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February 19, 2000

Market Data as of Close, 2/18/00:

o Dow Jones Industrial Average: 10,219.52 down 295.05, -2.81%

o Nasdaq Composite Index: 4,411.74 down 137.18, -3.02%

o S&P 500: 1,346.09 down 42.16, -3.04%

o TSC Internet: 1,096.62 down 47.87, -4.18%

o Russell 2000: 545.68 down 12.74, -2.28%

o 30-Year Treasury: 101 08/32 up 29/32, yield 6.148%

Companies in Today's Bulletin:

Terayon Communication Systems (TERN:Nasdaq)

Brocade Communications (BRCD:Nasdaq)

Intel (INTC:Nasdaq)


In Today's Bulletin:

o The Coming Week: Market's Gravitational Pull Concerns Fed
o Wrong! Rear Echelon Revelations: Charging Into the Selloff
o Company Report: Aether Downgraded, Stock Walloped and Inforte's IPO Soars
o Bond Focus: As Stocks Heed Greenspan, Bonds Rise

Also on

The Speculator's Corner: First the Internet, now the Human Genome

Leading the pack this year are companies whose names begin with 'gen.'

Global Portfolio: Think Before You Say Sayonara to Japan

Despite Moody's review of debt rating, you should be bullish on Japan's robust stock market.

Europe: The Anglo File: BAA Leads Bidding War to Operate New York's Airports

The airport operator heads a pack of companies battling for the right to privatize JFK and LaGuardia.

Internet: Tech's Gilder Age: Terayon My Wayward Son

George Gilder has a hot hand, but worries that newsletter readers are just interested in the next highflier.

The Coming Week: Market's Gravitational Pull Concerns Fed


Justin Lahart

Associate Editor

2/18/00 8:09 PM ETFirst thing, let's leave the debate over whether stocks are too high or too low or just right.

For the moment, let's not think about price-to-earnings ratios, earnings yield vs. bond yield, revenue growth, a technological revolution, sentiment measures or candlestick charting. Or, for that matter,

Super Bowl

wins or hemlines or sunspots.

Let's just think about the sheer size of the U.S. equity market for a moment, the market capitalization of which weighs in at over $24 trillion dollars. More than four times the U.S. government debt. Better than twice the U.S. gross domestic product. More than the world gross domestic product. About 19 grand for every soul in China. You get the picture.

The market's growth over the last few years changes the calculus by which it has traditionally worked -- changes, in fact, what it fundamentally is. Consider: Historically, the stock market has worked as a giant discounting mechanism, a difference engine that weighs the views of thousands of participants on how things like growth, interest rates and the dollar will affect future prices. But, whereas it used to react to economic conditions, now it is of such a size that it exerts a gravitational pull on the economy itself.

This is the thing that seems to have gotten the

Federal Reserve

concerned. It is not so much that

Alan Greenspan

thinks stocks are too high; it's that he worries total market capitalization has got so big that a steep move in either direction could seriously affect the economy. So if you look through his


testimony, which he will give again on Thursday, you can see that the Fed head doesn't say anything specific about stocks being overvalued.

But he does worry about the effect of stock market wealth on consumer spending. And he does say that asset gains need to come "into line with that of household incomes, thereby stemming the impetus to consumption relative to income that has come from rising wealth."

Household incomes gained a little less than 6% last year. In effect, Alan Greenspan just told us that if things go his way, you'd be better off in bonds.

There was some chatter in the market that ascribed Friday's selloff to the things said by Greenspan. But, why the drop didn't come the day before, when he actually gave the testimony, is something of a mystery. In any case, it will be a battered Wall Street that heads back to the office on Tuesday after the long weekend. At issue as much as anything the chairman said is the rupture in the market between tech stocks, which have been flying since the fall and the rest of the market, which has not. In the past week's excessive volatility, some see signs that that division is about to close.

"I expect we're going to tighten the gap between the


and the

Nasdaq Composite

, and I'm not betting on the Composite coming down," said Art Hogan, chief market analyst at


. This puts Hogan in the optimists' camp. Others reckon the gap between tech and the rest of the market is going to close by tech falling -- there's an old saw on the Street about how when the generals get too far out in front of the army, the generals get shot.

Hogan thinks that's not the way it goes this way partially because all those non-tech stocks have fallen despite good profit growth.

