TheStreet.com's DAILY BULLETIN
June 28, 1999
Investors! As promised we are updating our report on AG Armeno, we feel we are on the trail of something big. If outstanding capital gains are what you're looking for:
Market Data as of Close, 6/25/99:
o Dow Jones Industrial Average: 10,552.56, up 17.73, 0.17%
o Nasdaq Composite Index: 2,552.65, down 1.34, -0.05%
o S&P 500: 1,315.31, down 0.47, -0.04%
o TSC Internet: 568.44, down 7.62, -1.32%
o Russell 2000: 443.11, down 0.05, -0.01%
o 30-Year Treasury: 87 25/32, up 4/32, yield 6.151%
In Today's Bulletin:
o Editor's Letter: The Coming Week on TSC
o Market Update: Weekend Report: Deutsche Telekom's $11.4B Offering Echoes in Pre-FOMC News Vacuum
o The Coming Week: It's Not Just the Fed: Wall Street Has Its Eyes on Data
o The Coming Week in Europe: European Markets in Thrall to Probable U.S. Rate Hike
Also on TheStreet.com:
The Daily Question: Dissecting Merrill Lynch's Move to Online Trading
Also: Researching a fund manager's background, comparing costs of WEBS, SPDRs and funds, and surveying California muni bonds.
Technical Forum: Some Charts to Accent a Heckuva Summer
Among them are 24/7 Media, eFax.com, Cendant and PeopleSoft.
Technical Forum: Golf-Crazy Gary Sheds No Tears for the Knicks
After a nice bland round of golf, there's nothing like a few charts, including those of CNet and AOL.
Tax Forum: How Can I Get Out of My 401(k) Plan?
This week's focus is on moving assets out of old or unsatisfactory 401(k) plans.
Editor's Letter: The Coming Week on
It's getting close to scorching hot down in the canyons of lower Manhattan. Summer is definitely here, along with all its fine odors.
As we wade through urban humidity, thoughts turn to the big
TSC Investment Challenge. It gets underway on Monday, June 28, and there's still time to get signed up. Things get underway on June 28 at 9:30 a.m. EDT and end on August 20 at 4 p.m. EDT. Throughout the event we will track leaders and profile weekly winners at the beginning of each week. Weekly winners will get a free three-month subscription and a swanky TSC cap. The grand prize: a morning in the trenches with
James J. Cramer
. To enter, check out the tile on the right-hand side of the home page or click on the link above.
Throughout the summer Investment Challenge, we will continue to pursue the latest quirks in the stock market. Summers used to be a little mellower, but this summer shows few signs of settling down. From an overabundance of rumors to growing concerns about interest rates, we will have the bases covered for you. Moreover, our battery of columnists, including Cramer,
will continue to provide you with insights, commentary and analysis that simply can't be found anywhere else.
Other events coming up include a chat with TSC Technician and at-home trader
Gary B. Smith
. The chat is on Yahoo! on Tuesday June 29 at 5 p.m. EDT. It's free, but you do need to register at
Finally, if you have any comments or suggestions, feel free to
email me. I'll make sure that your issues get dealt with promptly.
L'Etoile du Nord
Market Update: Weekend Report: Deutsche Telekom's $11.4B Offering Echoes in Pre-FOMC News Vacuum
If there were any way in the wild, wild world for us to skip tomorrow -- and, say, take the day off and observe
early somewhere away from this brutal Manhattan heat -- we would. Friday was a
gosh darn bore, and tomorrow promises more of the same. (Let's pray for at least a thimble's worth of merger mania or IPO excitement.)
But we can't play hooky. So instead, expect to suffer through excruciatingly low trading volume, TV pundits repeating themselves, repeating themselves and, if we're really lucky, maybe the sound of a clock ticking or water dripping. Wall Streeters, of course, will be waiting for the
Federal Open Market Committee
meeting on Tuesday and Wednesday, from which most people in the biz expect a 0.25% hike in interest rates.
After that, maybe we can all move on with our lives. Last we looked, readers of
optimistic about a sweet hereafter. After all, the
coming week holds more than the FOMC meeting.
In corporate news, Germany's
said it will offer up to 285 million shares at $40.82 apiece in a $11.4 billion secondary offering. The issue was twice oversubscribed.
