Publish date:

daily06-16-99's DAILY BULLETIN

June 17, 1999


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Market Data as of Close, 6/16/99:

o Dow Jones Industrial Average: 10,784.95 up 189.96, 1.79%

o Nasdaq Composite Index: 2,517.83 up 103.16, 4.27%

o S&P 500: 1,330.41 up 29.25, 2.25%

o TSC Internet: 548.64 up 44.56, 8.84%

o Russell 2000: 441.20 up 7.19, 1.66%

o 30-Year Treasury: 88 26/32, up 19/32, yield 6.074%

Companies in Today's Bulletin:


Enersis (ENI:NYSE ADR)

Gaylord Entertainment (GET:NYSE)

Warner-Lambert's (WLA:NYSE)

In Today's Bulletin:

o Latin America: U.S. Opportunities Remain Rare for Latin American Stock Issuers
o Wrong! Rear Echelon Revelations: Finishing the Switch
o Evening Update: Gaylord Entertainment Issues Profit Warning
o Bond Focus: Unchanged CPI Causes Bond Market To Review the Situation

Also on

Market Features: Boisterous Demand Could Prompt More Than One Fed Hike

The Fed raised rates just once in 1997, and not since. But consumer demand is much stronger now than it was back then.

Retail: Media Arts Sees Sales, Earnings Well Below Estimates

The company attributes the shortfall to a new program for re-releasing limited-edition images of Thomas Kinkade's artwork.

The Invisible Mouth: The Fed and the Path of Least Resistance

Why today's weak CPI won't stave off a tightening.

Taxes: Global Tax Forum: Offshore Tax Shelters Aren't Just Something From a Grisham Novel

You can legally stash your money in exotic locales, but you'll need millions to make it worthwhile.

Latin America: U.S. Opportunities Remain Rare for Latin American Stock Issuers


Peter Eavis

Senior Writer

Want a real test of sentiment in the Latin American equity market? Well, look at the new-issue market, where a dearth of Latin offerings shows investors still have a distinctly cautious attitude toward the region.

That's bad news to investors eager to see a wider selection of U.S.-listed Latin companies, a sizable proportion of which are telecommunications firms, banks and utilities.

Latin American markets are ahead significantly since the beginning of the year, with Mexico and Argentina up 32% and 28%, respectively, in dollar terms, according to


indices for these countries.

So far this year, however, only one Latin company --


(GGB) - Get Gerdau S.A. Sponsored ADR Pfd Report

, a Brazilian steelmaker -- has listed shares on a U.S. stock exchange.

In March, Gerdau created an American depositary receipt program for

New York Stock Exchange

-listed shares. But because the company was not offering new shares, it was not a true test of demand for Latin equities.

That will come whenever a company carries out an initial public offering or secondary offering. While a number of firms and governments want to carry out such deals, bankers say it may be some time before the market is ready to absorb them.

A fair number of companies seem interested in issuing new shares in the U.S. From Brazil, there's giant mining concern

Companhia Vale do Rio Doce

, which could have an issue of more than $500 million, airplane manufacturer


, with an estimated size of $350 million, and paper and pulp company

Votorantim Cellulose & Paper

, with an unclear deal size. From Argentina, there's cable TV company


and telecommunications firm


, as well as



, a Chilean power company.


Telefonica del Peru


is also said to be in line with an $80 million to $100 million deal, along with Mexican cellular telephone company

Grupo Iusacell

(CEL) - Get Cellcom Israel Ltd. Report


However, Carlos Hernandez, a banker at

J.P. Morgan

, says, "It'd be very difficult to do big deals at the moment."

For large offerings, bankers have to attract money from large global funds, since funds focusing solely on emerging markets or Latin America probably can't raise the cash needed to absorb big deals.

To boost the chances of a Latin American new issue, "we usually have to secure the involvement of Latin dedicated funds, and these are just recovering from a period of high outflows," says John Boord, a banker at

Salomon Smith Barney


Also, most global funds are still not comfortable about deploying large sums to Latin America because of the volatility of the region's markets and fears the U.S. will raise interest rates, a move that would tend to hurt Latin America. And those global funds that are interested in Latin America may not want to stump up cash for a new deal when they can see apparently attractive opportunities in the secondary market.

