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  • Author:
  • Publish date:'s DAILY BULLETIN

December 28, 1999

Market Data as of Close, 12/27/99:

o Dow Jones Industrial Average: 11,391.08 down 14.68, -0.13%

o Nasdaq Composite Index: 3,975.38 up 5.94, 0.15%

o S&P 500: 1,457.09 down 1.25, -0.09%

o TSC Internet: 1,129.00 up 0.48, 0.04%

o Russell 2000: 484.46 up 2.03, 0.42%

o 30-Year Treasury: 95 14/32 up 6/32, yield 6.455%

Companies in Today's Bulletin:

eToys (ETYS:Nasdaq - news)

Amazon (AMZN:Nasdaq - news)

eBay (EBAY:Nasdaq - news)

Philip Morris (MO:NYSE - news)

In Today's Bulletin:

o Internet: Holiday Hangover Hammers Online Retail Stocks
o Wrong! Rear Echelon Revelations: Manipulation Complex at It Again
o Evening Update: Florida Court Upholds Antitobacco Ruling
o Bond Focus: Yields Retreat from Year's Highs

"" on

Fox News Channel


Special Times!

Jan. 1 at 6 p.m. ET and Jan. 2 at 11 a.m. ET

A special edition of "" looks at investing in the new millennium. Special guests include

Ryan Jacob

of the

Jacob Internet Fund


Gene Walden

, author of

The 100 Best Stocks to Own in America

, and

Ken Schapiro


Condor Capital Management


Also on

The TaskMaster: M3 Melts in Your Hands

Don't fall for the hype about a 'wrongheaded' indicator of money supply. Plus, Task finds rationality.

Wrong! Rear Echelon Revelations: Nothing Rational About This Market

Cramer wonders if companies are logging on to to name their own stock prices.

Mutual Funds: PBHG's Baxter to Step Down From Emerging Growth Fund

Baxter, who has been with the fund since its inception, will move to PBHG's private equity group.

Tech Savvy: It's Time to Revisit 25 for '99

There were tidy gains, but even more, some lessons learned.

Internet: Holiday Hangover Hammers Online Retail Stocks


Eric Moskowitz

Senior Writer

12/27/99 3:51 PM ET

E-customers are running from their mice as the holiday season wraps up.

Online sales for the week ended Dec. 19 fell 30% to $884 million from $1.3 billion a week earlier, according to a

Goldman Sachs


PC Data Online

survey released Monday. The same report showed declining customer satisfaction in some areas.

Growing evidence of a cooling trend raises the prospect that online retailers won't hit the ambitious sales-growth targets that Wall Street has set for the once red-hot sector. That could pressure the stocks, which have already slid from their highs of a month or so ago. As a result, the red ink was flowing Monday.

Red Scare

The biggest victim of investors' reduced confidence in e-tailers Monday was



, which saw its stock drop 15% following a downgrade by underwriter

Robertson Stephens

. Shares of


(AMZN) - Get Free Report

dropped 8%,


(EBAY) - Get Free Report

tumbled 7% and

Value America


slipped 5%. Meanwhile, bricks-and-mortar retailers rallied, led by a 3.5% gain in


(WMT) - Get Free Report


Stories in the papers and on TV depicting e-tailing chaos -- sites down, orders delayed -- may have contributed to a last-minute shift toward bricks-and-mortar shopping, analysts say. And this cooling trend raises the question of how much e-tailers will have to change to maintain customer and investor loyalty.

"The popular press scare story became so pervasive that it may have influenced shoppers in the week before Christmas," says Rick Miller, senior Internet analyst at

Cahners In-Stat Group

, a Newton, Mass.-based market research firm.

Blue in the Face

But make no mistake: Online retailers are seeing real weakness. Add to that shrinking pie the sky-high growth expectations on Wall Street, and you have the recipe for a headache. "Expectations that the Street put on these e-tailers may have been too high," says Miller, who doesn't rate individual stocks. "It's hard to be held to a growth rate that strong."

eToys, for instance, is expected to report $77.8 million in revenue in its fourth quarter, up from $22 million a year ago, according to Robertson Stephens e-tail analyst Lauren Cooks Levitan. But while eToys may very well hit this revenue number, Levitan says the company may come under gross margin pressure in its pursuit to hit the revenue number. eToys, which is still valued at more than $3 billion in the market, didn't return calls seeking comment; its corporate offices are closed this week.

"Revenue volumes are up big, but the market is now starting to be more discerning about e-tailers' quality of earnings," says David Readerman, an analyst with

Thomas Weisel Partners

. Readerman says that before this, it was only a matter of will customers come. But "now a lot of analysts are looking at each company's return on invested capital and gross margins as well."

In the Mix

Looking beyond what is now expected to be a weaker-than-expected holiday season, analysts say the stock moves could force e-tailers to rethink their business models.

Customer service issues, for one, could hurt e-tailers beyond the Christmas season. Levitan at Robertson Stephens notes that 10.9% of respondents of the firm's weekly survey said they wouldn't shop at a Web site again due to poor service, up from 8.8% the week earlier.

Levitan cut her rating on eToys Monday to long-term attractive from buy. Since it hit 61 on Dec. 1, eToys is down some 57%. Over the past week, Amazon is off 20% and



is down 18%.