"We've gone from Fed meeting to Fed meeting and ignored good earnings," he said. "I wouldn't be surprised to see double-digit returns for the Dow and S&P."

It doesn't look like there will be much news, at least of the scheduled variety, for investors to key off of in the coming week. There is a smattering of earnings, mostly from retailers whose fiscal years end in January. There are some second-tier economic data. Of those the preliminary fourth-quarter


report is probably the most important -- it will likely be revised higher from the advanced reports 5.8% growth.

The big focus will be Greenspan's second Humphrey-Hawkins testimony. In general, he gives the same speech before the


as he gave before the


, although the tenor of the question-and-answer session can always change.

"There's always the risk he delivers a slightly altered message," said Bill Sullivan, chief money market economist at

Morgan Stanley Dean Witter

. "Does he reinforce his message? Does he become more militant?"

Does he shoot the generals?

Wrong! Rear Echelon Revelations: Charging Into the Selloff


James J. Cramer

2/18/00 4:25 PM ET

Looks like I picked the wrong sleepy expiration Friday to take my wife to the wrist doctor! Made it back in time to catch the gigunda selloff and stick bids in. Why bother to buy? Because, as I say at least twice a week: I buy when I can, not when I have to.

Some stocks got knocked down artificially on option pressure in the last 15 minutes. Two I bought on this artificial weakness included






. These stocks were just slammed in the last half-hour as options guys swarmed down on the strikes and you had to get something in around your core position because they could be great trades on Tuesday.

We also bought calls on

American Express



General Electric



Procter Gamble


-- had to get started somewhere.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long American Express, GE, Procter & Gamble, Intel and Cisco. 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

Company Report: Aether Downgraded, Stock Walloped and Inforte's IPO Soars


Tara Murphy

Staff Reporter

2/18/00 5:57 PM ET

Brocade Communications


shot up 32 1/4, or 13.2%, to 275 7/8 after it set a 2-for-1 stock split and posted better-than-expected earnings.

Morgan Stanley Dean Witter

upgraded Brocade to strong buy from outperform.

Bear Stearns

raised its price target on Brocade to 350.

Morgan Stanley Dean Witter

upped its rating on Brocade Communications to a strong buy from outperform.



bounced 20 1/4, or 13.5%, to 170 1/4 after it said that








would use its E.4 system to identify its customer base, according to

Dow Jones

. The E.4 system allows e-businesses to profile users to determine their preferences.




Internet Capital Group


have formed a joint venture, called


, a business-to-business e-commerce concern, which they said will bring lower transaction costs and increased productivity and service to buyers and sellers of industrial goods and services. DuPont slid 7/8 to 51 11/16 and Internet Capital lost 2 1/4 to 114 1/2.

Earnings/revenue reports and previews


Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.


Sycamore Networks


skidded 6 to 116 1/2 after it reported second-quarter earnings of a penny, beating the seven-analyst break-even estimate and up from the year-ago three-cent loss. The company also said it filed with the

Securities and Exchange Commission

for a 15 million-share secondary offering.

Offerings and stock actions



popped 2 3/16 to 92 15/16 after it said that it has set a 7.5 million-share secondary offering at $90.25.

Goldman Sachs




8.83 million-share IPO at $27 a share, well above the estimated price range of $20-$22 a share. GigaMedia soared 61, or 225.9%, to 88.



was unchanged after it set a 2-for-1 stock split.

Heritage Financial


was unchanged 7 7/8 after it set a 975,000-share buyback.

Goldman Sachs priced a 2 million-share IPO for



at $32 a share. Inforte leaped 40 15/16, or 127.9%, to 72 15/16.



gained 13/16 to 195 after it set a 3-for-1 stock split.

Analyst actions

Deutsche Banc Alex. Brown

sliced its rating on

Aether Systems


to market perform from buy. Aether Systems fell 12 11/32, or 5.7%, to 203.

Credit Suisse First Boston

raised its price target on

ADC Telecommunications


to 60. ADC Telecommunications was declining 3 3/16, or 7%, to 41 15/16.

Salomon Smith Barney

upped its rating on



to buy from outperform and raised its price target to 110 from 85 after the company posted better-than-expected first-quarter earnings.

Bear Stearns

also raised its priced target on the shares to 110 from 90, while

Lehman Brothers

upped its price target to 115 from 90. Agilent sank 3 1/4 to 93 3/4.

First Boston raised its rating on



to strong buy and set a 100 price target on the stock. CNet mounted 4 1/8, or 6.5%, to 66 15/16.

