TheStreet.com's DAILY BULLETIN
December 14, 1999
Market Data as of Close, 12/13/99:
o Dow Jones Industrial Average: 11,192.59 down 32.11, -0.29%
o Nasdaq Composite Index: 3,658.17 up 37.93, 1.05%
o S&P 500: 1,415.22 down 1.82, -0.13%
o TSC Internet: 1,154.01 up 24.51, 2.17%
o Russell 2000: 470.38 up 3.67, 0.79%
o 30-Year Treasury: 98 30/32 down 15/32, yield 6.191%
Companies in Today's Bulletin:
ConSors Discount Broker AG
Jacob Internet fund
In Today's Bulletin:
o Mutual Funds: Jacob Fund's First Task: Putting the Cash to Work
o Wrong! Rear Echelon Revelations: Missing Out on Tech
o Evening Update: 3Com Leaps After Hours on Palm IPO Plans
o Bond Focus: Bonds Pare Last Week's Gains
Also on TheStreet.com:
Commentary Features: The Bank of Japan's Shell Game
The BOJ is keeping markets guessing about how it will handle the upcoming postal system time-deposit crisis.
Europe: Germany's ConSors Extends Reach to E-berian Peninsula
The deal brings ConSors one step closer to its goal of becoming Europe's first truly pan-Continental online broker.
Brokerages/Wall Street: Full of Tough Talk, the NYSE and NASD Give Daytraders More Rope
While tightening some rules for margin traders, the exchanges also doubled the amount of money those traders may borrow from their brokerages.
Tech Savvy: Too Much Left on the Table
Is IPO low-balling finally coming to an end? No way, Jim Seymour says.
Mutual Funds: Jacob Fund's First Task: Putting the Cash to Work
12/13/99 8:29 PM ET
Ryan Jacob had 92 million reasons to come to work Monday morning. By the end of the day, he had 58 million more.
The 30-year-old former manager of the
Internet fund raised about $150 million for his new fund,
, which launched Monday.
The sum included $92 million raised in a two-week subscription period and another $58 million that came in Monday, when online brokerages started accepting money for the fund. Though impressive for a fund and a management company with no track record, it was less than the $200 million-plus Jacob had anticipated.
"That's OK -- that's just less cash that I need to put to work right away," he said. "I was beginning to scare myself a little bit."
On Monday -- his first day of trading -- Jacob's task was to squeeze the $92 million that investors had sent directly to him into just 21 Internet stocks.
But with two notable exceptions, he wasn't buying the name-brand Internet stocks other portfolio managers have been chasing. Instead, he focused on, among other things, unloved media content plays and barely discovered e-commerce companies. He also stayed loyal to several stocks he favored at the Internet fund.
"The more I get in today, the better," he said, pacing in front of his corner office window 16 floors above Broadway in midtown Manhattan. "I have a feeling we're going to get crushed tomorrow."
Jacob was calm as he got to work Monday and surprisingly inactive at the 9:30 a.m. EST opening bell. With the ticker symbols for his 21 stocks printed in blue ballpoint on a plain white piece of paper, he eyed his
quote monitor and took a deep breath.
"We have all day," he said quietly, almost to himself. "We don't have to jump in like an eager beaver." Then, dressed in a blue shirt and gold tie, he sidled up to his green felt-covered desk, picked up the phone and started calling his brokers.
While his phenomenal success at the Internet fund -- he became a mutual fund celebrity overnight when his 196% return made him 1998's best-performing fund manager -- has given him the image of a swashbuckling Internet investor, his method for picking and buying stocks was surprisingly subdued, far from the frenzied daytraders with whom he is often compared.
By 11 a.m., he had placed limit orders -- orders with a specified ceiling price -- for at least a small position in each of his 21 names, not wanting to spook the market into trading higher on him.
agreed not to immediately reveal his fund's holdings. But he has said that his strategy is to invest in four broad sectors -- media, e-commerce, infrastructure and communications plays.
Judging from the portfolio he was building Monday, the Jacob Internet fund will be as much of a pure-play portfolio as the Internet fund was under his stewardship.
"If you don't have the conviction, this is not the place to be," he says, somewhat critical of money managers who try to buy so-called back-door Internet plays. "Some guys actually feel guilty owning these names."
He obviously didn't, as he slowly filled his orders throughout the day in 10,000-share increments. But he has to be careful in placing his orders. After all, he said, his name carries a lot more recognition now than when he first started buying Internet stocks in late 1997.
Jacob took over the fledgling Internet fund when it had $200,000 in assets. By the time he left 18 months later in June 1999, it had $642 million.
What a difference a year can make. By lunchtime -- he ordered tomato bisque from a nearby soup shop -- he had put about $30 million to work. But that's more money than he had under management a year ago.
At that time, his was one of only four pure-play Internet funds. Now there are at least 29 Internet funds either active or in registration.
"I'm sorry I'm not more of a rapid-fire trader -- for your sake," he said apologetically while shooting at the air with his index fingers. "I'd rather buy things that are getting knocked around. You have to be prudent. You'll get your chance."
