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daily08-30-99's DAILY BULLETIN

August 31, 1999


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Market Data as of Close, 8/30/99:

o Dow Jones Industrial Average: 10,914.13 down 176.04, -1.59%

o Nasdaq Composite Index: 2,712.69 down 46.21, -1.67%

o S&P 500: 1,324.02 down 24.25, -1.80%

o TSC Internet: 551.80 down 22.19, -3.87%

o Russell 2000: 427.36 down 5.09, -1.18%

o 30-Year Treasury: 100 28/32 down 1 06/32, yield 6.055%

Companies in Today's Bulletin:

Coulter (CLTR:Nasdaq)

SmithKline Beecham (SBH:NYSE ADR)

Office Depot (ODP:NYSE)

In Today's Bulletin:

o Biotech/Pharmaceuticals: Coulter Investors Gulp After FDA Says 'Resubmit'
o Wrong! Rear Echelon Revelations: Short Memory
o Evening Update: Office Depot Slumps After Issuing Warning; After-Hours Trading Update
o Bond Focus: Oil, Dollar and Corporate Calendar Gang Up on Fed-Stressed Treasuries

Also on

Wrong! Dispatches from the Front: An Ugly Tape and a Bushelful of NorTel

The trader got caught with the stock down a buck even though there was good news. What to do?

The Invisible Mouth: Refer Madness

Take a look at Jim Griffin's piece from yesterday if you want insight into the Fed-stock market conundrum.

Roque's Gallery: Darning the SOX: Semiconductor Stocks Look Ready to Consolidate

Gains this year of 50%-60% in the major semi indices suggest a shakeout may well be in the offing.

Silicon Babylon: Tomorrow's News: Making Crime Pay

A recent news item compelled our intrepid reporter to look into the future of financial crime.

Biotech/Pharmaceuticals: Coulter Investors Gulp After FDA Says 'Resubmit'


Jesse Eisinger

Senior Writer

8/30/99 8:12 PM ET

What do you know?




SmithKline Beecham

(SBH) - Get Free Report

did get their application to market cancer drug


kicked back to them.

Two weeks ago, Wall Street

thought the

Food and Drug Administration

had to decide within 45 days of filing whether to accept the companies' biologics license application. When Coulter said then that it hadn't heard from the agency, the companies explained that the FDA really had 60 days to decide on the application for Bexxar, a radioactive antibody developed to treat non-Hodgkin's lymphoma.

On Friday -- the 60th day -- the FDA acted, telling the companies to resubmit the application. And Monday, on the 63rd day, the market reacted. Negatively.

The question now, for some Coulter investors, becomes one of management credibility. As Mike Margolies of

Avalon Research

-- which recommends shorting Coulter -- remarks in his best Watergate impression: "What did they know and when did they know it?"

Indeed, short-sellers thought the whole thing was mighty suspicious. Coulter must have had some indication earlier, the short-sellers think, but must have assumed it could clear things up before the deadline fell. Coulter says it didn't have any indication ahead of time about the FDA's resubmit order, and adds that the FDA's action doesn't represent a serious setback.

The FDA's decision to ask Coulter to resubmit the application comes on the heels of a months-long battle between shorts and longs. Some hedge funds have been pushing their short positions and buying puts, especially in the last couple of weeks. Others have been getting long, anticipating a huge short squeeze were the filing to be accepted.

Sho' nuff, Monday morning the company said that on Friday afternoon it received what's known as a "refusal-to-file" letter from the agency, requesting more information. Supportive sell-side analysts -- is there any other kind? -- said it was just a bump in the road.

The company and the sell-side analysts say Coulter will gather the data and resubmit by mid-October. If all goes well, that could mean an April approval. "In its totality,

the information requested appears modest," says Mike Bigham, Coulter's president and CEO.

Bigham said that Coulter must simply reformat some data from




-based computers. Also, the FDA wants some data on how the "noncritical" organs absorb the radiation from the treatment. And it wants a more flexible database, so that the agency can look at the data in more ways.

