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daily08-23-99's DAILY BULLETIN

August 24, 1999

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Market Data as of Close, 8/23/99:

o Dow Jones Industrial Average: 11,299.76 up 199.15, 1.79%

o Nasdaq Composite Index: 2,719.57 up 71.24, 2.69%

o S&P 500: 1,360.22 up 23.61, 1.77%

o TSC Internet: 571.71 up 14.54, 2.61%

o Russell 2000: 437.25 up 2.87, 0.66%

o 30-Year Treasury: 10 130/32 up 2/32, yield 5.974%

Companies in Today's Bulletin:


Hewlett-Packard (HWP:NYSE)

Microsoft (MSFT:Nasdaq)

Sun Microsystems (SUNW:Nasdaq)

In Today's Bulletin:

o Hardware & PCs: SGI CEO Belluzzo Heads for the Door
o Wrong! Rear Echelon Revelations: Welcome to the Real World
o Evening Update: SGI CEO Quits; Appeals Court Sides With Microsoft
o Bond Focus: Bonds Twiddle Their Thumbs, Waiting for Tomorrow

Also on

Market Features: Never Mind the Bias -- It's the Data That Matter

The Fed may announce a move to a neutral policy bias tomorrow, but that won't mean a thing in October if the economy stays hot.

The TaskMaster: Dollars and Sense

Just how might a Fed hike affect the dollar? Not in the way you might think. Plus, it's report card time at the Task house.

Internet: Overnight Overkill: FedEx's Net Prospects Remain Uncertain

The company is hoping to penetrate the residential shipping market, in which it has less experience than rival UPS.

Semiconductors: Rambus Chief Talks With


as Day of Reckoning Draws Near

At its developers' forum next week, Intel is expected to signal a move either toward, or away from, Rambus' memory-chip designs.

Hardware & PCs: SGI CEO Belluzzo Heads for the Door


Eric Moskowitz

Senior Writer

8/23/99 8:24 PM ET

It looks as if



CEO Rick Belluzzo was made an offer he couldn't refuse.

After 18 months as head of one of Silicon Valley's most prized companies, Belluzzo unexpectedly resigned his post Monday. During an abruptly scheduled conference call, SGI management said Belluzzo was leaving voluntarily and that he was headed for a "noncompetitive, non-CEO position."

"I'm kind of at a loss," says Mark Specker, an analyst at

Soundview Technology Group


Robert Bishop, who sits on SGI's board of directors and was head of its international division from 1986 to 1995, will take over the CEO role. Talk about a short CEO search. "We couldn't afford an extended period of limited leadership," said William Kelly, SGI's senior VP of operations.

The big question is, why is Belluzzo leaving now? Belluzzo was in the midst of a reorganization to bring the SGI stock price back from its four-year slump. Up until the mid-1990s, SGI was a leader in high-end supercomputers and graphics workstations. When it first ran into trouble in the mid-1990s, the company forged forward with a plan to lead the Unix charge. "SGI was going to be the Apple of the Unix world, but now Apple has had its turnaround and so far SGI hasn't," says Specker. His firm has done no SGI underwriting.

Belluzzo's arrival at SGI was greeted with a sigh of relief by the technology community as well as Wall Street. The stock jumped from 14 to 20 in the first few weeks after Belluzzo's appointment was announced 18 months ago. Now the plan is for the company to get leaner (cut 1,000 to 1,500 jobs, or approximately 14% of the workforce), focus on open source and hope


(INTC) - Get Free Report

long-awaited Merced platform is a success.

Bishop stressed that although he had only accepted the position Monday, he was well aware of the restructuring efforts underway and planned on continuing them. Both Cray supercomputers and Windows NT workstations will be outsourced and Cray, the company's landmark supercomputing division, is expected to be sold off.

SGI is expected to lose 6 cents a share in its first quarter ended in September, and management reiterated Monday it would be profitable again in its second quarter. The company is not expected to show year-over-year revenue growth until mid-2000.

Where Belluzzo is headed is less clear. "Rick is such a boy scout, I thought he'd tough it out a while longer," says

Merrill Lynch

analyst Steve Milunovich, who rates SGI a neutral. Prior to joining SGI, Belluzzo had a 22-year

career at



where he held a variety of key management and strategic planning positions. "He probably got a sense that this was too much of an uphill battle," says Milunovich. Merrill has done no SGI underwriting.

