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daily08-03-99's DAILY BULLETIN

August 4, 1999


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Market Data as of Close, 8/3/99:

o Dow Jones Industrial Average: 10,677.31 up 31.35, 0.29%

o Nasdaq Composite Index: 2,587.99 down 35.64, -1.36%

o S&P 500: 1,322.18 down 5.87, -0.44%

o TSC Internet: 519.07 down 20.96, -3.88%

o Russell 2000: 436.28 down 6.35, -1.43%

o 30-Year Treasury: 87 20/32 down 16/32, yield 6.155%

Companies in Today's Bulletin:

SFX Entertainment (SFX:NYSE)

Splitrock Services (SPLT:Nasdaq) (QUOT:Nasdaq) (FLWS:Nasdaq)

In Today's Bulletin:

o IPOs: Some Dot-Coms Get Trampled in IPO Stampede
o Wrong! Rear Echelon Revelations: Lifeboat Stocks Are Sorely Missing
o Evening Update: SFX Entertainment Sets Buy of U.K.'s Apollo Leisure Group
o Bond Focus: Generalized Gloom Returns Long Bond Yield to Year's High

Also on

Internet: As Net Stocks Tumble, Explanations Abound

Hisssss ... Is that the sound of the Net bubble deflating? It all depends on whom you ask.

The TaskMaster: An Eye-Popping Development: Consider the Open Source

The TaskMaster lifts the hood on an online start-up hoping to profit from the Open Source movement.

Europe: With Netia, Poland Polishes Its Investor Image

The Netia ADR offering on the Nasdaq highlights the rich potential of Polish markets.

Tech Savvy: Don't Yell 'Yahoo!' Quite Yet

A Yahoo!-Excite@Home linkup appears unlikely and, for the latter party, downright unwise.

IPOs: Some Dot-Coms Get Trampled in IPO Stampede


Beth Kwon

Staff Reporter

Apres July, le deluge.

Following a month of 64 IPOs, 24 of them just last week, August is off to a dismal start. Four Internet IPOs tanked today.

Online video store

Bigstar Entertainment

(BGST:Nasdaq) opened at 9 3/4, dropped almost 19%, and closed at 8 5/32. Network services provider

Splitrock Services

(SPLT:Nasdaq) fell 10%, closing the day at 9. The insurance resource

(QUOT:Nasdaq) opened at 11 1/16 and ended under at 9 11/16. Even the much-anticipated

(FLWS:Nasdaq) closed at 18 3/16, almost 13% below its 21 3/4 opening price, despite backing by powerhouse

Goldman Sachs

(GS) - Get Free Report


There is plenty of blame to go around, analysts say, but the main one is that there are too many companies rushing to go public before investors' money runs out. So far there is no sign that the IPO tap is about to turn dry.

The last time four IPOs closed on the same first day below their offering prices was Nov. 24, 1997, when

Electric Lightwave



Holt's Cigar Holding



Let's Talk Cellular and Wireless



Motor Cargo Industries


, relatively unknown brick-and-mortar companies from which no one expected a spectacular first-day pop.

Some blame Tuesday's action on the heat. "Summer is not the best time to have IPOs," says Alex Cheung, a portfolio manager at

Monument Funds


But a few other market watchers think it's a case of the copycat curse. "We've had a glut for awhile now," says Randall Roth, a senior analyst at

Renaissance Capital

. "There's a lot of companies that are me-toos." Except perhaps for 1-800-Flowers, all of today's offerings are entering already-crowded spaces on the Net.

But it's not just IPOs that are suffering. Looking back over the year, Internet bellwethers







(AMZN) - Get Free Report



(EBAY) - Get Free Report

have been falling steadily since April. reached a peak of 209 1/8 on April 23, and has fallen some 46% since then. Yahoo! also dropped after an April 5 high of 219 1/5 and is down 33.2% to trade at 125 3/8, close to where it started the year.

If April was bad, other signs of trouble continued. Two Net IPOs closed below their initial pricings on May 26.



, and

Juno Online


fell 11% and 12%, respectively, below their opening prices. The same day,

Edgar Online


, which went public the same day, spent much of its first day below its 9 1/2 pricing, and closed slightly higher by the close.

The next time two Net companies closed below their offering prices came on June 22, when


opened at 10 and closed at 9 17/32, and


opened at 10 1/2 and closed at 10.

In spring, many analysts bemoaned a market flooded with Net IPOs. In a Renaissance Capital report released in March, Roth predicted the bubble would burst. It took a while, but now he thinks the time is here. "With more people talking about it, it became apparent and self-fulfilling," he says. "Now it looks like it's ripe for a shake-out."

