TheStreet.com's DAILY BULLETIN
October 5, 1999
Market Data as of Close, 10/4/99:
o Dow Jones Industrial Average: 10,401.23 up 128.23, 1.25%
o Nasdaq Composite Index: 2,795.97 up 59.12, 2.16%
o S&P 500: 1,304.60 up 21.79, 1.70%
o TSC Internet: 655.61 up 8.49, 1.31%
o Russell 2000: 426.61 up 3.08, 0.73%
o 30-Year Treasury: 100 14/32 up 20/32, yield 6.099%
Companies in Today's Bulletin:
MCI WorldCom (WCOM:Nasdaq)
Micron Technology (MU:NYSE)
In Today's Bulletin:
o Telecom: If Sprint Bid Fails, BellSouth May Have Qwest Waiting in the Wings
o Wrong! Dispatches from the Front: Borrowing From Tomorrow
o Evening Update: BellSouth Ups Bid for Sprint; After-Hours Trading Update
o Bond Focus: Bonds Find a Way To Rally Pre-Fed
Also on TheStreet.com:
Market Features: Don't Count on a Fed Hike, but Watch That Bias
The FOMC is all but certain to leave rates alone tomorrow. The big question: Will there be a neutral bias, a tightening bias or a 'nonbias bias'? Join the discussion on our message boards.
Herb on TheStreet: Mattel Has Nobody to Blame but Itself for The Learning Co. Fiasco
Why is it that everybody
Mattel seemed to know The Learning Co.'s financial statements were suspect? Talk about it on our message board.
The Invisible Mouth: Fed Should Know It Can Pay Now or It Can Pay Later
A small tightening here could forestall the need for a bigger one later.
Media/Entertainment: AMFM Trading Makes Waves Ahead of Radio Deal
The stock of the radio concern jumped 15% late last week ahead of the deal with Clear Channel -- suggesting someone knew early.
Telecom: If Sprint Bid Fails, BellSouth May Have Qwest Waiting in the Wings
10/4/99 8:30 PM ET
reported $72 billion Hail Mary overture for
is a bold move from the last of the free-standing Baby Bells to avoid being left behind by the mergers of its siblings.
The Atlanta-based Bell may still elbow out
with a sweetened offer and capture the nation's third-largest long-distance carrier. However, analysts say that its chances of winning the bid are not looking too rosy and instead, BellSouth should be eyeing
"BellSouth and Qwest are certainly inching closer together," said Tom Friedberg, an analyst with investment bankers
in Denver. Friedberg has an accumulate on Qwest and has not participated in any underwriting with the companies.
Analysts note that BellSouth is concerned about its competitive position where all of its peers and major rivals are involved in multibillion-dollar mergers. Its management has said previously it is already large enough to compete with giants like
and MCI WorldCom -- but the bid for Sprint shows BellSouth has seen the future and it's not going solo.
Even if BellSouth had stayed on the sidelines, other Baby Bells have been active. The
merger is imminent, and the
merger is due to be approved as early as next week. Suddenly, BellSouth faces stiff local competition from the merged companies that have vowed to enter markets outside their own territories.
Through three years of accelerated industry consolidations in the U.S., BellSouth, which offers Internet access, wireless and local phone service, has been going it alone. It has made one small departure from that plan: a $3.5 billion investment in April for a 10% stake in Qwest. That allowed BellSouth business customers in the Southeast to get local and Internet services through either company.
"BellSouth has been the most conservative and buttoned-downed of the Bells," Friedberg said. "But in a strategy where you have to bulk up, BellSouth needs to do something."
BellSouth's reported offer for Sprint is a "reactionary move, not one based on due diligence," said Michael Smith, chief analyst with
, a division of Frost and Sullivan. "They were probably looking for expansion, and saw their opportunity starting to dwindle."
Officials for BellSouth, Sprint and MCI WorldCom declined to comment.
Analysts, including Smith, say Qwest is a better fit for several key reasons.
