Publish date:

TheStreet.com's DAILY BULLETIN

October 8, 1999


Market Data as of Close, 10/7/99:

o Dow Jones Industrial Average: 10,537.05 down 51.29, -0.48%

o Nasdaq Composite Index: 2,860.70 up 3.49, 0.12%

o S&P 500: 1,317.64 down 7.76, -0.59%

o TSC Internet: 723.22 up 14.48, 2.04%

o Russell 2000: 428.11 down 1.65, -0.38%

o 30-Year Treasury: 99 07/32 down 4/32, yield 6.180%

Companies in Today's Bulletin:

American Home Products (AHP:NYSE)

Yahoo! (YHOO:Nasdaq)

Biogen (BGEN:Nasdaq)

In Today's Bulletin:

o Mutual Funds: It Will Take More Than Last Week's Spike to Restore Gold Funds' Sheen
o Wrong! Rear Echelon Revelations: Dawn in the Badlands
o Evening Update: Biogen Tops Estimates; Autobytel.com to Announce Auction Model
o Bond Focus: Bonds Get Rowdy in the Morning but Quiet Down Before Jobs Data

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Also on TheStreet.com:

Latin America: Ecuador's Default Threatens to Provoke Wider Tumult

In pushing for repayment, Brady Bond market investors are hoping to contain a potentially significant loss and keep Ecuador's action from setting a dangerous precedent.


Biotech/Pharmaceuticals: Street Elated Over AHP's Fen-Phen Settlement

But the final terms of the proposed agreement are still uncertain since up to 6 million fen-phen users could come forward.


Market Features: Holding Your Breath for a Year-End Rally Might Make You Blue

Seasonal factors usually spur big stock gains at the end of the year, but there are some differences this time around that could change that. Write up your thoughts for our message board.


Market Features: Floyd's Effect on Jobs Report Should Be Limited

Blame it on the rain. Tomorrow's jobs report shouldn't be too blown away by Hurricane Floyd.


Mutual Funds: It Will Take More Than Last Week's Spike to Restore Gold Funds' Sheen


Joe Bousquin

Staff Reporter

10/7/99 5:00 PM ET

The dramatic move in the price of gold has taken some of the tarnish off of gold funds, long the doormat of mutual fund sectors.

Reaction to an agreement last week by 15 European banks to limit how much gold they'll sell over the next five years has inflated gold prices to $324.50 at Wednesday's close from a low of $252.50 an ounce on Aug. 26. It slipped slightly Thursday, closing at $322.30.

That has pushed some gold funds into the ranks of the third quarter's top performers. The

(BGEIX) - Get Report

American Century Global Gold fund, for example, returned 28.9% during the quarter, boosting its quarterly ranking to 12th among all funds, according to


. Five other gold funds are among the top 25 performers for the third quarter.

But don't be blinded by gold's sudden sheen. Of the 25 poorest-performing funds of the last five and 10 years, 15 are gold funds. And while the European bank agreement could cause short-term shortages in supply, it does nothing to counteract the longer-term forces that have depressed gold prices for years.

Though some gold fund managers were giddy last week about their suddenly rising fortunes, some analysts were less than impressed by the central banks' agreement.

Peter Ward, a mining analyst at

Lehman Brothers

in New York, says the European sales cap -- 400 tons annually for the next five years -- isn't as dramatic as some have made it out to be.

"I was only looking for between 350 and 400 tons of gold sales by central banks


on an annual basis anyway," Ward says. "So finding out now that there's now going to be 400 tons just from Europe, I don't see as a cause for great celebration."

In addition, under the agreement, the

Bank of England

still will be allowed to unload 365 tons of its gold stores, while the

Bank of Switzerland

is permitted to dump 1,300 tons onto the market over the next five years. Ward says that actually accelerates the pace at which he was expecting Switzerland to auction off its gold.

"I was looking for the Swiss sale to take between eight and 10 years. And now if you read between the lines, it appears that it's going to be done over five years instead. That's not good news," Ward says. "If anything, I think we can look for an even bigger pace of central bank divestment over the next five years than we've had over the past five years."