In early overseas trading, meanwhile, Japan's
was flat at 17,436.52. Australia's
index was off 4.5 to 2955.5 and New Zealand's
was down 13.6 to 2134.12.
said Saturday that South Korea's economy was expected to grow by 4% or 5% this year and in 2000. "The engines behind the recovery are the revival of consumption, restocking of inventories and demand for exports," Neiss told
. "In time, investments should follow."
said that, after receiving a positive letter from the former chairman of the
Federal Communications Commission
, it doesn't expect to encounter major obstacles from the agency to its proposed mergers with
U S West
. Qwest increased its hostile bids for U S West and Frontier last week.
Pepsi-Cola Puerto Rico Bottling
agreed to combine with two other Pepsi bottling franchises:
. The companies hope the deal will give them a strong presence in the Caribbean and expand their reach in the Midwest and South.
will hold a 24% stake in the combined group.
announced a new five-year labor agreement with the
United Steelworkers of America
From the rumor mill, Britain's
is considering a four billion pound bid for Anglo-American fund manager
. And today's
is in early talks with
Cable Management Ireland
about a $133 million merger.
From the "hmm" department came wire reports about
New York Stock Exchange
weekend trip to guerrilla-held territory in southern Colombia. Grasso was reportedly "exploring international opportunities" when he met with Raul Reyes of the leftist
Revolutionary Armed Forces of Colombia
(which, by the way, is on the
list of international terrorist groups), and chatted about all the zip-a-dee-doo-da fun that is capitalism. Maybe Reyes will ring tomorrow's morning bell -- stranger openings have happened.
In the Papers
The weekend press, as weekend press is wont to do, gazes at navels more than anything else. The front of
The New York Times'
Money & Business section offers a bullish piece on
creative-friendly management style and a hopeful look at online bond trading. The "Market Watch" column (and where were you, Ms. Gretchen?) surmises that an IPO of the
Nasdaq Stock Market
just might make sense, and notes that Australia has already been there, done that with its stock exchange.
cover story is mid-year roundtable among the following nine hot-shots reflecting on their January market calls: Barton Biggs, Scott Black, Meryl Buchanan, Mario Gabelli, Archie MacAllaster, John Neff, Arthur Samberg, Oscar Schafer and Felix Zulauf. Good ol'
, meanwhile, writes about the shape of Einstein's brain.
The Coming Week: It's Not Just the Fed: Wall Street Has Its Eyes on Data
What affects markets more, stuff people already know or stuff people don't know yet?
Seems like the answer to that is pretty easy -- the latter. But it's a question worth asking going into a week in which every smart economist on Wall Street, and most of the dumb ones, thinks the
Federal Open Market Committee
is going to raise rates by a quarter-point. Sure, there have been rumors that the Fed would tighten by a half-point.
told some guy from France that that's what he planned to do. With Y2K and elections looming, the FOMC wants to get all its hiking out of the way at once. Etc.
"So much garbage has been written about the Fed, you could choke," said Don Fine, chief market analyst at
Chase Asset Management
. "Nothing is 100% in this world, but the Fed tightening by 25 basis points at this meeting is pretty close to it."
Predictably, since a quarter-point move is seen as such a sure thing, focus has shifted to whether the FOMC will keep a bias toward tightening -- an indication that committee members think the next move, when it's made, will be to higher rates -- or go neutral.
It's a new thing for the FOMC to announce changes in bias at the end of its meetings -- last meeting's move toward tightening was the instance -- so people are somewhat unclear on whether Al & Pals will release a statement when they finish up on Wednesday. The general feeling is that they won't make a statement, and that that will indicate the Fed has maintained its tightening bias.
When the Fed is widely expected to do something, it usually does. Let's say that's the way it goes this time around. When the Fed does what everybody expects it to, there's usually a bit of relief in the market. Just because everybody
it to act in a certain way doesn't mean they weren't
But let's get back to the original question.
The thing that people know is that the
is going to raise by a quarter of a percentage point on Wednesday, and that it will probably keep that tightening bias. The thing that people don't know is what the Fed is going to do next. As it turns out, coming on the heels of the meeting are two economic reports that will help determine just that.
If the data are strong, and yield on the long bond stays up above 6%, all those people who were talking about how a summer rally was going to start as soon as the FOMC meeting was over are going to be sorely disappointed.
