TheStreet.com's DAILY BULLETIN
July 30, 1999
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Market Data as of Close, 7/29/99:
o Dow Jones Industrial Average: 10,791.29 down 180.78, -1.65%
o Nasdaq Composite Index: 2,640.01 down 65.83, -2.43%
o S&P 500: 1,341.03 down 24.37, -1.78%
o TSC Internet: 562.44 down 21.88, -3.74%
o Russell 2000: 441.58 down 5.03, -1.13%
o 30-Year Treasury: 88 25/32 down 24/32, yield 6.061%
Companies in Today's Bulletin:
Electronic Data Systems (EDS:NYSE)
In Today's Bulletin:
o Brokerages/Wall Street: Insiders Describe Shooting Scene at Daytrading Firms
o Wrong! Rear Echelon Revelations: Working for the Weekend
o Evening Update: EDS Beats Second-Quarter Views, Sees Third-Quarter Charge
o Bond Focus: ECI Spanks the Bond Market
Get the word on Internet stocks this weekend, as Merrill Lynch Internet Analyst Henry Blodget appears on TheStreet.com TV show on the Fox News Channel. The show airs Saturday 10 a.m. ET and again on Sunday 1 p.m. ET. For more info and how to find Fox News in your area, please see our TSC on Fox page, at www.thestreet.com/tv.
Also on TheStreet.com:
Silicon Valley: Tech Fans Promise Autumn Rebound
While networkers and chipmakers stand to gain following this summer's selloff, Y2K could keep software stocks depressed.
The TaskMaster: Traders Don't Sweat Selloff; Taiwan Blackout Is Another Matter
Greenspan wouldn't mess with success, would he? And what lights out in Taipei could mean for all those chipmakers.
Mutual Funds: Funds Notebook: The Net Won't Put Brokers Out of Business Anytime Soon
Also, a former 'Deadman' fund will open to new investors and Babson reopens its small-cap value fund.
Under the Hood: The Sad Tale of an Unrequited Love Affair With CGM Focus
Brenda fell hard for Ken Heebner's concentrated portfolio. But funds are fickle.
Brokerages/Wall Street: Insiders Describe Shooting Scene at Daytrading Firms
His voice unusually stunned and subdued, Harvey Houtkin, president of Montvale, N.J.-based
All-Tech Investment Group
, was on the other end of the phone running through the scene that had unfolded just minutes earlier in Atlanta.
Television cameras were just arriving at the scene to report the carnage. "Some madman shot up our Atlanta office. There are at least five dead. Apparently he was a customer, but he hadn't been around for a couple of months," he said.
Thursday night, Atlanta police found the former customer, Mark O. Barton, dead. He had allegedly killed nine people after opening fire at the offices of All-Tech and
, both daytrading firms. Authorities later found the bodies of his wife and two children.
At one time, Barton was a customer of All-Tech, a daytrader, Houtkin said. Houtkin had just gotten off the phone with one of the traders who had been there during the shooting. "He was there several months. That's what the guy who called me told me. I understand he had lost a little money. We have people who win and people who lose. It's crazy."
A couple of days ago, Houtkin said, the customer had come in to speak to the office manager. Then he came back Thursday. Went into the office manager's office. There were gunshots, and then he emerged and started shooting.
"There was no rationale, someone who was getting a demonstration got shot and might have been killed," Houtkin said. "He had two guns. One in each hand. That's what I was told."
In Houston, Texas, Momentum principal James Lee was shocked and his voice just a whisper. The news was still coming in. "We may have known some people there. We're getting sketchy information. I can't talk about this now."
, where the shootings occurred, it was chaos. An attorney with offices there said workers were locked in, waiting for the killer to be found. "We were told to lock our doors and stay put. We're not too far away but other than lots of police cars, it's pretty quiet," he said.
John Cabrer of the
Georgia State Tollway Authority
was in the building where the shootings occurred. "When I first heard the noise I went out and saw people shot, lots of blood. I tried to help and resuscitate one but I knew he wouldn't make it. He was moving but was taking his last breath," Cabrer said.
"Only at one point did it dawn on me that I was in the middle of a room full of shot people and that the gunman could come back and shoot me. I was scared but knew what I had to do. It seemed like it only lasted an instant and then I was back in the office," he said.
Shortly after 7 p.m., the police told him he could leave.
All-Tech and Momentum are two of many daytrading firms that have sprung up around the country as the bull market has continued to roar on. There are an estimated 3,000 to 5,000 daytraders nationwide, ranging from amateurs to the professionals. They spend from 8 a.m. or 8:30 a.m. to 5 p.m. or so at computer terminals, making anywhere from 30 to 100 trades a day, reaping profits from movements as small as 1/8 in stock prices.
In recent months, regulators have cracked down on daytrading firms, concerned about whether daytraders are aware of the risks they are taking and about the motives of the firms charging heavy commissions to the traders who are their customers.
At some firms, terminals may be manned by professional traders with
licenses trading for their own accounts or those of their firms. Or they can be unlicensed amateurs who have paid $3,000 to $5,000 for a daytrading course and who act as customers of the firm, trading only their own money or that of friends or family. All-Tech's customers often fall into the latter group, people in the daytrading community say.
