TheStreet.com's WEEKEND BULLETIN
March 18, 2000
Market Data as of Close, 3/17/00:
o Dow Jones Industrial Average: 10,595.23 down 35.37, -0.33%; up 6.7% for the week
o Nasdaq Composite Index: 4,798.13 up 80.74, 1.71%; lost 5% for the week
o S&P 500: 1,464.47 up 6.00, 0.41%; jumped 5% for the week
o TSC Internet: 1,272.61 up 43.59, 3.55%; down 3.6% for the week
o Russell 2000: 574.77 up 0.53, 0.09%; down 4.8%
o 30-Year Treasury: 103 09/32 up 14/32, yield 6.000%
Companies in Today's Bulletin:
Iridium World Communications
America Online (AOL:NYSE)
In Today's Bulletin:
o The Coming Week: The Coming Week: Focus on the Fed
o Wrong! Dispatches from the Front: Torturing the Bears
o Evening Update: Iridium Fails to Attract a Savior
o Bond Focus: Long Treasury Yield Gets Back Under 6% in Supply-Driven Rally
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Also on TheStreet.com:
Transportation: Fare Hikes Don't Necessarily Mean Share Hikes
Despite a likely industrywide increase in airfare prices, analysts caution that stocks are unlikely to take off immediately.
Internet: AOL to Buy Out Bertelsmann Stake
The media firms also announced a four-year, $250 million plan to expand distribution of Bertelsmann's products.
General: Carnival Sinks After Earnings Warning
The selloff came even though Carnival dropped its deal to acquire a large stake in Norwegian Cruise Line.
The Night Watch: The Night Watch: Xybernaut's Struggles Continue After the Bell
What goes up sometimes
go down. Especially after an SEC filing.
The Coming Week: The Coming Week: Focus on the Fed
3/17/00 7:52 PM ET
Federal Open Market Committee
will meet Tuesday, and it is pretty much a sure thing that it will raise the
fed funds target rate
by a quarter-point to 6% -- its highest level since 1995. Nor is anyone saying that the Fed will stop hiking until the economy starts to cool.
Most economists foresee at least one more rate hike, and a number believe there will be a good deal more than that. Before
is done, the funds rate could easily be as high as it's been in more than a decade.
Given that kind of backdrop, it is difficult to imagine the coming week will be about anything but the Fed. But given the incredible action in the market recently, many investors will be far more interested in what's going on at the corner of Wall and Broad than at the Fed's offices in Washington, D.C.
The rotation into Old Economy stocks that sent the
Dow Jones Industrial Average
6.7% higher over the last week still has investors scratching their heads.
Though value investors had long bemoaned the action in nontech stocks, and some observers had
noted that the time seemed ripe for a move into beaten-down sectors, the power and speed of the move caught everybody off guard.
There are a lot of pretty theories about how this happened. A correction in biotechs forced momentum investors to reassess. Hedge funds, which were heavily invested in tech, but didn't really believe in it, redeployed capital. It was a surfeit of tech bulls and Old Economy bears. It was expiration.
It was probably a bit of all these things, but trying to figure it out is really a matter of conjecture. There's always something mythic about how these rotations happen. They change the market's firmament.
"The structure of the market has changed," said Scott Bleier, chief investment strategist at
. And in the weeks to come, the debate in the market will be over what that structural change will be, exactly.
Some reckon that the shift into the Old Economy names will stick, and that some groups will outperform tech in the coming months.
"I don't want to say we're going to go straight up from here in value investments, but I do think there will be some profit surprises in Old Economy companies," said Christine Callies, U.S. investment strategist at
Credit Suisse First Boston
Analysts forecast a 174% jump in energy company earnings in the first quarter, according to
. Basic materials will hop 55%, while tech comes in third with growth of 25%. Those energy and basic materials are less impressive than they seem -- especially in comparison to last year, which was God-awful. But First Call notes that there has been a strong trend in upward revisions for the energy companies, and that is noteworthy. Analysts usually cut estimates as earnings season approaches.
Bleier says the
Nasdaq Composite Index
will continue to outperform, but reckons there will be a change of tone.
"The Nasdaq frenzy is not over," he said. "It's just going to take a different shape. It's going to be more selective, which is healthy. Maybe it's a process of digestion. Maybe the gains won't be so fast and furious for the rest of the year."
It was fun, at least, while it lasted.
Wrong! Dispatches from the Front: Torturing the Bears
James J. Cramer
3/17/00 10:37 AM ET
The bears have to feel like they have, once again, stumbled into the rusty, tetanus-strewn steel trap and are being left, slowly, to bleed to death. Oh, and get this,
, this is not a simulation. We really are putting the bears through this torture.
Or as Todd Harrison, our head trader said, "do you smell that? That's the smell of the squeeze." Beware, squeeze-wise, of stocks that are exceeding their strikes by a point or two right now. They could really ramp between now and the bell.
With business as usual I like the old tech, I like the new tech, I like the airlines, I like the aerospace and I like the ... oh, yeah, that's what happens when you have a broadening of the market. There is much more to like than there was before.
Pass the Tabasco. I want to inflict a little more pain on the gaping wounds the trap's steel jaws make on those ursine characters.
Perhaps the graphic depiction of the torture the bears are undergoing comes courtesy of the cast I just saw taken off of my wife's arm. Despite the Frankenstein-like markings, the operation was successful. Many thanks for the kind words for my dad and my wife. All are now in great shape, in no small part because of your wishes!
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. 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: Iridium Fails to Attract a Savior
3/17/00 7:48 PM ET
Iridium World Communications
told a bankruptcy court judge it had not received a qualified, last-ditch offer to rescue it from liquidation and that it would begin the process of pulling its satellites out of orbit. Iridium had been in talks with three bidding groups through yesterday, but attorney William Perlstein told the
U.S. Bankruptcy Court
in Manhattan no deal could be reached.
