Publish date:

daily12-21-99's DAILY BULLETIN

December 22, 1999

Market Data as of Close, 12/21/99:

o Dow Jones Industrial Average: 11,200.54 up 56.27, 0.50%

o Nasdaq Composite Index: 3,911.15 up 127.28, 3.36%

o S&P 500: 1,433.43 up 15.34, 1.08%

o TSC Internet: 1,159.07 up 60.32, 5.49%

o Russell 2000: 475.79 up 8.60, 1.84%

o 30-Year Treasury: 95 19/32 down 9/32, yield 6.450%

Companies in Today's Bulletin:

Bank One (ONE:NYSE)

Xerox (XRX:NYSE)

Warner-Lambert (WLA:NYSE)

Pfizer (PFE:NYSE)

In Today's Bulletin:

o Banking: Talk Turns to Takeover as Bank One Changes CEOs
o Wrong! Rear Echelon Revelations: Trying to Grasp the Ungraspable
o Evening Update: Xerox Shuffling the Deck and the Drug Wars Heat Up
o Bond Focus: Stocks' Reaction to Fed News Bums Out Bonds

"" on

Fox News Channel

Influential retail analyst

Faye Landes


Thomas Weisel Partners

and chief market technician from

Raymond James


Ralph Bloch

join the regulars on "" with a special holdiay edition of the show. You'll hear if the group thinks a Santa Claus rally will come to Wall Street and how this record-breaking year will end. Also we'll find out what retailers Faye Landes is hot on and our group will give their "Holiday Wi$hes" for investors.

"" on

Fox News Channel

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in your area, call your local cable operator or see our "TSC on Fox TV" page at

Also on

The TaskMaster: The Long, Lonely Walk Back to Value

When the apocalypse comes and tech stocks fall, these value devotees will be ready.

Wrong! Tactics and Strategies: A Day for Guinness

The book, not the drink, as the market imbibes on the 'go frees' of the Internet world.

Networking: Expectations Build for Tellabs Acquisition

The company's CEO even hinted that he might announce an acquisition by year-end.

Europe: The Anglo File: U.K. Holiday Shoppers Steer Clear of the Net

Holiday sales on the Net are suffering amid a general distrust of e-shopping, or rather, e-paying.

Banking: Talk Turns to Takeover as Bank One Changes CEOs


Peter Eavis

Senior Writer

12/21/99 8:30 PM ET

Bank One's

(ONE) - Get Report


coup Tuesday removed John McCoy, the bank's long-serving chairman and CEO, clearing the way for a recovery at the ailing institution and making a takeover more likely, say analysts and investors.

The 56-year-old McCoy's position had been under threat since August, when the bank's credit card and consumer division

First USA

, acquired in 1997, started reporting disappointing results.

The bank's board named President Verne Istock acting CEO. John Hall, a Bank One board member, was elected nonexecutive chairman. The bank said in a statement Tuesday that it has set up a search committee, headed by Hall, to look for a permanent chairman and CEO. This committee will also consider Istock for the permanent CEO spot, the bank said.

Glass Half-Full

"This is a positive development for shareholders," says Joe Duwan, banks analyst at New York-based

Keefe Bruyette & Woods

, which hasn't done recent underwriting for Bank One. "This company needed a change in leadership." (Duwan rates Bank One a hold.)

"It's more likely that the bank will get sold now," says Jeff Miller, manager on the

Acadia Fund

, a financial services hedge fund based in Villanova, Pa., that doesn't hold Bank One.

Bank One's shares jumped 3 27/128, or 11%, Tuesday to close at 33 3/16. The three banks often tipped as possible buyers of Bank One include


(C) - Get Report





Wells Fargo

(WFC) - Get Report

. Citi and Chase shares rose 1.5% and 3.8%, respectively, Tuesday, while Wells was off 1.6%. (Chase and Citi declined comment and Wells didn't return a call. Bank One declined to comment beyond its press release and didn't make McCoy or Istock available for interviews.)

Red-Letter Day

Despite some lingering fears and doubts, analysts and investors are already seeing McCoy's departure as a watershed event.

