May 19, 2000

Market Data as of 5/19/00, 1:10 PM ET:

o Dow Jones Industrial Average: 10,630.62 down 146.66, -1.36%

o Nasdaq Composite Index: 3,407.75 down 130.96, -3.70%

o S&P 500: 1,408.98 down 28.23, -1.96%

o TSC Internet: 840.94 down 42.62, -4.82%

o Russell 2000: 479.79 down 11.16, -2.27%

o 30-Year Treasury: 100 05/32 down 2/32, yield 6.231%

In Today's Bulletin:

o Midday Musings: Accelerating Selloff Brings Search for Bottom to Fore Again
o Herb Greenberg: Herb's Hotline: Beware Corporate Sleight of Hand

Donald Luskin, president, CEO and co-founder of, will be the guest on "" show on Fox News Channel May 20 and 21.

Also on

Wrong! Rear Echelon Revelations: Inexplicably, Sycamore Gets Licked

The company reported a blowout quarter, but the stock is trading down! What's going on here? Yahoo! Seeks a Trinity to Triumph

Wireless, corporate and global are the buzzwords for its future. Also, a case against B2B (the label, anyway).

Internet: DoubleClick Inches Toward Privacy Peace With Government

A deal could lift a significant cloud from the online ad firm's outlook.

Mutual Funds: As Closed-End Funds Lose Luster, New Exchange-Traded Products Pose Threat

Closed-end funds that invest in foreign countries appear the most vulnerable.

Midday Musings: Accelerating Selloff Brings Search for Bottom to Fore Again


Kristen French

Staff Reporter

5/19/00 1:11 PM ET With uncertainty over inflation and the likelihood of continued

Federal Reserve interest-rate hikes moves hanging over the market, and the

Nasdaq Composite and

S&P 500 indices solidly in the red for the second day in a row, the bottom question has returned to the fore. Did the market hit bottom in mid-April or will this roller-coaster ride drop it further?

"We're still really in a range from April lows to early May highs, but it looks like that range is going to be broken to the downside," said Bill Meehan, chief market analyst at

Cantor Fitzgerald

. "Some people say we've retested the lows; some say we will retest them again and go higher, but I think we will take out that low.

"If the Nasdaq gets to the 2900 level I'll start to nibble at some technology," he said.

And with the bottom question comes the search for fear. "Still not enough signs of fear!" cry the bears. A good indication that fear has not set in, and that Wall Street is still too complacent about higher-than-warranted company valuations, according to Meehan, is that equity mutual fund inflows just came in at an eight-week high.

Last night

AMG Data Services

reported equity mutual fund inflows for the week ended Wednesday.

"I'm hoping that when we get

to Nasdaq 2900, there'll be more signs of fear: decreased bullish sentiment in the investors sentiment poll, more put buying and a lot more volume to the downside," said Meehan.

Volume is still looking pretty pathetic, of course, as wary investors wait on the sidelines for more signs on the economy, and not even a double expiration on options today has helped. Usually options expirations give volume a bit of a boost.

In any case, some market observers are saying the Nasdaq isn't going to return to the highflying heights it visited in mid-March anytime soon, because its mad upward rush was sustained by an artificial monetary base which no longer exists: Y2K contingency funds pumped into the banking system by the Fed late last year. For more on this, see Justin Lahart's

story from yesterday.

So why are so many strategists still so bullish on tech? Thus far none of the big firms have made major changes to their asset allocations or year-end targets.

"I guess they'll have to in the near future," said Meehan. "I'm not going to argue they're wrong, but I think people are still pretty optimistic about what kinds of valuations people can take in companies."

In Nasdaq trading, pretty much everything was taking a beating, and the Nasdaq Composite Index was down 133, or 3.8%, to 3406.

Tech bellwethers


(CSCO) - Get Report



(INTC) - Get Report

were off 2 11/16 to 52 11/16 and 5 1/16 to 118 7/8, respectively. Internet Sector

index dived 43, or 4.8%, to 841, with


(BVSN) - Get Report


(AMZN) - Get Report






(CNET) - Get Report

pretty bloodied.

Internet portal Lycos and Spain's

Terra Networks


recently agreed to merge their operations.

In the world of telecom, the

Nasdaq Telecommunications Index

was off 5%.

MCI WorldCom


was losing 1 9/16 to 38,



was off 1 5/16 to 19 1/8,


(NOK) - Get Report

had fallen 4 1/16 to 48 15/16 and


(QCOM) - Get Report

was 6 3/8 lower to 90 9/16.

WorldCom was partly blamed for some heavy selling on the Nasdaq yesterday after antitrust authorities announced their opposition to WorldCom's $115 billion buyout of Sprint.

Biotechs are also down, with the

Nasdaq Biotechnology Index

off 2.2%.

Meanwhile, the

Dow Jones Industrial Average was tumbling off of yesterday's rise, down 143, or 1.3%, to 10,634.


NYSE trading, interest-rate-sensitive financial stocks are losing ground gained yesterday, and will likely continue to plunge on interest-rate fears. The brokerage stocks were feeling the most pain and the

American Stock Exchange Broker/Dealer Index

was off 3.9%.

