April 29, 2000

Market Data as of Close, 4/28/00:

o Dow Jones Industrial Average: 10,733.91 down 154.19, -1.42%

o Nasdaq Composite Index: 3,860.66 up 86.63, 2.30%

o S&P 500: 1,452.43 down 12.49, -0.85%

o TSC Internet: 895.11 up 38.14, 4.45%

o Russell 2000: 506.25 up 11.67, 2.36%

o 30-Year Treasury: 104 00/32 up 12/32, yield 5.962%

For the week:

o Dow Jones Industrial Average: down 1.1%

o Nasdaq Composite Index: up 5.1%

o S&P 500: up 1.2%

o TSC Internet: up 13.1%

o Russell 2000: up 5.1%

Companies in Today's Bulletin:

Akamai (AKAM:Nasdaq)

Exodus (EXDS:Nasdaq)

Healtheon/WebMd (HLTH:Nasdaq)

Microsoft (MSFT:Nasdaq)

In Today's Bulletin:

o Market Features: So Long, Soros: An Inside Look at the End of an Investing Era
o Wrong! Rear Echelon Revelations: The Banks' Double Jeopardy
o Evening Update: Steel Technologies Ups Buyback; Energy East Beats the Street
o Bond Focus: Short End Turns Tail on Fed Fears

Andrew Morse at the CNBC Investment Conference

International Editor Andrew Morse will host a panel on International Investing at the CNBC Investment Conference at the World Trade Center Boston on Saturday, April 29, at 3:30 p.m. EDT. For more information, go to

Also on

Software: Prosecutors Ask Judge to Break Up Microsoft

Prosecutors from Illinois and Ohio, however, dissented from the proposal, agreeing to recommend remedies that do not include a breakup.

Nothing but Net: Tech Sector Does Not Disappoint

Despite early hesitation, momentum picks up and the sector ends with healthy gains.

Christopher Edmonds: Buffett Hosts 'Capitalist Woodstock' in Omaha

Until two weeks ago it seemed there would be little to celebrate come Saturday.

Internet: Healtheon Doesn't Appear Interested in Sickly drkoop

One analyst conjectures drkoop could do better as a women-oriented site.

Market Features: So Long, Soros: An Inside Look at the End of an Investing Era


Brett D. Fromson

Chief Markets Writer

4/28/00 7:16 PM ET

Today marked the end of an era in investing.

One of the most profitable and best-known global hedge funds in history --

Soros Fund Management

-- is history.

While the fund said today that it will remain in operation after a "thorough reorganziation," make no mistake. It's over.

After 31 1/2 years of beating the markets in everything from stocks and bonds to currencies and commodities, Soros came apart in a mere four weeks, according to interviews with

George Soros

, his departing senior portfolio manager, Stan Druckenmiller and other sources close to Soros.

The story of how that happened speaks volumes about the ability of the market to surprise even the best traders, and the relentless pressure of managing money in the most volatile financial markets we have ever seen.

The beginning of the end was April 4. That was the gut-wrenching day the

Nasdaq Composite

collapsed nearly 575, or 13.6%, before whipsawing back up to close down only 1.8%. Druckenmiller came into that day having already reduced the

Quantum Fund's

exposure to tech stocks in February and March. He had expected a 10% to 15% slide from the Comp's March 10 all-time high.

But he made a significant error in judgment on Tuesday the 4th. He thought the V-shaped volatility of the day represented the end of the 10% to 15% correction in the Comp. Instead of dumping more tech stocks, as he and his associates thought perhaps they should, he hung tight. He could have sold tons of stock later that week as the market rallied.


The door to the exits slammed shut the next week, specifically on Friday, April 14. The days leading up to that day were lousy, but Friday was the kicker. The market crashed that day, and unlike Tuesday the 4th, it did not snap back intraday. The Comp fell 10% and ended its worst week in history down 25.3% -- 34.2% below its March 10 high.

The following Monday, Druckenmiller's associate, Nick Roditi, portfolio manager of Soros' other big investment vehicle, the

Quota Fund

, told associates that he was quitting the game. Not only was the London-based trader leaving Soros, he was getting out of the money management game altogether.


After all, he had previously experienced losing years interspersed between great years when he made 100% to 200% on Soros' money. The answer was that Roditi, whose trading style relies on enormous financial leverage -- at times as much as 300% of the underlying position -- was burned out.

Quota had suffered enormous losses the prior week. He just did not want to do it anymore. He is rich. He has other business interests. He would just as soon live in Africa, his homeland, as in London.

The End Is Near

The next day, Druckenmiller went into the firm's midtown Manhattan office and announced to Soros that he wanted a break, a sabbatical. The fund was too big and unwieldy. The year's gains tended to come from just a few big bets each year. If one went wrong, they could not get out. And the markets were more volatile than ever.

And even in the best of times, George Soros has never been known as the easiest boss in the world. He is well-known for second-guessing his portfolio managers, which is his right, because he has about $4 billion in Quantum. It was not the first time that leaving had recently crossed Druckenmiller's mind.

