TheStreet.com's DAILY BULLETIN
October 20, 1999
Market Data as of Close, 10/19/99:
o Dow Jones Industrial Average: 10,204.93 up 88.65, 0.88%
o Nasdaq Composite Index: 2,688.18 down 0.97, -0.04%
o S&P 500: 1,261.32 up 7.19, 0.57%
o TSC Internet: 679.44 up 9.58, 1.43%
o Russell 2000: 410.93 up 2.03, 0.50%
o 30-Year Treasury: 96 31/32 down 12/32, yield 6.340%
Companies in Today's Bulletin:
Regions Financial (RGBK:Nasdaq)
Air Canada (ACNAF:Nasdaq)
In Today's Bulletin:
o Latin America: Despite Upcoming Elections and Potential Reform, Argentina Can Provide Investors Little Near-Term Confidence
o Wrong! Dispatches from the Front: Capitulation Comes in Many Forms
o Evening Update: Microsoft, Heavy Slate of Earnings Dominate After-Markets
o Bond Focus: Treasury Yields Reach New Highs Amid Nasty Rumors
Also on TheStreet.com:
Banking: Observers Say Regions Financial's Disappointing Earnings Reveal Operational Difficulties
Third-quarter numbers suggest Regions may be having problems digesting some of its many acquisitions.
Wing Tips: Air Canada Contemplates a Counterbid From UAL, Lufthansa
And our columnist thinks it's a much better deal for Air Canada, UAL and Lufthansa shareholders than the Onex-AMR proposal.
Internet: VerticalNet Is Rising Through Sheer Chutzpah
The company maintains nearly 50 Internet communities for several industries, giving it a decent shot at a big market share in the B2B market.
The TaskMaster: Kraft Is Stickin' to His Prediction for a Major Drop in the Markets
Some people never get enough bad news. And of the recent star-studded IPOs, can you smell what Task is cooking? Yeah, we can, too.
Latin America: Despite Upcoming Elections and Potential Reform, Argentina Can Provide Investors Little Near-Term Confidence
10/19/99 8:00 PM ET
While the expected election of reformist candidate Fernando de la Rua as Argentina's next president on Sunday may help the country's economy over the long term and even spark a mini-rally in its capital markets, international investors aren't getting ready to plunk a lot of cash in the near term.
Sure, Argentines will be freed from the frenzy of politicking and have time to concentrate on the task of putting South America's second-largest economy on the mend. But with
Moody's Investors Service
downgrading Argentine debt two weeks ago and the
Dow Jones Industrial Average
signaling the U.S. bull market may be coming to an end, few think the country's route to recovery will be easy.
Argentine investors got another reason for pessimism when the latest election polls showed Eduardo Duhalde, the governor of Buenos Aires province and a presidential hopeful, gaining ground on de la Rua, jumping to 12 points behind from 19. Last summer, Duhalde spooked investors in Argentina and the U.S. with promises of tax cuts, layoff bans and renegotiations of the country's external debt. While he is not expected to win the presidency, Duhalde's party, the protectionist
, may win more seats in the house, senate and provincial governments than analysts have predicted.
Already the nation's stock market is reflecting the expected short-term angst. Since Oct. 6, when Moody's cut Argentina's debt to the decidedly junk rating of B1 from Ba3, the benchmark
index has given up nearly 5%. It now trades at 515.15, a three-week low.
To be sure, part of that performance has been dictated by the volatile U.S. markets. And not all the news is bad. Two weeks ago, Argentina raised $1.5 billion in special
-backed bonds. If Argentina pays the World Bank back in 60 days, then the guarantee on the first series rolls over to the next series, which is spaced out over five years.
Standard & Poor's
gave the issue an investment-grade rating.
But even this development carries with it an unsettling element. Miguel Kiguel, Argentina's undersecretary of finance, acknowledged that his nation opted for this structure because the country had difficulty selling ordinary dollar-denominated bonds. And Argentina hopes to raise another $500 million to $1.5 billion before Dec. 10, when the new government takes office.
As if Argentina's domestic woes weren't enough, the new government is also at the mercy of the U.S.
, which may raise interest rates by 25 basis points come November. While a quarter-point hike may have only marginal effects, any rise will put pressure on Argentina to raise domestic rates as its economy contracts from capital outflows to higher-yielding, less risky U.S. Treasuries.
The Argentine peso is pegged one to one to the dollar, meaning that each peso in circulation needs to be backed by one dollar in reserve. In addition, Argentina has a currency board, thus money supply only changes with inflows and outflows of dollars into the country.
