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weekend02-04-00's WEEKEND BULLETIN

February 5, 2000

Market Data as of Close, 2/4/00:

o Dow Jones Industrial Average: 10,963.80 down 49.64, -0.45%; up 2.1% for the week

o Nasdaq Composite Index: 4,244.14 up 33.16, 0.79%; up 9.2% for the week

o S&P 500: 1,424.37 down 0.60, -0.04%; up 4.7% for the week

o TSC Internet: 1,140.26 down 31.35, -2.68%; up 6.01% for the week

o Russell 2000: 525.52 up 3.89, 0.75%; up 4.1% for the week

o 30-Year Treasury: 98 02/32 down 1 22/32, yield 6.208%

Companies in Today's Bulletin:

JDS Uniphase


Earthlink Network (ELNK:Nasdaq)

Mindspring (MSPG:Nasdaq)

Avanex (AVNX:Nasdaq)

Vodafone (VOD:NYSE ADR)

In Today's Bulletin:

o The Coming Week: Strange Days Indeed -- Thinking About Stocks and Bonds
o Wrong! Dispatches from the Front: Rumor Killer
o Evening Update: Earthlink and Mindspring Finalize Merger in Evening Action
o Bond Focus: Jobs Data Helped Bond Market Come Back to Earth

"" on

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Cramer's done the "Stock Drill" before, but never from the hot seat!

It's a not-to-be-missed show as Herb Greenberg and guest take on Cramer when it comes to his favorite stock picks in this market. Plus, "Chartman" and predictions you can't afford to miss.

"" on

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Also on

Networking: Avanex Shares Rocket in IPO; Lockup Is to Expire Early

Morgan Stanley Dean Witter sets a lockup letup that turns on the stock price.

Mutual Funds: U.S. Funds Caught Up in Human-Rights Battle Over Sudanese Pipeline

Some 37 U.S. funds own Canadian oil firm Talisman, the target of an activist campaign.

Tish on Tech: Hooked on Photonics: Dumb and Dumber for JDS Uniphase

Even though everyone knows fiber optics are cool, it takes a special intelligence to appreciate their allure.

Europe: Telcos Begin Planning for New World of Vodafone-Mannesmann

On the top of everyone's list is the upcoming sale of U.K. cell-phone unit Orange.

The Coming Week: Strange Days Indeed -- Thinking About Stocks and Bonds


Justin Lahart

Associate Editor

2/4/00 9:05 PM ET

Let's begin by taking a moment to think about the relationship between stocks and Treasuries the way an asset allocator would.

We know that stocks, over the long run, offer better returns than bonds do. We also know that Treasuries are a safer investment, offering a pretty much risk-free return. So some money goes into stocks and some money goes into bonds. When Treasury yields go up, they return more. So a little more goes into bonds and a little less goes into stocks. When the bonds rally, and yields go back down, the money heads in the opposite direction.

This is important stuff to bear in mind given the strange recent happenings in the bond market, where a cutback in forthcoming supply has forced an inversion in the yield curve and caused a significant rally. Traders reckon the 30-year will turn into an

antique pretty soon -- and it's beginning to get priced like one.

Where its yield was as high as 6.75% in mid-January, it closed at 6.27% on Friday. The yield on the 10-year (which has pretty much turned into the benchmark) closed at 6.54%. Last month, it had been as high as 6.78%.

There's a lot of talk about how artificial this situation in the bond market is, given that the

Federal Reserve

has been raising rates and will probably continue to do so. But it's also a situation that looks like it will persist -- the budget deficit isn't what it once was and the U.S. does not need to issue as much debt. The risk-free return on Treasuries is less than it once was and, all other things being equal, that means stocks are more attractive.

Now comes a wrinkle.

The Fed appears keen to slow down the economy, and the economy is being driven by a very buoyant consumer. And one of the big things driving the consumer is the stock market. Or so most economists are beginning to posit; many now even say that their forecasts for economic growth depend heavily on what happens in equities. So if the stock market doesn't at least start treading water here, the economy will keep on cooking.

"The consumer has benefited from the wealth effect," said

Salomon Smith Barney

economist Mitchell Held. "And they're going to have to get hit with the wealth effect."

Back in the day

, when the Fed got to hiking rates, the Treasury market would sell off, sending yields higher. And asset allocators, seeing those higher yields, would sell some stock and buy some bonds. Unfortunately for the Fed, these aren't the old days anymore.

"It's just making the Fed's job more difficult," said Tony Crescenzi, bond-market strategist at

Miller Tabak

. "The markets are easing while they're tightening. They've lost control of financial conditions to the markets. The Fed will perhaps have no choice but raise short-term rates to levels we haven't seen in a long time."

It makes for sort of a Super-Bizarro market dynamic. Let's say, for example, that when January

retail sales

figures get released next Friday, they come in soft. (Economists forecast they'll come in pretty strong, but never mind that right now.) That would mean the consumer is slowing down, which in turn would mean the Fed wouldn't have to get medieval on the market. Which means the market could go higher, which would boost the consumer, which brings us back to square one. Whenever the stock market sells off, the Fed outlook improves. Whenever it goes higher, the Fed outlook deteriorates.

If you want to make a market forecast, volatility ain't a bad one.

"I continue to want to sell rallies and I continue to want to sell the dips," said Larry Rice, chief investment officer at


. It'll be sort of like the first half of last year, when the market bounced higher and lower, except "we're going to have more swings and more pronounced swings."

For agile traders, that sounds like heaven.

Wrong! Dispatches from the Front: Rumor Killer


James J. Cramer

2/4/00 4:07 PM ET

You wanna play the rumor game? OK,



is supposed to be buying



This is a total fiction and is being spread by someone who is short Yahoo!.



is supposed to be bought by



. This is another total lie. Conexant hasn't been public for two years and can't be bought; it isn't going to happen. This one is being spread by people who know others are short Conexant and is being done to inflict pain on them.

