Publish date:

daily06-21-99's DAILY BULLETIN

June 22, 1999


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Market Data as of Close, 6/21/99:

o Dow Jones Industrial Average: 10,815.98 down 39.58, -0.36%

o Nasdaq Composite Index: 2,630.28 up 66.84, 2.61%

o S&P 500: 1,349.00 up 6.16, 0.46%

o TSC Internet: 594.51 up 30.17, 5.35%

o Russell 2000: 449.44 up 4.39, 0.99%

o 30-Year Treasury: 89 12/32, down 17/32, yield 6.027%

Companies in Today's Bulletin:

Abbott Laboratories (ABT:NYSE)

Alza (AZA:NYSE) (TSCM:Nasdaq)

In Today's Bulletin:

o Mutual Funds: Jacob's Future With Internet Fund in Doubt After Sale Falls Through
o Wrong! Rear Echelon Revelations: Debunking the Barriers-To-Entry Myth
o Bond Focus: Treasuries Weren't Built Ford Tough Today
o Evening Update: Abbott Labs to Buy Alza in $7.3 Billion Stock Deal

Also on

Internet: AOL's Got Cash, and It Wants to Get Broadband

The investment in Hughes Electronics is part of a multifront broadband strategy.

It's Not a Pretty Price Picture

Don't believe what those New Era types are saying now. As long as they ignore asset prices, they'll continue being wrong.

SEC Arranges Summit for Options Exchanges

Meeting under the Securities and Exchange Commission's umbrella, the four exchanges can convene without fear of collusion charges.

Europe: Germans Roll Out the Good Times at G7 Summit

Summit meetings aren't just about arms control and debt forgiveness anymore.

Mutual Funds: Jacob's Future With Internet Fund in Doubt After Sale Falls Through


Joe Bousquin

Staff Reporter

Ryan Jacob, the portfolio manager who piloted the

(WWWFX) - Get Kinetics Internet Fund NL Report

Internet fund to a 272% return during the past year, could be leaving its ranks.

"He's got things that he wants to decide," Peter Doyle, a founder of the fund, told

Monday evening. "He told me he wants to sit down and discuss things and what his future role will be."

As of Monday, Jacob still managed the $646 million fund, Doyle said.

Jacob did not return two messages left on his voice mail. Doyle, who spoke with Jacob by phone on Monday, said he was in the Cayman Islands.

A deal to sell the fund to

Lepercq, de Neuflize

fell through on Friday. Peter Doyle said Monday morning that "agreeable terms could not be reached," but would not elaborate. Officials of Lepercq, de Neuflize could not be reached for comment.

Jacob works out of Lepercq's New York offices, but associates say he's not actually an employee there. Had the sale gone through, though, Jacob would have continued to manage the fund, as an "officer of Lepercq," according to a filing.

Lepercq entered an agreement earlier this year to buy the fund from

Kinetics Asset Management

, the fund's current advisor. Kinetics president, Margaret Doyle who is Peter Doyle's mother, declined to take a call from


But now that the deal between Lepercq and Kinetics is dead, the one thing every Internet fund shareholder wants to know is where Jacob's allegiance lies.

Doyle said no matter what happens, the Internet fund will go on.

"The truth is, every day I get the fact sheet about what's purchased, what's sold, what's the cash position, and where the fund is going," Doyle said. "This was founded by me and I have a big stake in this, and my family has a big stake in this, and whatever may come is not anything that can't be handled."

The Internet fund's history has been anything but typical for a mutual fund, and it has had its mishaps in the past. Started in 1996 by the Doyles and friends, it puttered along with meager assets until the fourth quarter of 1998, when its returns started skyrocketing.

Those returns made it the best-performing mutual fund of the year, and it suddenly couldn't handle investors' demand for it. Phone lines at the North Babylon, N.Y., home from which it was run became inundated, and the fund temporarily had to close to new investors because it ran out of registered shares to sell.

Of course, those returns are credited to Jacob, who took over the fund's management in late 1997. Many mutual fund watchers have questioned whether the fund's performance was the result of his stock-picking acumen or just the luck of being in the right place at the right time.

If Jacob leaves the fund, millions of dollars in assets that chased his performance into the fund could just as easily follow him elsewhere.

Doyle said simply that he and Jacob need to sit down and figure out the situation.

"We've been friends for ten years now," Doyle said of Jacob. The two worked together at

Horizon Asset Management

, where Doyle still works. "I really don't know, to be honest with you" what will happen, he said.

Wrong! Rear Echelon Revelations: Debunking the Barriers-To-Entry Myth


James J. Cramer

Of all of the canards about the Net, the biggest one is "no barriers to entry." It goes like this: There is nothing proprietary about having a Web site. Anybody can do one. Unlike television, there are no limits to the numbers of Web sites, so therefore they can have little real value. In conclusion, Web site companies are bad investments.

I usually read these kinds of arguments in offline publications, typically by older money managers who I suspect are either not on the Web or have had such a cursory look-see that they don't understand the true economics of the Internet.

