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daily12-08-99's DAILY BULLETIN

December 9, 1999

Market Data as of Close, 12/8/99:

o Dow Jones Industrial Average: 11,068.12 down 38.53, -0.35%

o Nasdaq Composite Index: 3,586.08 down 0.84, -0.02%

o S&P 500: 1,403.88 down 5.29, -0.38%

o TSC Internet: 1,072.27 up 13.40, 1.27%

o Russell 2000: 468.84 up 3.14, 0.67%

o 30-Year Treasury: 98 19/32 down 12/32, yield 6.224%

Companies in Today's Bulletin:

Yahoo! (YHOO:Nasdaq)

Vitria Technology (VITR:Nasdaq)


Ciena (CIEN:Nasdaq)

In Today's Bulletin:

TheStreet Recommends

o Market Features: Mad Dash to Nasdaq: Tech Stocks Flourish on Investing's New Math
o Wrong! Rear Echelon Revelations: Hated, Trashed and Despised
o Evening Update: Vertel Rockets Higher in After-Hours Trading
o Bond Focus: After Three Steps Forward, Bonds Step Back

Also on

The Invisible Mouth: Playing the Economic-Growth Guessing Game

What some numbers can tell us.

Networking: Mad Dash to Nasdaq: Ciena Finds It's Hard to Make Enemies

The networking supplier found itself alone last year after a merger blew up, but investors seem to have forgotten.

Europe: Mad Dash to Nasdaq: Epcos Shines as Tech Trend Expands Overseas

It's just one of many tech stocks that have soared on the sense that the sector is irreversibly up.

Hardware & PCs: Mad Dash to Nasdaq: Institutional Interest in Apple Sparks Recent Rally

And in the midst of its own sharp rise, Apple has been hinting at an impending stock split, its first since 1987.

Market Features: Mad Dash to Nasdaq: Tech Stocks Flourish on Investing's New Math


Justin Lahart

Associate Editor

12/8/99 3:15 PM ET

Take a piece of paper that is, say, 1/100 of an inch thick and fold it over. Now take it and fold it over again -- and again and again -- until you have folded it 50 times. The folded-up piece of paper you ended up with would be 177,698,849 miles high -- nearly twice the distance of the Earth to the sun.

Now take a stock trading at $100 a share. Add 1% to it every trading day for a year. At the end of the year, it will be trading at more than $1,200.

That's what momentum is about: an investing style that presumes past performance actually


guarantee future results. It does not matter that such exponential returns are supposed to be as unrealizable as that folded-over paper is.

Dash down some thoughts on our Nasdaq board



has soared 64% this year, much of it in the past month. Much of the gain has come on the back of a handful of stocks whose stunning performance in 1999 has lately become stratospheric -- in the absence of any meaningful change in the fundamental conditions those companies operate in.

In recent weeks, even more money has been stampeding into the stocks -- mostly concentrated in information technology -- that have put on the best performances of the year, sending them higher still. Price targets are blown through; price targets are reset. A portfolio manager speaks frankly about how he thinks an $80 stock will be at $100 in short order. Traditional views of valuation get scoffed at.

It is the late 20th century and it is America, and Wall Street has embraced the mathematics of the impossible.

"These things have become parabolic," says Stanley Nabi, chief investment officer at

Donaldson Lufkin & Jenrette

. "What we have right here is an artificial market."

Everyone's Here

No, it is not the first time momentum has come to roost in the stock market. Nor is it the first time stocks have grown at a viral rate. But never before have so many large-capitalization stocks moved like this, and never have so many investors chased the move. This ain't



, the music company


Internet play that individual investors sent up and down while the institutional money smirked. This is a game that everyone is playing.

"Investors are just deciding where to place their money based on momentum," says Dan Mathisson, head stock trader at

D.E. Shaw Securities

. "You see little guys and institutional guys jumping in and saying we just have to be where things are hot."