First, he was perceived as the main obstacle to a takeover, due to his family's involvement with Bank One over three generations. "McCoy was more likely to say that the bank shouldn't be sold," says Lisa Welch, analyst on the

John Hancock

(FRBAX) - Get Report

Regional Bank fund, which owns Bank One. By contrast, Istock showed he was willing to sell out when his previous institution,

First Chicago NDB

, was bought by Bank One in 1998, Welch points out.

A new CEO could deploy more sweeping recovery initiatives than McCoy, says a bank stock hedge fund manager who requested anonymity and doesn't hold Bank One. "McCoy had a vested interested in his acquisitions First USA and First Chicago," this manager says. "A new CEO could just sell things off if he wanted to." Some observers have speculated this year that Bank One may sell off First USA while maintaining Bank One's independence.

Some Bank One followers have been concerned that McCoy got carried away with the heavily promoted Internet bank

, launched this summer and expected to cost about $150 million in its first 12 months. "There needs to be more of a bottom-line focus at Bank One, which means it will be hard to justify a massive investment like Wingspan," says Keefe's Duwan.

Cut Up the Plastic

Until its sharp slowdown this summer, Bank One, the nation's fourth-largest bank, had relied on First USA as a major source of earnings growth. Problems in this unit forced the bank to cut its earnings outlook twice -- in

November as well as

August, pushing the stock a bruising 53% below its 52-week high at the close Monday. In an October management reshuffle, the bank said that McCoy was going to oversee efforts to rejuvenate First USA, leading some observers to believe that the board had made his tenure as CEO dependent on results in the division.

McCoy's departure may therefore be a sign that First USA's shortcomings aren't about to be reversed, although he said earlier this month that First USA had managed to stem the rate at which credit card customers were leaving. "Is the timing of this move indicative that the fourth quarter is going to be extra lousy?" asks Lanny Thorndike, a manager on the


Century Shares Trust financial services mutual fund, which owns Bank One shares.

"There's a lot to be done at Bank One and it's a big job," says Felice Gelman, a manager at

Sunova Capital

, a New York financial services hedge fund that doesn't hold Bank One. Keefe's Duwan says that "it's certainly a possibility" that the bank may release more disappointing financial results after any non-McCoy-led management team has a cleanout.

And Gelman, while noting that a buyout of Bank One is now more likely, also says: "An acquirer would have to make an extraordinarily strong case that it could handle the integration risk."

People Watching

One bank stock analyst who requested anonymity says that First USA and other parts of the bank are salvageable. "Bank One's a good franchise, he says. And while he blames McCoy's leadership for the problems, "he hasn't been severely debilitating," he adds. (The analyst's firm has done underwriting for Bank One.)

Century Shares' Thorndike isn't taking Istock's candidacy for permanent CEO too seriously. According to Thorndike, Istock has lost two key colleagues that he would need to pursue properly a turnaround plan for Bank One. The two are former vice chairman David Vitale, who left in November, and Vice Chairman Richard Lehmann, who is scheduled to retire at the end of this month. Vitale didn't return a call and Lehmann couldn't be reached.

As for permanent replacements for McCoy, the only name bank stock experts were mentioning Tuesday was that of Jamie Dimon, former president at Citigroup. Dimon, as a former lieutenant of Citi co-CEO Sandy Weill, has a reputation for pleasing shareholders with value-creating restructurings. Dimon didn't respond to a request for comment.

Wrong! Rear Echelon Revelations: Trying to Grasp the Ungraspable


James J. Cramer

12/21/99 10:24 PM ET

For most of my career, the marginal dollar in this business went to some place that I could justify. I understood why everyone piled into the oils in the late 1970s: Oil was going to be much higher in price in the out years.

I understood why the marginal dollars went to food, beverage, drug and entertainment companies in the 1980s: Those were areas in which the Japanese couldn't kill us.

I understood why the money went to certain tech companies in the 1990s: There is the tremendous growth of the personal computer and the networks that linked them for voice and data.

Join the discussion on

Cramer's Latest, go to the

Red Hots Forum

, or visit our

B2B Forum

But now I don't understand what drives the marginal dollars. Splits drive marginal dollars. And yes, I know that, I can even play it, but unlike oil, or the Japanese or the personal computer, I don't really believe in the logic behind it. I understand the need for better, cheaper, faster Web sites, but I don't understand why the companies in that segment should be $30 billion companies until they have at least won the segment.