He forecasts the average price of gold to be $280 an ounce over the next three years. Long term, "nothing's really changed here," he says.

Don't tell that to exuberant gold fund managers, though.

Matthew Ford, co-portfolio manager of the

(USERX) - Get Report

U.S. Global Investors Gold Shares fund, says his firm had been turning more bullish on gold in recent weeks before the Sept. 27 announcement by the European central banks.

"When I got 18 phone calls on Sunday night from Australia about the European central bank announcements, that was the icing on the cake," Ford says.

"Prices are more likely to be higher a year from now than lower," insists Mark Johnson, manager of the

(USAGX) - Get Report

USAA Gold fund. "That's because you do have certain supply caps that you didn't before."

But here's the thing about gold when it comes to supply and demand: For the last decade, demand


has outstripped the supply of new gold coming out of the mines. But the shiny metal has still traded down in value. That's because there was always the looming cloud of a secondary source -- the central banks.

But Douglas Cohen, gold equity analyst at

Morgan Stanley Dean Witter

, says the central bankers' agreement will merely keep gold from retreating back to its lows, not push it up to new highs.

"We believe a rally within the next 12 months toward gold's mid-1990s perch in the $375- to $400-an-ounce range is ... unlikely," he writes in a recent report. "Our 2000 forecast goes to $305 an ounce from $295 an ounce."

If Cohen and Lehman Brothers' Ward are right, gold will soon lose its luster once again.

The mixed view on gold points to another oddity you should remember if you're thinking about investing in gold. Unlike other commodities like orange juice and wheat, there can only always be more gold in the world, not less.

Add to that the fact that gold has backed less and less of the world's currency in the last quarter-century and that its uses have become fewer -- and not more -- over time, and you've got a recipe for sagging gold prices beyond the current rally, not higher ones. And, by the way, it's not much of an

inflation barometer anymore, either.

"It's no longer a storehouse of value," says J. Clarence Morrison, precious metals analyst with

Prudential Securities

. "It's a high-priced commodity having a certain amount of usage in the world."

Your own portfolio probably isn't one of those uses. Just something to think about if you've been bitten by the gold bug.

Wrong! Rear Echelon Revelations: Dawn in the Badlands


James J. Cramer

10/7/99 6:21 PM ET

We had listened to the call. We had rejiggered our models. We had instant-messaged all night. We had read the notes and listened to the blast voice mails. We had graphed and chartered and gamed and vetted.

So, at 6:36 a.m., after a workout and a shower, I was ready to roll.

Fire up the


for morning




Wouldn't you know it! Only a handful of players and no real turf established. In the background, somebody at


is talking about how Yahoo is down 2 from last night's trading. I take that literally and bid 181 for 2,500 shares.

Join the discussion on our

message boards.

Opening bid for this morning's Yahoo! trading!

Turns out the


talking head is way off her market. The only place you can buy the stock is at 183 1/2. That's 1 point above my average for the stock I bought last night. I don't want to have to go there yet. But I will if I have to. I want another 20,000 shares before the opening. I know I don't have enough. And I have to work within the morning Badlands to get it.


: I bid 182 for 2,500. I wait a minute. Nobody whacks me. OK, I say, notch things up. Take that 183 1/2 offering.


: We buy 1,500 at 183 1/2.

"Bid 183 1/2 for another 1,500 and 183 for 2,500 underneath," I bark to

Mark Kantor

, our trader.

Nothing happens.

"Show him I mean it. Bid 182 1/2 for 2,500 below. Maybe he will bang it all the way down, and we can buy it on the cheap."


: They hit me with 500 shares at 183 1/2.


: They hit me again for 1,000 shares at 183 1/2.


: They whack me at 183 for 500 shares. The seller obviously wants to impact the stock. He wants it lower. Silly guy, I like Yahoo!. Oh yeah, I say to myself, you wanna make it look heavy? You wanna drive it down?

Take this: "Bid 183 1/2 for 2,000 shares."

I get hit immediately.

I don't care. I want the stock. More importantly, I don't want anyone else to get the stock before it starts going up.