Morgan Stanley Dean Witter


, which slipped 5 1/16 to 69 5/8,

Paine Webber


, which fell 2 5/8 to 43 11/16, and

Lehman Brothers


, which was off 4 1/8 to 81 9/16, were seeing the ugliest losses. Banking stocks were getting hit less hard.

Elsewhere on the NYSE, boxmaker


(IBM) - Get Report

, traded on the NYSE, was holding its head just above water.

And foods giant


(UN) - Get Report

, pharmaceuticals company


(MRK) - Get Report

and specialty chemicals company



were some of the only stocks in the green around midday.

The small-cap

Russell 2000 was down 11, or 2.3%, to 480, while the broader S&P 500 was down 28, or 2%, to 1409.

The 10-year Treasury lately was up 3/32 to 99 25/32, yielding 6.53%.

Market Internals

Breadth was very bad and volume pretty weak on both the NYSE and the Nasdaq.

New York Stock Exchange:

798 advancers, 1,926 decliners, 492 million shares. 18 new 52-week highs, 59 new lows.

Nasdaq Stock Market:

955 advancers, 2,780 decliners, 775 million shares. 10 new highs, 106 new lows.

For a look at stocks in the midsession news, see Midday Stocks to Watch, published separately.

Herb Greenberg: Herb's Hotline: Beware Corporate Sleight of Hand


Herb Greenberg

Senior Columnist

5/19/00 12:03 PM ET

Coincidence of coincidences: My

column this morning about

Whole Foods


coincided (by pure coincidence!) with the


story about how retailers, in general, are trying to distance themselves from the losses of their Internet subs. The only difference, of course, is that Whole Foods has found a neat trick to offload the losses, while the others report losses legitimately by including them as part of their consolidated results.

But the


story touched on another sensitive point that is becoming increasingly common: In an effort to make themselves look better than they really are, companies are taking it upon themselves to steer investors to look here when they really ought to be looking there. (The ultimate in corporate sleight of hand, no?) The argument in this case is that, by breaking out the core stores from the Internet biz, analysts can get a better feel for how the main biz is doing. The subtle message, however, is to ignore the losses, and that's just plain misleading because the losses are the losses are the losses. You


ignore them. That's no different from the way companies guide analysts to look at earnings before interest, taxes, depreciation and amortization.

Or the more recent trend among tech companies is to present their financial performance in their earnings releases


goodwill, noncash earnings and other charges. In the end, those losses can make or break a company, and they separate the good managers from the bad. (Sure you're going to have losses with a start-up, but they can't last forever; either the concept works or it doesn't.)

Moreover, "Once you get into the game of letting a company pick and choose what to include or exclude, you get into the game of letting the inmates run the asylum," says Howard Schilit of the

Center for Financial Research and Analysis

. I was actually talking to him for


story when he brought that up. He added: "You can't allow companies to pick and choose how to describe their performance. Companies should not be in the business of telling investors how to analyze their performance, they should simply provide the facts." And that's just what they do in their


filings, although regulators


let companies explain why they do what they do in the management discussion and analysis section. (After all, isn't that what


section is all about?! Indeed it is, but in the end, the numbers don't lie.) Now that I got


off my chest ...

Hotline Hit List

Debt spiral: The


(PYX) - Get Report

news late yesterday that higher rates will hurt its profits should be a reminder of what happens when companies with lots of debt, or those that need to raise additional debt, face when rates rise. (Nobody cares, of course, until the warning!) ... That's just like

MCI Worldcom





: If you dared mention the risk the


could move to quash that deal, people looked at you like you were looped. Look who's looped now! ... And now hear this (or I'd rather not!):

Lisa Schreiber

writes that she was forced to listen to an advertisement before the receiving phone would ring, when she made an


(T) - Get Report

long-distance call to a friend. Is that true? Anybody else with similar experience? ... Home sweet depot (cont'd.):

Ernie Tarwater

, from Topeka, isn't worried about whether

Home Depot's

(HD) - Get Report

strategy of opening stores within miles of one another will hurt Home Depot. His question: "What is going to happen to the




and other chain stores that have to compete with HD?" Now that a HD is closer, that's where he spends the bulk of the hardware dollars that for 35 years he used to hand over to the Ace in Overland Park. Maybe that


the story. (If so, good thing Ace ain't public!) ... Regarding recent stories here on

(AMZN) - Get Report

: Got to give its investor-relations folks credit for taking my calls (and being cordial, at that) even


a series of items

here that questioned the company's accounting, business model and financial performance. That's just plain professional ... And this interesting Amazon point: Very little reaction to


items here on Amazon, which tells me its days as a cult stock are over (at least for now!)


yesterday I used the word Shazam! in connection with a hillbilly item regarding Jethro Bodine (of

Beverly Hillbillies

fame for those of you not yet in your 40s!). That prompted one reader to write, "Why bring Gomer Pyle into this?" Because Goober was busy! And so am I, which means this brings to an end another edition of ... The Hotline.

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.

Copyright 2000,