It's a point worth making again and again. It isn't just about daytraders. Big money is moving these stocks. Tuesday,



rose 24%. Yet online investors on


were net sellers of the stock -- selling, happily one supposes, to institutional investors.

Perhaps institutions have joined the fray here because it is clear that something amazing is happening in technology. Telecommunications and the Internet are growing explosively. Moreover, these are clearly real companies, many of which already have real earnings.


(NOK) - Get Nokia Oyj Report

-- which has gained better than 20% in the last week -- does


. So does


(CIEN) - Get Ciena Corporation Report

-- which added better than 35% in the last week.

Short on Opposition

It is easy to be a Cassandra about these things, to say that one day these investors will get their comeuppance. And even the most bullishly inclined will admit that the exponential run cannot go on forever, that one day prices will not be able to go up anymore. But nobody is short these stocks anymore -- anyone who was has gotten blown out of the water -- and that means the only money left in the game is long. As a result, says Mathisson, "there's a much larger community of people that want to goose these. It's hard to say how long it will continue, or when it will end."

Meanwhile, money managers who worry about the valuations of the momentum stocks are coming under heavy pressure.

"I'm an investment manager," says DLJ's Nabi, "and I am told all the time by my clients, 'I don't give a damn that you don't care for these stocks.'" But Nabi worries that if he does that, he will have broken his fiduciary responsibility to run money in the manner he said it would. And if these stocks crack, as he at least reckons they eventually will, he will get angry calls from clients and letters from their lawyers.

"I know," he says, "that memory is a selective thing."

Wrong! Rear Echelon Revelations: Hated, Trashed and Despised


James J. Cramer

12/8/99 4:29 PM ET

How hated are these drug stocks? How trashed are these banks? How despised are these food stocks? I mean have you looked at

General Mills

(GIS) - Get General Mills, Inc. Report

lately? Those guys were doing well. Have you checked out the hated bank stocks?



is on the tape daily saying the right things and nobody cares.

The bottom line is that if you went to the offices of


(BMY) - Get Bristol-Myers Squibb Company Report

today, they have to be in disbelief. They launched a surgical air strike against the sellers and ended up bombing their own! (


(MRK) - Get Merck & Co., Inc. Report

is having a meeting tomorrow, lotsa luck folks!)

Join the discussion on

Cramer's Latest

Meanwhile, little companies hold obscure lunches midtown and their stocks ramp 23! Other companies get rumored to be added to the


and they go up 10! Companies that make it easier to mail, or send, or read or process things online continue to be incredible. And companies that develop other companies that might one day make money helping other companies process orders on the Net?

Those are up the most.

And now Matt "

B2B" Jacobs just walked out to go to three days of meetings about Class Five Switches!! What do I do now? My Rosetta stone headed to Orlando?

Guess I gotta study up on those utilities.

Random musings

: Many of you who are grateful for how we have done and write me, skip the gesture and give a friend a gift subscription instead. They sure make it easy this year.


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. Cramer's fund may be long or short certain stocks in his B2B rotisserie league or Red Hot index. 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: Vertel Rockets Higher in After-Hours Trading


Tara Murphy

Staff Reporter

12/8/99 8:13 PM ET



led trading on

Island ECN

. The stock closed the day session up 1 3/32 to 3 7/32 on almost 4 million shares, which is huge for the company. Most of that volume came over the last two hours of trading, which means the stock built off of late momentum.

How big is this momentum? The company began popping at exactly 2 p.m. EST. During the next two hours, it posted the majority of its day-session gain. As of 8:00 p.m., it was up 6 3/4 this evening to 9 7/8, a gain of 216%.


Well, in a

press release from earlier today, the company trumpeted the debut of its


system, which is the first commercially available Object Request Broker. This begs the question, "What's an Object Request Broker?" Basically, it's a part of certain telecommunications systems that helps assist the flow of data, like video, voice and pictures.

Put even simpler, it's a high-tech thing that has pushed Vertel's volume past the 3 million mark in after-hours trading on Island.