Buying Qwest would allow BellSouth to gain a formidable data network for Internet and business services. In addition, BellSouth could enter the growing Web-hosting business. And for good measure, a union of BellSouth's Latin American networks with Qwest's European and Asian networks would create a global network with few rivals, Smith said. Qwest could get access to BellSouth's local telephone lines, which is the key reason behind its pending merger with
U S West
One major hitch: BellSouth cannot enter the long-distance market until it receives regulatory approval, and to date, none of the regional Bells has been given the nod. The approval hinges on a Bell's ability to demonstrate that its local markets are open to competition.
Bell Atlantic may soon become the first to gain such approval and provide the rest of the Bells with a regulatory road map to help quicken the process, says Robert Rosenberg, president of
, a Parsippany, N.J.-based consulting firm. Rosenberg consults with numerous telecommunications companies.
Though BellSouth's $77.6 billion market capitalization and $23.1 billion in annual revenue dwarfs Qwest's $23.8 billion market cap and $2.2 billion in revenues, the battle for who would control the merged entity could be epic. BellSouth chairman and CEO F. Duane Ackerman is not likely to cede control to Qwest chief Joe Nacchio, Stratecast's Smith says.
"From a visionary perspective, the Qwest team has demonstrated they have a good feel of what's happening in the market," Smith says. "If there are only a few alternatives for your survival, then the market tells you what needs to be done."
Wrong! Dispatches from the Front: Borrowing From Tomorrow
James J. Cramer
10/4/99 5:20 PM ET
Did we borrow tomorrow's rally today?
That's our biggest worry. With
The Washington Post's
John Berry reporting that the
will be benign, we rallied ahead of the Fed meeting. Does that mean we will sell off tomorrow after the Fed does nothing?
What would make this day more than one of a series of one-day wonders? Oil. If oil breaks here -- and you know I think it will -- then we could put together a streak.
Otherwise, I am afraid that when the "news" comes out that the Fed is doing nothing, one of the variables -- the dollar, the bonds -- will not behave and the market will go back into its stop/start mode.
Can't believe how much
money was coming into this market today. It was cascading, and it sent a lot of big-caps up effortlessly. Painful to see things like
, which I left at 49, continue to go higher without me. Lot of recriminations today about our cash position. But this "right for a day, wrong for a day" market is too vicious to play full tilt.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. 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: BellSouth Ups Bid for Sprint; After-Hours Trading Update
10/4/99 8:50 PM ET
hang up on its offer just yet. The regional telephone company raised its current $72 billion cash and stock offer for Sprint, hoping to lure the long-distance carrier away from a $65 billion all-stock offer from
. Details of the new bid were not disclosed and BellSouth said it postponed a scheduled meeting with financial analysts. Sprint's board of directors met late Monday to consider the situation.
Three law firms representing a Texas woman filed suit against
, a unit of
, seeking hundreds of millions of dollars in damages, stemming from fines the bank charged consumers for late credit card payments. The suit, which seeks class-action status, alleges that Citibank makes it difficult for consumers to avoid late fees by using "misleading and hyper-technical payment crediting guidelines," according to
Most active? Uh ... well, that's a tough one tonight. Sure, some stocks were technically "most active," but nothing really moved much.
was topped by
on a measly 25,736 shares.
was topped by
on a paltry 1,500 shares.
Island ECN, owned by Datek Online Holdings, offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 8 p.m. EDT. Prior to Sept. 15 Island offered trading from 8 a.m. to 5:15 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.
updates the most active issues on both MarketXT and Island ECN in Got a Minute? and in the Evening Update.
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 it was comfortable with third-quarter expectations of 60 cents a share.
Comfort Systems USA
said it expects third-quarter earnings to fall below estimates due to the effects of Hurricane Floyd and a construction industry slowdown. The company said it expects to report earnings of 33 cents to 34 cents a share, while the consensus estimate calls for 43 cents a share.
warned that third-quarter earnings would likely be 11 cents to 13 cents a share, below the 28-analyst estimate of 19 cents a share, due to weak results from two joint ventures. Halliburton said it would sell its stake in the two joint ventures,
Ingersoll Dresser Pump
for about $1.1 billion in cash.
said it expects to take a $25 million to $30 million pretax restructuring charge, with about $20 million of the charges landing in the third quarter. The company said the restructuring would affect about 140 workers.
said it expects a third-quarter loss of 11 cents to 15 cents a share, wider than the four-analyst estimate of an 8-cent loss.
posted a narrower-than-expected fourth-quarter loss. Micron said the loss was 7 cents a share including $600,000 from the issuance of unit stock, and an income tax benefit of $7.4 million. The 21-analyst estimate was for a loss of 18 cents a share. The year-ago loss was 43 cents a share, which also included extraordinary items.
said third-quarter profits and revenues will fall below expectations due to slow back-to-school sales and shifting summer retail patterns. The company said it expects earnings to be in the range of 22 cents to 27 cents a share, compared with 44 cents a year ago. Analysts had expected earnings per share of 34 cents.
