TheStreet.com's DAILY BULLETIN
September 15, 1999
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Market Data as of Close, 9/14/99:
o Dow Jones Industrial Average: 10,910.33 down 120.00, -1.09%
o Nasdaq Composite Index: 2,868.29 up 23.52, 0.83%
o S&P 500: 1,336.29 down 7.84, -0.58%
o TSC Internet: 625.56 up 13.10, 2.14%
o Russell 2000: 438.24 down 1.41, -0.32%
o 30-Year Treasury: 100 00/32 down 1 , yield 6.109%
Companies in Today's Bulletin:
General Electric (GE:NYSE)
In Today's Bulletin:
o Online Brokers: CNBC-Archipelago Deal Gets Fuzzy Reception
o Software: What's Good for Oracle Is Not Good Enough for the Street
o Evening Update: Oracle Falls Hard in Heavy After-Hours Volume
o Bond Focus: Retail Sales, Dollar Woes Lash Yields Higher
Also on TheStreet.com:
Media/Entertainment: Media Madness: Why Megadeals Aren't Around the Corner
A look at the global players in an age of increasing diversification.
Mutual Funds: Rollout of Lipper's New Ratings System Could Blur Funds Picture
While most agree the new ratings are an improvement, the old ones aren't going away any time soon.
Jim Griffin: The 1999 Market: Bipolar and Lacking Breadth
While a narrow sector of the market is exhibiting euphoria, the remaining stocks look downright depressed.
Internet: With Job-Listings Site, International Data Group Unveils New Net Look
A computing portal and a gaming site are also features of IDG's revamped Web strategy.
-Archipelago Deal Gets Fuzzy Reception
9/14/99 7:00 PM ET
, the Chicago-based electronic trading system that has applied to become a stock exchange, enlisted another prominent investor Tuesday.
And if all of its other big-time brokerage and investment bank partners didn't turn heads, the new one certainly has.
Omnipresent financial news channel
plans to buy a 12.4% stake, in a move that shows exactly how popular investing in alternative trading systems has become. But it also has raised some questions about how close a financial news company can be to the business it covers.
By investing in Archipelago,
joins a partnership that includes, among others,
Electronic trading systems, already on the to-buy list of securities firms since late last year, have gotten headlines in recent weeks as they pioneer the nascent after-hours trading market. Both the
New York Stock Exchange
stock market are in the background, waiting until next year to start after-hours trading.
So it's easy to see why
which has closely covered this new after-hours trading market, would be interested in buying one.
is owned by
, which is owned by
"It makes sense from both a financial and strategic point of view," said one analyst who asked that his name not be used. "But I also think it brings up some potential conflict-of-interest questions."
Archipelago head Gerald Putnam says he's not concerned with that question. "
core business is reporting on financial news. It's impossible that they would compromise that."
won't be the first media company to own an electronic trading network.
, a medium-sized electronic communications network;
owns a piece of
, a small alternative trading system; and
, the U.K. news giant, owns Instinet, which runs the original and largest electronic order matching system in the United States.
"It doesn't seem to me any more weird than Dow Jones buying a stake in Optimark," said William Freund, director of the
Pace University Center for the Study of Equity Markets
and a former NYSE chief economist. "I don't see any conflicts that arise."
But weird is exactly how some analysts and one competitor described it. Unlike Bloomberg, Dow Jones or
is extremely mainstream in the investment community, seen on the desktops and televisions of not just institutional investors and corporate executives but retail investors, too.
It's available in 70 million households in the U.S and its power in the markets in unmistakable. A quick trip through Internet bulletin boards shows momentum traders hoping to make money off a pop related to an executive's appearance or story on
, even if the story never aired. As such, analysts say
will have to tread carefully.
Andrew Schwartzman, president of the
Media Access Project
, says the investment raises troubling ethical issues for
. While Schwartzman says the network has done a good job of pointing out its ties to corporate parent General Electric whenever it airs stories that concern GE, he wonders whether CNBC will disclose that it is now partners with several big investment banks every time it discusses them.
"It's very hard for that disclosure to take place in the kinds of relationships they have here," Schwartzman says. As for
ownership of Instinet, Schwartzman quips that "two wrongs don't make a right. If your mother jumped off an ethical bridge, would you jump, too?"
spokesperson says that the company will cover Archipelago just like it covers any other company. It will use Archipelago content the same way it uses other data from the NYSE, Nasdaq, Instinet, Island and MarketXT, he says.
The purchase is a strategic one, he said, related more directly to
business than any of the other GE companies. "NBC is actively getting involved in the Internet distribution of information. This is a business-related thing, a business-related financial Internet company. That's why it would be a
investment, not an NBC or a GE investment."
Alex Berenson contributed to this article.