With amateurs in the game, some daytraders and daytrading shop chiefs say the shootings were surprising but not shocking.
"It's definitely not a total surprise. Yes, the answer would be it figures because people have such unrealistic expectations and don't understand what they are doing," says one professional daytrader.
But Gary Mednick, who heads Great Neck, Long Island's
, says he thinks it was an isolated event. "Someone was mad about something, and he took matters into his own hands," he says.
Mednick doesn't even have plans to beef up security, a sentiment echoed by David Laurent, chief operating officer of
, also in Great Neck.
At least one firm, though, began looking into security months ago.
in New York installed a security card entry system for its clients four months ago. Once an account is cancelled, says Andrew Actman, an executive with the firm, the card is disabled.
Daytraders are hitting a rough patch because the tech-stock market they've fed on for the past 18 months has weakened. And, the professional trader says, a few firms allow their customers to skirt the maximum borrowing requirements, meaning that the losses can be far deeper.
With so many new people out there trading, in some cases from their retirement and savings accounts, understanding the risks is vital, the trader says.
On Thursday, that became even clearer.
Wrong! Rear Echelon Revelations: Working for the Weekend
James J. Cramer
is on his own tomorrow. I would love to have him write for the site instead of me on Friday but he will probably be too jammed.
As we are getting really oversold, Jeff and I went over price levels where we want to buy a couple of stocks, so I can raft down the Delaware (water permitting) without my StarTac.
We want more
at 87, more
at 60, more
at 145 -- the latter being a prime candidate to be "marked up" for the end of the month by mutual funds who actually care about how they do in a given month.
Right before Jeff left, he said to me, "these Net stocks are really great to trade." I looked at him like he was crazy. "Joke, man, joke, lighten up."
Time for a few days off.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Motorola, Cisco and Redback. 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: EDS Beats Second-Quarter Views, Sees Third-Quarter Charge
Heather Moore and
John J. Edwards III
Electronic Data Systems
reported second-quarter earnings of 44 cents a share, a penny better than the 19-analyst expectation and up from the year-ago 39 cents. The company's CFO reportedly said he expects the company to take an unspecified third-quarter charge for its ongoing restructuring, and he forecast 10% total revenue growth for 1999.
Inflow into U.S. equity funds for the week ended yesterday totaled $5.4 billion, with 62% flowing into growth funds, according to
AMG Data Services
. International equity funds reported inflow into developed sectors, and emerging regions experienced redemptions. Among other categories, outflow from taxable bond funds totaled $819 million, outflow from money market funds totaled $4.8 billion and outflow from municipal bond funds totaled $540 million.
In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):
Earnings/revenue reports and previews
said it sees full-year 1999 earnings coming in at 4 cents to 5 cents a share, which is below the three-analyst view of a dime. The company also said it plans to delay filing financial information in its annual report.
said it expects a second-quarter loss of 28 cents to 30 cents a share, wider than the four-analyst estimate of a 15-cent loss. The company pointed the finger at those harmless little stuffed critters known as Beanie Babies, saying that a scarcity of merchandise had slowed down sales. Noodle Kidoodle also said it would invest up to $1 million in an e-commerce Web site.
said its July same-store sales rose 8%. The ubiquitous coffeeteer's shares edged up 3/16 to 24 3/16 in after-hours trading,
Mergers, acquisitions and joint ventures
(ICCI:Nasdaq) inked a definitive pact to form an interactive-television-portal joint venture with
. Insight will provide $13 million in equity financing to the 50-50 venture, with Source Media providing software and management. Insight also will buy 842,105, or 6%, of Source Media's shares for $12 million.
announced it will acquire
. Oak Tech will swap 0.80 of a share, valued at $2.94, for each Xionics share.
Offerings and stock actions
(DIGX:Nasdaq) 10 million-share IPO top-range at $17. The company, a spin-off of
, helps companies to run Web sites.
Elsewhere in new issues,
(NTIQ:Nasdaq) 3 million-share IPO was priced top-range at $13. Underwriters include
Credit Suisse First Boston
BancBoston Robertson Stephens
Hambrecht & Quist
Network Equipment Technologies
said it will cut its workforce by 7% as part of its previously announced restructuring plan. The company, which expects annualized savings of $10 million from the plan, said it will take a second-quarter charge of $3 million to $4 million.
FOR FURTHER EARNINGS NEWS, SEE:
Bond Focus: ECI Spanks the Bond Market
David A. Gaffen
lying on his back on the pitcher's mound, bonds didn't know what hit 'em today. The name of that screaming line drive is the
Employment Cost Index
, an important measure of labor inflation, and it triggered a massive Treasury selloff. The only consolation for the market today was that bonds dug in and found buyers at technical support levels, partially fueled by the daylong equity rout, according to two analysts.
The ECI, a broad measure of labor costs, rose 1.1% in the second quarter, greater than the
consensus estimate for a 0.8% increase. The report ups the ante on another
rate hike at its next meeting Aug. 24. The Treasury market reacted that way today, completely ignoring a
figure that was, at least at first look, a positive for the market.