Join the discussion on


Message Boards.

As this garbage is now passing for journalism I thought I should tell you what is really going on so you don't lose any money.

Random musings

: I am spoiling for a fight with my tormenters on "" TV show on

Fox New Channel

this weekend. Maybe I will push






James J. Cramer is manager of a hedge fund and co-founder of 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: Earthlink and Mindspring Finalize Merger in Evening Action


Tara Murphy

Staff Reporter

2/4/00 7:03 PM ETThe original

Earthlink Network





have closed their merger, forming the second-largest U.S Internet service provider, according to the Earthlink Network.

Shareholders from both companies gave their approval to the merger, which has a total market capitalization of $4 billion. The new Earthlink said former president and CEO of Earthlink, Gary Betty, has been tapped as the company's CEO, while former Mindspring chairman and CEO Charles Brewer, will serve as Earthlink's chairman.

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


Federal Trade Commission

filed proceedings in a U.S. District Court to block the proposed merger of

BP Amoco



Atlantic Richfield


. The first hearing is scheduled for March 10.



said it has made a $27 million offer to purchase

Advanced Machine




3dfx Interactive


said it would cut its workforce by 20%. The reduction would effect between 100 to 130 employees, including 35 from its

Special Technologies Group

, which is set to be spin-off.

For a look into this evening's after-hours trading action, please check out's

The Night Watch.

Bond Focus: Jobs Data Helped Bond Market Come Back to Earth


Steven Vames

Staff Reporter

2/4/00 4:23 PM ET

Updated from 10 a.m. EST.

Bond prices fell furiously Friday, reversing a good deal of Thursday's rally after a report showed that U.S. labor conditions tightened, and wage growth accelerated, in January.

The session also marked a partial return to normalcy after several days of turmoil in the bond markets. Although the market is still rife with signs of illness (like the inverted yield curve), its ability to sell off in the face of strong economic data was, in some ways, seen as a relief for Wall Street.

The market: Join the discussion on


message boards.

"The drama seems to have settled down. Maybe the great panic squeezes that have taken the market up so quickly could be subsiding," said David Ader, chief market analyst at

Thomson Global Markets



nonfarm payrolls

grew at the biggest rate in two years, rising 387,000 compared to a consensus forecast of 255,000. The

unemployment rate

dipped to 4.0% from 4.1%..

Average hourly earnings

rose to $13.50 from December's $13.46. The

average workweek

increased to 34.6 hours from 34.5 hours in December.

The report further confirmed the chances that Federal Reserve policy makers will continue to raise interest rates this year.



Alan Greenspan

has repeatedly voiced his concern that tightening labor markets, and the upward pressure on wages that result, could lead to a breakout of inflation.

Following the report, fed fund futures traders at the Chicago Board of Trade priced the contract with near-100% certainty that the Fed will raise rates to 6% when it meets in March.

Bonds initially rallied, then sold off, following the report. That, say some market watchers, was a telltale sign that bond market conditions have become somewhat confused as the

Treasury Department

moves forward with plans to pay off some of the nation's debt. Treasury has already announced that the surplus will allow it to buy back some of its long-dated debt, and that it will scale back issuance of 30-year bonds.

The primary effect of Treasury's debt-reduction plan has been to give an unusual inverted shape to the yield curve. In other words, yields on short-maturity instruments are higher than those on long-maturity instruments.

The changes in the Treasury supply outlook have distorted market conditions, which has caused hedges to falter, credit spreads to widen and some derivatives transactions to go sour -- phenomena that have caused a lot of pain on Wall Street.

With some of the panicked activity behind them, market participants will now start looking forward to the sizable wave of Treasury, corporate and agency bond supply that is going to hit the market over the next week.

That will include quarterly Treasury auctions of $12 billion in two-year notes and $10 billion each of 10-year notes and 30-year bonds. It will also include some heavy hitting spread product deals such as a $5 billion three-part corporate bond offering from Vodaphone Airtouch and a $3 billion five-year agency bond deal from

Fannie Mae



Analysts say that the bonds will probably continue to retrench from their current levels to accommodate all of the new supply.

"The rally earlier this week brought the market to pretty rich levels, and with a ton of supply on its way, the tendency will be to move lower," said Ader.

Despite the return to a more predictable bond market Friday, traders are still wary and seem unwilling to let down their guard.

"You have a lot of accounts long the credit products like mortgage- backed securities," said Ken Fan, treasury strategist at

Paribas Capital Markets

. "When the bond market started to run, all of the optionality in the mortgage market kicked in and there has been a lot of scrambling."

Because credit spreads have widened so quickly in recent sessions, many traders have been struggling to cover short positions in Treasuries, which had been used to hedge positions in other bonds that carry different risk profiles.

Late in the session, the 30-year Treasury bond was 1 11/32 to 98 15/32, yielding 6.24%. The 10-year note was down 18/32 to 96 8/32, yielding 6.535%. The five-year note was down 15/32 to 96 29/32, yielding 6.64%. And the two-year note was down 5/32 at 99 17/32, yielding 6.62%.

Economic Indicators

The January employment report is today's only economic release.

Currency and Commodities

The dollar was stronger against the euro, at $0.9827 vs. yesterday's late New York quote of $0.9904. Dollar/yen was lower, at 107.15.

Crude oil for March delivery at the

New York Mercantile Exchange

closed higher at the New York Mercantile Exchange is up 79 cents at $28.82 a barrel.

Gold for April delivery at the


was down at $310.40 an ounce, up $23.20 from Thursday's close.


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