Some bankers are taking heart from the issue of $1 billion of convertible bonds earlier this month by


(TMX) - Get Terminix Report

. But according to one banker who worked on the deal, only 5% to 10% of the offering went to equity investors.

Still, investors are keen for fresh stock. One company that will doubtlessly attract a lot of interest is Embraer, which makes small aircraft. The company has a complex capital structure, due to an extensive restructuring, and has four different types of shares on the Brazilian stock market.

The company has just bagged an impressive new order for planes from


, and analysts are expecting more. According to

Credit Lyonnais

, Embraer's earnings should grow by 66% this year, which would give the company a forecasted 1999 price-to-earnings ratio of just 3.3.

Travis Selmier, manager of the

(USEMX) - Get USAA Emerging Markets Report

USAA Emerging Markets fund, already holds Brazilian shares, but is keen to see ADRs: "Anything that would increase the liquidity of this company would be positive. It's a great little company."

Wrong! Rear Echelon Revelations: Finishing the Switch


James J. Cramer

Go back to the

article I wrote this morning about everyone being out of position. That turned out to be totally true. The shorts were leaning the wrong way on the Net.


(ORCL) - Get Oracle Corporation Report

had lowered expectations to where nobody was recommending it. (You don't get all of those upgrades because the analysts are stupid. You get them because they were bagged by management into using lowball numbers. It is a brilliant tactic, but it makes analysts look pretty stupid.)

Plus, the Street expected a quiet nonevent expiration, one where there was nothing to do. As the bond market didn't really get moving, people didn't expect this rally to have much follow-through.

When everyone is leaning the wrong way you get a really explosive, explosive move. That's when you get the biggest switch. Usually it does not get settled in one day. People cannot position themselves correctly in one day. If they are short, they have to cover (unless they really believe nothing has changed.). If they are on the fence, they will have to get in, and are right now hoping that


TheStreet Recommends

really lets loose against this market. Unlikely. And if they are partially long, the market never came in enough to give them a chance to buy today. I know I waited all day to buy


(INTC) - Get Intel Corporation (INTC) Report

hoping for a single quarter-point downtick to make my move.

I didn't get it. I missed it.

Lots of people didn't "get it in" today. If Greenspan doesn't give these people a chance tomorrow, I believe they will have to come in anyway.

Which is why I like it here.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Oracle. 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: Gaylord Entertainment Issues Profit Warning


Heather Moore

Staff Reporter

Gaylord Entertainment


warned it sees second-quarter results of break-even to earnings of 2 cents a share. The four-analyst

First Call

forecast called for 14 cents this quarter. The company, which earned 22 cents a share in the year-ago period, blamed a shift in product releases at its


unit and weaker average room rates at the

Opryland Hotel


In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews



reported first-quarter earnings of 35 cents a share, matching the first-analyst prediction but falling below the year-ago 50 cents.

Nichols Research


posted third-quarter earnings of 33 cents a share, in line with the three-analyst view and a penny higher than the year-ago figure.



said it expects to report a "significant" fourth-quarter loss on revenue in the mid-$70 million range. The company also said it will delay the release of its fourth-quarter results because it has had to sort out the effects of restatements on its year-end closing process. The two-analyst view calls for a loss of 45 cents vs. the year-ago earnings of 48 cents.

Mergers, acquisitions and joint ventures

Bio-Rad Laboratories


said it offered $210 million to buy

Pasteur Sanofi Diagnostics

, a French-based company that markets products used for bacteriology, blood typing and other diagnostics.



agreed to acquire the consumer battery business of closely held


for about $155 million.


(VVI) - Get Viad Corp Report

said it received antitrust approval to sell its

Dobbs International Services

catering unit to


and that it will use proceeds to repurchase $100 million to $150 million in stock after the deal closes July 1.


United Technologies'

(UTX) - Get United Technologies Corporation Report

Pratt & Whitney

unit received an engine contract worth more than $250 million from

International Lease Finance


As expected, the

Food and Drug Administration

restricted use of



diabetes pill


after 28 liver-failure deaths were blamed on the drug. Rezulin is now only approved for use with the common diabetes drugs sulfonyurea and metformin, and the government said the drug should only be used after other medications have been tried.

