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daily06-29-99's DAILY BULLETIN

June 30, 1999

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Market Data as of Close, 6/29/99:

o Dow Jones Industrial Average: 10,815.35 up 160.20, 1.50%

o Nasdaq Composite Index: 2,642.11 up 39.67, 1.52%

o S&P 500: 1,351.45 up 20.10, 1.51%

o TSC Internet: 596.57 up 14.25, 2.45%

o Russell 2000: 454.08 up 5.47, 1.22%

o 30-Year Treasury: 88 28/32, up 13/32, yield 6.065%

Companies in Today's Bulletin:

Goldman Sachs (GS:NYSE)

Morgan Stanley (MWD:NYSE)

Merrill Lynch (MER:NYSE)

Scroll to Continue

TheStreet Recommends

Pinnacle Holdings (BIGT:Nasdaq)

Motorola (MOT:NYSE)

In Today's Bulletin:

o Brokerages/Wall Street: The Big Get Bigger in Internet IPO Underwriting
o Wrong! Rear Echelon Revelations: Saving Graces
o Evening Update: Pinnacle Inks Pact to Buy Motorola's Antenna Site Business
o Bond Focus: Long Bond Extends Gains Into a Third Day

Also on

Commentary Features: The Fed's Pre-Emptive Misfire

Economist James K. Galbraith explains why the Fed's attempt to charm rates upward is doomed to fail.

Market Features: Accepting a Hike as Inevitable, Wall Street Focuses on Fed's Bias

The Fed is in uncharted territory with its new policy of announcing changes in its bias, and that has market players on edge.

The Invisible Mouth: Hey, Big Spender

The May personal consumption expenditure numbers show that spending is even stronger this year than it was last year.

Bonds Online:


Guide to Bonds Online

Investing in bonds has never been a do-it-yourself business. Our guide gives the lowdown on getting information fit for the pros.

Brokerages/Wall Street: The Big Get Bigger in Internet IPO Underwriting


Gregg Wirth

Staff Reporter

The Internet IPO market may have created some new stars this year, but it's still dominated by the same old underwriters.

The top triumvirate of IPO underwriters --

Goldman Sachs



Morgan Stanley



Merrill Lynch


-- bolstered their lead, grabbing about 55% of the IPO dollars raised in the year's first six months, according to

Thomson Securities Data

. That compares to a combined market share of about 35% for the first half of last year. (

took a look at

how these three investment banks rule the IPO market in a story earlier this year.)

The three added to their lead during a blistering market for new offerings. Through June 29, companies raised $24.3 billion in 217 IPOs, up 27% from the year-earlier period when $19.1 billion was raised on 259 deals.

Deal size grew to an average $112 million per IPO, compared to $74 million last year. While some blockbuster-sized deals did get done so far this year, the growth in the average IPO size reflects investors' willingness to accept higher per share prices and a larger number of shares being sold.

Recently, however, the IPO market has showed signs of cooling. Investors have become much more picky, still pushing up some Net IPOs to dizzying heights but letting others sink below their offering prices. Meanwhile, nontech IPOs have floundered.

The rankings compiled each quarter by Thomson Securities Data carry a lot of weight on Wall Street, where a firm's good numbers are referred to almost as often as a rival's poorer showing. And with potential clients, which value such measurements when choosing an investment bank, the rankings are a shorthand way of determining who holds the power on Wall Street.

"It's pure marketing value and bragging rights," says Hal Schroeder, a brokerage analyst for

Keefe Bruyette & Woods

. "Issuers want to see who has done more brain surgery -- they don't want to go to someone who has only done it once."

The rankings are less of a concern to industry analysts, Schroeder explains, although some may use the rankings as a barometer of future earnings health for firms since IPOs generally carry a hefty 7% underwriting fee, the large part of which is taken by the lead underwriter. But he adds that swings in trading profits can affect a firm's bottom line more.

The largest gainer among the underwriters was Goldman, which increased its market share to 25% of all IPO capital raised in the first half of the year, compared to 14.4% for last year's comparable period. (Goldman was the lead underwriter of's


recent IPO.) Goldman raised about $6.1 billion in IPO proceeds -- of course, about one-third of that was for its own IPO in early May. Goldman officials were unavailable for comment.