Still, there's no signs of companies pulling out of going public. With an expected 16 more in the hopper this week, and a projected 66 for the month, August will sure be a busy month.

And then there's another 100 expected for September.

Wrong! Rear Echelon Revelations: Lifeboat Stocks Are Sorely Missing


James J. Cramer

Calling all safety stocks!

Yes, the shocking dearth of stocks that you don't have to worry about struck us a new feature for this decline. All day as the Net was pounded and the financials were wounded and tech traded sporadically, I kept waiting for the old faves, the drugs, cosmetics and beverage stocks to get some traction.

They never did.

At one of my meetings today with my partner, Jeff Berkowitz, I threw up my hands in despair and said "Where are the


(MO) - Get Free Report

of today? Where are those go-to stocks you can count on when the buzzer is only seconds away?"

Indeed, there seemed to be only two of them today,


(CL) - Get Free Report



(PG) - Get Free Report

, with a half-hearted attempt by


(G) - Get Free Report

to rally. What a difference from a few years ago when I could have reached for


(KO) - Get Free Report



(PFE) - Get Free Report



(K) - Get Free Report


General Mills

(GIS) - Get Free Report



(CAG) - Get Free Report


Bristol Myers

(BMY) - Get Free Report

and get a big lift during the quarterly institutional rush to safety. You can't just take


(DIS) - Get Free Report

any more knowing that you can sell it up a dollar or two when institutions run for cover. Philip Morris, wounded as I have ever seen it, had no lift when things got ugly today.

This is a new wrinkle and it tells you how far we have come toward making old tech the reliable standard instead of the foods and the drugs and the soaps. People, when they are stymied, now reach for

Hewlett Packard


! They grab

Texas Instruments

(TXN) - Get Free Report


That's all well and good for now, as those companies seem to be doing well (hence why I grabbed them.) But what I lament is that coterie of stocks that could just be banked on, that were so steady that they could be truly be labeled go-to stocks.

But one by one the fundamentals broke down on these old faves. They don't even get a lift anymore when the dollar goes down (they have lots of profits overseas and they translate into a positive when the dollar is weaker). Now they are just simply boring laggards. The drug stocks in particular seem like high-multiple boring laggards.

It is something that I truly miss about trading this market. I guess that's one reason why, when the tape gets choppy, I just reach for the bonds as a trade instead of the safety stocks. They are far more liquid and allow you to sleep better. They just lack the pop.

What a testament to American technology that the safest stocks we have now are the ones with the most manufacturing skill and ingenuity. And what a statement that the so-called safety stocks, the ones that replaced nuclear-powered utilities in our parents' portfolios in an attempt for steady growth, are more worrisome than I can ever recall.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Texas Instruments and Hewlett Packard. 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: SFX Entertainment Sets Buy of U.K.'s Apollo Leisure Group


Eileen Kinsella

Staff Reporter

All the world's a stage for

SFX Entertainment


, which agreed to acquire

Apollo Leisure Group

, a U.K.-based entertainment service, for $254 million in stock and debt. As part of the transaction SFX will also acquire

Barry Claymen

, a promoter of concert and entertainment events including the fast-moving



SFX also said it will sell 7.5 million common shares to finance future acquisitions as well as for other corporate purposes, such as its pending acquisition of Toronto-based


, the insolvent company that brought you





Bear Stearns


Lehman Brothers


Morgan Stanley Dean Witter


SG Cowen

will underwrite the offering. The show must go on.

In other postclose news (earnings estimates from

First Call

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

Earnings/revenue reports and previews



reported a second-quarter loss of 9 cents a share, compared with 6 cents a year ago. The company said the latest quarter figure included extraordinary items totaling $915,000. Allstar provided no per-share operating numbers. The lone-analyst estimate was 5 cents a share.



and its 84%-owned

Intimate Brands


said second-quarter profits will beat analyst estimates. Limited cited strong demand for its





Lane Bryant

brands and said it expects to report earnings of 26 cents a share, above the 20-analyst estimate of 19 cents. Intimate Brands said it expects to report on Aug. 11 second-quarter earnings of 34 cents a share, beating the 25-analyst estimate of 28 cents.

Mine Safety Appliances


said it will record a pretax gain in the third quarter that will ultimately boost its 1999 earnings by 14 cents a share.

Playboy Enterprises


reported a second-quarter loss of 13 cents a share, including extraordinary items. The company didn't provide a per-share operating figure. The one-analyst estimate called for an operating profit of 48 cents vs. the year-ago profit of 10 cents.

Offerings and stock actions

Applied Micro Circuits


announced a 2-for-1 stock split. The split will apply to shareholders of record Sept. 2, and will be payable in the form of a stock dividend Sept. 9.


