March 11, 2000

Market Data as of Close, 3/10/00:

o Dow Jones Industrial Average: 9,928.82 down 81.91, -0.82%

o Nasdaq Composite Index: 5,048.62 up 1.76, 0.03%

o S&P 500: 1,395.07 down 6.62, -0.47%

o TSC Internet: 1,320.31 down 12.91, -0.97%

o Russell 2000: 603.81 down 2.24, -0.37%

o 30-Year Treasury: 101 00/32 down 8/32, yield 6.189%

Companies in Today's Bulletin:

Player's International (PLAY:Nasdaq)

Harrah's Entertainment (HET:NYSE)

Qwest (Q:NYSE)

Deutsche Telekom (DT:NYSE)


In Today's Bulletin:

o Telecom: Qwest, U S West, Deutsche Telekom and an Undone Merger Deal
o Wrong! Dispatches from the Front: The Hybrids and the Brand Names Get the Hook
o Evening Update: Players and Harrah's Push Back Merger Deadline
o Bond Focus: Fear of Economic Calendar Infects Bonds

"The" on Fox News Channel

Wall Street stripped

Procter & Gamble

of a third of its market cap in a single day after it warned of an earnings shortfall. With stalwarts like this acting more like volatile dot-coms, is there anywhere investors can go to escape the pain? And, is an Internet firm on the brink of profitability necessarily a good investment? You need to hear what guest

Phil Dow


Dain Rauscher Wessels

thinks. He likes shares in three firms that are cashing in on their Web technology. We'll get the "Word on TheStreet."

We'll also talk to the CEO of

about his

Community Intelligence

fund. It's a sizzler -- up more than 50% since its November inception. But the "hot hands" on this fund are not the managers. All the stock ideas for the fund come from visitors to the firm's Web site.

There will be plenty of money-saving tax tips and, of course, predictions, all on "" on Fox News Channel Saturday at 10 a.m. and 6 p.m. and Sunday at 10 a.m. EST.

Also on

Consumer Products: Soap on a Rope: Dial Warning Prompts Another Selloff

Shortfall speculation swirls around Colgate and Clorox, despite the companies' denials.

Herb on TheStreet: Is


Why PolyMedica's Earnings Are So Strong?

Also, in awe of the Nasdaq.

IPOs: Crayfish Isn't Sushi to Japanese: Emailer's Stock Smelly After IPO

The Tokyo firm's ask-only debut demonstrates less investor enthusiasm in Japan.

Mutual Funds: Expenses on Spiders Become Itsy-Bitsy

As giant Barclays prepares to enter the exchange-traded funds market, the price war begins.

Telecom: Qwest, U S West, Deutsche Telekom and an Undone Merger Deal


Scott Moritz

Staff Reporter

3/10/00 8:09 PM ET

The world, for the time being, shall continue to be divided into little telecom fiefdoms.

Poor timing and clashing cultures and egos seems to have undone what promised to be the big-bang merger that was to have set off a new era of truly global carriers. As a result, the big




Deutsche Telekom

(DT) - Get Report

deal is off, and

U S West


shareholders may face a few sleepless nights worrying if the public's acrimonious displays will doom the pending U S West/Qwest matrimony.

In the wake of DT's withdrawal and Qwest's hollow-sounding pledges to adhere to the merger agreement, U S West shares Friday dropped 6 1/8, or 8%, to close at 70 3/8, while Qwest shares fell 7 1/8, or 12%, to 52 7/8.

Two Pictures

Investors say two likely scenarios lie ahead for Qwest and U S West. Most likely, the two companies will complete the merger in the third quarter and together entertain offers from Deutsche Telekom or another international carrier.

But the other -- and, for U S West shareholders, unsettling -- possibility is that Qwest and U S West could run into complications in the deal's 14-state approval and divestiture process. Qwest must transfer its long-distance customers to other carriers in the states where U S West is barred from state-to-state toll service. If the merger is delayed to the end of the year, both parties are free to walk away. Of course, that would likely mean a number of bidders for Qwest and a less-packed dance card for U S West.