Don't get me wrong. I have, at times, understood

(AMZN) - Get Report

because I shop at Amazon. I understand some of the companies that make Web sites better or help you retain customers because of my role as a director and co-founder of the Web site you are reading.

But understanding with the idea that two or three years out these companies will be dominant companies? Heck, I thought



might be dominant. I thought



was dominant. And I wasn't the one who allowed

America Online


to advertise on



because I thought it was just a games channel. I am not clueless.

That disbelief and lack of understanding, more than anything else, is what has kept me from having a

Red Hots portfolio even as we try to round out that index. I can't have a portfolio of Red Hots because I don't know when they are going to cool and I run a business, not a billboard chart. I have to have some grounding for my portfolio beyond reach.

That said, I am not like Ken Heebner, who proudly says he owns REITs and can sleep at night. Besides my vicious insomnia, I can't sleep at night because I knew enough to pick a list of Red Hots


getting long all of them.

The desire to outperform and the need not to blow up get reconciled by me as having some of everything. I have some Red Hots, but I also have some value stuff. I have some

B2B, but I also have some traditional tech.

I have what I think is the most reasonable mix that would allow me to outperform without risking the whole shooting match. It is a delicate balance. Yes, I am envious of the managers who can come on TV and say they own


(AKAM) - Get Report

here because one day it will be huge, because I know the truth: The stock is


huge. I can't fib. The stock assumes too much. But to not have Akamai? Well, that's a sin, too.

So we balance. We try to figure out how close to Red Hot our fund correlates. If it is too hot, we want to cool it down. If it is not hot enough, we want to spice it up a bit. But, believe me, if I could find a way to understand the valuations beyond gaming splits and thinking that execution was, is and will be perfect, I know this would have been an even bigger year.

In my book, the year is all that matters.

Help choose more Red Hots:

With the


continuing to rage, we're planning to add more stocks to our

Red Hot Index. Visit our

message boards to post your comments on the candidates -- and make your own nominations.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long AOL and, and Cramer was long Cramer's fund also 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: Xerox Shuffling the Deck and the Drug Wars Heat Up


Tara Murphy

Staff Reporter

12/21/99 8:27 PM ET


(XRX) - Get Report

said tonight that, effective the beginning of 2000, it will reorganize several of its business units. The announcement comes after the copier giant has delivered several consecutive disappointing financial statements and warned investors that its fourth-quarter earnings could be much lower than estimated.

TheStreet Recommends

On Dec. 10, the company said that earnings for the fourth quarter could be as much as 40% below expectations. Analysts had been estimating the company would earn 66 cents a share during the quarter, according to

First Call/Thomson Financial

. Since it gave this warning, Xerox shares have lost about 18% of their value. On Tuesday, the shares fell about 1/8 to 20 3/4. The stock had been as high as 63 15/16 within the past year.

Tonight's announcement dealt with the company's sales and customer support divisions. However, a company spokesman also said that more changes will likely be announced prior to the Christmas holiday.



said its has filed paperwork with the


to prevent


(PFE) - Get Report

efforts to oust Warner-Lambert's board of directors.

The motion follows Pfizer's Dec 16. application to the SEC for authorization to initiate a proxy battle to replace Warner-Lambert's 10 directors with seven people hand picked by Pfizer. In November, Pfizer launched a $72 billion takeover bid for Warner-Lambert, which decided to merge with

America Home Products



Last Friday, Warner-Lambert asked the

Delaware Chancery Court

for a preliminary injunction to block Pfizer's proxy battle, which includes Pfizer formally questioning Warner-Lambert shareholders to change its board's representation. .

Seperately, a Mississippi jury ordered American Home to pay $150 million to 5 plaintiffs for damages resulting from the use of fen-phen. The company said it would appeal the verdict and said it would not affect the nationwide settlement of fen-phen cases.

American Home has already agreed to pay about $4.8 billion in a settlement that could cover six million users across the country.

After-Hours Trading

The GEEK shall disinherit the Earth.

