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daily08-11-99's DAILY BULLETIN

August 12, 1999

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Market Data as of Close, 8/11/99:

o Dow Jones Industrial Average: 10,787.80 up 132.65, 1.24%

o Nasdaq Composite Index: 2,564.98 up 74.87, 3.01%

o S&P 500: 1,301.93 up 20.50, 1.60%

o TSC Internet: 502.36 up 13.96, 2.86%

o Russell 2000: 428.19 up 5.37, 1.27%

o 30-Year Treasury: 87 02/32 up 14/32, yield 6.214%

Companies in Today's Bulletin:

Iridium (IRID:Nasdaq)

Motorola (MOT:NYSE)

In Today's Bulletin:

o Market Features: Greenspan Not About to Shuffle Off the Monetary Coil
o Wrong! Rear Echelon Revelations: We Haven't Hit Bottom Yet
o Evening Update: Iridium Defaults on $1.5 Billion in Loans; Several IPOs Are Postponed
o Bond Focus: Good 10-Year Note Auction Sends Treasuries Scrambling Higher

Also on

Wrong! Dispatches from the Front: Canelo's Can-Do Rally

Cramer's thankful for the Morgan Stanley Dean Witter strategist's accurate rally prediction.


Tax Forum: Global Tax Forum: The Lowdown on Tax Treaties

The U.S. has treaties with 64 countries, so you're never far from the reach of the tax man.

Eye to the Keyhole: From Balance Sheets to Linen Sheets, Martha Stewart Is a Bona Fide Business Genius

Say what you want about the queen of white-bread living -- at least her company makes money.

Mutual Funds: Investors Are Always the Last to Know: Maillet Jumps Ship to Nuveen

The fund manager says his departure 'shouldn't even be an issue' for Van Kampen.

Market Features: Greenspan Not About to Shuffle Off the Monetary Coil


Justin Lahart

Senior Writer

8/11/99 6:00 PM ET

Over the past few years, traders caught on the wrong side of the bond futures have found recourse in one of the following three rumors:



Robert Rubin

is going to resign; Russian President

Boris Yeltsin


Federal Reserve


Alan Greenspan

has just had a heart attack.

The Rubin rumor doesn't work anymore, and the Boris rumor, which sends money scuttling into Treasuries, is strictly the province of longs. For anyone caught short in a market going long, the only thing left is a variation on the Greenspan theme. That was the one that got sprung today. And old though this chestnut may be, it still packs a wallop.

The bond and stock markets both took a turn lower midway through the morning in New York as rumors that Greenspan is planning his resignation hit the market by way of Chicago and London. There was chatter that the Fed head was leaving because he doesn't like working with the new Treasury secretary,

Lawrence Summers

. There was talk that a hedge fund adviser -- either

Medley Global Advisors


Johnson Smick International

-- had said the chairman was on his way out. There was even, apparently, some chatter about the G-Man having gotten himself embroiled in a sex scandal (like that's enough to get someone kicked out of Washington).

This thing was so patently untrue that it's almost surprising it could knock the market down even as briefly as it did.

A spokesman for Medley says the firm never said Greenspan would resign and, moreover, that the rumors weren't, in the firm's estimation, true. Johnson Smick wouldn't comment (it never does), but market sources said that it hadn't said anything about Greenspan leaving.

Not that they'd be the ones to break the story anyway. "It's unlikely that it would come up through sources like a consulting firm," notes Tony Crescenzi, bond market strategist at

Miller Tabak Hirsch

. The ability of both firms to come up with dope on the Fed has diminished in recent years as the central bank has become more and more open.

In any case, it's extremely unlikely that Greenspan will resign anytime soon -- if only because the



President Clinton

probably couldn't agree on a replacement. "In an election year, anyone who Clinton comes up with would have trouble getting through the Senate," says

J.P. Morgan

Fed watcher Mark Wanshel. "I would be very surprised if he leaves prior to the election, because I don't think anyone could be confirmed until after that."

There are other things that are keeping him at his desk. He won't want to quit the post until after he's certain that the

Federal Open Market Committee

has finished the current tightening cycle -- until he's seen if he can bring the economy in for an unprecedented second soft landing. He will also want ensure the system doesn't get hurt by any Y2K-related shocks.