Eric Gillin

In other post-close news (earnings estimates from

First Call/Thomson Financial

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

Mergers, acquisitions and joint ventures

Air Canada

said it has purchased more than 50% of

Canadian Airlines'

shares and has agreed to acquire all of American Airline parent



stake in Canadian Airlines.

According to the agreement, Air Canada will pay AMR no more than C$143 million, a small portion of the C$1 billion that AMR was hoping to receive for its interest in the carrier. Air Canada said the new deal would ease its anticipated acquisition of Canadian, operate it as a division and continue to revamp the Canadian airline industry. In addition, the deal also calls for AMR to give up all governance rights on Canadian airlines. However, if Canadian is wholly absorbed into Air Canada within 10 years, certain conditions in the agreement would enable American Airlines to continue marketing in Canada. The pact also enables all carriers in the Star Alliance global aviation group to codeshare with Canadian.

Due to provisions, if Air Canada opts to terminate its current technology services agreement with


, AMR could stand to receive C$83 million for the non-amortized portion of Sabre's start-up and wind-up costs.

National Instrument

(NATI) - Get National Instruments Corporation Report

said it has entered a deal with


(DELL) - Get Dell Technologies Inc Class C Report

to build workstations. The deal, which targets engineers and scientists, calls for National Instrument's measurement and automation hardware to be offered as an alternative in Dell's "Precision Workstations" beginning in the first quarter of 2000.



said that

Heico Companies

has launched an offer to purchase all of its stock that it does not already own. Heico, which already owns roughly 69.2% of Robertson-Ceco, offered to pay $10 a share for the remaining interest.

Earnings/revenue reports and previews

Advanced Digital Information


posted fourth-quarter earnings of 26 cents a share, beating the five-analyst estimate of 22 cents but up from the year-ago 18-cent loss, which included charges.



posted first-quarter earnings of 7 cents a share, missing the three-analyst estimate expected the company to earn 8 cents a share and the year-ago 17 -cent profit.


(JILL) - Get J.Jill, Inc. Report

said it expects to post a fourth-quarter loss between 12 cents to 17 cents a share, missing the four-analyst breakeven estimate and declining from the year-ago 28-cent profit. The company blamed slow demand in its catalog sector for disappointing earnings.

Kinnard Investments


asked shareholders not to act on

(STOK) - Get Stoke Therapeutics, Inc. Report

unsolicited $7.50 cash tender offer until it is examined. Kinnard has brought

U.S Bancorp Piper Jaffray

on board as its financial adviser and has also retained legal counsel.



chairman and CEO Tony Ridder said during an analyst conference in New York that the company is on track to meet the 14-analyst estimate of $3.26 cents a share for fiscal 1999 and sees operating profit rising in "low double digits" next year, according to



NCI Building

(NCS) - Get Cornerstone Building Brands Inc Report

posted fourth-quarter earnings of 89 cents a share, beating the seven-analyst estimate of 88 cents and up from the year-ago 73 cents.

Roper Industries

(ROP) - Get Roper Technologies, Inc. Report

posted fourth-quarter earnings of 47 cents a share, in line with the nine-analyst estimate and up from the year-ago 24 cents, which included charges.

Wallace Computer


reported first-quarter earnings of 44 cents a share, missing the three-analyst estimate of 46 cents but up from the year-ago 40 cents. Wallace said it expects to post second-quarter earnings in the range of 47 cents to 52 cents a share. The three-analyst estimate sees the company posting second-quarter earnings of 50 cents a share.

Offerings and stock actions

Credit Suisse First Boston

priced a 6 million-share IPO for



at $11 a share, above its expected price range of $8-$10 a share.

Robertson Stephens

priced a 5.4 million-share IPO for



at mid-range of $12 a share.