In the first hour of trading,

Internet America


was up more than 3 points. Well, pucker up and kiss those gains goodbye. It dropped 3 3/4 amidst profit-taking, the most-active stock in after-hours trading on

Island ECN

. During the day session, the company rose 12 11/16, or 152.6%, to 21.



announced second-quarter earnings of 37 cents a share, better than the

First Call/Thomson Financial

of 34 cents a share, and a penny better than last year's quarter. Tonight's drop of 7 3/16 in heavy volume seemed to indicate that the company missed its "whisper number," informal Wall Street expectations that are usually higher than official data suggest. 3Com also announced the departure of its chief financial officer, who is retiring in the summer of 2000.


proved that talk isn't that cheap, while

Juno Online Services


extended its gains from the last two sessions.

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

Bank One

(ONE) - Get Report

interim CEO Verne Istock said during an interview with


, that neither the bank nor its floundering

First USA

credit card division are for sale. Earlier today, CEO John McCoy announced his retirement after facing pressure as a result of its credit card arm. Analysts had the bank pegged as a takeover target after the stock declined sharply due to the division's problems.



said it has entered a deal to buy the


joint venture from

Electronic Data Systems



Eli Lilly

(LLY) - Get Report

. In addition, the companies said Lilly has decided to use Healtheon's Web content and services.

EDS and Healtheon have also agreed to a pact, which would use Healtheon's provider and consumer Internet service along with EDS' health care solutions product. Healtheon said that the alliances and the purchase of the Kinetra venture total roughly $300 million.

Kinnard Investments


said it has turned down's

(STOK) - Get Report

unsolicited $7.50 a share cash tender offer, calling it inadequate. A spokesperson for a group of directors, which is examining the offer, said that Stockwalk's bid for the company may not be feasible, since it is based on several stipulations, including financing.

Earnings/revenue reports and previews

Consolidated Graphics


said it expects to post third-quarter earnings of 56 cents a share, missing the nine-analyst estimate of 70 cents. The company blamed the disappointing results on a decline in sales volume.


(CAG) - Get Report

posted second-quarter earnings of 53 cents a share, beating the 12-analyst estimate of 51 cents a share and up from the year-ago 46 cents.

DuPont Photomasks


cautioned investors that it sees second-quarter earnings missing the nine-analyst estimate of 44 cents a share. The company said it expects to report second-quarter earnings between 19 to 24 cents a share. The company cited softer than expected North American and European revenues for the results.

Fairchild Semiconductor

posted second-quarter earnings of 33 cents a share, beating the three-analyst estimate of 27 cents and up from the year-ago loss of 14 cents.

Herman Miller

(MLHR) - Get Report

reported second-quarter earnings of 41 cents a share, missing the seven-analyst estimate of 44 cents. The company posted 1999 second-quarter earnings of 45 cents, which included a gain.



said it would assume a fourth-quarter charge of $11 million to $13 million, or 28 cents to 32 cents a share, as a result of its business restructuring plans. The company said it would cut its workforce and capital investment in its global delivery centers and retrain some of its employees. IMRglobal said it would also stop investing in some mainframe applications software. The six-analyst consensus estimates forecasts the company to report fourth-quarter earnings of 12 cents a share.

Liberate Tech

(LBRT) - Get Report

posted a second-quarter pro forma loss of 23 cents a share, narrower than the four-analyst estimate of a 31 cent-loss, but wider from the year-ago 21 cent-loss. Separately, the company set a 2-for-1 stock split.

Research in Motion


reported third-quarter earnings of 5 cents a share, in line with the four-analyst estimate and up from the year-ago 4 cents.



posted a second-quarter loss of 29 cents a share, wider than the six-analyst estimate of a 27 cent loss but narrower from the year-ago 59 cent loss.



reported second-quarter earnings of 37 cents a share, beating the 26-analyst estimate of 34 cents and up from the year-ago 36 cents.

Offerings and stock actions


(CERS) - Get Report

said it has agreed to sell one million newly issued shares of common stock for $25 a share to certain investors, which include

Baxter International

(BAX) - Get Report


Prudential Securities


Prudential Vector Healthcare Group

helped Cerus in the financing.



said it has set a fiscal 2000 capital spending budget of between $1.1 billion to $1.2 billion, basically in line with its estimated 1999 level. Chairman and CEO Roger Beach said that over 90% of its capital spending budget would be put towards oil and gas exploration and production projects.



(BA) - Get Report

said it has received an order from

Delta Airlines

(DAL) - Get Report

for five jetliners, a portion of the 163 orders to "unidentified customers" that its competitor, Airbus Industrie, dismissed last week as implausible.

