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daily08-18-99's DAILY BULLETIN

August 19, 1999


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Market Data as of Close, 8/18/99:

o Dow Jones Industrial Average: 10,991.38 down 125.70, -1.13%

o Nasdaq Composite Index: 2,657.73 down 13.49, -0.51%

o S&P 500: 1,332.84 down 11.32, -0.84%

o TSC Internet: 566.43 up 8.57, 1.54%

o Russell 2000: 433.10 down 2.90, -0.67%

o 30-Year Treasury: 10 123/32 up 5/32, yield 5.996%

Companies in Today's Bulletin:

Venator (Z:NYSE)

PaineWebber (PWJ:NYSE)

In Today's Bulletin:

o Truth Serum: Oy, the Paine: Why Rumors About a PaineWebber Buyout Won't Go Away
o Marc Chandler: Looking for an Easy Trend, Many Enter Fray to Buy Yen
o Evening Update: Real Estate Gains Help Venator Beat Earnings Estimates by a Penny
o Bond Focus: Treasuries Shake Off Dollar Weakness on the Fox News Channel

TSC readers will be familiar with this week's "Stock Drill" guest, Craig Ellis of the Orbitex Info-tech & Communications Fund. A participant in's Net Stock Summit, Ellis will be sharing his favorite stock picks with TSC's Herb Greenberg and Jeff Berkowitz, Jim Cramer's partner at Cramer Berkowitz.

And, we'll go back inside the foxhole with Cramer at the trading desk. He'll tell us and show us why the individual investor is better off making most investing decisions instead of paying an expensive broker.

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 Or watch a Web simulcast of the show at: (look for the "24 Hour Broadcast" box).

Also on

Europe: The Anglo File: InvestIN To Offer U.K. Daytraders a Shot at U.S. Market

InvestIN Securities' Direct Access system will give daytraders online access to a Nasdaq Level II quote screen.

The TaskMaster: A Passing Remark About Raises Serious Concerns

Plus, the toupees are off in the TaskMaster's war of words with



Hardware & PCs: Prescient Dell Calls Show Two Analysts Straying From the Flock

Richard Chu of SG Cowen and Michael Geran of Pershing were bullish on Dell ahead of the recent run-up.

Options Buzz: Amex Adds Dell Listing as Options Exchanges Go Toe-to-Toe

The next two days should bring more flash points in the listing war.

Truth Serum: Oy, the Paine: Why Rumors About a PaineWebber Buyout Won't Go Away


Dan Colarusso

Associate Editor

8/18/99 7:14 PM ET

Someday, when I'm no longer employed by

, I'm pretty sure I can make a good living trading against



takeover rumors.

I'll sit in front of a computer terminal, my alerts set for the ol' PWJ ticker, and when I see it moving I'll begin selling out-of-the-money calls. Those calls, the ones speculators love to play takeovers with, will surely expire worthless. I will stay on the phone with a broker until my ear is as cauliflowered as

Jerry Quarry's

and I will be rich beyond

Wade Cook's

wildest dreams.

On Tuesday, our friends at


reported the following ditty:

PaineWebber (PWJ) 40 1/2. Rumor that Dresdner Bank will buy PWJ in the high 50s. Both companies were not available to respond.

This time the buyers didn't come running. The stock and volume jumped a little near the end of trading Tuesday, but the shares closed up just 7/16 to 40 7/8. Wednesday didn't find any momentum pushing the stock, either: Shares of the New York-based brokerage firm slipped 9/16 to end at 40 5/16.

But even this latest go-round isn't really Jag's fault. There is someone out there who wants PaineWebber to be bought and is good at spreading the word.

In the past three years, PaineWebber has become the proxy target for all securities-firm takeovers, much the same way

Chase Manhattan


has become the proxy buyer whenever a brokerage trades like it's in play.

In PaineWebber's case, it's been a game of Pick a Suitor, Any Suitor. You like Germans? Go for

Dresdner Bank

. Big banks make you happy? Well, there's always Chase. And hey, if you think a competitor is on the prowl, whisper

Goldman Sachs


. Hey, ya gotta be in it to win it.