For a look at one of Wednesday's hottest IPOs, take a look at the

story written by

joint newsroom.




announced this afternoon that -- effective Jan. 1, 2000 -- company president and COO Jeff Weitzen has been given the additional title of CEO, replacing company founder Ted Waitt. Waitt, who started the company in 1985, will remain as Gateway's chairman.

For more on the Gateway succession, please see the

story written by

joint newsroom.

MGM Grand


said it has selected Daniel Wade and John Redmond as co-CEOs. Wade and Redmond are replacing Terrence Lanni, who announced that he was stepping down from his post in October. Lanni will continue to serve as the company's chairman.

Bond Focus: After Three Steps Forward, Bonds Step Back


Elizabeth Roy

Senior Writer

12/8/99 4:43 PM ET

The Treasury market snapped a three-day winning streak today, dropping modestly on low volume amid a flurry of corporate new-issue activity. The day's only major economic release -- the

Fed's Beige Book

-- was market-neutral, analysts said.

The benchmark 30-year bond ended the day down 12/32 at 98 18/32, lifting its yield 3 basis points to 6.23%. Shorter-maturity note yields rose by similar amounts.

Only $31.5 billion of Treasuries changed hands according to tracker


, 39.9% less than average for a Wednesday over the last month. Volume was light in part because there are no first-tier economic reports till the

Producer Price Index

on Friday, and in part because the year is drawing to a close.

The market: Join the discussion on


Message Boards.

"Assuming the inflation numbers come out on consensus, there's no pressing need for the market to go up a lot or down a lot," said Marcello Frustaci, a trader at

Daiwa Securities

. "The risk-reward to do a big position trade now is very narrow. There's too much risk for the reward."

Limited participation in the market could make it more volatile from now till the end of the year, he added. Frustaci predicted that the long Treasury would trade in a range between 6.125% and 6.25%.

The average forecast for the November PPI, which measures prices at the wholesale level, calls for a 0.2% gain overall and a 0.1% gain at the core, which excludes food and energy prices.


Beige Book, an anecdotal report on economic conditions around the country compiled by the


for consideration by its monetary policy committee, which meets for the eighth and last time this year on Dec. 21, contained no big surprises, market analysts said. And the little surprises were positive for the market.

The report talked about strong growth and tight labor markets, which threaten the bond market with accelerating inflation, but that has become a familiar refrain,

Warburg Dillon Read

economist Jeffrey Palma said. More important, Palma said, were the observations that "the pace of wage and salary increases did not appear to be accelerating generally," and "prices appear to be mostly steady at the retail level."

"They found isolated cases by industry or region, but there's nothing broad-based about any of this," Palma said. "Nothing's flashing warning signs that the general economy is suffering from wage or price pressures that haven't yet been picked up by the official statistics."

Still, there was no discernible market reaction to the Beige Book, which was released at 2 p.m. EST. Much of today's activity was related to corporate new issues,

Prudential Securities

co-head of government bond trading Scott Graham said. "The only thing going on is hedging and unhedging," he said, referring to the process by which underwriters of corporate new issues inoculate them from falling prices, by establishing and then unwinding short positions in the Treasury market.

In today's largest corporate deal,

Procter & Gamble

(PG) - Get Procter & Gamble Company Report

sold a $1 billion five-year global note.

Graham doesn't expect much from the market for the rest of this year, but is bearish about the new year. "The market's way overbought and ahead of itself," he said. With the economy strong and the Fed still in tightening mode, two-year notes trading at a yield around 5.95% "are still a little expensive. But you're not going to get any satisfaction being short till year-end." He expects the long bond's yield to hit 6.50% by mid-February.


Street Sightings

Options reporter Erin Arvedlund and Bernie Schaeffer -- Chairman and CEO of Investment Research, Inc., Founder of and author of "The Advisor: Wealth-Building Techniques Using Equity and Index Options" -- will be on hand to answer your questions about trading options. Join and Bernie for an informative hour-long chat on Yahoo! Thursday, December 9 at 5 p.m. Register for Yahoo! Chat at: free!

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