It could be a great buying opportunity if things turn peachy. But the stock's sharp drop -- Monday it dropped 32% to 23 1/2 in heavy volume -- suggests that investors don't think this is merely a six-week delay. The filing itself was long delayed, and investors think this could indicate there are larger problems with Bexxar.

"I operate under the cockroach theory," which states that for every problem you see there are countless unseen, says Robert Swift, a former cancer researcher and biotech analyst for the Colorado health care boutique investment bank

Bigelow & Co.

(Bigelow doesn't cover the company, and Swift doesn't have a position in the stock or in any Coulter options.)

One short-seller and two critics contended Monday that the company must have had an indication two weeks ago, when suspicions first arose, that the FDA had some problems with the filing. "Hard to believe the FDA would wait until the 60th day at the 11th hour," says a West Coast hedge fund manager who owns puts, effectively making him short the stock. (It's such a crowded short that investors can't find shares to borrow to short the stock.)

The company denies this. "We did not have any such requests earlier," says Bigham. Moreover, the FDA hasn't asked for any additional data, more trials or more patients, the company says. 'Course, this isn't the occasion for the agency to do so. That comes when the FDA makes a decision on the application. The FDA doesn't comment on drug applications as a matter of policy.

Don't worry about that, the company tells its clearly worried investors. Coulter has done sufficient trials. "Coulter and SB remain very confident in the efficacy and safety" of Bexxar, the biotech CEO says.

The shorts don't believe it. They contend that Bexxar is too toxic for approval in broad use and that the company's data are limited. The company did a single, 60-patient pivotal trial of Bexxar.

Says Swift at Bigelow & Co., "Sixty days and a short follow-up, relatively speaking, may not be long enough" for anything but approval in salvage therapy, i.e., the very last option before death. The shorts think that the salvage market is tiny, not meriting even the $400 million valuation Coulter finished with on Monday, big drop notwithstanding.

Wrong! Rear Echelon Revelations: Short Memory


James J. Cramer

8/30/99 8:08 PM ET

Eleven years ago this week I got lulled into shorting this market big because of a very similar selloff to the one we are having now. The advance-decline line was bad, the interest rates were going against me and I thought I could make a fortune when everyone came back from summer vacation and saw what I saw: a terrible tape.

I had visions of the 1987 selloff repeating one year later, as the market had peaked in late August of that year, too. It seemed natural to expect that history would repeat itself and another crash would occur. I know the headlines were full of this wisdom and I intended to profit from it from the short side.

I wasn't about to listen to my wife, who kept saying over and over that the selloff was on light volume and without conviction. I figured what the heck did she know, talking about light volume? Who cares how much volume there is? Volume, shmalume. What matters is price, and the prices looked bad and were going to get worse.

I got my head handed to me. People came back from vacation, took one look at the prices, and said "what a bargain." They bought and bought and bought. I had to throw in the towel on some shorts that I still find painful, including a short


(AAPL) - Get Free Report

trade that feels like yesterday. It obliterated me. As did the rest of the shorts.

I know how hard it is to dismiss any price movement as nonconsequential. The losses don't carry asterisks with them that says they were created by sellers who sold these stocks down on light volume. But I always think back to that Labor Day week in 1988 where I had it all figured out that people would return from vacation and panic, giving me a great short-side run.

Instead it was I that panicked, and not a moment too soon, because had I not covered I doubt I could have ever recovered. The 1987 bet hasn't paid off since; it won't pay off now.


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: Office Depot Slumps After Issuing Warning; After-Hours Trading Update


Tara Murphy

Staff Reporter

8/30/99 8:57 PM ET

Office Depot

(ODP) - Get Free Report

said it will post disappointing results for the rest of the year, citing slumping sales and tighter margins. The retailer said it would also assume third-quarter charges and repurchase $500 million worth of stock. Office Depot expects second-half earnings of 30 cents to 40 cents a share, greatly missing the analyst estimate of 50 cents to 52 cents a share. The estimates do not include a $28.3 million third-quarter restructuring charge. Office Depot will also assume a $34.2 million write-off for sluggish store and warehouse inventories.