There have been dozens of other PaineWebber headlines that would have lost you as much money as you wanted. Here's a history, starting with more recent instances:

  • Painewebber Up On Takeover Talk
    Aug. 13, 1998
    New York Daily News
    Investors are betting that where there's smoke there's fire when it comes to the $10 billion pursuit of PaineWebber by Dresdner Bank of Germany. Editor's Note: We can't speak German, so don't worry about verifying this one.
  • Dresdner Bank Eyes PaineWebber
    Aug. 12, 1998
    The Financial Post
  • PaineWebber Shares Rise Amid Rumors of Interest From German Banks
    July 31, 1998
    Dow Jones Online News
    NEW YORK -(Dow Jones)- Shares of PaineWebber Inc. rose Friday amid vague speculation that the brokerage firm could be the target of one or more German financial companies. Yeah, yeah. I like that "vague speculation" line. We'd hate to use the word "rumors" in there.
  • PaineWebber Up --2: Chase Comments Said to Spur Speculation
    Feb. 18, 1999
    Dow Jones News ServiceNEW YORK (Dow Jones)--Shares of the brokerage PaineWebber Group Inc. (PWJ) were up 5.9% Thursday. Market participants attributed the gain to renewed takeover speculation resulting from comments Chase Manhattan Corp. officials made Tuesday afternoon. The Chase comments didn't mention PaineWebber, or any other company, specifically ... Specifics, schmecifics.
  • PaineWebber Shares Jump on Talk of Possible Goldman Sachs Offer
    Oct. 3, 1997
    Dow Jones Online News
    NEW YORK -(Dow Jones)- Shares of PaineWebber Group Inc. were prominent gainers in Friday's volatile market session, hitting a 52-week high on renewed speculation the brokerage firm may be ripe for a takeover. This time, the Wall Street rumors focused on a possible buyout by privately held investment giant Goldman Sachs & Co.
  • PaineWebber - Retail Brokers --3: PaineWebber Seen Attractive
    Sept. 29, 1997
    Dow Jones News Service
    "I've been saying for a while that it's only a matter of time before someone takes over PaineWebber," Fisher Investments' Kenneth Fisher said. Hey, if Ken Fisher says so, let's run with it.

The idea here is that PaineWebber's almost 7,000 brokers represent a great opportunity to reach the individual investor base in the U.S. So a bank such as Dresdner could use it to hatch an entry strategy to broaden its horizons. Chase could use it to leverage its retail banking franchise and as an outlet for any securities it underwrites. And Goldman? Well, Goldman needs PaineWebber, as my mother would say, like a hole in the head. But before Goldman went public, it would almost never comment on stuff like that, so reporters could dish it with relative impunity.

This time around, a PaineWebber spokesman says the company never comments on such rumors.

What the market often fails to appreciate is the long shadow cast by PaineWebber's big bossman Don Marron, all 6 feet 6 inches of him. Marron likes being chairman and CEO, a lot. Ask him and he'll tell you. I have and he has done just that.

Marron would like the firm to achieve greatness on his watch, making his retention a key to any deal.

The other factor is that employees hold 20% of the company,



owns 22% and Japanese insurance giant


has another 8%. Extracting those positions will take a hefty premium, and paying one for a full-service brokerage in the age of e-trading is a tough call.

So, the merry-go-round will continue for PaineWebber. Though it has to stop sometime. It could end with PaineWebber acquiring another firm, or maybe with a bear market that makes brokerages less attractive. Or maybe Marron decides to cash out and take a role in the


party, in which he's a prominent fund-raiser.

Either way, talk of the ever-elusive PaineWebber deal will surely resume sooner or later.

We're depending on our readers for sources, rumors and ideas. Send any to our Truth Serum hotline at

Marc Chandler: Looking for an Easy Trend, Many Enter Fray to Buy Yen


Marc Chandler

Special to

8/18/99 4:55 PM ET

The yen has rallied strongly in the last several days. The dollar has lost almost 4% against the Japanese currency, while the euro has lost nearly 4.5% since the start of the week. The main impetus behind the yen's surge appears to be the continued adjustment of hedge ratios by Japanese institutional investors, the belief that foreign demand for Japanese equities is equal to the demand for yen and recommendations by several investment houses to buy yen. Leveraged-fund managers, looking for an easy trend to jump on, have also reportedly entered the fray to buy yen.

Currency speculators have been emboldened by the apparent lack of intervention by Japanese officials and the deafening silence from U.S. officials, who have done little other than repeat the usual cant that a strong dollar is in the interest of the U.S. In the last 24 hours, Japanese officials themselves appear to have egged on the currency speculators. On Tuesday, a senior official warned that businesses should not count on the government to knock the yen back. On Wednesday, a senior official of the ruling

Liberal Democratic Party

warned that officials could not stop the yen's appreciation through "artificial" means, an apparent epileptic reference to the ineffectiveness of intervention.

Also on Wednesday, the market was rife with talk that at a private meeting on Tuesday, former

Ministry of Finance


Eisuke Sakakibara

, also known as Mr. Yen, indicated that as long as Japan's benchmark

Nikkei Stock Average

continues to move higher, Japan could live with the dollar at 110 against the yen. Although the talk has been denied and Sakakibara again cautioned against the premature strengthening of the yen, many market participants are sympathetic to arguments that link the yen's appreciation to the Nikkei's performance.