Mergers, acquisitions and joint ventures
will buy the commercial services unit of
for $560 million.
said stranded assets of its three electric utility operating companies are expected to total $6.9 billion when Ohio's restructuring law permits competition to begin next year. Stranded, or transition, costs refer to assets and power purchase agreements that are not competitive in an open market.
Bond Focus: Bonds Find a Way To Rally Pre-Fed
David A. Gaffen
10/4/99 4:57 PM ET
The day prior to a
Federal Open Market Committee
meeting is usually reserved for pulling nose hairs. But Treasuries managed a half-point rally today, reversing some of last week's almost continuous selling that had lifted bond yields to its highest levels in a month.
Virtually nobody on the Street is expecting the Fed to raise the fed funds target tomorrow from its current 5.25%, so today's rally wasn't exactly broad-based. Trading was quiet for most of today's session, with most of the gains coming in the last hour, partially due to position squaring, but in part also due to a
story suggesting Hurricane Floyd will have reduced the wage and workweek gains in September's
report, to be released Friday.
Of late, the 30-year Treasury bond was up 19/32 to trade at 100 12/32, dropping the yield 3 basis points to 6.10%.
"What will be important is what the Fed does in the statement" explaining the Fed's action, said Astrid Adolfson, financial economist at
. "The market could easily lose any gains if the bias is to tighten."
She's referring to the Fed's practice of adopting a specific directive toward either raising or lowering interest rates at the next Fed meeting or in the period leading up to that meeting. Until this year, this was a meaningless event, because it wasn't announced until following the
But the Fed's policy of more disclosure has made figuring out the bias another source of worry for Treasury market participants. Because many feel the Fed is not finished raising rates, economists expect the Fed to apply the bias at this meeting, or at least some kind of strongly worded statement indicating their current concerns about the strength in demand and the tightness in the labor market.
Michelle Laughlin, Treasury market strategist at
, believes the market will rally if the Fed were to stick to its current neutral stance, because the market would interpret this non-action as a sign the Fed is through changing policy this year. (There are two more Fed meetings left this year, Nov. 16 and Dec. 21.)
"I wouldn't be surprised if it went back to a tightening bias," said Laughlin. "I wouldn't read more into it than this is standard operating procedure." Between February 1994 and March 1995, the Fed met 11 times. It raised rates seven times, and shifted to a tightening bias the other four times.
Many think the Fed was resigned to skipping this meeting since the release if its statement after the Aug. 24 rate hike. "With financial markets functioning more normally, and with persistent strength in domestic demand, foreign economies firming and labor markets remaining very tight, the degree of monetary ease required to address the global financial market turmoil of last fall is no longer consistent with sustained, non-inflationary, economic expansion," the Fed said.
"They left the last meeting ready to take a break," said Suzanne Rizzo, U.S. economist at
The Treasury market got a boost in the afternoon partly due to the
Market News International
story reporting that Hurricane Floyd may depress the
average hourly earnings
average weekly workweek
components of the September employment report, to be released Friday. The story, published at 2:13 p.m. EDT, sources an official from the
Bureau of Labor Statistics
, and reports that the
figure is unlikely to be affected by the hurricane. A weather-infected report obviously does not mean that the economy is slowing -- it's just mucking up the data. But whispers of an employment report falling short of expectations is the kind of thing bond traders love to take advantage of, even if it's not backed up by any fundamentals.
The average forecast for Friday's report is for an additional 218,000 in new nonfarm payrolls, and for average hourly earnings to rise 0.3%, according to
. The average weekly workweek is expected to fall 0.2 hours to 34.4 hours.
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