"My guess is he will reappear as COO of an Internet-like company," says Jeff Christian, president of the executive recruiting firm

Christian & Timbers

, the firm that led H-P's CEO search. "I'm surprised he's not going to a CEO job. But there must be a clear succession path to the CEO position wherever he's going for him to have taken this new job."

SGI's stock outlook is just as cloudy. "Given that Belluzzo wasn't able to make much progress turning around the company, I don't know how much of a loss it is," notes Phil Rueppel, an analyst with

Deutsche Banc Alex. Brown

. "Bishop is one of the reasons SGI got to be such a great company, but the cards are pretty well stacked against him." Rueppel's firm has done no recent SGI underwriting.

As for Bishop? "He's kind of a natural to bring in," says Milunovich, who adds that SGI's senior managers seem "shellshocked." How do you think Bishop must feel?

Senior Columnist Adam Lashinsky contributed to this report.

Wrong! Rear Echelon Revelations: Welcome to the Real World


James J. Cramer

8/23/99 7:07 PM ET

Okay, I plead guilty to wanting to make hay when the sun shines. I wanted to capture this move without worrying about the


because the data -- save for oil -- could remove the Fed from the equation for a while.

Why, in itself, is that bullish? Because it forces people who have been on the fence to come in. It takes away their reason not to deploy their cash, particularly the cash that has been building during the July downturn. By buying today all I am doing is anticipating that other less certain, more ambivalent people will be determined to come in and buy tomorrow once the Fed is out of the way.

Once again I find myself out on a money management limb. You aren't supposed to ever admit that you are buying because you are anticipating buying by someone else less bold or sure than you. This is not supposed to be a game of Red Rover, with the fence sitters the last to come over.

It is supposed to be a valuation and analysis business. We are supposed to like stocks because they are cheap and will get less cheap. Or because we see value that the market doesn't see.

But in the world I am in, that is a total abstraction. My biggest hit today was in



, and that stock has gone from sublime to ridiculous in price in record time. All that's going on there is a couple of funds getting some stock in as if it were the last water fountain in the Mojave. Yet, that fatuous situation is how money can be made. If I had stopped and thought about value I would have taken down some



! That one just reeks of value!

Betting on the


today was simply a bet that more negative people will become positive tomorrow after the Fed does whatever the heck it is going to do.

I wanted to seize that bet while the window was still open. Nothing more. Glad I got all of that schooling and training about how to value stocks. It provides just the touch of irony that keeps me amused while I take the stocks I should, in a rational world, be selling!


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long 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: SGI CEO Quits; Appeals Court Sides With Microsoft


Tara Murphy

Staff Reporter

8/23/99 9:08 PM ET

Graphics computer maker



received a shock today when its acting CEO Richard Belluzzo resigned to accept a position at another company. SGI brought the



visionary on board just 18 months ago. SGI's board of directors convened shortly following the announcement and selected fellow board member Robert Bishop to succeed Belluzzo as chief executive. SGI said Belluzzo resigned to "accept another position in a business that is not competitive with SGI."

A federal court of appeals said


(MSFT) - Get Free Report

did not have to implement changes in its

Windows 98

software and

Internet Explorer

browser. The U.S. Appeals Court for the Ninth Circuit reversed a lower court ruling that the company's disputed use of the Java programming language could have caused "irreparable harm" to

Sun Microsystems

(SUNW) - Get Free Report


Earnings/revenue reports and previews

In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):


(MDT) - Get Free Report

posted first-quarter earnings of 42 cents a share, in line with the 33-analyst estimate of 42 cents and up from the year-ago 39 cents.

Methode Electronics


reported first-quarter earnings of 24 cents a share, missing the four-analyst estimate of 26 cents but up from the year-ago 22 cents.

3Dfx Interactive


reported a second-quarter loss of 50 cents a share, falling far short of the four-analyst estimate of a 4-cent profit and the year-ago 54-cents gain.

Mergers, acquisitions and joint ventures

ACX Technologies


unveiled plans to sell its

Golden Aluminum

unit to


(AA) - Get Free Report

in a transaction valued at $41 million. The company said it would assume a $10 million charge in the third quarter. The deal, which is subject to regulatory approval, will be completed this year.