"Show this guy not to mess with me," I tell my trader. Bid 183 1/2 again for 2,500 shares. I am hit again. The seller wants to intimidate me. He is not even giving me a second before he whacks me. He wants me to panic.

I am not panicking. In fact, I am getting more aggressive. The closer we get to regular business hours, the less likely I think I will get this stock in because I think the stock is going to 193 or 194 today.


: "Buy 2,000 shares at 183 3/4," I say.

I'm hit immediately. Done.


: "Do it again for 1,000."

I'm hit immediately. Done.

Step it up. "Buy 5,000 shares with a 184 top," I instruct.

I take all that I can -- a couple of thousand -- and then there is nothing.

"Finish the order with a 184 1/2 top," I say.

Again, nothing done. No stock for sale.

Ten minutes goes by, and nothing happens.

Fifteen minutes. No stock. Twenty. Thirty. Nothing. I finally have to pay up to 184 3/4 to get all my stock in.

By 8 a.m., the stock is trading well above 185, and I know I have done the right thing.

Until 9:30 a.m., when the real market kicks in, validating the lower price that I paid.

In the old days, this whole market could have been off by 2, 3 or 4 points. Maybe even 10 points! But the world has changed in the latter half of 1999. Now the market is, well, fair -- even accurate. Amazing.

The Badlands have been settled. Next thing I know there will be no Badlands.

Just suburbs.

Random musings:

Looks like

Jim Seymour's

going to be right. Many moons ago, Seymour said we would get to this period and there would be estimate cuts galore revolving around Y2K.

Sure enough, in the last 48 hours, the view this man espoused on our site is happening right before our eyes. As I was leaving the office Thursday, Laura Conigliaro, the server and enterprise hardware analyst at

Goldman Sachs

(and the person who has made me the most money in tech in my life), axed 10 cents from


(IBM) - Get Report


Might as well throw a hatchet at Lou Gerstner's head.

All day today, I heard Y2k rumors.

Computer Associates

(CA) - Get Report

? Denied.


(CSCO) - Get Report

? Give me a break.


(DELL) - Get Report

? Why not? They rumored everything else.

Sun Micro

(SUNW) - Get Report

? Couldn't take the pain in that one and bolted myself.



? Well,



said after the close that Lucent cut some orders back.

The problem with all of these rumors is that you can't put them to bed. They won't stay tucked in. Not for an instant. Not with Y2K actually happening.

I admit that it makes life tough for the hardware analysts -- and for the shareholders.


James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Cisco, Goldman Sachs and Yahoo!. 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: Biogen Tops Estimates; Autobytel.com to Announce Auction Model


Eileen Kinsella

Staff Reporter

10/7/99 8:58 PM ET



reported third-quarter earnings of 39 cents a share, a penny better than the 22-analyst

First Call/Thomson Financial

estimate and up from 24 cents a year ago. The company said net income rose 65% in the third quarter amid surging sales of its only product, the multiple sclerosis drug


. Revenue rose 43%, to $208 million in the quarter from $145.9 million a year ago. Avonex accounted for $163.4 million of the total, up from $107.4 million a year-ago. Royalties accounted for the remaining revenue.



plans to announce at a 9 p.m. EDT press conference tonight that it's getting into the auction business, sources close to the company confirmed. President and CEO Mark Lorimer will speak at a San Francisco soiree "celebrating the launch of a new Autobytel.com model," according to an invitation. The company will expand its partnerships with car dealers to include new and used cars for the auctions, a source said.

Rumors of the pending announcement pushed the company's stock up 46.2% Thursday to 19 1/2, and it moved up to 20 in after-hours action on

Island ECN

(see below).


Suzanne Galante

Inflows to equity funds totaled $2.3 billion in the week ended yesterday, according to

AMG Data Services

. Large-cap equity index funds reported the largest inflow since mid-May, while international equity funds also reported inflows. Emerging-markets funds, however, including Latin America and Asia, as well as European funds, showed redemptions. Taxable bond funds reported outflows for the fourth consecutive week, while inflows to investment grade corporate bond funds were mitigated by yet another week of outflows from high-yield funds.

After-Hours Markets

Things were dragging a bit in after-hours trading.