Software: What's Good for Oracle Is Not Good Enough for the Street
9/14/99 8:51 PM ET
August was slow,
said after posting what turned out to be disappointing quarterly results late Tuesday.
Excuses, excuses, after-hours investors scolded.
The software maker reported after the stock market closed that its net income rose 21%, to $236.7 million, or 16 cents a share, in its fiscal first quarter, from $195 million, or 13 cents a share, a year earlier. The earnings matched the median consensus of software analysts of about 16 cents a share, according to
First Call/Thomson Financial
But just meeting -- not exceeding -- those expectations was enough to scare investors. The stock had already gained more than 80% over the last three months. Many who were buying the stock on Tuesday were expecting the earnings numbers to beat the analysts' estimates.
After Oracle posted its results, its stock fell more than 6 points in after-hours trading. It had closed regular
trading at 45 7/16, down 5/16 for the day, and a point and a half shy of the 52-week high it hit last week.
The company said its total revenue for the quarter ended Aug. 31 rose 13%, to $1.98 billion, but software license revenue rose 9% and database software sales increased just 8%.
Jeffrey O. Henley, the company's executive vice president and chief financial officer, said the earnings were typical of the software industry's seasonal volatility.
"It's really tough to get anybody to work in August," he said, referring to consumers of business software applications.
Investors, it seems, were not buying the quarterly volatility argument -- or the stock.
"This has been a three-year if not lifetime-to-date frustration with the company's volatility," said Robert Austrian, a software industry analyst with
Banc of America Securities
. "It raises the question whether the weakness in the quarter was purely a quarterly phenomenon or an indication of the year."
The company, best known for the database software it sells to other businesses, is currently shifting to deliver software primarily over the Internet. In a conference call with industry analysts, Henley predicted a strong demand for the company's products after the threatened Year 2000 computer problems have passed, when airlines and financial services businesses begin setting up new database systems.
Evening Update: Oracle Falls Hard in Heavy After-Hours Volume
9/14/99 8:41 PM ET
posted first-quarter earnings of 16 cents a share, in line with 30-analyst estimate of 16 cents and up from the year-ago 13 cents. Despite meeting analysts' expectations, the stock tumbled to 39 from its closing price of 45 7/8 in post-market trading on
Last Trades on Island ECN
ORCL: 39 at 5:14 p.m. EDT.
CPWR: 33 1/16 at 4:00 p.m. EDT.
SUNW: 84 at 5:05 p.m. EDT.
MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter's (MWD) Discover Brokerage and Mellon Bank's (MEL) Dreyfus 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. Island ECN offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 5:15 p.m. EDT.
updates the most active issues on both MarketXT and Island ECN 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
In other postclose news (earnings estimates from
First Call/Thomson Financial
; earnings reported on a diluted basis unless otherwise specified):
Earnings/revenue reports and previews
said that it would meet the third-quarter analysts' consensus estimate of 78 cents a share. The company posted 1998 third-quarter earnings of 69 cents a share.
said it trimmed its initial third-quarter revenue estimate down to $690 million, blaming the August recall of its
Rotablator Rotalink Coronary Advancers
and slow coronary stent sales for the quarter. The revised estimate still edges out the year-ago results by 20%.
said it would assume an adjusted third-quarter restructuring charge of $3.4 million, which more than doubles its initial estimated charge of $1.25 million, due to the closure of the
. Central also said that it would cost the company $70 million to move its presses over the next three-and-a-half years.
said it will probably beat fiscal 1999 and 2000 analysts' consensus estimates, citing low costs, fewer outstanding shares and a purchase as contributing factors. CEO Robert Catell and investor relations director Michael Taunton said the company expects to post 1999 EPS of about $1.60 a share, which would beat the consensus estimate of $1.51 but would fall below the year-ago $1.91.
reported a 4.9% increase in August's same store sales, citing cigarette price increases.
said it expects to post first-quarter earnings between 44 cents a share to 49 cents, in the range of the three-analyst estimate of 46 cents, and better than the year-ago 40 cents. The company also anticipates 10% to 15% increase in EPS growth for fiscal 2000.
Mergers, acquisitions and joint ventures
said the $26.5 million sale of its debt and equity interest in
would bring a $16 million post-tax gain in the fourth quarter.
said that cost savings associated with its purchase of
, in addition to its latest restructuring changes have proven cost-effective, doubling its initial savings estimate to roughly $500 million. Vice President of Investor Relations Guy Marcus said the savings was a result of aggressive cutbacks during the oil service decline and merging operations to fewer sites.
Offerings and stock action
said it has set a 3-for-2 stock split in the form of a dividend. Shareholders of record Sept. 23 would be paid on Oct. 7.
said it named Frank Hermance as its chief executive to replace Walter Blankley, who will serve as the company's chairman until his planned retirement at the end of 2000.
announced that a District Court judge threw out a lawsuit brought on by
accusing H-P of infringing on their patent for ink-jet printer cartridges.