Airbus's published 1999 order book doubled Boeing's, before Boeing decided to follow Airbus and include orders from companies who did not want to be identified. Boeing said that its 1999 aircraft sales, which include the unidentified 163, bring its total to368 sales.

Bond Focus: Stocks' Reaction to Fed News Bums Out Bonds


Elizabeth Roy

Senior Writer

12/21/99 5:39 PM ET

The Treasury market made a rare foray into positive territory today, but ultimately closed lower after the

Fed's announcement on interest rates triggered a massive stock market rally.

The benchmark 30-year bond ended the day down 6/32 at 95 20/32, lifting its yield 2 basis points to 6.46%, a new closing high for the year. The previous closing high for the year, set yesterday, was 6.44%.

The market: Join the discussion on


Message Boards.

The Fed announcement was more or less what bond market participants were looking for. The Fed's monetary policy committee, the

Federal Open Market Committee, left the

fed funds rate unchanged at 5.5%.

And while the FOMC kept its policy bias -- the policy feature that indicates how it is inclined to deal with rates in the near future -- neutral, it made clear that were it not for the Y2K date change, a tightening bias would have been adopted.


In light of market uncertainties associated with the century date change, the Committee decided to adopt a symmetric directive in order to indicate that the focus of policy in the intermeeting period must be ensuring a smooth transition into the Year 2000," the committee said in a

statement released at about 2:15 p.m. EST.

That explanation defused any hope for a rally on the neutral bias, which might otherwise have occurred because the majority of forecasters were looking for the Fed to adopt a tightening bias today.

In other words, if a neutral bias unrelated to Y2K might have kindled hope that the Fed won't find it necessary to hike rates next year, a neutral bias that owes its life to Y2K allows no such hope.

Still, said David Ging, Treasury market strategist at

Donaldson Lufkin & Jenrette

: "The market reaction was a little bit disappointing because what would've happened if they went to a tightening bias and made the same sort of statement?"

The stock market's ecstatic reaction to the Fed announcement abetted the bond market's decline. Particularly because the FOMC hinted that stock prices will factor into its next deliberations on interest rates, on Feb 1-2. "At its next meeting," its statement said, "the Committee will assess available information on the likely balance of supply and demand,

conditions in financial markets

, and the possible need for adjustment in the stance of policy to contain inflationary pressures." (Italics ours.)

Rocketing stock prices make bond investors nervous because of the role wealth plays in stimulating consumer spending. Without a slowdown in consumer spending, the economy won't slow enough to keep the Fed from hiking rates, the thinking goes.

"One thing people were looking at is the strength in equities," said Michael Pianin, vice president at

ING Barings Futures & Options

. "This is a green light for equities, therefore how is the economy going to slow down, if this is just more fuel for the fire?"

The fact that the Treasury plans to issue $15 billion of two-year notes tomorrow, its final monthly two-year note auction of the year, also contributed to the negative tone that ultimately dominated the session.

But like so many moves in the last three weeks, analysts said today's move was exaggerated by the light volume that is typical of year-end, at least in the bond market.

That condition seems likely to continue, and with no first-tier economic data slated for release this year, the bond market has nothing more to look forward to.

So in the near term, it is at the mercy of more or less random forces.

Pianin isn't hopeful for any sustained improvement. "The horrible technical picture remains," he said. "The market just can't seem to stablize."

But Ging said the fact that the two-year Treasury note's yield, at around 6.20%, is some 70 basis points higher than the fed funds rate, holds out hope for a corrective rally, since before the last two fed rate hikes, on Aug. 24 and Nov. 16, the two-year note's yield peaked at a level about 70 basis points higher than the funds rate. "That's about as cheap as twos get to funds before we get a bit of a correction," he said.

In the longer term, the bond bear market is alive and well, Ging said. "The Fed is going to slowly, gradually raise rates till we get some easing of the labor market. I don't know when that's going to be, but it's not going to be before February."


Street Sightings

James J. Cramer will be appearing on the following shows on Wednesday, Dec. 22.

o "Fox and Friends" at 7 a.m. ET

o "Fox Report with Shepard Smith" 7:45 p.m. ET

Copyright 1999,