One positive to all this is that the just-before Christmas slowdown will no longer be such a surprise next year. "Once analysts and investors understand that the week or two before Christmas will always be slower, then e-tailers won't get banged around so much," says Miller at Cahners In-Stat Group. E-tailers, unfortunately, can't roll the clock ahead a year.

Wrong! Rear Echelon Revelations: Manipulation Complex at It Again


James J. Cramer

12/27/99 5:20 PM ET

For crying out loud, the


/specialist manipulation complex is at it again. Check out the close of


(T) - Get Free Report

. I pick on it, because last I looked it was a pretty big stock. Yet, it got the big shakeout to the downside because of some crazy rebalancing.


General Electric

(GE) - Get Free Report

, which tacked on $6 billion in the closing minutes, courtesy of this same program. Could those of you at home profit from these shot-swings? No way, you can't see this stuff and make money off of it.

I have had it with this club stuff. These crazy prints have to stop.

Join the discussion on


Message Boards.

These rip-offs to the upside and downside make no sense given the technology we now have to match buyers and sellers. Someone will come forward now and say that it is impossible, that it is the luck of the draw, that nothing can be done.

And that will smack more of fantasy than of fact. And the dissembler will get away with it because no one really knows what goes on behind the curtain.

Public trust or private rip-off?

You decide.


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. 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: Florida Court Upholds Antitobacco Ruling


Tara Murphy

Staff Reporter

12/27/99 8:16 PM ET


Florida Supreme Court

refused to intervene in a class-action suit that sided with Florida smokers. The ruling in the


suit, which allows smokers to be awarded damages collectively instead of individually, leaves tobacco companies exposed to a potential multibillion-dollar judgment.

Philip Morris

(MO) - Get Free Report

said tobacco companies would keep fighting to have the suit dismissed.

After-Hours Trading

Penny stocks played more than tiddlywinks in after-hours trading on

Island ECN


Some of them played with seven-digit trading volumes.

Elcom International


topped the list, followed by

Technical Chemicals & Products



NewStar Media



Also notable:

Commerce One


, which tacked more gains onto today's 56-point leap.

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 it would temporarily push back its $2 billion merger with



until mid-January. Dynegy said that the acquisition was held up due to the delayed sale of power projects to

El Paso Energy


, which is part of the merger's regulatory requirements.

Earnings/revenue reports and previews

Global Imaging Systems


warned that it expects to post third-quarter earnings of 18 cents to 20 cents a share, missing the six-analyst estimate of 26 cents. The company blamed the disappointing earnings on increasing debt, Y2K concerns and a drop in noncopier sales.



Nasdaq Stock Market

said short interest for the month ended Dec. 15 hit 2.32 billion shares, up from the month-ago report of 2.27 billion shares.

Bond Focus: Yields Retreat from Year's Highs


Elizabeth Roy

Senior Writer

12/27/99 4:59 PM ET

For no apparent reason -- and on light volume that makes any kind of price action of questionable significance -- bond prices rose moderately today, bringing yields down slightly from the two-year highs they reached on Thursday.

There were no economic indicators to guide the action today, and no strong moves by any of the other assets whose prices can influence interest rates, such as oil, commodities and the dollar. (At least none of those things moved strongly in whichever direction favors bond prices.)

The bellwether 30-year Treasury bond finished the session up 10/32 at 95 17/32, trimming its yield 2 basis points to 6.47%.

The market: Join the discussion on


Message Boards.

To the extent that it can be explained, market watchers attributed the move to bear fatigue and a short-term oversold condition.

"It's a little bit of a dead-cat bounce at this point. We had gone down so far for so long," said Ken Fan, bond strategist at

Paribas Capital Markets


But Fan also noted that there is a tendency for money to flow into Treasuries at year-end, particularly into the shortest maturity issues. That trend was on display today, when the two-year note outperformed all the other Treasury benchmarks, shedding 5 basis points to 6.21%.

There is certainly no fundamental reason to buy Treasuries at the moment, with the

Fed widely expected to hike interest rates during the first quarter of 2000, by at least 25 basis points and a growing number of investors predicting the first 50 basis point move since February 1995.

The recent ramp in

Nasdaq Stock Market

prices is also helping keep pressure on bond prices, Fan said, by making so many investors unwilling to part with stocks before the end of the year, when any gains will be taxed in just a few months.

The technical outlook is negative as well,


fixed-income strategist Todd Finkelstein said. "The intermediate-term technical work is still bearish, and we're on the cusp of the long-term technical work becoming bearish," he said. But in the short term (meaning a day or two), the market was oversold going into today.

However, he added, on a day when only $25.3 billion of Treasuries changed hands, 40.5% less than average for a Monday over the past month according to tracker

GovPX, "it's tough to say whether

today's price action" is just noise or not."


Revamp, Rename the Red Hots

New Year. New index. New name.

is looking to update its Red Hot Index for the next millennium and wants your help! During the next three days, we'll present you with five of the most popular nominees from our message boards and ask you to vote on your favorite stocks. The top 10 vote-getters will be included in the new index, which will be unveiled on Monday, Jan. 3. Plus, rename the Red Hots and win a



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