He got his chance on one media stock he was looking to pick up midafternoon. Jacob wanted 120,000 shares and was trying to build his position gradually, 10,000 shares at a time.
But another bidder lurked beyond his ILX terminal, putting in a market order for 50,000 shares of the stock.
"Who is this idiot? He's being belligerent," Jacob said, looking at his screen. He didn't bite on the stock, concentrating instead on a commerce play and an infrastructure stock.
When he returned to the media company, the adversarial buyer was between bids.
"Advantage, Jacob," he said, dialing his broker quickly. "This guy's taking a break. Let's see if we can't slip in there." Another 30,000 shares down. He would end up owning 110,000 on the day.
At 3 p.m., he still didn't have a position in two of his 21 targeted stocks -- an infrastructure play and another media play -- and he had put just two-thirds of his $92 million to work. He ended up getting 10,000 shares in the infrastructure company and didn't get any shares of the media company. But he knew from the start it was thinly traded because he once held it in the Internet fund.
"We got real positions in about 16 names. And just toeholds in four others," he said five minutes before the close of trading.
That's OK, though. Jacob knows that with the volatility of the Internet, stocks that were hard to trade today will likely loosen up tomorrow, and the stocks that he bought will show some life. Or at least he hopes. That, after all, is why he's managing Jacob Internet.
That, and about 150 million other reasons.
Wrong! Rear Echelon Revelations: Missing Out on Tech
James J. Cramer
12/13/99 7:26 PM ET
play catch-up with
? As most mutual fund companies are configured to look like the S&P, plus or minus a couple of weightings, I think the answer has to be a definitive no.
Right now, the S&P is simply too overweighted in drugs and financials, as a legacy of the giant mergers earlier in the decade, and that means more underperformance ahead.
When the book is written on this year, it will go something like this: Technology became the only investable theme out there, because it was the only place where sustained organic growth could be found.
Today at one of my meetings with
, Jeff stumbled on something that said more about this S&P vs. NDX showdown than anything I have heard of late. Only
, and, on some days
, are even of interest to those who run growth money. These stocks go up every day because they are the poor man's tech. They are a place to get some growth away from tech so your whole fund doesn't look like a tech fund. They are the ultimate "generalist" window dresses on top of all funds that secretly wish they were 100% tech, but can't be because there are already 100% tech funds in their fund families, and such duplication would be a business mistake.
What an amazing state of affairs that very little else in the S&P can generate the type of growth that can stack up against tech. I was reminded, as I sat through my
chat, that people are still hoping to buy the drillers and the drugs, to name two industries I own nothing in, as if one day those ships must come in.
I can see far into the horizon, and I don't see anything that looks like those companies headed into port.
What will change all of this? Nothing that I can see. In fact, there could be a mass migration out of the so-called high-multiple growth stocks if they fail to deliver good earnings next month. If anything, they, and not the highflying techs, are the most vulnerable because of the big mutual fund switch. Ironically, that's where the pain is coming.
And very few of the holders of these stocks believe that.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long 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: 3Com Leaps After Hours on Palm IPO Plans
12/13/99 8:42 PM ET
, maker of the Palm Pilot, has filed with the
Securities and Exchange Commission
to raise up to $100 million in an initial public offering.
Morgan Stanley Dean Witter
are serving as the deal's underwriters.
3Com soared more than 10% in after-hours trading on
warned investors that it expects to post fourth-quarter earnings of 10 cents a share, missing the five-analyst estimate of 19 cents a share. AutoNation said it would shut down 23 of its used car megastores and combine six other stores with new vehicles businesses. The closings, which will cut the companies work force by 1,800 jobs, along with previously announced restructuring changes, will have the company assuming a fourth-quarter pretax charge of $430 million to $490 million.
In addition, the company said it has added $500 million worth of common stock to its current share repurchasing plan.
For more on AutoNation's restructuring, check out a
story written by
, chairman of
, disclosed in an SEC filing today that he holds a 5.3% stake in
, an El Segundo, Calif., computer services firm.
The 13G filing, required of investors who accumulate more than a 5% stake in a company, reveals Buffett owns 506,700 shares of Bell, worth almost $3.3 billion at today's closing price. Bell stock soared 1 7/16, or 28.8%, to 6 7/16 on the news, trading almost 50 times its average daily volume.
The investment is something of a departure for Buffett, who has shunned technology-related concerns, claiming not to understand them. However, Bell recently sold major business lines and is considering additional sales, which is consistent with a recent Buffett pattern of buying companies with plans to liquidate. Last October Buffett bought a stake in
, a real estate investment trust in the process of liquidating its portfolio. In August, Buffett reported a stake in
, a financial services firm that announced plans to sell most of its business.
Like both the MGI and Baker Fentress investments, the Bell Industries stake was filed as a personal holding of Buffett's rather than a corporate holding of Berkshire Hathaway. Buffett said at Berkshire's annual meeting in May that he often uses personal holdings to generate cash for his own use. On Dec. 3, Bell announced a cash distribution of $1.30 payable this week to shareholders of record Dec. 10. The company made a $5.70 distribution to shareholders June 8, a result of ongoing asset sales. Buffett's filing does not provide data on the dates or prices of his share purchases.
