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midday03-10-00's MIDDAY UPDATE

March 10, 2000

Market Data as of 3/10/00, 12:52 PM ET:

o Dow Jones Industrial Average: 9,998.63 down 12.10, -0.12%

o Nasdaq Composite Index: 5,068.99 up 22.13, 0.44%

o S&P 500: 1,400.88 down 0.81, -0.06%

o TSC Internet: 1,331.70 down 1.52, -0.11%

o Russell 2000: 607.75 up 1.70, 0.28%

o 30-Year Treasury: 101 00/32 down 8/32, yield 6.164%

In Today's Bulletin:

o Midday Musings: Stocks Little Changed at Midday as Wild Week Looks to End Calmly
o Herb on TheStreet: Is This Why PolyMedica's Earnings Are So Strong?

"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

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TheStreet Recommends

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

Wrong! Tactics and Strategies: Shifting Style for Survival

Even though some investors are averse to change, sometimes you have to shift to stay alive.

Market Features: Anatomy of a Highflier: Reading a Rocket Ride's Rorschach

Successful technical analysis requires the skills of a Freud. We put a couple of highfliers on the couch.

The Chartist: Nasdaq 6000? Not Until the Indicators Get Back in Line

The Chartist says even Nasdaq 5000 may not stick this time. Also, fewer stocks on the NYSE are hitting new lows.

Fixed-Income Forum: Making Sense of the Bond Data in the Newspaper

The difference between a yield and a discount rate, and why 20-year bond yields are so high.

Midday Musings: Stocks Little Changed at Midday as Wild Week Looks to End Calmly


Eileen Kinsella

Staff Reporter

3/10/00 1:03 PM ET

Milestone fever lost its momentum this morning and, by midday, the

Nasdaq Composite Index

and the

Dow Jones Industrial Average

were looking considerably weaker than they did this earlier in the session.

Yesterday, the tech-laden Comp closed above the 5000 mark for the first time, while the Dow, with somewhat less to celebrate, squeaked back above 10,000 a close it first cracked nearly a year ago.

Though both proxies bounced higher this morning on the benchmark enthusiasm, they were lately off intraday highs, with the Comp up 5.89 to 5052.75, and the blue-chip Dow was down 26.38 to 9984.35. The broader

S&P 500

was down 2.22 to 1399.47, while the small-cap

Russell 2000

was inching higher, up 2.86 to 608.91.

"Things are surprisingly quiet, and very orderly," said Bill Schneider, head of U.S. equity block trading at

Warburg Dillon Read

. "It's Friday, people want to close the books."

Still, he said he sees a continuation of the prevailing trend, where people are selling the old economy stocks to buy the new. "Every now and then, the old economy gets a respite."

For today at least, that pattern was less clear-cut than usual, with action and strength looking very selective, especially in the tech sector . The Internet sector was under water with Internet Sector

index down 8.15 to 1325.07, weighed down by weakness in



, down 3.2%, and



sliding 4.2%.

The pressure wasn't bothering IPO

OTG Software


which was soaring 36, or 189.4%, to 55 3/16 after it was priced last night at $19 a share. The company provides online data storage management.

The chip sector was also flying high with



rocketing 32 15/32, or 8.6%, to 411 15/16. The

Philadelphia Stock Exchange Semiconductor Index

was up 3%.

Schneider pointed to strength in brokerage stocks, citing bottom-line strength from a jump in IPO revenues, a lot of merger and acquisition activity and the fact that the floats on some of the brokerage stocks are not that large. One recent strong performer, he notes, has been

Goldman Sachs


, which was certainly showing some muscle today, up 8 5/16, or 7.7%, to 115 1/2.

"People have decided they really have to buy the brokerage stocks. In previous cycles, if you liked the market, you would buy them since they are proxies for the market," Schneider said. The

American Stock Exchange Broker/Dealer Index

was lifting 3%.

Investors weren't so

glad they used



, which dropped 24.1%, after the soap-maker reversed an earlier forecast of higher earnings and said it expects weaker first-half sales to push profits 10% to 12% below last year's levels.

J.P. Morgan

cut the stock to long-term buy from buy.