C&D Semiconductor Services

filed an antitrust suit against

Silicon Valley Group


claiming $20 million in damages.

Last week, HMO


(HUM) - Get Free Report

announced a 46% drop in its second-quarter net income. Today, just before the close, its president and chief executive, Gregory Wolf, resigned. In the interim, Chairman David Jones will helm the company.


International Monetary Fund

approved a $460 million payment from its loan to Indonesia in a sign the government was meeting its reformist promises to the IMF.



rejected a Democratic proposal for $10.8 billion in emergency aid to farmers. Senators voted 54 to 44 against the Democratic plan, but left alive a $7 billion Republican plan that would give more than $6 billion to grain and soybean farmers.

TV Guide


said it will launch a weekly Spanish language insert to reach new readers. The company also said it will raise the cover price of its digest to $1.79 from $1.49, cut its rate base to 10.8 million and lower advertising rates to cut costs and increase profits.


Bond Focus: Generalized Gloom Returns Long Bond Yield to Year's High


Elizabeth Roy

Senior Writer

The bond market weakened again today, returning some yields to their highs for the year, first reached in late June.

There was no specific catalyst, though strong reports on July sales by many carmakers discouraged hope that economic growth is slowing. Rather, the selloff can be blamed on: Poor supply conditions, with the Treasury's quarterly refunding slated for next week and at least a couple of big corporate new issues looking for buyers this week; super performance by a key commodity price index these last two days; and generalized negative sentiment ahead of important economic reports due out Thursday and Friday.

The benchmark 30-year Treasury bond ended the day down 15/32 at 87 22/32, lifting its yield 4 basis points to 6.16%. That close matches the long bond's worst for the year on June 24. Shorter-maturity note yields outperformed. The two-year Treasury note, for example, saw its yield rise to 5.67% from 5.65%. The difference in yield between the two issues widened to 49 basis points from 47 yesterday.

That yield-curve steepening is largely a function of the upcoming Treasury refunding, the government's quarterly auction of long-dated bonds and notes. Next Tuesday, Wednesday and Thursday the Treasury will sell five-, 10- and 30-year notes and bonds. Tomorrow morning, it will hold a press conference to announce how much of each issue it will sell.

Traders expect the Treasury to issue $15 billion of five-year notes, $12 billion of 10-year notes and $10 billion of 30-year bonds, quantities unchanged from the last refunding. And certainly, it's possible the government will pleasantly surprise the market with an announcement that the quantities will be smaller. But in the meantime, long-dated paper is underperforming the two-year note because the coming supply is long dated.

(Larger sizes are unlikely because the mounting federal budget surplus has reduced the government's long-term borrowing needs. And even if the Treasury announces it's going to borrow more than $37 million, "it probably wouldn't have much of an impact in this environment because we know it wouldn't persist,"

Wrightson Associates

chief economist Lou Crandall said.)

The two big corporate new issues seeking buyers this week are a $5 billion two-, five- and 10-year offering by


(WMT) - Get Free Report

expected to be priced tomorrow or Thursday, and a $3 billion five-year offering by

Fannie Mae


expected to be priced tomorrow.

No major economic indicators were released today, and none are slated for release tomorrow. But while traders wait for the second-quarter

productivity and unit labor costs

report on Thursday and the July

employment report

on Friday, they can chew on the July car and light truck sales reports, which so far don't appear to support the notion that consumer spending fatigue is setting in.

In commodity land, the

CRB/Bridge Futures Price Index

closed at its highest level since Jan. 13. And while much of the strength in the index is in the grain sector, where prolonged drought conditions in the Midwest are lifting prices, bond traders don't like the look of that chart.

It doesn't mean that future inflation reports (the



Consumer Price Indices

) won't look as pretty as they have in the past, but it certainly betters the odds of that happening, and that's enough to further depress a bond market that was in a bad mood to begin with,

Morgan Stanley Dean Witter

chief money-market economist Bill Sullivan said. "It all stems from a very negative sentiment regarding the outlook for interest rates, inflation and monetary policy," he said. "The overriding psychology among bond investors is a negative one, and it prompts investors to gravitate to negative news and ignore any positive influences." It won't let up, Sullivan says, without incontrovertible evidence of moderating economic growth, slack returning to the labor market and pressure on commodity prices.

Negative sentiment is so widespread that

Warburg Dillon Read

Treasury market strategist Mark Mahoney thinks doubtful yields will rise much further, even in the event that the economic data due out at the end of the week are unfriendly. At the same time, he said, any rally on friendlier-than-expected numbers "is going to be capped by the refunding. We aren't going to get a rally on weak numbers until after the refunding."


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