So why decide to step away on Tuesday, April 18th? After all, he was down about this much last year at this time. He came back from that and ended up garnering above a 40% gain for 1999. Why not one more time? Because, apparently, he was just too tired to wage the relentless war he knew it would take to recover.

Soros himself had initially considered coming back to take over. Tensions were high at the prospect of the 69-year old speculator, fearful of a market crash, without his top portfolio managers running things again. After all, it had been 12 years since Soros has run money himself.

An uneasy peace was maintained simply by their mutual needs to come to an equitable arrangement. Soros did not want his top lieutenants publicly cutting all ties to him and Quantum. And they wanted him to be generous if they had to leave, now that the firm effectively was being taken apart.

It was not until this week that Soros decided not to come back but instead to make radical changes at his cherished firm. He decided that Quantum will no longer seek 30% returns. (That explains its new, dowdy name -- the Quantum Endowment Fund.)

He decided also that the management of Quota will be outsourced to London-based money manager Michele Ragazzi of

Newman Ragazzi

. Soros will offer his clients the opportunity to stay in the new Quantum and Quota funds, but expects major departures. The firm already has raised enough cash to pay off every single client who might want out.

It may be that the only client going forward will be Soros himself. He already has decided to break up his money into smaller management pools.

Look for him to spread the money among five to 10 managers, some who now work for him and some who do not. The deals likely will be structured so that in exchange for him dropping several hundred million dollars on these managers and allowing them to take in additional clients, he'll get a share of their management fees. If there is one thing George Soros will not allow, it is for the market to take him out -- i.e., lose all his money. The new, nimbler, more diversified structure makes that less likely.

Much of the weakness in tech stocks in the second half of April may have stemmed from selling pressure from Soros. In the third week of April, they were blowing out many positions. The selling is over, which may help explain the recent bottoming and rally we have seen in technology stocks. Call it the Soros bounce.

Isn't it Ironic

There is irony in Druckenmiller's departure. He made many of his most spectacular calls by selling into bullish manias and buying when there was panic. For example, he bought a ton of stock after the October 1987 crash.

"This time," he said, "I overplayed my hand. I should have sold in February. I sold some. I thought it was the eighth inning when it was really the ninth."

"I had an exit strategy," he said. "I was two weeks off, too late. I blew it. There was no exit. That was my biggest mistake."

After he leaves Soros in June, Druckenmiller will remain head of

Duquesne Capital Management

, a small hedge fund he started before he joined Soros.

Druckenmiller said that he has positioned Duquesne so that he can take the summer off, and plans to take his family on a trip to Africa. He said he will offer Duquesne's investors the opportunity to get out if they like.

Don't expect too many Duquesne limited partners to leave. Druckenmiller remains one of the best investors around.

Who knows, by Labor Day he might be back in business? As Druckenmiller said today, investing is "like a drug." He is a known addict.

Wrong! Rear Echelon Revelations: The Banks' Double Jeopardy


James J. Cramer

4/28/00 3:28 PM ET

Are the banks for real? Are they reflecting the pressure the


feels in the face of the consumer-spending boom? Are they going to be punished, needlessly, by the residue of the superheated dot-com economy?


I make no secret of my fondness for this group of stocks -- an affection that is based purely on valuation. These stocks are cheap. But I think that it is not what matters in this market. The banks are caught in a terrible whammy. People sell banks when rates go higher because it hurts the margins of the banks.

It doesn't even matter if banks have figured out ways to insulate themselves from short-rate rises, they all get hurt together anyway. That has always been the case. It is the case this time.

But we also tend to sell financials when inflation is roaring, which is the perception now. So banks can't win. If the Fed doesn't tighten, people will sell because the Fed can't rein in inflation. If the Fed tightens too much, short-term rates go too high and people think the banks will do poorly in earnings.

They just can't win.

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: Steel Technologies Ups Buyback; Energy East Beats the Street


Tara Murphy

Staff Reporter

4/28/00 7:06 PM ET


Justice Department

and 19 states filed a 17-page proposal to the federal judge presiding over


(MSFT) - Get Report

antitrust case, calling for the separation of Windows operating system from software applications such as spread sheets.

According to the government, the division would be a suitable solution to end Microsoft's monopoly of the software industry. Microsoft called the plan "extreme," and refuted that the break up would hurt consumers and hamper innovation. Earlier this month, the judge ruled that Microsoft infringed on antirust law using Window's strong presence in PCs to clamp competition. The deadline for Microsoft to appeal the ruling is set for May 10. In after-hours trading, shares of the stock hit 71 5/8, up from its closing price of 69 3/4.

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 that they have axed plans for a merger. Dime said it would consider other options.

Policy Management Systems


said it received a buyout offer from



, valued at $18-$20 a share.

ReliaStar Financial


said it is in talks regarding a possible sale of the company. ReliaStar, a Minneapolis-based holding company that offers financial services, said it doesn't intend to comment further until a deal is reached or until talks are terminated.