Yep, there's a good chance that the
National Association of Purchasing Management's
Purchasing Managers Index
, coming out Thursday morning, and the May
, released Friday, will be a heck of a lot more important for the market. In fact, nervousness ahead of those two reports may severely limit the chances of a rally off an as-expected FOMC meeting.
If there is a focus, it will be on what the jobs report says about growth.
Salomon Smith Barney
economist Mitchell Held has said that Greenspan was so clear when he spoke before the
Joint Economic Committee
testimony could have been called
Monetary Policy for Dummies
. In a key part of that testimony, Greenspan said:
Overall economic growth during the past three years has averaged 4% annually, of which roughly 2 percentage points reflected increased productivity and about 1 point the growth in our working-age population. The remainder was drawn from the ever decreasing pool of available job seekers without work.
That suggested a few of things. It suggested that the Fed has set a sustainable growth rate of 3%, a percentage point below where it is now. It suggested that growth is again an issue for the Fed, and that it will work to bring it down to what it sees as a sustainable rate. And it suggested that any further reduction of that "ever decreasing pool" of people out of work would make the Fed worry.
"Our feeling is the data will be on the strong side," said Held. "I'm not sure if the market's going to take it well."
If the data are strong, and yield on the long bond stays above 6%, all those people who were talking about how a summer rally was going to start as soon as the FOMC meeting was over are going to be sorely disappointed.
"The 6% threshold proved to be an important psychological barrier," said Byron Wien, chief U.S. strategist at
Morgan Stanley Dean Witter
, "and as long as it stays above 6%, this correction will continue."
The Coming Week in Europe: European Markets in Thrall to Probable U.S. Rate Hike
Much the way
uses the Force to hold his victims captive before crushing the life out of them, U.S.
will have European financial markets under his spell until the Fed announces whether it will adjust interest rates on Wednesday.
Almost everyone expects the Fed to hike U.S. interest rates by a quarter of a point in the coming week, although some have murmured concern that it could be more. And many are itching for the central bankers to get it over with. The probable Fed move has eclipsed almost everything else. Even fundamental data have been shunned by the European fixed-income markets in favor of a focus on the narrowing spread to comparable U.S. Treasuries.
Greenspan hasn't been the only central banker raising a ruckus. Outgoing
said last week that he saw sparks of life in the German economy, which helped to push the yield on the 10-year German bund to 10-month highs by Friday.
Right now many traders think interest rates will continue to overshoot until the Fed reassures the market with a move of only 25 basis points, says Gianluca Sanna, an analyst for
Stone & McCarthy Research
in London. After that, economic fundamentals will regain their prominence in dictating market direction.
The uncertainty over U.S. rates is also playing itself out in the equity markets and will likely continue to do so until Big Al pulls the trigger. Major exchanges were in a holding pattern Friday: Germany's
dipped 0.5% to 5301.21, while London's
rose a mere 0.3% to 6435.4.
Although the spotlight is undoubtedly on Washington, a few other issues will bask in the footlights this coming week. On Monday, 286 million new shares of
will be traded for the first time. The promise of all that new stock wreaked havoc on DT shares Friday. Institutional investors pushed DT 1.7% lower so they could snap up the new shares in the state-run monopoly a bit cheaper.
Also on Monday,
will hold its first shareholders meeting after a successful hostile takeover by
thwarted a proposed merger with DT. As part of the post-takeover clean-up duty, TI is expected to present a new board. Telecom Italia shares fell 29.1 cents to 9.926 euros on Friday.
But until Vader snaps his fingers Wednesday and releases his cold, steely grip, it appears Europe's financial markets won't be going much of anywhere.
John J. Edwards III on MarketTalk
Monday, June 28
Chat with John J. Edwards III on AOL's MarketTalk at 3:30 p.m. EDT. MarketTalk is hosted by Sage Online. (Keyword: PF Live)
Gary B. Smith on Yahoo!
Tuesday, June 29
Gary B. Smith will be chatting on Yahoo! at 5 p.m. EDT. Register for Yahoo! It's free!
Get in the trenches with James Cramer... Invest a cool $500,000 without the risk - register for TSC's Investment Challenge and play for prizes, including a trip to NYC and a morning with James Cramer! Pre-registration - June 21. Game begins - June 28.
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