Volume was light. Island ECN was tech-heavy, while two Seattle staples topped

Market XT

. Many Island stocks were marooned after 5 p.m. EDT, without trading much until the exchange closed at 8 p.m. EDT.

Imaging Technologies


, although No. 2 on the most-actives list, was a good example. It was stuck on 39,400 all night long.

Island ECN, owned by Datek Online, 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.


Eric Gillin

In other post-close news (earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews



said it sees an after-tax impact of about $35 million on its third-quarter operating income due to catastrophe losses, citing earthquakes in Taiwan, Turkey and Mexico, a cyclone in Hong Kong, and Hurricane Floyd. The six-analyst estimate is for 45 cents a share in the third quarter.



said it expects net income for the third quarter and the full year to fall below analyst expectations due to a slowed development pipeline. The company said it sees third-quarter earnings of 4 cents to 6 cents a share and full-year earnings of 75 cents to 80 cents a share. The 13-analyst estimate calls for third-quarter earnings of 35 cents a share, and $1.36 for 1999. CareMatrix said the expected earnings do not include the possible write-off of company assets.



said it sees fourth-quarter earnings per share above the five-analyst estimate of 37 cents. Separately, following a 30% drop in its share price and a subsequent trading halt, Hi/fn said two major customers had cut orders for the company's specialty semiconductors for the first quarter of next year. Hi/fn says it sees no fundamental changes in its business and that its long-term outlook remains unchanged.



said its third-quarter revenues would be around $12 million to $12.3 million, up 25% to 28%, from last year. The company also said it canceled an agreement with


(INTU) - Get Report

, but did not expect the contract termination to hurt its 1999 revenues. The two-analyst estimate is for a loss of $1 in the third quarter.



posted second-quarter earnings of 32 cents a share, in line with the two-analyst estimate but down from a year-ago 37 cents. The company said despite higher revenue and improved gross margins in the latest quarter, earnings were lower because of higher operating expenses and income taxes.



said it sees a second-quarter and 2000 loss after taking charges related to a recent acquisition. The company said it expects $7 million to $9 million in second-quarter charges and $4 million in charges over the next 12 months. Symmetricom bought



communications synchronization business for about $30 million in cash.

Offerings and stock actions

Credit Suisse First Boston

priced 3.2 million shares of software company



at $17 a share, above the estimated pricing range of $13 to $15.

Donaldson Lufkin & Jenrette

priced the 3.1 million-share IPO of

Jupiter Communications


, a market research firm, at $21 a share, above the just-boosted $18 to $20 price range.



4.2 million-share IPO was priced at $9, the low end of the estimated $9 to $10 range.

Bear Stearns

is the lead underwriter.



(BA) - Get Report

commercial airplane division director, Alan Mulally, said the top product development priority will be expanding the range and capacity of the current fleet and not developing new aircraft. Mulally also said one of Boeing's near-term goals was developing a larger version of its 777 passenger jet to carry cargo.

Saddle up, urban cowboys and -girls.

Chase Manhattan


said it would move 3,500 trust and custody jobs from New York to Dallas and Tampa, Fla., partly because of cost and space. Chase said the relocations will occur in its treasury solutions and global investor services units.

Estee Lauder

(EL) - Get Report

promoted Fred Langhammer, currently president and COO, to the position of CEO. Leonard Lauder, son of the cosmetics giant's founder, will continue as chairman.

Gartner Group

(IT) - Get Report

elected Michael Fleisher president and CEO, effective immediately. Fleisher, who was formerly an executive vice president and CFO, succeeds William Clifford, who resigned to lead a recently formed Internet venture.


Justice Department


General Electric

(GE) - Get Report

agreed to pay more than $250 million to clean up pollution in the Housatonic River near its plant in Pittsfield, Mass., in a settlement of claims that the plant contaminated the river with polychlorinated biphenyls. GE agreed to remove polluted sediment from the half-mile stretch of river nearest the plant by 2001, cleaning both river banks and property in the river's flood plain.