Merger partners




Times Mirror


said that they are considering a possible sale of Times Mirror's


division, which provides flight information. The two companies have hired

Merrill Lynch

to serve as their financial advisor. Tribune chairman John Madigan said that the merged company wants to concentrate on its core businesses such as broadcasting and publishing.

Earnings/revenue reports

Energy East


posted first-quarter earnings of 83 cents a share, topping the seven-analyst estimate of 79 cents and up from the year-ago 71 cent-profit.



warned investors that it would report third-quarter earnings between 20 cents to 22 cents a share, possibly missing the 23-analyst estimate of a 22-cent profit. The company said it was comfortable with the fiscal-2000 analyst estimate of 84 cents.

Offerings and stock actions

Steel Technologies


added $1 million to its current stock buyback.




said that a northern California county judge threw out criminal charges against the software maker and its current and former executives charged in the suit.



said it tapped David Eppler as its president and CEO. As of May 1, Eppler will replace the retiring Gregory Nesbitt.

Bond Focus: Short End Turns Tail on Fed Fears


David A. Gaffen

Staff Reporter

4/28/00 4:27 PM ET

It was a mixed day for the bond market, which managed to shake off most of today's economic releases. However, the weakness, as has become customary, was again in the short end, as traders continued to adjust for the expectation that the

Federal Reserve

will get more aggressive on raising interest rates in coming months.

After yesterday's double whammy of the first-quarter

Employment Cost Index and

Gross Domestic Product reports, there are increased expectations that the Fed will raise the short-term fed funds target by 50 basis points at the May 16

Federal Open Market Committee


The fed funds rate is currently 6%, and a poll published late yesterday shows that 12 of 29 primary dealers in government securities expect the Fed to raise the funds rate by the "Big 5-0" come May 16.

That had the effect of pushing up yields in the short end of the curve, while yields in the long end remained reasonably steady. Traders engineered what's known as a curve-flattening trade, which is a bet that the long end will continue to rally and the short end will continue to sell.

Since changes in the two-year note are linked prominently to how the market views Fed policy, it sold off again today, dropping 4/32 to 99 13/32, driving the yield up to 6.689%, highest since Feb. 17. Meanwhile, the benchmark 10-year note was unchanged at 101 31/32, yielding 6.225%. The 30-year bond rose 7/32 to 103 29/32, dropping the yield 4 basis points to 5.969%.

"I think some people took some profits, and then some people were entering fresh curve-flattening trades within the front end of the curve," said Roseanne Briggen, market strategist at

MCM Moneywatch

. "There's heightened expectations that the Fed is going to go 50, and so people should be short the short end of the market."

Next week's economic data are going to be very important in terms of that debate.

Productivity and unit labor costs figures are released Thursday, followed by the Friday release of the

employment report. Productivity is expected to rise 4.1%, according to market estimates, although

Barclays Capital

economists are expecting only a 2.5% increase.

Economists are expecting an increase of 340,000 in new nonfarm payrolls in April, according to figures compiled by

Barclays Capital

. The

unemployment rate

is expected to fall to 4%, although a 3.9% figure would probably raise an eyebrow at Fed headquarters. Average hourly earnings are expected to rise 0.3% in April, according to Barclays.

In addition, the Fed's

Beige Book, an anecdotal summary of economic conditions around the country, is released Wednesday. Again, more evidence of inflation pressures would have its greatest impact on the short end of the curve.

"I think two-year notes are priced at fair value considering a 6.5% fund rate, but it will come under pressure given signs of inflationary pressure," said Gemma Wright, director of market strategy at Barclays. "I wouldn't be surprised to see the two-year get back up to 6.80% to 6.90%."

Today's economic data were mixed.

Personal income

rose 0.7% in March, after a 0.4% increase in February, while


rose just 0.5%, after a February increase of 1.4%, the

Commerce Department

said this morning. This is the first month that personal income rose more than spending since October.


Chicago Purchasing Managers' Index, an index of manufacturing sentiment in the Midwest, fell to 56.5 in April, from 57.4 in March. The

University of Michigan

Consumer Sentiment Index rose to 109.2 in April from 107.1 in March. The April figure was revised down from a preliminary estimate of 110.2.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 108.16 yen, up from 106.40. The euro was worth $0.9089, down from $0.9098. For more on currencies, see TSC's

Currencies column.

Crude oil for June delivery at the

New York Mercantile Exchange

rose to $25.70 a barrel from $25.42.


Bridge Commodity Research Bureau Index

rose to 211.15 from 211.10.

Gold for June delivery at the


fell to $274.8 an ounce from $278.40 yesterday.

Join TSC reporter Roland Jones for a chat with Robert Shiller, author of

Rational Exuberance

. Shiller, a Yale economist, believes that the market is overvalued and that investors should consider looking beyond stocks as a way to diversify and hedge against an inevitable downturn. Register to chat at It's free!

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