Warburg Dillon Read


Forest Oil


to hold from strong buy. Forest Oil lost 1 1/4, or 14.7%, to 7 1/4.

Salomon Smith Barney

upped its rating on

Goldman Sachs


to buy from neutral. Goldman Sachs slid 1 5/16 to 80 13/16.

Merrill Lynch cut its intermediate rating on

iXL Enterprises


to accumulate from buy. iXL Enterprises was down 4 3/16, or 10.4%, to 35 13/16.

Warburg upgraded



to strong buy from buy. Laboratory was unchanged at 3 15/16.

Robertson Stephens

upped its fiscal 2000 earnings estimate on

Outback Steakhouse


to $1.88 from $1.85 a share after the company's fourth-quarter earnings beat analyst expectations. Outback Steakhouse lifted 1 5/8, or 6.9%, to 25 1/8.

Morgan Stanley raised its price target on

Philips Electronics


to 200 euros from 180 euros. Yesterday Philips said 1999 income from continuing operations was a record 1.804 billion euros, compared to 541 million euros in the year-ago period. Philips said that its "trend of improving annual earnings should continue." First Boston raised its earnings estimates for 2000 and 2001 on Philips.

Goldman Sachs

raised its earnings estimate for 2000. Philips Electronics tacked on 1 5/16 to 161 5/16.

Prudential Securities

raised its rating on



to strong buy from accumulate. Qualcomm gained 4 1/2 to 134 1/2.

Lehman Brothers

upgraded shares of



to buy from outperform and raised its price target to 40 from 20. Sipex bounced 4 3/4, or 20.8%, to 27 1/2.

First Boston cut its price target on



to 75. Morgan Stanley downgraded Synopsys to neutral from strong buy. Lehman cut its price target on Synopsys to 56 from 67.

Separately, Synopsys sets a $200 million share buy back. Synopsys sank 8 15/16, or 19.2%, to 37 9/16.

Salomon Smith Barney upped its rating on

Sycamore Networks


to buy from outperform after the company reported second-quarter earnings that beat analyst estimates. Sycamore Networks stumbled 6 to 116 1/2.

Warburg initiated coverage of

Washington Mutual


with a buy rating. Washington Mutual declined 5/8 to 21 13/16.

Merrill Lynch upped its intermediate-term rating on

Young & Rubicam


to buy from accumulate. Young & Rubicam jumped 3 11/16, or 7.8%, to 50 7/16.




shed 2 1/2, or 5.4%, to 43 3/8 after it said is cutting 1,500 jobs at a plant near London.

General Electric


and the U.S.

Energy Department

are poised to announce today a major breakthrough in natural gas-powered generating plants which will result in electricity production using 5.3% less fuel than the best current methods, the

New York Times

reported. GE shed 5 7/8 to 125 1/8.

The "Inside Wall Street" column in

Business Week

, penned as usual by Gene Marcial, reports that



might be an acquisition target. David Simons, managing director of

Digital Video Investments

, was quoted as saying that "Hoover's seems ripe for acquisition," while Jordan Rohan, an analyst at

Wit Capital

thinks Hoover's is undervalued and worth 21 a share, the column said. Hoover rose 1 25/32, or 19.8%, to 10 3/4.

Elsewhere, the column said James Marquez of

Bayou Securities


McDermott International's


board to move toward breaking up McDermott into three companies, settling a pending asbestos suit against one of its divisions and scaling up its fuel-cell business. McDermott shot up 2 3/4, or 25.7%, to 13 7/16.

The column also offers up a positive story on

Communication Intelligence


. Communication Intelligence added 21/32, or 7.6%, to 9 3/16.

The Heard on the Street column in

The Wall Street Journal

reports today that federal investigators have been examining Steven Madden's connections with penny-stock brokerages for some time. Madden is Chairman, President and CEO of

Steven Madden


, a designer, wholesaler and marketer of fashion footwear for women. Steve Madden declined 2 15/16, or 17.8%, to 13 9/16.

A mainframe malfunction meant problems for the

Nasdaq Composite Index

. The glitch was not allowing the system to update. The system was up and running later this afternoon.



shed 1 3/16, or 5.3%, to 21 1/16 after it said it has tapped Michael Rich to replace the retiring Stephen Cohen as its chairman and CEO. NetSpeak declined 1 3/16, or 5.3%, to 21 1/16.