It was a week that opened with Qwest's largest shareholder, billionaire railroad tycoon, Philip Anschutz, entertaining an offer from Deutsche Telekom. Soon after, Qwest Chairman and CEO Joseph Nacchio made no secret that with DT in the picture, there were ways out of Qwest's pending merger with U S West. U S West warned Qwest that talks with other suitors amounted to a breach of their merger agreement. By Friday, DT had pulled out of the on-again, off-again talks, and Qwest and U S West were awkwardly attempting to renew their vows.

In a fitting touch to cap off a frantic week, the

Federal Communications Commission

Friday granted conditional approval to the Qwest-U S West merger at a time when the top management of the two companies were communicating with each other only through press releases.

Friends Were So Knocked Out

Nacchio, addressing investors at the

Credit Suisse First Boston Global Telecommunications Conference

at the Plaza hotel in New York Friday, said the DT episode was "one of the most bizarre things I've lived through." He was referring to what he termed U S West's unwillingness to consider anything other than the companies' agreed-to ratio of Qwest shares for U S West shares.

But observers say Nacchio may be the one who had the most to do with the breakdown in talks.

"Joe's got a big mouth and it was bound to get him in trouble," says one telecom analyst who asked not to be identified. The analyst was referring to Nacchio's unsubtle message that Qwest would be better off unattached to the slow-growing Baby Bell.

Some investors at the conference agreed that Nacchio's attempt to distance his company from U S West put U S West in an unfavorable light. U S West had no choice but to cling to the original merger agreement, said hedge fund manager Michael Kaufman of

K Capital Partners

, which is short Deutsche Telekom and holds a position in U S West. "Why blow up what you have and risk U S West going back to $50 a share?" asks Kaufman. Indeed: U S West stands to get around $90 a share in Qwest stock under the deal.

Just for Feet

U S West Chairman and CEO Solomon Trujillo said his company remains committed to the Qwest merger, but Trujillo has already voted with his feet on the merger and said he will not be a part of the combined company.

Trujillo, who is also known as one of the more strong-willed personalities in the industry, said Thursday that his decision was based on what he thought was best for the combined company. "I did not want to see a divided company with two sets of values," he said.

Nacchio said Trujillo quit because the combined board favored a more Qwest-like management direction.

The weeklong episode suggests that perhaps the biggest barrier to global communications companies isn't the compatibility of the networks, but the compatibility of the people who run the networks.

Wrong! Dispatches from the Front: The Hybrids and the Brand Names Get the Hook


James J. Cramer

3/10/00 5:27 PM ET

So I step out of the office for 15 minutes, I come back, and some sell program has taken the market apart. But then I look closer and, of course, it is not the market, it is the

Dow Jones Industrial Averages

! Those nasty little relics. And thank heavens for


(INTC) - Get Report



(MSFT) - Get Report

. Who knows where it would have ended without those two horsemen?

This will forever be the week where people realized that those brand name stocks were doing it all with smoke and mirrors. The growth for the


(KO) - Get Report

and the


(PG) - Get Report

was always suspect. Some was cost cutting. Some was tax rate. Some was currency. There was always something going their way.

But the string ran out this week and we discovered that single-digit growth, mid-single-digit growth, is not enough to support a growth multiple on earnings.

This was a devastating week for the hybrid folks, the ones who thought they could own the highest growth nontech stocks. Only tech is generating the kind of growth this market is paying for. Any company that is trying to maintain low double-digit growth and can't will be similarly crushed as P&G was.

At the end of the week I found myself repeatedly drawn to shorting

Berkshire Hathaway


. That premium-selling repository of brands that once sold at a premium seems ripe for the banging. But I can't go there. There are plenty of other ways to skin the brand cat.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Intel and Microsoft. 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: Players and Harrah's Push Back Merger Deadline


Eileen Kinsella

Staff Reporter

3/10/00 6:38 PM ET

Players International

(PLAY) - Get Report


Harrah's Entertainment


said neither company will exercise its right to terminate their merger deal until March 21. This is the third time the two companies have postponed the date that either party can pull out of the deal without being penalized. In August, Harrah's announced it would buy Players for $275 million, plus $150 million in debt.

In other postclose news:


Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.