"If investors were looking for a sign that would suggest the Fed could remain on hold they didn't get it," said Kevin Flanagan, money market economist at
Morgan Stanley Dean Witter
Lately the 30-year Treasury bond was down 27/32 to trade at 88 23/32. The yield rose by 7 basis points to 6.08%. The long bond hit its low of 88 6/32 at 10:44 a.m. EDT, but climbed back, partially because stocks imploded today.
The ECI's 1.1% rise is its greatest increase since the second quarter of 1991. In the first quarter, the ECI rose just 0.4%, a below-trend increase that somewhat balances out today's surprisingly large gain. On a year-over-year basis, the ECI is rising at a 3.2% rate. That's higher than the first quarter's 3% rate, but still below the 3.5% rate at this time last year.
The alarming headline figures in this report, including the 1.2% rise in wages and salaries (vs. 0.5% in the first quarter), are cause for concern. Benefits rose 0.9% during the second quarter, compared with a 0.3% increase the quarter previous. Fed Chairman
warned in his
testimony that labor cost increases "have invariably presaged rising inflation in the past, and presumably would in the future." The Fed's been very concerned about wage inflation, part of the reason it raised the fed funds rate to 5% on June 30.
But the market won't get another read on the ECI for three months, increasing the importance of Aug. 6's July
, most importantly the average hourly wages and household unemployment figures. "In and of itself this report is not enough to justify an August hike," said Asha Bangalore, economist at
. "Part of this is because it is a correction from an unusually low reading in the first quarter. The market should look for whether
the employment report confirms the fears the ECI has generated today."
Mike McGlone, vice president at
Aubrey G. Lanston
, said the added weight the employment report takes on leads him to think bonds won't sell off further than today's lows until that report. There are several important economic releases between now and next Friday's jobs data, but McGlone pointed to the buying at technical support as evidence the market sees value at these yields -- until the jobs data proves them wrong.
"The bond has held significant support at 114 20/32," said McGlone, referring to today's low on the September bond futures contract, traded on the
Chicago Board of Trade. The futures contract closed at 115 10/32, down 18/32.
Dennis Hynes, market strategist at
, added that the market's ability to hold support and bounce a bit on equity weakness proves it'll remain in a "6% to 6.09% range." Don't expect lower bond yields than that, he said, "because I believe we've seen the best of inflation."
The surprising ECI figure blunted the impact of what is, on first look, a bond-friendly GDP report. Second-quarter GDP grew at a 2.3% rate, much smaller than the 3.3% consensus. The inflation components of the report, the implicit price deflator and the price index, both rose at a 1.6% rate, identical to increases in the first quarter.
On the other hand, business inventories tailed off in the second quarter, removing 0.9% from this quarter's GDP growth. What it means is that businesses, already stocking a glut of inventory, let their inventories run down in the second quarter. This isn't a response to a lack of demand: consumption rose 4% during the quarter, and while that's a slowdown compared with 6.7% in the first quarter, it isn't bupkes. Economists already expect inventories to rise in the third quarter, as companies stock up on their products heading into Y2K, so the market didn't take any solace from this figure.
Corporate Bond Prices on the Web
Curious about corporate bond prices?
Bond Market Association
today unveiled a free service on its
Web site that lets investors look up the prices at which investment-grade corporate bonds traded on the previous day.
Starting today, the initiative, dubbed Corporate Trades I, will publish a list of all corporate bond transactions done the previous day by a group of interdealer brokers. The association estimates that interdealer brokers do 30% to 45% of the trades in the corporate bond market, and that the brokers contributing to Corporate Trades I do at least 90% of that volume.
Investors can go to the Web site and ask to see all of the previous day's trades, or only those in a particular sector (banking, for example), and then sort them by maturity, yield, rating or a variety of other characteristics.
Today, the list includes 106 trades. The association estimates that there are 150,000 corporate bonds outstanding.
The service may be of limited use to individual investors because the transactions are quite large and the association isn't providing any guidance on how much more one should expect to pay for a relatively small block of bonds. The transactions are classified by size as being under $1 million, $1 million to $5 million, $5 million to $10 million, $10 million to $20 million, or over $20 million.
Still, the initiative gives investors more free information than previously has been available on corporate bond prices. It represents an effort by the association to answer legislative and regulatory calls for the bond industry to publish trade data to give investors a basis on which to evaluate the prices that dealers quote them.
The association would like to avoid a requirement that all trade data (as opposed to just interdealer trade data) be disseminated on an intraday basis, arguing that it would impair liquidity in a market already short on it. At the same time, the absence of price transparency in the bond markets, particularly to individual investors, helps make the bond business profitable for dealers; if individuals don't know what's a fair price, they can be enticed to pay too much.
When the association
outlined its plans for the project in April, they gave contributors the option of withholding data on up to 10% of their trades. Contributors no longer have that option. Association President Heather Ruth insisted today that that had nothing to do with
Securities and Exchange Commission
critical attitude toward the project.
Corporate Trades I is comparable to a trade data reporting system the association
introduced for municipal bonds in November.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
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