We haven't heard the last of these rumors. At 73, Greenspan probably finds himself wondering what it would be like to devote a little less time to monetary policy and a little more time to his backhand overhead. As Y2K passes, as the tightening cycle ends, as a new president is sworn in, there will be more and more chatter of Big Al taking his final bows. Eventually it will be true.

Wrong! Rear Echelon Revelations: We Haven't Hit Bottom Yet


James J. Cramer

8/11/99 7:21 PM ET

Spotting capitulation is usually a difficult game. Right now it's tougher than playing Three-Card Monte with a couple of street toughs. A true investible bottom has guys like me throwing in the towel as well as strategists and brokers. It has everyone buying puts and shorting.

A noncapitulation bottom is just guys like me talking bearish but staying invested and brokers saying, "I don't know if we are done going down, but I don't like the market. A noncapitulation bottom is when deals are postponed, and then when things look better the next day they are back on.

We don't have all of the signs of capitulation yet. That doesn't mean we can't have a rocking good couple of days. But we just haven't had the washout that I so much want before I commit big money. There are too many invested bears.

Some of you emailed me and said that judging by the "kick-him-when-he-is-down" piece that


did about me, that they want to take the other side of my Net capitulation. Whoa. I am simply waiting for the exquisite moment to buy. Not sell. That I did awhile ago. I am currently short only two Net stocks, and neither would amount to a hill of beans on a bad



At the bottom, people are pressing their bets and buying puts and totally out of the market. We are not there yet.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. 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: Iridium Defaults on $1.5 Billion in Loans; Several IPOs Are Postponed


Eileen Kinsella and

Tara Murphy

Staff Reporters

8/11/99 8:49 PM ET

Global phone service provider



is running out of lines -- credit lines, that is. The troubled operator defaulted on two loans totaling more than $1.5 billion, bringing the company one step closer to bankruptcy and posing potential problems for backer




The most recent troubles were sparked by the default of an $800 million secured loan -- already in its third extension -- after the company failed to meet the loan's required customer and revenue growth targets. That in turn, triggered the default of another $750 million loan, generously provided by Motorola, a key shareholder.

The company, which operates a $5 billion, 66-satellite network that took a decade to launch, says it continues to explore restructuring options. Iridium faces another deadline Sunday, when it is supposed to meet a $90 billion interest payment on its $1.45 billion in bonds. Bond holders can expect a lot of static around payout time.

They say "no guts, no glory," but when it comes to the recent market volatility and the probable


interest-rate hike, several companies planning IPOs are postponing their trade debuts, saying it's better to be safe than sorry.


reported that at least five companies -- Networks






(ASTR:Nasdaq) and

Opensite Technology

(OPNS:Nasdaq) -- have either postponed offerings or reduced their size. And

Thomson Financial Securities Data

said new IPO filings have dwindled to one this week, down from last week's 14.

In other postclose news (earnings estimates from

First Call

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

Earnings/revenue reports and previews

Magna International


reported second-quarter earnings of $1.30 a share, just under the 10-analyst estimate of $1.33 and up from 80 cents a year ago. The company said the year-ago figure was for three months ended July 31, 1998, and that the fiscal year-end was changed to Dec. 31 from July 31.

Navigant Consulting


said second-quarter pro forma earnings were 36 cents a share, a penny better than the 13-analyst estimate. The company said the pro forma figures excluded merger-related costs. Year-ago figures were not available.



reported a second-quarter loss of 51 cents a share, a penny wider than the five-analyst estimate and down from the year-ago loss of 56 cents. The company also said the

Food and Drug Administration

approved Celsior, a solution used in flushing and storing donated organs.

Mergers, acquisitions and joint ventures



is trying to prove that it's alive and well after


, the company's wholly owned unit, bought surgical products manufacturer


. The purchase comes after

Merrill Lynch


ING Barings

downgraded the stock on disappointing earnings at the hospital/funeral services provider. Hillenbrand said Amatech will maintain its name and management.



said it was "not for sale," reacting to

CECO Environmental's


takeover bid Monday. The petroleum company has brought a financial adviser on board to assist in strategic planning. Peerless said that it questions whether CECO Environmental has the capital for the acquisition, reflecting on the air-cleaning products manufacturer's public filings.