The top four banks in the rankings remained the same, with

Credit Suisse First Boston

taking the fourth spot. Last year's fifth place underwriter at the mid-year point,

Salomon Smith Barney

, dropped to 10th. Solly's total underwriting volume decreased by more than 60%, and its market share dried up from 7.3% to 2.3%.

James Cowles, Salomon Smith Barney's head of global equity capital markets, acknowledges the decline, but says Solly's overall equity underwriting, including secondary offerings and equity-linked convertibles, is up 34% so far this year.

Of course, the rankings pose the question, can past performance foreshadow future good times? At least for now, there is no shortage of available work.

"There's a backlog of a 100-plus deals waiting to get done," says Scott Sipprelle, president of

Midtown Research

, an independent IPO research firm. "But the market's wobbly, mutual fund inflows are down and issuers are getting nervous." The result is twofold, Sipprelle explains: More companies, especially Net companies, are rushing to the IPO market while the market is willing, but not all are doing as well as Net IPOs did earlier this year. There have been about 80 new Internet IPOs that filed to go public in May and June alone.

"Strong deals are getting done, and others are getting left on the launching pad," Sipprelle says. If this trend continues in the year's second half, it may be the latecomers to the party -- those companies filing for IPOs now -- who get left behind.

Wrong! Rear Echelon Revelations: Saving Graces


James J. Cramer

Good-looking ramp. Sure wish it occurred after the


meeting instead of before, as now we will be set up for the quick bang down that I feared would happen when we get to 2:11 p.m. tomorrow.

But we had so many saving graces. The worst of the drug scare seems over, as this plan sounded pretty positive for drug stocks after all.

The bonds put two days together back-to-back! Holy cow, in the bond world that's worth shouting about from the rooftops. The 30-year, which I am long, got stronger all day.

And tech rallied in the face of the



fiasco. Old-timers know that there was a time when the notion that






would be up big on a day when Seagate blew up was inconceivable.

Finally the


. We had


get cancelled. A bunch of other deals wimped out. And the minor plays had life. A super buy program at the bell, involving






names, topped the market off with some high-octane


points; now you have to think that more money is being bet on the

nirvana scenario.



James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Microsoft and the long bond. 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: Pinnacle Inks Pact to Buy Motorola's Antenna Site Business


Heather Moore

Staff Reporter

Pinnacle Holdings


agreed to acquire



North American antenna site business for $255 million in cash.

Goldman Sachs


Network Plus'

(NPLS:Nasdaq) 8 million-share IPO top-range at $16. The company is a local and long-distance service provider.

Elsewhere in new issues, Goldman priced


(SMNS:Nasdaq) 13.75 million-share first offering below range at $15. The company is a producer and marketer of vegetable and fruit seeds.

In other postclose news (earnings estimates from

First Call

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

Earnings/revenue reports and previews



reported third-quarter net earnings of $1.27 a share. The single-analyst estimate called for operating earnings of 68 cents vs. the year-ago 32 cents.

Alpine Group


recorded fourth-quarter earnings of 33 cents a share, higher than the single-analyst prediction of 25 cents and above the year-ago 27 cents.



said it will take a $6 million restructuring charge in the first quarter.



announced second-quarter operating earnings of 19 cents a share, missing the eight-analyst forecast for 23 cents and falling below the year-ago 27 cents.

Finish Line


posted first-quarter earnings of 15 cents a share, 1 cent higher than the 14-analyst forecast but behind the year-ago 22 cents.

GT Interactive Software


posted a fourth-quarter loss of $1 a share, wider than the four-analyst forecast for a loss of 42 cents and below the year-ago profit of a penny. The company also said it hired

Bear Stearns

to help it explore a recapitalization, merger or sale of the company.

International Flavors & Fragrances


said it will take a 1999 charge of $31 million, or 29 cents a share, due to a restructuring program that will cut 200 employees, or 5% of the company's workforce.

Kaiser Aluminum


said its second-quarter net income will include a $13 million, or 10-cent-a-share, gain from the sale of its interest in a joint venture and a legal charge.



reported fourth-quarter earnings of 11 cents a share, a penny above the six-analyst view but below the year-ago 16 cents.



announced a reorganization plan that will eliminate 15% of its workforce, close 20 operations and result in a second-quarter restructuring charge of $17 million.

Secure Computing


said it sees a second-quarter net loss mainly due to transaction delays and Y2K issues. The company also said Chairman and CEO Jeff Waxman resigned. John McNulty, president and COO, will take over Waxman's duties. The five-analyst outlook called for quarter earnings of 5 cents vs. the year-ago 6 cents.