, which was also downgraded, was off 11.3%.

The news did not sit well with investors, especially on the heels of

Procter & Gamble's


earnings warning earlier this week. Lately, the consumer products sector was undergoing a little spring cleaning, with P&G down 6.4%, and the

Morgan Stanley Consumer Index

off 1.72 to 431.86.

Going forward, Schneider said he sees more of the same as far as the old economy/new economy debate. "The most successful sectors are drawing the most new money. The Nasdaq will draw in more money from the sidelines, as it holds above 5,000. The doubting Thomases are dancing to the music of the Pied Piper."

In the bond market, the 10-year Treasury was down 3/32 to 100 31/32, while the 30-year Treasury was down 12/32 to 100 28/32, its yield at 6.167%.

At the

Credit Suisse First Boston Global Telecommunications

conference in New York Friday,

Federal Communications Commission

chief William E. Kennard said the agency would conditionally approve



acquisition of

U S West


this afternoon. The approval, as expected, is to be contingent on the combined firm giving up long-distance service in the 14 Western states in which U S West provides local phone service.

Still, state regulatory approval remains a hurdle and the deal could yet unravel.

Market Internals

Breadth was negative on heavy volume.

New York Stock Exchange:

1,189 advancers, 1,581 decliners, 665 million shares. 59 new 52-week highs, 97 new lows.

Nasdaq Stock Market:

1,911 advancers, 2,147 decliners, 1.156 billion shares. 289 new highs, 61 new lows.

Herb on TheStreet: Is


Why PolyMedica's Earnings Are So Strong?


Herb Greenberg

Senior Columnist

3/10/00 6:30 AM ET


Whenever one company treats expenses differently than most other companies, it's bound to raise red flags. And they're flying high over



, a highflying direct-to-consumer distributor of diabetes supplies and other medical products.

This is a company whose stock, a year ago, was in need of a big dose of insulin, which it apparently received. In recent months, PolyMedica's stock has been on a roll -- up 127% since a secondary offering in November. And judging by the numbers, it's easy to see why: Revenues last quarter were up 47%, while earnings per share exploded upward by 106% to 37 cents per share. The strong earnings helped boost the operating margin to 17.8%, from 11.9% a year earlier.

PolyMedica's secret? Look no further than its advertising -- or at least the way the company accounts for it. Rather than expensing all of its advertising, like most firms do, it capitalizes, or spreads out, the costs for much of it over as long as four years. There's nothing illegal about that. However, whenever expenses are capitalized, reported earnings are higher than they otherwise would be.

PolyMedica's chief financial officer didn't return my call, but after reading the company's

Securities and Exchange Commission

filings, my guess is that he would've said that the company's "direct response" advertising creates long-term revenue, which in turn justifies not recording those costs as an immediate expense.

I also bet he'd have said that the company believes it is being conservative by going that route. After all, that's pretty much what PolyMedica said in a recent S-3, when it disclosed that: "Revenues generated from new customers as a result of direct-response advertising have historically resulted in a revenue stream lasting seven years. Management has selected a more conservative four-year amortization period..."

There was another disclosure, however, in the risk-factor section -- a risk you don't usually see -- which is also worth noting. According to PolyMedica, "Any accounting or business change that shortens or eliminates the four-year amortization of our direct-response advertising costs could result in accelerated charges against our earnings."

If that were the case today? If the company hadn't been able to capitalize its advertising expenses in each quarter of the last year, it wouldn't have posted



So much for those fat operating margins.

Help, I've been Seymoured:


promised you a response yesterday. I promised my editor a response for today. Sorry ... make that Monday.

So much for predictions:

Last week I said on our


show that I thought the


would fall to 4450 before it closed above 5000. I stand in awe. (Which is why I prefer to focus on the micro!)


An item

yesterday said that

Transaction Systems Architects


had warned that its fourth-quarter earnings would be off. The company was referring to the quarter ending Dec. 31, but that wasn't Transaction's fourth quarter; it was its first fiscal quarter. Sorry 'boud dat. And from the clarification department, yesterday's item on



suggested that the company was losing market share. A Kodak spokesman said the market share data cited represented dollar amount of sales, not the number of cameras sold.

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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