Publish date:


December 11, 1999


Market Data as of Close, 12/10/99:

o Dow Jones Industrial Average: 11,224.70 up 89.91, 0.81%; down .5% for the week

o Nasdaq Composite Index: 3,620.24 up 26.07, 0.73%; up 2.8% for the week

o S&P 500: 1,417.04 up 8.93, 0.63%; down 1.1% for the week

o TSC Internet: 1,129.50 up 22.88, 2.07%; up 9.8% for the week

o Russell 2000: 466.71 up 1.81, 0.39%; up .5% for the week

o 30-Year Treasury: 99 13/32 up 21/32, yield 6.161%

Companies in Today's Bulletin:

Amazon.com (AMZN:Nasdaq)

Ciena (CIEN:Nasdaq)


BellSouth (BLS:NYSE)

In Today's Bulletin:

o The Coming Week: The Bulls Keep Running, and Things Get Frothier
o Wrong! Dispatches from the Front: The Monotony of Abundance
o Evening Update: Xerox's Fourth-Quarter Picture Looks Grim
o Bond Focus: Relief of Inflation Fears Trims Treasury Yields

"TheStreet.com" on Fox News Channel

This week's "Word on TheStreet" panel takes a look at valuing stocks nowthat the old rules no longer seem to apply. Fund writers Dagen McDowell and Joe Bousquin square off about the Jacob Internet fund, which is expected to begin trading Dec. 13. Gary and Adam are up to their usual "Chartman" antics, looking back at past predictions and forward to some new ones.

"TheStreet.com" on Fox News Channel airs Saturdays at 10 a.m. and 6 p.m. ET and Sundays at 10 a.m. ET. FNC is Fox's 24-hour cable news channel. To find Fox News Channel in your area, call your local cable operator or see our "TSC on Fox TV" page at http://www.thestreet.com/tv.

Also on TheStreet.com:

Networking: At Ciena, Valuation Talk Is All Relative

The notion that the networker deserves a higher stock price just to match its rivals strikes some observers as absurd.


Europe: KPN Strategy Enters Latest Phase With BellSouth Deal

The American-German-Dutch joint venture will have the economies of scale to invest for serious growth.


Internet: Mad Dash to Nasdaq: Shorts Feel the Pain

Short-sellers complain that the market rewards speculation and momentum, not diligence and insight.


Tech Savvy: Jingle Web

With e-tailing this Christmas, is the glass half-full or half-empty?


The Coming Week: The Coming Week: The Bulls Keep Running, and Things Get Frothier


Justin Lahart

Associate Editor

12/10/99 7:17 PM ET

Jeff Applegate, the

Lehman Brothers

strategist whose 80% stock allocation has led him to regularly top best-blend lists, may be Wall Street's best spokesman for the idea of the new economy. The rapid pace of information technology in an increasingly global marketplace means that this time really is different and the old valuation metrics don't work, he believes.

Which is not to say that he doesn't think valuations matter or that he doesn't approach his work with rigor. One of the things that's satisfying about talking to Applegate is that he isn't one of those lithium bulls one sometimes run into. He's not going to tell you the


should be at 36,000 or that price and earnings don't really have anything to do with each other.

He's incredibly positive about this market, but not blindly so. Things could happen to make him bearish -- though heaven knows they haven't.

So it probably means something that Applegate, in the incredible run tech stocks have recently had, is seeing some signs of froth.

"The broad indices have probably gotten a little ahead of themselves," he said. "The Internet indices have gone way ahead of themselves. Do you have a speculative bubble in some of these stocks? No question."

It's a common thought after another week of tremendous moves in things like the white-hot Linux sector and the stunning debuts of




VA Linux






"When you see these IPOs come out and go from 30 to 300," said Ned Collins, vice president of U.S. stocks at

Daiwa Securities America

, "that is a little frothy."

But a frothy market can always get more frothy, and that looks like the way it may go in the coming week. Fund flows have been tremendous this fourth quarter, and trading volume has surged. The lull that trading desks thought they'd see just hasn't come. Said Collins: "We've all been talking about how there was going to be a slowdown come the end of the year, but that isn't the case because volume goes higher every day. The market is just a momentum play right now." Which could be a bit of a problem later.

"We know what happens to parabolic price moves," said Applegate. "They correct -- and pretty sharply." When that happens in the latest group of darlings, he reckons it will probably affect the broader averages.

But Applegate is a self-professed horrible market timer, and because he doesn't think the selling would be enough to knock the market off its long-term trend, he's sticking with his bullish stance. Though the highfliers will come back down, "I don't think that augurs for more than a correction," he said, "so we remain fully invested."

While the big moves in stock land were grabbing the headlines this past week, Treasuries put on a not-too-shabby rally. Yields are back down around where they were right after last month's

Federal Open Market Committee

meeting. Whether that move has any staying power will depend greatly on how a couple of key economic reports -- November's

retail sales


Consumer Price Index

-- are released on Tuesday.