The Nikkei has rallied for eight consecutive sessions and foreigners are believed to be the featured buyers. This year, foreigners have bought an estimated $48 billion worth of Japanese stocks. In recent months, foreigners have been net sellers of Japanese fixed-income instruments and often in larger size than their equity purchases. The Nikkei moved above 18,000 intraday today, but failed to sustain the strong gains. A near-term pullback to 17,600 to 17,800 seems a reasonable near-term target. After the yen's outsized moves over the last couple of days, this may give short-term speculators an excuse to take some profits on long yen positions.

U.S. asset prices have held up even as the dollar loses ground against the yen, something many observers had argued was unlikely. U.S. equities and bond prices are higher now than when the dollar was trading near 116 yen at the end of last week. The relationship between asset prices and currency movements remains tenuous. The turnover in the foreign-exchange market, something on the magnitude of $1.5 trillion a day, swamps cross-border capital flows by a large factor. Often investors and speculators flip in and out of a currency many times before they liquidate the underlying asset.

The yen's appreciation appears to have more to do with the circulation of capital than with real demand for yen because of a pick-up in economic activity. It is true

gross domestic product

for the January through March quarter was revised slightly higher last week, as was June

industrial production

. However, Japanese officials and reports from the

Economic Planning Agency

and the

Bank of Japan

, have cautioned that the apparent bounce in the economy was largely a function of government spending and that a self-sustaining recovery is still not at hand. (For more, see a related

story that ran earlier on Wednesday.) Moreover, Japan's

Group of Seven

partners seem to agree. It looks as if the Japanese economy stagnated, if not contracted slightly, in the April through June quarter. Another fiscal stimulus package looks likely and talk has centered on between 5 trillion ($44.69 billion) and 10 trillion yen getting pumped into the market.

With Japan continuing to pursue easy monetary and fiscal policy, economic fundamentals would seem to be a negative for the yen. Yet, the hedging of foreign assets by Japanese institutional investors piggybacked by speculative forces continue to drive the yen higher. As we have all experienced in other markets, sometimes the flows overwhelm reasonable considerations of value. And although I recognize that valuation is especially difficult to get your arms around in the foreign-exchange market, the yen's sharp rise seems to be one of those disjoints between value and price.

Although the dollar's drop against the yen is noteworthy, the proverbial rubber band is stretched even further on the yen-euro cross. The euro's brief history may obscure the significance of the price action. Relative to the old German mark, the yen is trading near levels only seen on three other occasions in the 1990s (July 1993 to August 1993, February 1994 and April 1995 to May 1995). It is here where contrarians with the right anatomy -- strong hearts and stronger stomachs -- can find real value.


Marc Chandler is the chief currency strategist for Mellon Bank. At the time of publication, he held no positions in the currencies or instruments discussed in this column, although holdings can change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

Evening Update: Real Estate Gains Help Venator Beat Earnings Estimates by a Penny


Tara Murphy

Staff Reporter

8/18/99 9:45 PM ET

Property sales helped keep



in the game despite posting weak operating income.

The sporting goods retailer, which owns

Foot Locker



, reported second-quarter income from continuing operations of 4 cents a share, beating the seven-analyst estimate of 3 cents but below the year-ago 7 cents. A spokeswoman for the company told


that second-quarter 1999 operating figures included $25 million in real estate gains, mostly from property sales. Last year's numbers reflected no real estate gains.

The company said its losses including restructuring charges totaled $31 million, or 23 cents per share, wider than the year-ago loss of $13 million, or 9 cents. Sales advanced slightly to $1.06 billion from the year-ago $1.04 billion. Venator, which has sold underperforming stores like




, said on Monday it plans to exit eight non-core businesses with about 500 stores.

Earnings/revenue reports and previews

American Eagle


posted second-quarter earnings of 35 cents a share, beating both the nine-analyst estimate of 31 cents and the year-ago 20 cents.

Longview Fibre


posted third-quarter earnings of 8 cents a share, below the three-analyst estimate of 14 cents and unchanged from the year-ago 8 cents.



reported third-quarter earnings of 14 cents a share, below the 12-analyst estimate of 16 cents and the year-ago 24 cents.

Mergers, acquisitions and joint ventures

Computer component maker

Smart Modular Technologies


announced its plans to purchase a product line from



. The company would not discuss the terms of the deal, but said it was "not material to Compaq's financial results." Smart posted third-quarter earnings of 31 cents a share, a penny below the eight-analyst estimate of 32 cents, and up from the year-ago 20 cents. The company also reported a 57% rise in profits.