Outflows will, in turn, hamper Kiguel's proud prediction that foreign domestic investment will reach a record of $6 billion by the end of the year. If investors continue to have faith that Argentina will not devalue, foreign direct investment may return if Argentina raises rates in the wake of a Fed hike. Argentina's total external debt is estimated at $140 billion, or nearly half of the total GDP and roughly five times its level of exports.
"Recovery in debt financing inflows is vital to the growth outlook," wrote Vladimir Werning of
economic research team.
Excepting a surprise victory from Duhalde, the Argentine long-term growth outlook is positive, with J.P. Morgan forecasting 3% GDP growth in 2000. But how quickly reforms lead to growth, and thus to restored investor confidence, depends upon actions taken by both the outgoing and incoming governments over the next three months.
Wrong! Dispatches from the Front: Capitulation Comes in Many Forms
James J. Cramer
10/19/99 1:23 PM ET So the game plan worked, and now we wait for the nervous bulls to sell us more stock because we had no capitulation.
Cramer's latest: Tell us what you think on
Message Boards. Oh, you are going to hear a lot about how we didn't have the big washout. Frankly, other than that exquisite moment two years ago when we dropped 500 points and then dropped again the next morning, we haven't really had any capitulation.
I say big deal. Here's why:
Magellan have already raised a ton of cash. We know that from the
this morning. And we have had redemptions of mutual funds. That fits, too.
I like all of that. Capitulation doesn't come labeled as such. It comes in many forms. These high levels of cash from these underperforming funds mean that more capitulation has occurred than we think.
So, my take: Continue to buy the new leaders -- the drugs, the foods, aerospace -- trade the financials, keep buying Net winners and avoid hardware like the plague.
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: Microsoft, Heavy Slate of Earnings Dominate After-Markets
10/19/99 9:27 PM ET
posted first-quarter earnings of 38 cents a share, beating the 27-analyst estimate of 34 cents and up from a year-ago 28 cents a share.
Looking forward, CFO Greg Maffei said he saw "little upside" to the second-quarter earnings estimate of 39 cents a share, according to
. Maffei cautioned against raising second-quarter estimates above 42 cents.
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, 4:30 p.m. to 8 p.m. EDT Monday through Thursday. Prior to Oct. 12, MarketXT traded issues from 6 to 8 p.m.
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
posted third-quarter funds from operations of 53 cents a share, in line with the nine-analyst estimate and up from a year-ago 48 cents.
reported third-quarter, post-split earnings of 5 cents a share. The 21-analyst estimate called for earnings of 13 cents a share in the latest quarter. The year-ago figure was 2 cents a share. On Sept. 30 the company announced a 3-for-1 stock split in the form of a stock dividend; the ex-dividend date is October 26, 1999.
reported a third-quarter pro forma loss of 37 cents a share, wider than the three-analyst expected loss of 34 cents a share and the year-ago pro forma loss of 22 cents a share. Pro forma results assume conversion of convertible preferred stock from the original date of issuance.
reported third-quarter earnings of 60 cents a share including charges. Excluding the charges, the company earned 75 cents in the latest quarter. The 14-analyst estimate was 59 cents a share. The company earned 58 cents a share in the year-ago period.
posted third-quarter earnings of 21 cents a share excluding charges. The seven-analyst estimate called for earnings of 12 cents a share. The pro forma year-ago loss was 12 cents a share excluding charges.
posted a pro forma, third-quarter operating loss of 1 cent a share, in line with the 15-analyst estimate and a penny narrower than a year ago loss of 2 cents a share. The results were restated to reflect the pro forma combined operations of @Home and Excite.
posted a third-quarter loss of 7 cents a share, in line with the five-analyst estimate and down from a year-ago loss of 29 cents, which included acquisition charges.
posted third-quarter earnings of 50 cents a share, including income of 24 cents from an acquisition. The six-analyst estimate was for 51 cents a share. The company earned 59 cents in the year-ago period.
posted a smaller-than-expected third-quarter loss of 4 cents a share, compared with the six-analyst expected loss of 12 cents a share, and narrower than a year-ago loss of 82 cents a share.
posted a third-quarter loss of 5 cents a share, narrower than the 10-analyst expected loss of 10 cents a share, and the year-ago loss of 18 cents which includes a $4 million license fee.
reported third-quarter earnings of 27 cents a share, beating the 15-analyst estimate and the year-ago 14 cents. The company also said it set a 2-for-1 stock split to be distributed Nov.12 to shareholders of record on Nov. 1.
reported second-quarter earnings of 35 cents a share, beating the 22-analyst estimate of 33 cents and the year-ago 19 cents a share. The company also announced a 2-for-1 stock split to be distributed Dec. 27 to shareholders of record on Dec. 17.