"No doubt about it, the data we have next week are of greater importance and a greater magnitude than what we have seen so far," said Bill Sullivan, chief money market economist at

Morgan Stanley Dean Witter

. "I think they'll set the tone for the entire week's trading."

The CPI matters because it always matters -- it's the best read of inflation we have. So far, despite an economy that continues to go gangbusters, inflation has remained benign. Any unforeseen uptick in the CPI would set tongues wagging (again) about how the


is behind the curve and the "Goldilocks economy" is over and the whole damn thing is about to fall apart -- there's a reason economists are called dismal scientists.

The retail sales report is often a second-tier economic report, but this time around the bond market will be paying careful attention to it. Strong sales would suggest that the economy still isn't slowing -- and the Fed very much believes that the economy needs to slow, or inflation will come. "The Fed is willing to raise its target even if inflation is benign," said Sullivan.

Wrong! Dispatches from the Front: The Monotony of Abundance


James J. Cramer

12/10/99 3:55 PM ET

I know, it seems monotonous.

But it is a blessed monotony. As we sit here and watch the

America Onlines


and the



and the


(ORCL) - Get Report

and the



do things that everybody told us they couldn't do, we must remember that we are in a very special, highly unusual time.

Join the discussion on

Cramer's Latest

Everyone who ever taught me, and everybody I ever read (with the exception of

William O'Neil

), basically said that what is happening can't and will never occur. We had been led to believe by the "wise ones" that going long common stock has far more risk and is far more dangerous than other forms of investing.

We had been schooled to believe that in the end we all had to lose and the only ones who could make money over the long term were based in Omaha or Boston.

Along the way people tried to get us to buy gold. People fretted about the price of oil. They wrung their hands about the prices of uncoated free sheet, and liner board and copper and polyester and soybeans and oats and land and beach homes and apartments and cars. They told us to beware that when the music stops it will all be taken away, perhaps in wheelbarrows of dollars and perhaps by the tax man or maybe, just maybe, by a kodiak bear that would come mauling.

Let's say they are right. If you hung in and on this long, you could sell everything right now -- and with the exception of maybe 1,000 people -- you could get a darn good price. Right now. This moment. And you would forever prove the naysayers wrong.

So the next time a bear tells you that you will lose it all, you tell him that you lived through this precious moment and you know better. You know that, at least in this one era, things simply happened for the best. What had to go right, did go right. And the monotony of abundance can and does occur in this stock market.


James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Yahoo!, AOL and Nortel. 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: Xerox's Fourth-Quarter Picture Looks Grim


Tara Murphy

Staff Reporter

12/10/99 8:11 PM ET


(XRX) - Get Report

alerted investors that fourth-quarter earnings could fall 40% below the 13-analyst consensus estimate of 66 cents a share. In its second consecutive quarter profit warning, the company blamed Y2K woes for denting its high-end printing and publishing equipment sales and higher cost from "customer administration reorganization," which includes bad debt, for the disappointing fourth-quarter earnings.

Xerox also pointed the finger at soft profits from its Brazilian unit due to the country's slow economy after its currency devaluation earlier this year, while citing the U.S. dollar's strengthening against European currencies during the fourth quarter as a problem for European revenue and profits. President and CEO Rick Thoman said that earnings should show "meaningful growth in the second half of the year."

For more on Xerox's woes, take a look at the

story written by


joint newsroom.

After-Hours Trading



had a very big day. The company jumped 4 31/32, or 481%, to 6 1/4, during a giddy day session. Why the elation? Linux, what else.

Zitel unit Diametrics Systems announced that its VisualRoute software would be made available for the Linux platform and investors ran to the company with open arms. It was No. 1 on

Island ECN

, giving up a lot of ground in the wake of today's run up.

The second-most active,

Thermacell Technologies


rose 9/16 during the day session. That's not much of a move for a regular stock, but when yesterday's close was 3/8, it's a gain of 150%. Tonight's move on Island was even bigger.

In other post-close news (earnings estimates from

First Call/Thomson Financial

; earnings reported on a diluted basis unless otherwise specified):

Mergers, acquisitions and joint ventures

Student Loan


said a special committee along financial advisors

J.P. Morgan


Arthur Andersen LLP

are examining an offer from


(C) - Get Report

to buy the remaining 20% interest in Student Loan that it doesn't already hold.

Earnings/revenue reports and previews

First American Financial

(FAF) - Get Report

warned investors that it anticipates losses for the fourth quarter and the first quarter of fiscal 2000. The four-analyst estimate sees the company posting fourth-quarter earnings of 17 cents a share and a 12-cent loss for the first quarter of 2000. The company blamed current interest-rate effects on the real estate market, seasonal factors and a weakening in new order accounts for the earnings disappointments.