Supreme Industries


said it sees second-quarter earnings of 24 cents to 26 cents a share, which would fall below both the three-analyst estimate of 33 cents and the year-ago 30 cents. The company blamed rising labor costs and delayed shipments.

Mergers, acquisitions and joint ventures



said it will sell 213,651 domestic access lines in Arkansas to



for $843.3 million.

Modem Media.Poppe Tyson


, an Internet marketing company, said it resigned its relationship with



, saying its "philosophies and strategies are not aligned with AT&T." Modem added it's still comfortable with 1999 earnings estimates despite the move.



Majority Leader

Trent Lott

(R., Miss.) said now that the Senate has decided to let a health insurance reform bill come to floor in mid-July, he expects

Lawrence Summers

to be confirmed as


secretary this week.

Gilead Sciences


filed a new drug application with the

Food and Drug Administration

for adefovir dipivoxil, an investigational drug for treating HIV patients who don't respond to other therapy.



said Chief Executive and President Bryan Bedford resigned. John Fredericksen, the company's vice president and general counsel, was named interim CEO.

Philip Morris


said it will discontinue official imports and sales of its


cigarettes in Colombia. The country's government has accused Big Mo of underbilling the value of cigarette imports to avoid a 65% duty.

Bond Focus: Long Bond Extends Gains Into a Third Day


Elizabeth Roy

Senior Writer

The long Treasury bond rallied for the third consecutive session, but with the


meeting and almost universally expected to announce a short-term interest-rate hike tomorrow afternoon, short-maturity yields were little changed.

"With the Fed tightening the next day, any rally is typically going to be led by the long end," said Mark Mahoney, Treasury market strategist at

Warburg Dillon Read


The benchmark 30-year Treasury bond tacked on 14/32 to 88 29/32, trimming its yield from 6.10% to 6.06%. But the two-year Treasury note lost 1/32, lifting its yield from 5.67% to 5.68%.

Market participants attributed the move to a combination of short covering and a friendly piece of economic data, the May

new home sales


"I think it's probably just short covering going into events tomorrow," Mahoney said. "Hedge funds are net short going into the events of this week." Besides the Fed announcement, those include two key economic reports -- the June

Purchasing Managers Index

on Thursday and the June

employment report

on Friday.

Short covering makes sense because of the substantial risk that the Treasury market will rally tomorrow. Virtually every economist on the Street expects the Fed to raise the fed funds rate, the key short-term interest rate, from 4.75% to 5%. Most also expect the Fed to maintain its official bias in favor of raising the rate again in the future. But the second-most-likely outcome is that the Fed reverts to a neutral bias, and that can be expected to trigger a rally.

The long bond also got a boost from the news that the pace of new home sales, which soared to unprecedented heights last fall after long-term interest rates hit 30-year lows, had slowed in May. It holds out hope that the pace of consumer spending in general will slow, leading the economic growth rate down from levels that the Fed considers unsustainably high, warranting a higher fed funds rate.

The pace of new home sales slowed 5.1% to 888,000 in May from 936,000 in April. It peaked at 985,000 in November. The average expectation among economists surveyed by


was for 956,000.

Possibly dampening the positive effect of the new home sales report, the May

Consumer Confidence Index

rose for the eighth consecutive month to 138.4, topping its June 1998 peak of 138.2 and the highest reading since October 1969. A reading of 136.6 had been expected.

The price action on vigil volume (just $48.6 billion of Treasuries changed hands through 3 p.m. EDT, 25.7% below normal for a second-quarter Tuesday according to tracker


) compressed the difference between long and short Treasury yields to its lowest level so far this year -- 38 basis points, as measured by the long bond and the two-year note.

With the short end of the Treasury curve effectively barred from rallying while the Fed is in tightening mode, the flattening trend will probably continue,

Paribas Capital Markets

senior bond strategist Richard Gilhooly said, "unless they make a statement that they're back in neutral, in which case the front end will do better."

Market watchers also say there is a seasonal tendency for short-maturity instruments to have trouble rallying at the end of the quarter because underwriters of corporate and agency debt rush a lot of short-term issues to market in hopes of securing top spots in the quarterly rankings of underwriters by volume of deals done. Short-term issues involve less risk than long-term issues, so they are easier to sell.


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