Bond Focus: Unchanged CPI Causes Bond Market To Review the Situation


David A. Gaffen

Staff Reporter

Like many recent bond rallies, this one looked better at the beginning than at the end. That's not to say it was all bad -- bonds rallied sharply today after the release of May's

Consumer Price Index

, and though the gains receded, by the end of the day the 30-year Treasury bond still rose 20/32 to trade at 88 27/32.

Due to the CPI, which was unchanged overall and up just 0.1% when excluding food and energy prices, the market isn't as panicked as it was previously. Believe it or don't, but prior to today the market was pricing in a 50-basis-point rate hike (or two quick 25-point ones). Now, it's moved away from that and back toward the opinion most share: that the

Federal Reserve

will raise the short-term lending target to 5% from 4.75% at the June 29-30 committee meeting.

The yield on the two-year note, which trades on expectations of monetary policy, fell 6 basis points to 5.58%, whereas the 30-year bond's yield fell 5 basis points to 6.07%. However, at one point the yield on the 30-year bond fell to 6.03%.

"This has not dissuaded anyone from the fact that the Fed is likely to move at the end of the month," said Ken Logan, managing analyst at

Thomson Global Markets


Traders used today's early rally as an opportunity to sell as the day wore on. The

Beige Book

, the Fed's anecdotal survey of economic conditions, provided a jot of encouragement, as reports from around the country said that wage pressures were building.

The yield on the two-year note has risen 44 basis points since May 13, as the market prepped itself for higher short-term lending rates, but the market reversed direction -- for one day, anyway. But that doesn't mean the market has turned optimistic yet, according to one futures dealer in New York, who said he had "not seen any genuine buyers in the short end of the market. Although the market is up, it's mostly short-covering."

"The general consensus is for a tightening of 25 points" in June, the trader added. In the fall, "it eased quickly three times in a row to support the world economy, and just left the rate there. It doesn't make any sense for the fed funds rate to be at this at post-crisis level."

The fed funds futures, a prime indicator of the market's thinking on future monetary policy, also reversed course and ended the day higher. The rate implied by the September fed funds contract traded on the

Chicago Board of Trade fell 3 basis points today to yield 5.17%. This means the market believes the Fed will hike rates once, but is discounting a 68% chance of another hike by September, compared with an 80% chance yesterday.

Two analysts also said selling pressure was coming from dealers preparing to underwrite corporate issues. Dealers generally sell Treasury bonds ahead of bringing new corporate deals to the market to protect themselves -- if interest rates rise before they sell the new corporate deal, they can buy back the Treasuries to offset the higher cost of the corporate issue.

The Fed last cut interest rates in November of last year, the third of three 25-basis-point rate cuts undertaken as a response to the global economic crisis. Economists have speculated since as to when the Fed might take back one of those moves. Robust as demand was, inflation pressures did not materialize, and the Fed was reluctant to stifle growth without evidence of inflation.

April's 0.7% increase in overall CPI and 0.4% increase in the core rate put the market back on Fed watch. It also provoked a number of hawkish comments from several Fed officials worried about higher prices in conjunction with still-tight labor markets. The overall CPI was unchanged, provoking David Orr, chief capital markets economist at

First Union

, to comment that "May was a case of everything going right whereas in April everything went wrong." Today's report blunts the impact of last month's report, but not enough to avert at least one rate hike, Orr said.

This is because Fed officials of late have been more worried about the continued strength in consumer demand in the retail and housing sectors in recent weeks. The seasonally adjusted rate of

housing starts

rose 6% to 1.676 million in May, up from 1.576 million in April, the

Commerce Department

reported today.

Today's Beige Book highlighted those pressures, saying: "Labor markets remain very tight in almost all districts, with increased reports of upward pressure on wages in many parts of the country." The various districts report strong consumer spending and very tight labor markets, even though "many districts report pockets of higher prices for some specific sectors and goods."

Fed Chairman

Alan Greenspan

addresses the

Joint Economic Committee

tomorrow. But unless the notoriously even-handed Greenspan indicates that the Fed will not raise rates (or plans to go rate-hike crazy), the market's mind seems to be well made up -- for now.



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