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Publish date:

midday02-04-00's MIDDAY UPDATE

February 4, 2000

Market Data as of 2/4/00, 1:24 PM ET:

o Dow Jones Industrial Average: 11,034.38 up 20.94, 0.19%

o Nasdaq Composite Index: 4,278.59 up 67.61, 1.61%

o S&P 500: 1,432.26 up 7.29, 0.51%

o TSC Internet: 1,163.37 down 8.24, -0.70%

o Russell 2000: 524.05 up 2.42, 0.46%

o 30-Year Treasury: 98 29/32 down 27/32, yield 6.206%

In Today's Bulletin:

o Midday Musings: Nasdaq Stays on Pace for Record Against Roiling Bond Backdrop
o Herb on TheStreet: Raising Doubts About the Profitability of Amazon's Book Business

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Midday Musings: Nasdaq Stays on Pace for Record Against Roiling Bond Backdrop


Brian Louis

Staff Reporter

2/4/00 1:22 PM ET

As usual, the

Nasdaq Composite Index

was providing the excitement in the market, as the Comp was chugging sharply higher early this afternoon despite a strong January

employment report

and a selloff in the Treasury market.

The Nasdaq Comp was up 63, or 1.5%, to 4274. It was near its highs of the session and on pace for a record close.

Helping push the Comp on the upside were big gains in tech bellwethers and Comp heavyweights


(MSFT) - Get Microsoft Corporation (MSFT) Report



(CSCO) - Get Cisco Systems, Inc. Report



(INTC) - Get Intel Corporation (INTC) Report


Telecommunications and networking stocks were higher. The

Nasdaq Telecommunications Index

was up 1.6%, while the

American Stock Exchange Networking Index

was up 3.2%.


Nasdaq 100

was up 68, or 1.8%, to 3918.

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message boards.

Meanwhile, blue-chips were a tiny bit higher, but nothing to get too excited about. The

Dow Jones Industrial Average

was up 4 to 11,017. Weighing on the Dow the most was

J.P. Morgan

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

, which was accounting for 11.79 points of negative influence on the gauge.

The Dow had risen as high as 11,089.45.

Elsewhere, the

S&P 500

was up 6, or 0.4%, to 1431. The small-cap

Russell 2000

was up 2, or 0.4%, to 524. Internet Sector

index was down 9, or 0.8%, to 1162.


(RNWK) - Get RealNetworks, Inc. Report

was playing the role of biggest loser in the DOT, down 7 11/16 to 159 7/8.

Jay Meagrow, vice president of trading at


in Cleveland, said the market was taking a bit of a breather from the last couple of days. The trader said he's looking for a rather quiet, sideways session.

Breadth was mixed, while volume was relatively robust. (see below)

As for the January jobs report, the numbers for the most part reinforced the feeling that the

Federal Open Market Committee

is going to keep on the interest-rate-hiking path in March and perhaps beyond.

Initially after the report's release, the Treasury market surged. However, it didn't take too long for the reality of the strong data to knock the government market down.

The 30-year Treasury bond was lately off 1 6/32 to 98 21/32, yielding 6.23%. The 10-year Treasury note was off 14/32 to 96 13/32 to yield 6.51%.

The long bond's rally earlier this week and the inversion in the yield curve -- and the pain most likely caused for some, particularly

yesterday -- was sparked by the

Treasury Department's

announcement that it will "significantly" cut the size of one of the two annual 30-year bond auctions. (For more on the fixed-income market, see today's

Bond Focus.)

The employment report showed nonfarm payrolls rose by 387,000 in January, a mile above the 255,000 that economists polled by


were looking for. Part of that jump was ascribed to the unseasonably warm weather in second week of January.

Average hourly earnings jumped to 0.4%, a tenth of a point above expectations, while the unemployment rate ticked lower to 4%. Economists were expecting the jobless rate to remain unchanged at 4.1%.

Mario DeRose, fixed-income strategist at

Edward Jones

, said the government market's selloff was a normal reaction to such strong data. DeRose said that he thinks today's jobs report strengthens the case that the FOMC will raise rates again when it next meets, March 21.