Horizon Offshore


cautioned investors that it expects to post a fourth-quarter loss as a result of declining profit margins and postponed contracts. The two-analyst estimate expects the company to report a 6-cent profit for the fourth quarter.



said it would assume a one-time, aftertax charge of $50 million in the fourth quarter due to the discontinuation of its


warehouse management software and its


software security product lines. Separately, the company said it would accept an aftertax gain of roughly $110 million, after trimming its interest in

RF Micro Devices



Offerings and stock actions


(APA) - Get Report

said it would increase its capital spending budget for fiscal 2000 to $600 million to $650 million, up from the $400 million budget set for 1999. Initially, the company allocated $270 million into its fiscal 1999 budget only to hike up the number due to sharp gains in oil and natural gas prices.

Bell Atlantic


said it plans to create a separate unit to sell its high-speed data service in New York in order to win regulatory approval for its bid to be a long distance service provider in the state. The deal to set up a separate unit, which is included in a letter to the

Federal Communications Commission

, was made to guarantee that rival high-speed data link providers would receive fair treatment from Bell Atlantic.

Foundry Networks


said it set a 2-for-1 stock split.


Northwest Airlines



America West Holding


said they have agreed to match rival carriers in a 3% business fare hike. Two weeks ago, another effort to up rates was axed after the two airlines refused to meet their competitors increases.



also united with its rivals in the second attempt to raise fares, which was initiated by



American Airlines on Wednesday.

Kinnard Investments


said a

National Association of Securities Dealers

arbitration panel awarded the company $16.5 million in damages in proceedings against

Dain Rauscher


, for employee raiding.

Dain announced that it will take a $10.6 million, or 78 cent per share, charge against its fourth-quarter earnings to cover the damages.

Bond Focus: Relief of Inflation Fears Trims Treasury Yields


Elizabeth Roy

Senior Writer

12/10/99 5:30 PM ET

The bond market rallied again today, dropping yields to their lowest levels in three weeks.

A better-than-expected report on wholesale inflation sparked the rally, and a big drop in oil prices supported it. But market participants said the rally was partly attributable to short-covering by traders who had expected bad news on the inflation front.


Producer Price Index, which measures wholesale inflation, advanced 0.2% in November, in line with expectations. But the core PPI, which excludes volatile food and energy prices, was unchanged. Economists polled by


had forecast a 0.1% gain on average.

The benchmark 30-year Treasury bond leapt 21/32 to 99 13/32, trimming its yield 5 basis points to 6.17%, the lowest it's closed since Nov. 19. Shorter-maturity note yields shed 3 to 6 basis points.

The market: Join the discussion on


Message Boards.

"We had a little relief trade," said Matt Frymier, a note trader at

Banc of America Securities

in San Francisco. "Most traders are in disbelief of the economic numbers. We keep waiting for the truth."

"The malls are packed with people, and everything seems expensive -- gas seems expensive, homes seem expensive," the trader continued. "You see these things, and it certainly scares you from being long. Guys, if anything, set up a little short for the inflation numbers, thinking the truth is finally going to come out."

On its own, the PPI shouldn't inspire such euphoria in the bond market, analysts say, because in its efforts to determine the appropriate level for the

fed funds rate, the

Fed has made it clear it's taking its cues primarily from the tightness of the labor market.


Merrill Lynch

Treasury market strategist Jerry Lucas observed: "Good inflation news by itself is not going to keep the Fed from tightening, but bad inflation will."

But bonds also got a boost today from a 3.8% drop in the price of oil. It fell after the

U.N. Security Council

approved a six-month extension in Iraq's oil-for-food program. Crude for January delivery dropped to $25.20 from $26.15 a barrel on the

New York Mercantile Exchange

and traded below $25 on an intraday basis for the first time since Dec. 2.

Even as they live in fear of inflation heating up, bond market participants are sanguine about the market's near-term prospects. The Treasury market is wont to rally in the final weeks of the year as investors reach for the safety and liquidity of government bonds to pretty-up their balance sheets, and that dynamic is even stronger this year because of the Y2K date change. "Y2K does impart a bullish bias," Lucas said.

For most of the year, Frymier added, "people have been willing to be short, because that's what's paid off. But at year-end, with the need for window-dressing, they can't really be short. I'm constructive on the market because of

these cash-flow considerations."

Beyond the

Consumer Price Index on Tuesday, the bond market's chief preoccupation for the balance of the year is whether the Fed will retain its neutral policy stance on interest rates. A switch to a tightening bias would increase the chances of another fed funds hike at its first meeting of the new year on Feb. 1-2. "Sometimes the market reacts more

to a bias shift than to an actual tightening," Lucas pointed out.



Street Sightings

Chat with John J. Edwards III on AOL's MarketTalk Monday, Dec. 13 at 3:30 p.m. EST. MarketTalk is hosted by Sage Online. (Keyword: PF Live)

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