Wireless telecom equipment maker



announced the sale of its telecommunications unit to Britain's

General Electric Co. Plc

for $57.9 million. The pact's terms call for the group, which produces government intelligence and surveillance equipment, to be sold to General Electric's

Marconi North America

. Watkins-Johnson said since Marconi was owned by a foreign company, and the unit for sale had many U.S government contracts, the deal required government approval. Watkins-Johnson said that this is another step toward selling itself off.

Offerings and stock actions

eMed Technology

said it filed with the

Securities and Exchange Commission

to sell $57.5 million worth of common stock in an IPO. The company did not give a preliminary price range or specific size for the offering, stating that the $57.5 million worth of common stock noted was an estimate to tabulate the SEC registration fee. The service allows doctors to transmit X-rays and other medical images via the Internet.

Donaldson Lufkin & Jenrette

will be the lead underwriter for the deal.

First Bancorp


declared a 3-for-2 stock split to be paid on Sept. 13 for shareholders of record on Aug. 30. First Bancorp said the split will add more than 1.5 million shares to the 4.5 million outstanding shares.



shares climbed in post-trading hours, in line with the company's forecast that it would report revenue growth in the next two quarters. Shares of Onsale were up at 18 on


from Wednesday's closing price of 16 1/4.


, which forged a $400 million stock merger with Onsale, traded at 8, up from its 7 3/4 close.

Bond Focus: Treasuries Shake Off Dollar Weakness


Elizabeth Roy

Senior Writer

8/18/99 5:04 PM ET

Early weakness in the bond market due to the shellacking the dollar took gave way to strength as the day wore on, and Treasury prices rose for the fourth consecutive session. The benchmark 30-year issue saw its yield drop to 5.99%, its first close below 6% since July 22.

Market participants attributed the turnaround to the view that has recently come to prevail that the


is unlikely to hike interest rates more than once more this year, as well as to a selloff in the Brazilian stock market and rumors that a key German economic indicator due out overnight will be weak.

The benchmark 30-year Treasury bond finished the day up 6/32 at 101 26/32, trimming its yield 2 basis points to 5.99%. Shorter-maturity note yields likewise shed 2 to 3 basis points, depending on the issue.

Early in the session, the long bond traded down as much as 20/32 as the dollar fell to its lowest level since January against the Japanese yen. The yen soared 1.8% from 113.88 to the dollar to 111.87 after a government official was quoted in wire reports as saying that a yen in the range of 115 to 110 to the dollar probably wouldn't trigger an intervention to weaken it. The yen has been strengthening since early July, but the prospect that Japan would intervene to halt its rise, since a rising yen could thwart Japan's economy recovery, has cowed the bulls.

The dollar's fall pressured bonds for all the usual reasons: A weakening dollar is potentially inflationary, since it lifts import prices. And a weakening dollar makes it costlier for Japanese investors to continue to hold dollar-denominated Treasury securities.

But ultimately, valuations in the Treasury market are more a function of domestic than international dynamics, and with the release of benign inflation data in the last week, the gloom that has weighed on the Treasury market for much of the last year began to lift. Investors have begun to let themselves hope that the interest-rate hike the


is almost universally expected to agree upon at its meeting next Tuesday will be the last one of the year.

That dynamic eventually reasserted itself,

Paribas Capital Markets

bond strategist Ken Fan said. "The bond was trading well prior to last night," he said. "Today was just a continuation of what has been going on for the past few sessions." While it may be premature to hope so, Fan continued, "The general feeling is that the Fed is going to tighten once and that's it."

Of course, it also helped the Treasury market that after a steep initial fall, the dollar stabilized.

In addition, Brazil's


stock index lost 2.7% today to its lowest level since March, sending some money into the relative safety of Treasuries.


Credit Suisse First Boston

senior market economist Mike Cloherty said rumors swept the market that Germany's

IFO Business Sentiment Index

, a monthly survey whose July edition will be released at 4 a.m. EDT, is going to be on the weak side. Because it is a private survey rather than a government survey, rumors about a leak of the IFO index get taken more seriously.

The index rose to 92.9 in June from 90.5 in May, and is forecast to rise to 93.5 in July by economists surveyed by

Market News International


"Germany has sort of been the laggard in Europe, and people have been anticipating that it's going to pick up," Cloherty said. "If the report is softer, that would make people question that."


Street Sightings

Dagen McDowell and Joe Bousquin will be chatting on Yahoo! Thursday, Aug. 19, at 5 p.m. EDT. Register for Yahoo! Chat at: It's free!

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