Bond Focus: As Stocks Heed Greenspan, Bonds Rise


Elizabeth Roy

Senior Writer

2/18/00 3:27 PM ET

With an assist from expiring options on bond futures, Treasury prices moved smartly higher in a holiday-shortened session, motivated primarily by falling stock prices.

The benchmark 10-year Treasury note ended up 16/32 at 100 2/32, lowering its yield 6.9 basis points to 6.491%, its best close since Feb. 3. The 30-year bond -- which has lost its benchmark status in the last month because the federal government's plans to reduce the supply of long-dated Treasury debt have driven its price up disproportionately -- ended up 30/32 at 101 10/32, dropping its yield 6.8 basis points to 6.153%. At its high for the year on Feb. 3, the bond traded at a yield as low as 6.059% on an intraday basis, and as low as 6.121% on a closing basis.

Treasuries, which except for the bond were little changed early in the session, after the release of the

Consumer Price Index

for January, started to get excited when the major stock prices encountered a fresh bout of selling around midday.

The logic of the trade was precisely the one



Alan Greenspan

outlined in his

Humphrey Hawkins

testimony yesterday: Rapidly rising stock prices are a major reason why the economy is growing at what the Fed sees as a unsustainable pace. So the Fed will continue hiking the

fed funds rate

until stock prices stop rising so rapidly.

"Greenspan told you yesterday that he's going to tighten till the stock market goes down," said Tom Connor, head of government bond trading at


. "If you're a stock owner, you might as well sell now, since it's going to go down eventually. And if you're a bond owner you say, if stocks are going down, he doesn't have to tighten as much."

Still, bond prices might not have risen as much as they did had today not been expiration day for options on the March bond futures contract.

On expiration day, the market tends to move further in the direction in which it is headed than it would on a regular day. People who are short in-the-money call options on bond futures will buy the futures on expiration day, to hedge the risk that they will be assigned a short futures position. Alternatively, they might buy back their call, which has the same effect on the market since the seller would hedge by buying futures. Prior to expiration day, a call-seller would still have hope that the market might turn down, moving the calls out of the money.

Today, for example, as the

Chicago Board of Trade's


10-year note future rose from 94 18/32 to 95 2/32, the

95 calls doubled in price and the 94 calls more than doubled. And as the

March bond future rose from 94 5/32 to 94 28/32, the

94 calls tripled in price.

At the start of the session, which ended at 2 p.m. EST ahead of the long Presidents' Day weekend, the January Consumer Price Index, the broadest measure of inflation, rose 0.2%, a tenth less than the average forecast of economists polled by


. The core CPI, which excludes food and energy prices, also rose 0.2%, in line with the average forecast. The largely in-line results neither increase nor lessen pressure on the


to raise interest rates to cool the economy, and the market reacted accordingly, which is to say, hardly at all.

The overall CPI rose at an annual rate of 2.7% in January, the same as in December. The core CPI rose at a 1.9% rate, the same as in December.

Economic Indicators

Also today, the December

trade report

showed the first narrowing in the trade deficit in four months. It narrowed from November's record $27.1 billion to $25.55 billion, as exports grew 3.2% while imports grew only 1%.


real earnings

grew 0.6%, as the 0.2% rise in the CPI cut into the 0.7% gain in average weekly earnings reported by the January

employment report


The February

Consumer Sentiment Index

fell to 111.2 from the all-time high of 112 it reached in January.

And the

federal budget

report showed that the government ran a $62.2 billion surplus in January, compared to $70.5 billion last January. However the budget is on track to rack up an even bigger surplus in fiscal 2000 than fiscal 1999's $124 billion beauty.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 110.91 yen, up from 110.66 yesterday. The euro lately was worth $0.9849, down from $0.9845 yesterday.

Crude oil for March delivery at the

New York Mercantile Exchange

rose to $29.50 a barrel from $29.46 yesterday.


Bridge Commodity Research Bureau Index

fell to 211.90 from 212.77 yesterday.

Gold for April delivery at the


rose to $307.3 an ounce from $303.80 yesterday.

Street Sightings:

Online Trading Expo: Gary B. Smith will be sharing "All I Know About Trading" from 10:30 a.m. to 12 p.m. ET Saturday, Feb. 19 in the Majestic Complex at the New York Marriott Marquis for the Online Trading Expo. Visit to register for the expo.

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