That's why I was not surprised to see Mr. Value, David Dreman, disparaging my and my colleagues' efforts at

in this week's


. Oh, it is a totally offhand reference, one of many that I have had to live with these few years. I am not going to address whether


is a good investment or not. As with

every other

stock I mention, that is up to you. Heaven knows, I have made that point enough!

But I insist on discussing the issue of "barriers to entry" at least as it pertains to

because most assumptions about such barriers are completely ridiculous, inaccurate and show a total lack of knowledge of what it takes to build a brand from scratch.

First of all, I will concede the straw man: Anybody can start a Web site. Anybody can start a cable access show, too. Or a newspaper. It is getting people to go to the site or read the paper or view the station or read the newsletter that matters. Given the lack of restrictions on the number of sites, that contest is much more difficult on the Web than in any other venue, so if you can get the eyeballs,

without paying for them

, that is a very big deal indeed.

Second, in order to charge for a product on the Web you have to offer something that people, the actual marketplace, think is vastly superior. I always say that people have to feel they are getting 10 times their money's worth on the Web if you are going to charge for providing news.

An example is not just

, but also

The Wall Street Journal

. But the


charges much less for its superior online product than it does for its inferior print product. To me that's a case of the same transportation company charging $300 for a 10-hour train trip from Boston to Washington vs. $40 for an hour-long plane ride. If I were the

Justice Department

I would wonder whether that transportation company wasn't using predatory pricing to keep other airlines out of that route. Except, everyone else is giving the trip away for free, so why pick on the


, which at least tries to charge?

(Sometimes I think

should print one issue of an offline newspaper up everyday and charge $10 for it, so people would think they were getting a huge bargain paying for the Web site!)

Third, who in his right mind would want to go into this financial services category from a scratch start now? It would cost a huge fortune to get your name around in this category and now no media organization would help you get off the ground, as they all have their own sites now.

Finally -- and this is what the offliners are really missing -- there is much more to a site than to a newspaper. There is a mindset, a Net mindset that I still never find at the offlines guys, all of which are now convinced that their salvation will be the public markets. There is community and interactivity that is not forced or drummed up, but is just plain spontaneous, as spontaneous as the thousands of emails I receive each week.

Man, the offline guys still think the customer is the


as it is in their world. The customer is the


. The offline organizations all think investors are clammoring for their wares. Nothing could be further from the truth. This Net selloff and subsequent rebirth will be about who has proprietary brands and positioning that can't be replicated anymore without spending a king's ransom. It is about how high the barriers to entry have gotten.

Which is why I had to laugh when I read Dremen's piece. It made me recall a conversation I had with Jim Michaels, who used to run


. He wanted me to become a columnist for the magazine some years back. I was very intrigued, so I chatted with him. I told him how I was gung-ho on doing

-- my friend

Marty Peretz

and I were just getting started on the idea -- and he laughed at me. He was almost howling about my naivete. He was quite sure no one would ever pay for anything on the Net. I told him he was wrong. He told me that if I turned out to be right, than the economics of publishing would be changed forever, primarily because of the cost advantage of the Web. He was quite confident I would be wrong and his laughter still rings in my ears.

Somehow it probably doesn't seem so funny any more.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, Cramer held a long position in 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

Bond Focus: Treasuries Weren't Built Ford Tough Today

TheStreet Recommends


David A. Gaffen

Staff Reporter

Treasuries collapsed under the weight of impending corporate supply today, as dealers and investors both sold securities guaranteed by the federal government to get ready for securities backed by the faith of, among others,

The Limited



At least $8 billion in new corporate debt is scheduled to be sold this week, including a mega-deal from

Ford Motor Credit

, an arm of


(F) - Get Ford Motor Company Report

, and that's dampened interest for lower-yielding Treasuries. The auto manufacturer will sell at least $3 billion in securities later this week, and has plans for more sales later this year.

"Ford is replacing the federal government as the one to wash the Street in supply," said Mitch Stapley, chief fixed-income officer at

Kent Funds


Well, not completely. If this expected supply wasn't enough, the Treasury itself will auction $15 billion in two-year notes Wednesday, a monthly exercise. It was enough to put the market in a bad mood for a good part of the day. Lately the 30-year Treasury bond was down 19/32 to trade at 89 13/32. The yield rose 4 basis points to 6.02%.

The planned corporate offerings induce selling among dealers preparing to underwrite these deals. The underwriters sell Treasuries to offset the danger of holding riskier corporate debt. Should bond yields rise, they've protected themselves by shorting, or selling, the Treasury market.

On days where the Treasury market is crowded with buyers, this kind of dealer-related activity has less impact. This is not that day.

Investors, unwilling to bet on a rise in yields ahead of an expected

Federal Reserve

rate hike next week, are sticking to the sidelines. The Fed meets June 29 and 30, and the market feels it's all over but the shouting, which will sound something like: "The Fed has hiked rates from 4.75% to 5%!"


reported volume down 18% when compared to the average second-quarter Monday, as just $41 billion in securities changed hands by 3 p.m. EDT. "It's just thin -- that's the main thing," said Stapley. "Volume's horrible in Treasuries, and so we get down three-quarters of a point on basically nothing."