Offerings and Stock Action

Bank of America

(BAC) - Get Free Report

announced it would swap its online auto division for a 5% interest in Internet mortgage company



. The deal calls for E-Loan to buy

for 2.88 million shares of E-Loan. E-Loan said it expects the transaction, subject to regulatory approval, to be completed by sometime in September.



said its board gave the tissue company its stamp of approval for a 1 million-share buyback beyond a previously authorized 1 million-share repurchasing plan. Additionally, Chesapeake expects to carry out one or more tender offers totaling 20% to 30% of the outstanding common stock. The total includes the open-market purchases.



said it would buy server appliance manufacturer

Creative Design Solutions

in a stock swap deal worth about $57 million.



said it plans to buy

General Surgical Innovations


in a $100 million stock-swap transaction. According to the agreement, Tyco would give General Surgical shareholders a fraction of a Tyco share valued at $7.50 for each share of General Surgical; that's more than a 15% premium to its $6.50 closing price. The swap would be subject to shareholder and regulatory approval.

Bond Focus: Bonds Twiddle Their Thumbs, Waiting for Tomorrow


David A. Gaffen

Staff Reporter

8/23/99 5:06 PM ET

Trading activity in the Treasury market had all the aesthetic appeal of a rain delay: something big will happen soon, so let's just sit here and wait for it.

Only the most deluded types, or people living in a cave, aren't expecting the

Federal Reserve

to raise the fed funds target rate tomorrow (

Bear Stearns

, we're talking to you), so the bond market took the day off to ponder tomorrow's possibilities, even though there's just a few realistic ones. Activity was extremely quiet today as the 30-year bond rose just 5/32 to 101 31/32, dropping the yield a scant basis point to 5.98%.

A total of 29 of 30 primary dealers, according to a


survey, expect the Fed to raise the fed funds rate by at least 25 basis points to 5.25%, with Bear the lone dissenter. How the bond market trades in the two weeks that follow depend chiefly on a couple of factors: whether the Fed adopts a bias toward further rate hikes or not, and how the Fed's accompanying statement is worded.

"If there's a neutral directive it would be consistent with recent years," said Tony Crescenzi, chief bond market strategist at

Miller Tabak Hirsch

. "But it will leave us really nowhere, so I believe the

statement will lean hawkishly because of the cannibalization risk."

Crescenzi's invoking memories of the June 30 interest rate hike. The Fed raised the funds target to 5%, but in the first usage of its new policy toward earlier disclosure, informed the market that it was not maintaining a bias in either direction. And even though the Fed's statement leaned toward upside risks of inflation, the market didn't think about historical precedence -- the Fed generally adopts a neutral directive after raising rates, as it did six times in 1994. But the financial markets' rally, in a sense, cannibalized the rate hike: The Fed is trying to slow the economy, but the directive gave the market the impression that inflation wasn't a concern. Spending and housing didn't slow, and for a while, the markets rallied sharply. It's a mistake the Fed won't want to duplicate.

But the market's also learned from June's experience: The Fed usually adopts a neutral directive after raising the funds rate. If they do, it won't be a surprise to anyone. What would be a surprise to the market is if the Fed's statement doesn't contain some type of strong words that highlight the current risks of wage inflation due to tight labor markets and improvement in the manufacturing sector.

"If we don't get a bump in interest rates and a strong statement some will think the Fed's got its eye off the ball," said Mark Vitner, capital markets economist at

First Union Capital Markets


What's funny about the market's expectation for a statement that betrays concern from the Fed is that the bond market is trading like there's nothing to worry about right now. The 30-year bond has rallied by almost 20 basis points since the release of the July

Producer Price Index

, which came in unchanged, and the July

Consumer Price Index

, which was in line with expectations (it rose 0.3%).

Tomorrow's statement could derail all that, if the Fed were to either adopt a bias toward tightening or raise rates by 50 basis points (unlikely, because Greenspan tends to prefer raising rates gradually), or give the market indication that they're definitely going to hike again before the year is out.

"It seems that

the market is anticipating that this is going to be the last increase for the year," said Jim Kochan, Treasury market strategist at

Robert W. Baird

. "It seems

the Fed has to warn the markets that there is a good chance that there's more tightening moves ahead ... and in the absence of a meaningful slowing further actions may be necessary."

But the 30-year bond is likely to react positively, because it trades with regard to inflation expectations. The inflation outlook isn't likely to change until the big daddy of economic reports comes out Sept. 6 -- the August

employment report

, and specifically, its average hourly wages component.


Street Sightings

Chat with James J. Cramer Tuesday, Aug. 24, on AOL at 5 p.m. EDT. (Keyword: Live)

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