Christopher S. Edmonds
dominated Island ECN's most-actives list, passing 1.6 million shares traded.
Checkers Drive-In Restaurants
stayed firmly entrenched in second place, followed by
Cornerstone Internet Solutions
At No. 5,
Crystal Systems Solutions
picked up some hefty gains and heated up late in the session on news that it had acquired a controlling stake in
, which has a software platform that allows Windows programs to run on a Linux system. The news broke in the afternoon and traders reacted strongly, sending the issue up 5 3/16 to 18 11/16 during the day session.
In other postclose news (earnings estimates from
First Call/Thomson Financial
; earnings reported on a diluted basis unless otherwise specified):
Mergers, acquisitions and joint ventures
said they have entered an agreement in which Westell will buy Teltrend for roughly $205 million in stock. The transaction calls for Teltrend shareholders to get 3.3 shares of Westell stock for each share of Teltrend. Westell's closing price of 12 3/16 has Teltrend shares valued at roughly $40.84 a share, a 69% premium over its closing price of 24 1/8.
Separately, the company said it tapped Marc Zionts to replace Robert Gaynor as CEO, as of Jan. 1. Gaynor will continue to serve as the company chairman.
Earnings/revenue reports and previews
said it would assume a fourth-quarter after-tax charge of 30 cents a share as a result of restructuring changes. The two-analyst estimate sees the company posting fourth-quarter earnings of 62 cents a share, while the nine-analyst estimate expects fiscal 1999 earnings to be $1.91 a share. The company said it anticipates the restructuring, which includes a workforce reduction of 300, to save the company roughly 30 cents to 35 cents a share by 2001.
reported a first-quarter loss of 11 cents a share, narrower than the five-analyst estimate of 16-cent loss a share but wider than the year-ago 4-cent loss.
For more on Net2Phone's earnings, take a look at a
posted first-quarter earnings of 36 cents a share, in line with the four-analyst estimate and up from the year-ago 26 cents.
Offerings and stock actions
said it set a 2-for-1 stock split, payable to shareholders of record Feb. 10.
Goldman Sachs priced a 9.375 million-share IPO for
mid-range at $18 a share.
said that it has been awarded
Food and Drug Administration
, to remedy eye irritation caused by allergies.
announced that its chairman and CEO, Jack Daugherty would retire as of Feb. 1. Daugherty will stay on as chairman, while president and COO Daniel Feehan will assume the role of CEO.
and Dell said that IBM senior vice president and Technology Group head James Vanderslice will leave IBM to become a vice chairman at Dell. Vanderslice would take over for the retiring Mort Topfer, who will sit on Dell's board. The companies said Vanderslice headed IBM's component supply deal with Dell.
Bond Focus: Bonds Pare Last Week's Gains
David A. Gaffen
12/13/99 4:47 PM ET
Looking forward to tomorrow's
Consumer Price Index
, the Treasury market slipped back a bit today, surrendering some of last week's gains in light volume. There were no economic releases to watch for and investors' appetite for risk at this late stage of the year is muted.
The market traded down early, recovered slightly and then drifted lower once it reached the afternoon. Friday, the 30-year Treasury reached its lowest yield in nearly three weeks, leading some strategists to think the market had perhaps taken the rally too far.
"Yields were higher than they should have been seven to eight sessions ago and then lower then they should have been
Friday, so the market is paring some gains," said Charles Reinhard, market strategist at
Only a few knives were doing the paring. Tracker
reported volume down 17% when compared with the average Monday this past month. Lately the 30-year Treasury bond was down 16/32 to 98 29/32. The yield rose 4 basis points to 6.21%.
Strategists, for the most part, said the market is concentrating on tomorrow's economic slate, paying most attention to the November CPI. Economists polled by
are looking for a 0.2% rise in the overall CPI, as well as a 0.2% increase in the core CPI, which excludes the volatile food and energy sectors.
Currently, the core CPI is rising on a 2.1% year-over-year rate. However, David Orr, chief capital markets economist at
First Union Capital Markets
, is still worried about a potential pickup in consumer inflation. He believes the recent increases in producers' wholesale costs (calculated in the
Producer Price Index
, released Friday) will ultimately feed into consumer inflation. Up till now, producers have been able to offset rising prices with improved productivity, but Orr questions the longevity of that scenario.
"If it goes on for three to six months, it doesn't bode well for corporate profits," Orr said. "Input prices are rising faster than output prices. Companies are figuring out ways not to pass the costs on to the consumer...but productivity gains may not be able to offset everything."
The market is less enthused about tomorrow's important
report. Another report that could say consumer demand is strong won't be considered a revelation. Economists are forecasting a 0.5% increase and a 0.4% increase excluding auto sales for November, according to
, so "for the market to pay attention, it would take a 1.0% or 0.9% increase, or a 0.1% increase," Orr said.
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
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