Since October, when liquidity disappeared from the bond market, the most successful issues have been the largest, most liquid issues. It's an unprecedented move for a corporate issuer, which once it receives the proceeds of its debt sale, typically has little to do with the daily activity in the credit markets.

This week's docket is headed by Ford's deal, expected to price later this week. The company said it would sell at least $10 billion this year in installments to enhance liquidity in the credit markets. This is a tactic federal agencies

Fannie Mae



Freddie Mac


have taken within the last year to drum up more interest in their sizable debt issues, as well as offset some of the liquidity lost in the credit markets through shrinking Treasury supply.

Ford's move underlines the fact that since October, when liquidity was nonexistent in the corporate market, the most successful bond pricings have been the largest and therefore most tradable issues.

Other issuers this week are expected to include

United News & Media's


$1 billion issue and Edison Mission Energy's $600 million offering. Roche Holdings, a European company, sold $1 billion in notes earlier today. (The Limited will sell $300 million later this week, according to sources.) With the outlook for Treasury interest rates uncertain, corporate deals attract investors seeking higher yields.

"I think the investor is looking for a pick-up in yield rather than appreciation of price," said one futures dealer in New York. "There's nothing in the pipeline to gyrate the

prices higher, so the investor will want a security with high coupons."

The day's only economic release was the hardly stimulating May

federal budget

statement, which revealed that the government, through eight months of the fiscal year, is running a $40 billion surplus, compared with $15 billion through the first eight months of 1998.


Evening Update: Abbott Labs to Buy Alza in $7.3 Billion Stock Deal


Heather Moore

Staff Reporter

Abbott Laboratories

(ABT) - Get Abbott Laboratories Report

agreed to acquire



in a stock swap valued at $7.3 billion. Under the terms of the deal, each Alza share will be exchanged for 1.2 Abbott shares. Abbott said it expects to record a one-time charge of $100 million in 1999 related to the deal and that it sees a dilution of 3 cents a share in 2000 earnings. Alza shares have gotten a boost recently on rumors of the combination.

In other postclose news (earnings estimates from

First Call

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

Earnings/revenue reports and previews

Cabletron Systems

(CS) - Get Credit Suisse Group AG Sponsored ADR Report

posted first-quarter earnings of 4 cents a share, topping the 20-analyst estimate by 3 cents and moving ahead of the year-ago break-even results. The company also announced a strategic alliance with



. Shares of Cabletron rose 3/16 to 14 7/8 in after-hours trading.



said it expects to report a second-quarter loss of 15 cents to 17 cents a share due to order delays in its housewares unit, weak export sales and industry softness in the U.K. The company, which sees earnings of 38 cents to 40 cents a share for the full year, also said it hired

Lehman Brothers

to help investigate strategic alternatives. The two-analyst forecast called for a quarter loss of 12 cents vs. the year-ago profit of 2 cents, and full-year earnings of 49 cents vs. the year-ago profit of 37 cents.

LNR Property


said it sees second-quarter earnings of 83 cents to 88 cents a share, way above the four-analyst view of 58 cents or the year-ago 46 cents. The company said about 12 cents to 15 cents of the increase are earnings that were expected to occur in the third and fourth quarters.

Micron Electronics


recorded third-quarter earnings of 7 cents a share, a penny higher than the 15-analyst forecast for a repeat of the year-ago 6 cents.


(SYX) - Get Systemax Inc. Report

said it sees second-quarter operating earnings of 18 cents to 20 cents a share, which would be behind the three-analyst call for 31 cents. In the year-ago period, the company earned 20 cents.

Mergers, acquisitions and joint ventures

Privately held

Amsted Industries

extended until July 6 from midnight New York time tonight the expiration date of its $35-a-share offer to buy



. However, Varlen said the offer is inadequate.




Eli Lilly

(LLY) - Get Eli Lilly and Company (LLY) Report

agreed to jointly form a database that will track patients with acute coronary syndromes.


(KNL) - Get Knoll, Inc. Report

agreed to be acquired by

Warburg Pincus Ventures

and members of Knoll Management for $28 a share in cash.


(TMX) - Get Terminix Report

said it signed an agreement with


(T) - Get AT&T Inc. Report

to charge each other lower rates for handling cross-border calls. Telmex said the two carriers would lower settlement rates to 19 cents a minute July 1, six months ahead of schedule.

Offerings and stock actions

Cumulus Media

(CMLS) - Get Cumulus Media, Inc. Class A Report

filed with regulators for a 8.2 million-share offering.

Old Kent Financial


approved a 3 million-share buyback program.



(BA) - Get Boeing Company Report

North America unit and the

United Auto Workers

union reached a preliminary four-year agreement affecting more than 3,200 members at four plants in California and Oklahoma. The agreement includes wage and pension increases, health care, and health and safety improvements.



named Stephen Rizzone chairman, president and CEO.



said the

Federal Trade Commission

has appealed an administrative law judge's dismissal of a patent complaint the agency filed against the company.

James J. Cramer on AOL

Tuesday, June 22 James J. Cramer will be chatting on AOL at 5 p.m. EDT. (Keyword: Live)


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