

is slated to give a speech to the congressional

Joint Economic Committee

, in which he will presumably at least hint at the monetary policy implications of the new information. (Greenspan is also scheduled to speak tomorrow, at Harvard's commencement, but because there's been little new information about the economy since his last speech, market watchers aren't expecting any bombshells.)

"We've got one tightening priced in, and maybe part of another, but not two yet,"

Warburg Dillon Read

Treasury market strategist Mark Mahoney said. "So if the data are bad enough to make people start thinking about two tightenings, that's where you'll get vulnerability."

The long bond ended the day down 11/32 at 89 12/32, lifting its yield to 6.019% from 5.995% on Tuesday. Shorter-maturity note yields rose as well, with the five- and 10-year issues underperforming by a large margin, because that's where the new corporate and agency issues were concentrated.

The corporate and agency calendar looks set to top $13 billion this week,

Thomson Global Markets

senior analyst John Atkins said, and $9 billion of that was priced today. (For comparison, the four-week moving average of new investment-grade issues topped out in April at roughly $10 billion.) Corporate issuers are hurrying to market, Atkins said, in part because of the expectation that the Fed will raise rates, and in part because of the calendar. The third quarter is already packed with new issues, because issuers want to avoid the fourth quarter due to Y2K concerns. So there's an incentive to tap the market before it starts.

Today's new corporate issues, all in the five- to 10-year sector, included $1.5 billion from

Bank of America

(BAC) - Get Bank of America Corporation Report

, $1 billion from

Marsh & McClennan

(MMC) - Get Marsh & McLennan Companies Inc. Report

and $400 million from

Jones Apparel Group


. In addition, federal agency

Freddie Mac


sold $5 billion of two- and 10-year reference notes.

Stern's comments to the

Fed Correspondents Association

in New York read like a bit of a salve to the Treasury market, but traders, who've watched the long bond's yield climb more than 50 basis points in the last six weeks as it has become clear that the fed funds rate, the key short-term interest rate set by the Fed, is unlikely to remain at 4.75% for the balance of the year, didn't take them that way.

In his prepared text, Stern was optimistic that the productivity gains that are partly responsible for the non-inflationary growth the U.S. economy has been enjoying can be sustained. And in a Q&A after the speech, he said the Fed has not yet decided whether to hike rates at its next meeting on June 29-30, noting that there have been many instances in the past when the Fed adopted a bias to tighten and then didn't act on it.

But the bond market wasn't taking any chances, at least not today.


Street Sightings

Join Andrew Morse and Peter Eavis for a chat about what international markets have to offer the individual investor Thursday, June 10, at 5 p.m. EDT on Yahoo! Register for Yahoo! Chat at: It's free!

James J. Cramer will be appearing on CNBC's "Squawk Box" Friday, June 11, beginning at 7 a.m. EDT.

Check here for updates on Cramer's future Squawk appearances.


Copyright 1999,