Office Depot stock ended the New York session at 13 3/4 but slumped to 10 1/2 in late composite trading.

Last Trades on Island ECN (Times EDT)

ATML: 36 9/16 at 3:59 p.m.

KLAC: 63 9/16 at 3:52 p.m.

DELL: 46 1/8 at 4:52 p.m.

MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter'sundefinedDiscover Brokerage and Mellon Bank'sundefinedDreyfus Brokerage Services. Clients can trade 200 of the most actively traded New York Stock Exchange and Nasdaq Stock Market issues, 6 p.m. to 8 p.m. EDT Monday through Thursday.

updates MarketXT's 10 most active issues in Got a Minute? and in the Evening Update.


also reports how MarketXT's three most active Nasdaq-listed issues finished the Island ECN session, which ends at 5:15 p.m. EDT. Check out's

updated Night-Owl's Guide to After-Hours Trading for more information on postclose trading



Eric Gillin

In other postclose news (earnings estimates from

First Call

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

Earnings/revenue reports and previews



posted a fourth-quarter loss of 16 cents a share, beating both the 13-analyst estimate of a 24-cent loss and the year-ago 19-cent loss.

Dycom Industries

(DY) - Get Free Report

reported fourth-quarter earnings of 53 cents a share, beating both the five-analyst estimate of 42 cents and the year-ago 32 cents.

US Liquids

(USL) - Get Free Report

said it anticipates disappointing third- and fourth-quarter results while the


continues to probe into allegations that the company illegally disposed hazardous material at its Detroit facility. US Liquids CEO Mike Lawlor said the investigation has resulted in the temporary closing of its Detroit waste treatment facility, which accounts for 10% of the company's profits. US Liquids is expecting to post third-quarter earnings of 21 to 23 cents a share, greatly missing the analyst estimate of 33 cents and fourth-quarter gains of 19 to 21 cents a share, far below the analyst estimate of 36 cents. The company also attributes the gloomy forecasts to slower-than-expected revenues in its oilfield waste operations.

Mergers, acquisitions and joint ventures

Georgia Gulf


said it would acquire the vinyls business of Germany's


chemical subsidiary for $270 million, slating Georgia Gulf as one of the U.S.' leading vinyl producers. According to Georgia, the purchase will upset earnings in the first year but will become accretive. The company also said it expects higher productivity and cost savings to contribute $20 million to profits. As a result of the transaction, Georgia Gulf will have businesses in 12 locations, 23 production facilities and 1,500 employees.



unveiled plans to buy cardiac surgery instrument maker



for $19.50 a share. The transaction, which is estimated at $313 million, is expected to be completed by the fourth quarter, having no effect on 2000 earnings.

Pioneer Hi-Bred

(PHB) - Get Free Report

said that


(DD) - Get Free Report



(MTC) - Get Free Report

do not have plans to forge a business deal but talks may continue. According to a

Securities and Exchange Commission

filing, Pioneer said DuPont and Monsanto have discussed "a variety of different types of transactions" since March, when DuPont inked a deal to purchase Pioneer in a transaction estimated at $7.7 billion.

Reader's Digest


announced plans to acquire the privately held discount books seller

Books Are Fun

for $380 million. The company said the purchase would contribute to its product line and serve as an additional distribution outlet.

Union Planters


revealed plans to purchase a wholesale mortgage origination franchise from a

Colonial Bancorp


division. Union Planters anticipates the transaction's completion in October.




said it would shut down a production facility, moving manufacturing to India and eliminating 300 jobs. The shoemaker said it would assume a $3 million third -quarter restructuring charge for costs relating to the closing of the Cape Girardeau, Mo., plant. The closing of the facility should save the company an estimated $4.5 million a year.

Republic Services

(RSG) - Get Free Report

said its core business is on track despite its announcement than it anticipates slower earnings growth than it first projected. Today, the stock tumbled after

Deutsche Banc Alex. Brown

sliced the shares rating to buy from strong buy.