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
warned that its first-quarter earnings will miss expectations primarily because of rising raw material costs. The company said it expects to report earnings of 20 cents to 23 cents a share, while the six-analyst estimate calls for earnings of 25 cents.
said it expects more losses from its
credit card unit in fiscal 1999 and 2000 and said it plans to sell the unit and leave the credit card business. The company said it hopes to sell United CreditServ sometime during 2000 and as a result, will be required to record additional losses of about $100 million, including about $75 million in cash.
said it expects the purchase of
Benicia, Calif. refinery to increase earnings 32 cents a share this year.
said its founder, Klee Irwin, has been named president and CEO, replacing Louis Mancini.
Bond Focus: Long Treasury Yield Gets Back Under 6% in Supply-Driven Rally
3/17/00 4:39 PM ET
Long-term Treasury prices continued to march higher following this morning's release of data showing that consumer prices rose only about as much as expected last month. The price action dropped the yield of the 30-year Treasury bond below 6%, and took the yields of both the bond and the benchmark 10-year Treasury note to their lowest levels of the year.
Crucially, though, short-maturity Treasuries, which most closely reflect expectations about what the
is likely to do with the short-term interest rate it controls, lost ground, pushing their yields up ahead of Tuesday's Fed meeting. The meeting of the
Federal Open Market Committee
is widely expected to produce a hike in the
fed funds rate
, from 5.75% to 6%. Since June, the FOMC has hiked the fed funds rate a full percentage point in four 25-basis-point moves.
Some observers interpreted the price action as purely an extension of the long-maturity rally of the last two months, which has been driven by supply-and-demand dynamics: The Treasury Department is cutting the supply of long-maturity debt, while there has been no corresponding decline in demand for long-maturity bonds from investors who need them.
"It has become a purely supply-driven market in which the day-to-day price action may be somewhat random," said Anthony Karydakis, senior financial economist at
Banc One Capital Markets
The Treasury market "got very excited by the buyback yesterday, and that theme seems to be consistently underlying people's actions," Karydakis said. It may be acting like a bull market lately and perhaps it is one. But at the same time, in the absence of certainty about how much the Treasury Department intends to reduce the outstanding supply of long-term bonds and at what rate, "I don't think it's feasible to predict what a supply-driven market is going to do," he said.
yesterday's buyback, the Treasury Department took $1 billion of 30-year bonds issued between 1988 and 1991 out of circulation by asking dealers to state the prices at which they would sell the securities. The department is taking bonds out of circulation because it can; the federal government is running a surplus, and this is what it is doing with the spare cash.
The rally isn't explained by the inflation data, Karydakis said, because the data was "pretty much as advertised." The
Consumer Price Index
rose 0.5% in February, narrowly exceeding the consensus forecast of economists polled by
for a 0.4% gain. The year-on-year growth pace for the CPI quickened from 2.7% to 3.2%, the fastest since December 1996.
It was the largest monthly gain since April 1999, but it was heavily inflated by a 4.6% increase in energy prices. The core CPI, which strips out volatile food and energy prices, rose just 0.2%, in line with expectations. The year-on-year pace of the core CPI accelerated from 1.9% to 2.1%, remaining in the range it has inhabited for the last year.
The benchmark 10-year Treasury note rose 13/32 to 102 8/32, clipping its yield 5.5 basis points to 6.192%, a level it hasn't seen since Dec. 13. The 30-year bond gained 18/32 at 103 15/32, dropping its yield 4 basis points to 5.999%, its best level since Sept. 24. But the two-year note fell 2/32 to 100, lifting its yield 3.4 basis points to 6.497%.
Chicago Board of Trade
, the June
Treasury futures contract gained 14/32 to 96 7/32.
Gross Sees Volcano of Debt
In his monthly essay published today on his firm's
Web site, bond guru
, a portfolio manager for
, lays out a frightening case for why he's bullish on the Treasury market.
The real economy may remain in good shape, with the combination of globalization, technology, demographics and governmental and central bank discipline continuing to argue for global growth and mild inflation, Gross says. But the real economy isn't bond investors' only consideration. The other one is finance, and the financial picture is dominated by "the burgeoning level and excessive use of debt in both the U.S. and Japan," Gross writes.
Total U.S. debt -- including everything from margin borrowing to corporate borrowing -- is at a postwar high as a percentage of GDP, suggesting, Gross says, that "the U.S. is not necessarily the island paradise reflected in the Nasdaq or even the S&P. There's a volcano of debt on this island as well as that of Japan that threatens to erupt at some future date."
"The Pimco supertanker must at the least make preparations to leave this port of deteriorating corporate debt, which in normal English, means upgrading the quality of our portfolios," Gross says. In really normal English, that means buying Treasuries and avoiding riskier asset classes.
Also today, inflation-adjusted earnings were found to have dropped in February.
fell 0.5%, as the 0.5% increase in the CPI cut into average weekly earnings that were unchanged in February.
Consumer Sentiment Index
retreated in March for the second month in a row, the preliminary report showed. The index dropped to 107.7 from 11.3 in February.
Currency and Commodities
The dollar gained against the yen and lost ground against the euro. It lately was worth 106.73 yen, up from 105.54 yesterday. The euro was worth $0.9715, up from $0.9713. For more on currencies, please take a look at
Currency Watch column.
Crude oil for April delivery at the
New York Mercantile Exchange
fell to $30.85 a barrel from $31.09.
Bridge Commodity Research Bureau Index
fell to 216.86 from 217.13.
Gold for April delivery at the
fell to $285.20 an ounce from $287.00.
To view TSC's Economic Database, see: http://www.thestreet.com/markets/databank/897636.html
Monday, March 20
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