Earnings/revenue reports and previews



said its first-quarter earnings will fall below expectations. The current five-analyst estimate calls for earnings of 10 cents a share.

Offerings and stock actions

First Industrial

(FR) - Get Report

set a $100 million share buyback

Shaw Industries


said it plans to begin a dutch auction tender offer for up to 12 million shares, or about 9.1% of its outstanding shares, in a range of $11.50 to $13.50.


GST Telecommunications


said it will cut about 100 jobs, or 8% of its workforce. The company said the cuts will impact both managerial and support staff and are designed to allow additional resources to be allocated to data and Internet initiatives.

St. Jude Medical


said it is notifying doctors that a microprocessor anomaly could lead a malfunction in a very small number of its Trilogy pacemakers.

Bond Focus: Fear of Economic Calendar Infects Bonds


Elizabeth Roy

Senior Writer

3/10/00 4:25 PM ET

Bond prices retreated on light volume today, preparing themselves for a potentially vicious slate of economic data next week.

The benchmark 10-year Treasury note ended down 7/32 at 100 28/32, lifting its yield 3 basis points to 6.379%. Shorter-maturity yields rose by similar amounts. The erstwhile benchmark 30-year Treasury bond fell 13/32 to 100 29/32, lifting its yield 3 basis points to 6.183%.

At the

Chicago Board of Trade

, the June

Treasury futures contract closed down 14/32 at 94 7/32.

Next week brings three key economic reports, as well as a handful of less-key-but-still-potentially-market-moving ones and economists are warning that they are likely to be unfriendly. Meaning that they will indicate that the economy is still growing too quickly for the



First up is February

retail sales

, on Tuesday. The preliminary consensus forecast is for hefty gains of 0.9% overall and 0.5% excluding autos. But auto sales surged 8% in February to a record pace, and so some estimates of the overall gain are far north of the average. Also, rising gasoline prices will likely goose both overall and ex-auto sales, since they are not adjusted for inflation.

Thursday brings the

Producer Price Index

for February. The overall PPI should reflect a 3.9% rise in energy prices, while the core PPI, which excludes food and energy, will reflect a 5% increase in tobacco prices, according to

MCM Moneywatch

. The firm is predicting a 0.6% increase in the overall PPI and a 0.3% increase in the core PPI. Those would be the biggest increases in five months.

Finally, there's the February

Consumer Price Index

on Friday. It too will be boosted by energy and tobacco prices, but to a lesser degree, since the CPI also includes service prices. New airfare surcharges could also boost the core CPI,

Barclays Capital


The bond market is "just trading in response to what equities are doing, but I think that'll stop next week," said Jim Kochan, senior bond market strategist at

Robert W. Baird

in Milwaukee. "It'll be back to basics. There's a lot of economic data and a lot of it will look really disturbing. It'll probably set the market up for a bit of a selloff into the FOMC meeting." The

Federal Open Market Committee's

March 21 meeting is pretty universally expected to produce another hike in the

fed funds rate

, from 5.75% to 6%.

Bonds are vulnerable, Kochan added, because while the economic data may call for an even larger rate hike, Fed officials in their public comments have not sufficiently prepared the markets for such a move. "You get to a point where the market wonders whether the Fed's been too timid," and moves interest rates higher on its own. On the other hand, Kochan said, these "bond vigilantes seem to have fallen asleep ever since the yield curve inverted."

It's also vulnerable, a trader added, because there is great unwillingness to be short the bond market, for fear that another pullback in stock prices will propel the bond market higher. No shorts means no one to buy when the market goes down.

Economic Indicators

There were no economic releases today.

Currency and Commodities

The dollar weakened against the yen and gained against the euro. It lately was worth 106.20 yen, down from 106.65. The euro was worth $0.9635, down from $0.9662. For more on currencies, please take a look at



Currency Watch column.

Crude oil for April delivery at the

New York Mercantile Exchange

rose to $31.75 a barrel from $31.69.


Bridge Commodity Research Bureau Index

fell to 214.22 from 214.84.

Gold for April delivery at the


fell to $289.90 an ounce from $292.70.


Chat with John J. Edwards III on AOL's MarketTalk, hosted by Sage, Monday, March 13 at 3:30 p.m. ET.

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