New York City is in the market for a new $50 billion stock-index pension fund manager.

Deutsche Bank

lost first dibs at the city's business when key index fund managers left in the wake of last July's acquisition of

Bankers Trust

. New York City comptroller spokeswoman Nicole Lise affirmed that the city has reopened bidding due to Deutsche Bank's employee departures. Merrill Lynch told


in July that it hired five index fund managers from Deutsche Bank and added seven more to its staff from the former Bankers Trust team.


Bond Focus: Good 10-Year Note Auction Sends Treasuries Scrambling Higher


Elizabeth Roy

Senior Writer

8/11/99 5:28 PM ET

Strong demand for the newest 10-year Treasury note boosted bonds, enabling them to overcome the latest rise in oil prices, which rose to heights not seen since October 1997.

At the end of a session that included market-supportive news of an insurance company in trouble and a market-destabilizing rumor that



Alan Greenspan

would resign at the next Fed meeting on Aug. 24, the benchmark 30-year Treasury bond was up 14/32 at 87 2/32, trimming its yield 4 basis points to 6.21%.

The Fed's

Beige Book, an anecdotal account of economic conditions around the country that goes into the basket of reports Fed policymakers consider, was deemed ignorable, as were postclose comments by

San Francisco Fed


Robert Parry


The strong reception for the second of three legs of the Treasury's quarterly refunding was by far the most important force in the market. The Treasury sold $12 billion of 10-year notes, on the heels of yesterday's $15 billion five-year note auction and ahead of tomorrow's $10 billion 30-year bond sale.

Strong demand for securities at auction doesn't guarantee an improving market; the big institutional investors whom dealers count on to take the securities off their hands in the days after a refunding may insist on lower prices. Even so, strong demand at the auction is better than weak. It highlighted the risk of being short bonds, and the market rallied.

The success of an auction is measured by the yield at which the new securities are awarded, relative to the yield at which they were trading when bids were due. In today's auction, the new 10-year notes traded at 6.11% at the 1 p.m. bidding deadline, but were awarded at the much lower yield by auction standards of 6.085%.

Matt Frymier, a trader at

Banc of America Securities

in San Francisco, said "a very large leveraged buyer" forced the awarded yield lower by placing a big order for the new 10s shortly before the bidding deadline.

The awarding of the notes at a lower-than-expected yield set off something of a mad scramble for securities by dealers who needed them to cover short positions, but who had bid too high (in yield terms) to be awarded any, Frymier said.

More fundamentally, the auction's success shows that with Treasury yields at their highest levels since the fall of 1997, there is genuine -- if tentative -- interest in buying bonds, market participants said.

"Sentiment has been so negative lately and it was carrying over, but we've gotten to levels where we're starting to get some interest," Frymier said. "The market could certainly go down again," he added, but, at the very least, "I think we've gotten into a range where people are not comfortable being hugely short."

The shift in sentiment stems partly from the yield levels, which in addition to being at some of their highest levels in 20 months are much higher relative to the fed funds rate than they were then, Frymier noted.

At the same time, there has been plenty of news that makes investors want to reach for the safety and liquidity of Treasuries this week. Today brought news that

General American Life Insurance

, Missouri's largest life insurance company, is unable to pay back $6.8 billion of customer deposits. Yesterday featured reports of political instability in Russia, as


dismissed his latest prime minister. Disputes between India and Pakistan, North and South Korea, and China and Taiwan have been simmering for several weeks, and the stock market has been shaky as well recently.

"In essence, the results told us that given the very severe backup

in yields of the last several days, we've reached a point where people are prepared to give these levels a shot,"

Banc One Capital Markets

senior financial economist Anthony Karydakis said.

But, he cautioned, "this is still a market that's not on solid grounds, despite the somewhat better tone we had today." A stronger-than-expected July

retail sales

report tomorrow, or bigger-than-expected increases in the core producer and consumer price indices on Friday and Tuesday could easily stamp out the bullishness that spread through the market today, he said.


And the winner is.... Investment Challenge on ends August 20th! Who will be in New York with Jim Cramer for the opening bell?

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