Waiting for Hints From Greenspan

DeRose said it looks like things in the market today are working based on economic fundamentals rather than supply and demand, which is the way the market's been moving most of this week. He said the Treasury market will be focusing on inflation data for the rest of the month. He's expecting the yield on the 10-year note will -- considering that the Fed for the most part is in a tightening mode -- that its yield is heading back to 6.75% and that overall, the bias is for higher interest rates in the market.

DeRose said the key event going forward is Fed Chairman

Alan Greenspan's


testimony. He said if the Fed's going to get more aggressive in raising rates, odds are Greenspan will signal that in his testimony, DeRose said.

In other words, a heads-up to the Treasury market (and the stock market, for that matter).

Which would be different than what the Treasury Department did this week with its announcement regarding supply.

DeRose said Treasury "could've done a better job" of preparing the market for its announcement this week, which caught a lot of people off-guard, even though the impact on the yield curve eventually would've been the same.

The scarce supply of 30-year bonds going forward is going to make it difficult for the long bond to remain a benchmark for the debt markets, DeRose said. Taking its place, probably, is going to be the 10-year note, he said. He pointed out that the inversion in the yield curve, which historically has been a harbinger of recession, isn't that this time around and is just a function of supply and demand.

Among other indices, the

Dow Jones Transportation Average

was down 0.2%, the

Dow Jones Utility Average

was down 1.9% and the

American Stock Exchange Composite Index

was down 0.7%.

Market Internals

New York Stock Exchange:

1,294 advancers, 1,563 decliners, 624 million shares. 77 new 52-week highs, 88 new lows.

Nasdaq Stock Market:

1,990 advancers, 1,873 decliners, 1.08 billion shares. 236 new highs, 35 new lows.

For a look at stocks in the midsession news, see Midday Movers, published separately.

Herb on TheStreet: Raising Doubts About the Profitability of Amazon's Book Business


Herb Greenberg

Senior Columnist

2/4/00 6:30 AM ET


(AMZN) - Get, Inc. Report

says its book business is profitable.

Oh, yeah?

The company's fourth-quarter earnings release was beautifully choreographed, fabulously danced and wonderfully received. (At least so it seemed based on the 21% rise in Amazon's stock Thursday.) "They said what the Street wanted to hear," reasoned


analyst Sara Farley, in a report that reiterated her neutral rating on the stock.

And what the Street wanted to hear was the word profit.

Just one question: How does Amazon define profit? Jim Chanos of

Kynikos Associates

in New York, one of the country's largest short-selling funds, did the math and came away with a


for the book business -- not a profit. (Chanos' fund is short Amazon.) He got there by subtracting his estimates of cost of sales and Amazon's fulfillment costs. He then deducted estimated marketing and sales expenses as well as general and administrative expenses.

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TSC Message Boards .

When Chanos ran his calculation (along with his estimates) by analysts who are friendly to Amazon, each gave him slightly different numbers on the cost of sales, fulfillment costs and marketing and sales costs -- differences that didn't really affect his bottom line:


general and administrative costs, Amazon still didn't make any money.

"But," the analysts argue (and I'm extrapolating here, based on what Chanos told me), "Amazon is telling us their definition of profit is


general and administrative costs." (The analysts are calling it "contributed profit." Contributed profit? That's a new one!)

General and administrative costs are considered normal expenses for every business, which is why Chanos included them. "I guess we have a philosophical difference," Chanos says. He adds: "I think the company is being misleading, at best, saying books are profitable, because using my numbers they're only profitable on a gross-profit basis." (By gross profit Chanos means profitable before sales and marketing as well as general and administrative costs.)

But that's only one reason Chanos and others are questioning the quality of the story being spun by Amazon. (Go see my buddy

Joey Bousquin's

analysis on's

news pages for yet another take on the company's numbers.)

Not only is the company running low on cash, but despite writing off $39 million in inventory, the amount of inventory on hand still rose by around $100 million from the third quarter. (Shouldn't that have been going down?) And payables, the amount owed to suppliers, leaped by 95% from the third quarter. (Stretching out payables is one way to conserve cash. Usually, for a retailer, payables rise in the third quarter, as inventories are bought for Christmas, then fall during the fourth quarter.)

But wait -- there's more: Click here for the conclusion of today's column:

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column. Community

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