Mergers, acquisitions and joint ventures
said it had retained
as its financial advisor to help it explore strategic alternatives. The company said the special committee was formed in response to its recent announcement that majority holder
is exploring strategic alternatives for its holdings in the Houston, including a possible sale of its stake.
Offerings and stock actions
set a 3-for-2 stock split effective Nov.1, to shareholders of record on Oct. 29.
First Commonwealth Financial
approved a 2-for-1 stock split in the form of a 100% stock dividend.
announced a major management restructuring that puts more day-to-day control in the hands of Verne Istock, who had been chairman of the board. Chairman and CEO of the
credit card unit, Richard Vague, has decided to resign to pursue other interests, the company said. Istock will relinquish the title of chairman and become president, but will assume control of most operating areas. CEO John McCoy will add the title of chairman and be in charge of the credit card and consumer lending businesses, as well as major staff areas. Earlier today, the company said third-quarter profits fell 12% to $925 million.
Bond Focus: Treasury Yields Reach New Highs Amid Nasty Rumors
10/19/99 4:38 PM ET
With friends like the bond market, who needs enemies?
Consumer Price Index
in line with expectations, Treasury issues finished the day lower, pushing most yields to new highs for the year.
Initially, bonds rose in price on the news that the September CPI gained 0.4% overall and 0.3% at its core, which excludes food and energy prices. Those increases matched the average forecasts of economists polled by
. The CPI is the government's broadest measure of inflation, and the fact that it didn't greatly exceed expectations, as the narrower
Producer Price Index
Friday, allowed hope that the
won't hike interest rates again at its next meeting, Nov. 16
But in the afternoon, two unconfirmed rumors swept the market, triggering selling. The rumors were of a familiar species in the Treasury market: Secretive purveyor of high-priced advice to money managers is predicting interest rate hikes. One rumor had a D.C. think tank forecasting at 50-basis-point November rate hike by the Fed. The other had a New York hedge fund adviser calling for a hike by the
European Central Bank
as early as Thursday.
gave a midday
speech to an
meeting in Georgia via teleconference, but had no comment on the near-term outlook for monetary policy.
The benchmark 30-year Treasury bond ended the day down 11/32 at 97 1/32, lifting its yield 3 basis points to 6.35%, its highest close since Oct. 22, 1997. Shorter-maturity note yields also rose to new two-year highs, with the exception of the five-year note.
"Whatever" was a common reaction to the rate-hike rumors.
"Those guys have had a less-than-stellar track record, but when the market is jittery, any source becomes a reliable source," said Michael Ryan, senior fixed-income strategist at
The reaction to the rumors highlights the bond market's persistent ill-humor after 12 months of falling prices, observed John Canavan, Treasury market strategist at
Stone & McCarthy Research Associates
in Princeton, N.J. "It remains far easier to push this market down than up, and that's probably going to remain the case till we see what the Fed does next month."
Market analysts also pointed out that short-covering was at least partly responsible for the market's favorable response to the CPI release. The long bond traded up as much as 17/32 in the hours after the release. Some players had taken short positions on Treasuries in hopes of capitalizing on a selloff in the event the CPI, like the PPI, printed much stronger than expected, Ryan said. When that didn't happen, they closed out the positions, sending the market higher.
At the same time, he said, there were players who were "genuinely buoyed" by the favorable CPI report, and by the September
report, which showed a larger than expected drop in starts, and an even larger drop in
, a predictor of starts. Starts dropped to a 1.618 million pace from 1.672 million in August, while permits dropped to 1.501 million from 1.619 million.
The stock market rally also kept bonds from hanging onto their gains today, Ryan said. In recent sessions, bonds have been trading in inverse lockstep with stocks, rising when stocks fall and falling when stocks rise.
He thinks that's likely to continue in the days ahead. And together with the economic data slated for release between now and Nov. 16, the action in stocks will help determine what the Fed does. "If stocks go down another 8% to 10% from here, that could certainly help sideline the Fed," Ryan said.
A protracted stock-market selloff could avert a Fed rate hike if the Fed believes collapsing stock prices will slow the economy to a sustainable rate by undermining consumer confidence and curbing consumer spending.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
John J. Edwards III will chat on AOL's MarketTalk Monday, Oct. 25 at 3:30 p.m. EDT. MarketTalk is hosted by Sage Online. (Keyword: PF Live)
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