3Dfx Interactive


said President and CEO Gregory Ballard has resigned effective Oct. 31, saying the company needed some fresh perspective at the top. The company, which makes graphics accelerator chips, boards and software, said it has begun a search for a successor.

Bond Focus: Bonds Get Rowdy in the Morning but Quiet Down Before Jobs Data


David A. Gaffen

Staff Reporter

10/7/99 5:04 PM ET

To be frank, it was a weird day in the Treasury market. All kinds of wild gyrations dominated the morning's trading, despite the lack of market-moving news. The afternoon was a little more predictable, with bond traders simply waiting out the rest of the day in anticipation of tomorrow morning's September

employment report


Strategists mused that this morning's nasty volatility in Treasuries doesn't auger well for tomorrow -- bonds sold wildly on almost no news this morning, and the employment report this year has more often than not been a killer for the Treasury market.

"The bond market is in a weak price structure right now," said John Blough, chief investment strategist at


. "It's vulnerable to a stronger-than-expected number tomorrow. If the report is benign, bonds could rise substantially. If it's showing acceleration in labor costs, we could be down 3 points within a week."

To be fair, analysts said activity was thin today. Lately the 30-year Treasury bond was up 1/32 to 99 7/32 with the yield unchanged at 6.18%.

What started this morning's decline, which bottomed at 8:33 a.m. EDT with the 30-year Treasury down 22/32 at 98 19/32, is unclear. According to one trader at primary dealer, the price action following the announcement that the

European Central Bank's

and the

Bank of England's

decision to leave their short-term interest rates unchanged wasn't as strong as hoped. Bond players had hoped these two central banks would leave rates unchanged, because strengthening currencies overseas make U.S. financial assets less attractive.

But those hopes didn't translate into a significant enough relief rally to some, and bonds were plundered before starting to recover around 9 a.m. EDT. The trader said technical trading in the futures market also drove this morning's move, adding: "You know it's a slow day when we're focusing on the ECB."

After rebounding from the lows, the market settled into a tight range trade in anticipation of tomorrow's report. The consensus estimate is for a 218,000 increase in

nonfarm payrolls

, according to



Average hourly earnings

are expected to increase 0.3%, while the

unemployment rate

is forecast to remain unchanged at 4.2%. The

average workweek

is forecast to drop 0.2 hours to 34.4 hours per week, due to millions missing portions of the workweek due to Hurricane Floyd.

Given the market's tendency to underestimate the employment report, strategists warned that the long bond could be staring 6.25% in the face after tomorrow's report is released at 8:30 a.m.

"The chances are better now for a real run to 6.25%," said Dennis Hynes, managing director at

R.W. Pressprich

. "If you were trading at 6.23%

the day's high yield, you'd need the most ridiculously large nonfarm payrolls report to get to 6.25%." Today's recovery is "more bearish."

Counting the hours until tomorrow's report meant the market glossed over the 2 p.m. release of

minutes from the Fed's Aug. 24 meeting, when the committee decided to raise the funds rate to 5.25% from 5%. The members voted 9-1 in favor of raising rates, with

Dallas Fed


Jack McTeer


It's time to review the grand experiment:



Alan Greenspan

announced the formation of a subcommittee to review the wording of the bias, its meaning, and what the Fed announces after its meetings. The Fed adopted a policy toward more disclosure at the beginning of this year, but it's proved to be anything but helpful to the market.

After raising rates twice this summer, and reverting to a neutral stance, the markets rallied, figuring the Fed was done for the year, even though this was normal Fed practice in years past. And published reports have indicated that even committee members have different interpretations of what the bias is supposed to mean. "The Committee's decision to announce immediately significant changes in the symmetry or asymmetry in the directive had made it desirable to clarify its meaning," the minutes said.

The market will close at 2 p.m. tomorrow, one hour early, so traders can have a little extra time to get loaded before the three-day Columbus Day weekend.



Street Sightings

James Cramer will be on "Your World with Neil Cavuto" Friday, Oct. 8 at 5 p.m. EDT on the Fox News Channel.

James Cramer will be on the "Fox Report" with Shepard Smith Friday, Oct. 8 at 7:45 EDT on the Fox News Channel.

Copyright 1999, TheStreet.com