La Jolla Pharmaceutical
said it will take cost savings and restructuring initiatives after
axed its licensing agreement for an experimental lupus drug. In May, the company said that clinical trials for the drug
were halted after its dissatisfying results. La Jolla said it would plans scale down its workforce by 54 from 95.
said it would save $150 million a year as part of a restructuring plan which calls for the company to slice its workforce by 10%. Seagate said it would assume a $200 million restructuring in the quarter for the job cuts, which would come over the next 9 months. The latest announcement follows last year's work-force reduction of 10,000 jobs.
Bond Focus: Retail Sales, Dollar Woes Lash Yields Higher
9/14/99 5:32 PM ET
Treasury yields rose to their highest levels in a week and a half as a much-stronger-than-expected August
report joined forces with a weakening dollar to convince investors that the best opportunities lie in other markets.
The damage would probably have been even worse had not a large federal agency bond sale not created demand for intermediate-maturity Treasuries, a trader said.
The benchmark 30-year Treasury bond ended the day 31/32 lower in price at 100 2/32, lifting its yield 7 basis points to 6.12%.
The retail sales report triggered the move by stoking fear that the
will hike interest rates again to curb economic growth. Retail sales rose 1.2% in August, vs. an average expectation among economists surveyed by
for a 0.8% gain. Excluding auto sales, already known to have been strong, retail sales rose 0.7%, vs. an average forecast of 0.4%. At the same time, the government revised its July gains up, to 1.0% from 0.7% for overall sales and to 0.4% from 0.3% for ex-auto sales. The year-on-year pace of retail sales growth rose to 10.5% from 9.5%.
Chicago Board of Trade
, where futures contracts on the fed funds rate are traded, traders upped the implied chances of another rate hike on Oct. 5 to 28% from 22% yesterday. Those odds may shift again tomorrow, when the government releases the
Consumer Price Index
for August. The government's broadest measure of inflation is the last major economic report that will be released before the next Fed meeting.
Meanwhile, the dollar weakened further today despite an overnight intervention by the
Bank of Japan
on its behalf, partly in response to the retail sales report, which made U.S. financial assets less desirable in a global context.
In its second such intervention in two weeks, the BOJ spent an estimated $1 billion to $2 billion to weaken the yen by buying dollars. The intervention briefly lifted the dollar as high as 107.10, but by the time U.S. traders got to work it was back to where it had been when the BOJ intervened. Japan has been intervening in the currency market because a too-strong yen threatens Japan's recovery by hampering exports.
A weakening dollar is negative for U.S. bonds because it makes foreign investors want to sell them, and because of the reason for the trend. "Japan's economy is showing some signs of life, and people are anticipating that the U.S. economy is going to be slowing under the Fed's rate hikes," said David Gilmore, partner at
Foreign Exchange Analytics
in Essex, Conn. "On top of that, portfolio managers are wanting to participate in the move up in the Japanese stock market, so real capital flows are moving into Japan as well."
The dollar was further weakened during U.S. market hours by the announcement of a larger-than-expected second-quarter
deficit. The current account deficit -- the difference between the dollar value of goods, services and payments entering the country and the dollar value of those leaving -- swelled to a record $80.7 billion in the second quarter from $68.7 billion in the first. Economists surveyed by
had forecast a rise to $78.9 billion.
A wide current account deficit is negative for the dollar because dollars that leave the country may be exchanged for other currencies, and the more that leave, the more may be sold.
The dollar ended the day at 105.84, down from 106.65 yesterday.
But while the Treasury market had a rough day, it wasn't as ugly as it might have been. The December Treasury futures contract traded on the CBOT briefly fell below its lifetime low of 112 19/32, but it recovered to close at 113 10/32. "The negative of making a new low was balanced out by it coming back into the range," said Walter Burke, senior technical analyst at
. "It shows that the range for now is intact."
pricing of a $6 billion 10-year issue -- the largest single-maturity corporate bond sale ever -- gave Treasuries a boost by creating demand for the intermediate sector, said Scott Graham, co-head of government bond trading at
. That kind of demand can arise when bond underwriters swap their fixed-rate liability for a floating-rate liability, and the party that assumes the fixed-rate liability buys a fixed-rate asset like a Treasury note as a hedge.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
Chat with Gary B. Smith on AOL's MarketTalk, hosted by Sage at 4:30 p.m. EDT, Wednesday, Sept. 15. (Keyword: PF Live)
Jim Cramer will be giving a keynote address called "The Changing Face of Investment in the Internet era, the Rise of the Individual Online" at the Investors Relations Online Conference being held at the Crowne Plaza in New York City, Wednesday, Sept. 15.
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