Salomon Smith Barney

also cut the stocks 1999 and 2000 estimates.

Bond Focus: Oil, Dollar and Corporate Calendar Gang Up on Fed-Stressed Treasuries


Elizabeth Roy

Senior Writer

8/30/99 5:24 PM ET

Treasuries tanked today in reaction to a pack of bearish factors, lifting the benchmark 30-year bond's yield over 6% for the first time in two weeks.

The economic data were only partly to blame, as the day's only report, July

new home sales

, outpaced expectations.

New home sales come relatively late in the economic data cycle. Bond traders were more interested in the latest rise in oil prices, the latest drop in the value of the dollar against the yen and the latest whispers about how heavy the corporate new-issue calendar for September is getting.

All of that assaulted a market that was already second guessing its conclusion that the


is done hiking interest rates for the year based on Fed Chairman

Alan Greenspan's

remarks in Jackson Hole, Wyo., on Friday.

The long bond lost 1 4/32 to 100 28/32, lifting its yield 8 basis points to 6.06%, the highest since Aug. 16. Shorter-maturity note yields likewise rose anywhere from 7 to 10 basis points

The front-month oil contract traded on the

New York Mercantile Exchange

rose 0.68, or 3.2%, to 21.95 today, its highest close since Oct. 10, 1997. Further stoking concern about rising inflation, the enemy of the bond market, the dollar continued to erode against the yen, dropping from 111.45 to 110.65. A weakening dollar fosters inflation by making imports more expensive.

As for the corporate new-issue calendar, it is more apparition than fact at this stage, but a frightful apparition it is. The whisper number is $60 billion of investment-grade corporate issuance in September, as corporate treasurers rush to tap the market before the year enters its final stretch, when investor appetite for illiquid assets will presumably dry up.

A $15 billion weekly average in September would decimate the trendline for the year to date,

Thomson Global Markets

senior analyst John Atkins said, noting that it has exceeded $10 billion only once.

But Atkins is skeptical of the whisper number at this stage. "As yet there aren't that many names that go with that expectation," he said, meaning that for all that people are throwing the $60 billion figure around, few large deals have been announced.

That's not surprising. The September deals won't start coming this week, with the August

employment report

slated for release on Friday morning. Corporate issuers want a sense of what the market's going to be like before they size and announce their deals. Issuance should pick up after Labor Day, but Atkins said the $60 billion target is vulnerable to rising interest rates in the corporate market, which could price out the most rate-sensitive borrowers. "In spite of corporate issuers' willingness to pay the higher spreads, it's going to be a very one-sided buyers' market," he said.

A heavy corporate calendar can be negative for Treasuries because investors may sell Treasuries in order to clear space in their portfolios for higher-yielding corporate issues.

Meanwhile, bond traders continue obsessing about the Fed. Right or wrong, many allowed themselves to hope that the

announcement that accompanied Tuesday's hike in the fed funds rate to 5.25% from 5% meant that the Fed is unlikely to hike again this year.

Greenspan obliquely challenged that notion in his Friday remarks, when he said that rising asset prices -- he specified home and stock prices -- are an important part of "the macroeconomic environment in which monetary policy must function." The message that the Fed is attuned to more than just goods and services when it sets monetary policy makes traders less certain that last week's rate hike was the year's last.

"People have been second guessing the idea that the Fed's done for the year,"

Merrill Lynch

government bond strategist Jerry Lucas said. He thinks the Fed probably won't hike again, but acknowledges the risk in that stance. "It's going to take a reason for them to tighten, whereas prior to last week's hike, they needed a reason not to." A general strengthening of key economic data could provide the reason, he said.

On today's calendar, July new home sales advanced 0.1% to a 980,000 pace, up from a revised 979,000 in June. Economists surveyed by


had expected a slowdown to 910,000. In previously released reports on the sector,

existing home sales

fell 3.9% in July, while

housing starts

rose 5.7%.


Do you Dare?

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