Publish date:

midday06-02-99's MIDDAY UPDATE

June 02, 1999

Log on and see why National Discount Brokers was awarded the top rating in both Barron's and Money Magazine's online broker surveys:

Market Data as of 6/2/99, 12:57 PM ET:

o Dow Jones Industrial Average: 10,495.57 down 100.69, -0.95%

o Nasdaq Composite Index: 2,374.36 down 37.67, -1.56%

o S&P 500: 1,284.23 down 10.03, -0.77%

o TSC Internet: 534.02 down 22.85, -4.10%

o Russell 2000: 431.64 down 5.82, -1.33%

o 30-Year Treasury: 90 23/32 up 4/32, yield 5.921%

In Today's Bulletin:

o Midday Musings: Rate Fears Ratchet Up the Pressure on Net Stocks
o Herb on TheStreet: What Does Guidant's Move Into Minimally Invasive Heart Surgery Mean for CardioThoracic?

Crossing Customs: Europe's Foray Into U.S.-Style Investing

European governments are encouraging their citizens to invest for their retirements, a pan-Continental currency eliminates one barrier to buying stocks and bonds in neighboring countries and Internet growth is expanding the European investment consciousness, giving birth to online trading, research and stock chat sites.

In this five-story package, TSC examines the transformation of Europe's markets.

Europe: Crossing Customs: Europe's Foray Into U.S.-Style Investing

Online brokers, 401(k)s and a burgeoning interest in stock trading have caught Europe's eye.

Marc Chandler: Crossing Customs: A New Equity and Funds Culture in Europe

As banks are forced to sell their equity holdings and the population grows older, Europeans are discovering equity investing.

Europe: Crossing Customs: Fund Manager Kiddie Rides European Equities to Glory

David Kiddie, a firm believer in Europe's nascent equity culture, has watched his TU Europe fund grow.

Also on

Wrong! Dispatches from the Front: The Killer Bon-Bon

Net investors watch break its print price. In this market, it's just best to wait, Cramer says. Alan One-Note and the Amazon Blues

For Alan Abelson lovers,


swipe at the bookseller has a familiar ring.

Silicon Babylon: Score One More for the Web

Company Sleuth rings up a scoop on the MCI-SkyTel merger.

Dear Dagen: Dear Dagen: Where Can I Park My Money for Nine Months?

Money market funds will provide the best combination of return and convenience for such a short term.

Midday Musings: Rate Fears Ratchet Up the Pressure on Net Stocks


Heather Moore

Staff Reporter

Y'all can bet one of your new homes that the


gonna raise rates at the end of the month.

But then again, most folks already knew that. Last month, a strong reading on the

Consumer Price Index

and the

Federal Open Market Committee's

move to a tightening bias told investors a hike in short-term interest rates was in store. Yesterday, the


followed suit. Friday's tell probably will be the May

employment report


And the reason du jour to expect

Greenspan & Co.

to take a stand against inflation at the Federal Reserve's meeting June 29 and 30? Word that new home sales vaulted 9.2% during April. The

Commerce Department

said the seasonally adjusted annual rate of sales leapt to 978,000 in April from 896,000 in March.

Those numbers were cause enough to keep bonds and inflation-fearful financial and technology equities on

yesterday's path southward. And, as yesterday's afternoon turnaround among several big-cap names showed, some cyclical stocks are standing ready to pick up the falling coins.

But mostly, the air during this shortened Wall Street week remained stagnant, with people doing more scratching of the head than anything else. Alan Greenspan was set to speak at a trade and technology conference at 1 p.m. EDT in Boston, but his comments will likely have little influence on today's trading.

Thomas Madden, chief investment officer for U.S. equities at

Federated Investors

in Pittsburgh, sees the stock market stuck in a correction, with the


possibly falling to 9500 -- "although that would be the extreme," he said -- until the Fed meets. He says there's a "3-in-4" chance of a 25- to 50-basis-point boost in rates. In which case, he expects a relief rally on the day of the rate hike to mark the beginning of another leg skyward.

In the meanwhile, the strategist expects insurance, technology and "most high P/E stocks" to trade down, with a little "backing and filling." He said the cyclical rally isn't over yet and that "we will continue to see that shift into value stocks. We had a little profit-taking -- I think the institutions were making a lot of trades here -- after five years of earnings growth being discounted in an afternoon. But now it's back to the races."

Madden also sees small-cap names benefiting from current market conditions, "but I've been saying that for six quarters -- and that's six flights of stairs I've been thrown down."

As for the long bond, Madden said he wouldn't be surprised if the yield on the 30-year rose as high as 6.5%. If it goes above that, he said, his whole forecast can be thrown out the window.

The 30-year Treasury lately was down 4/32 to 90 15/32, sending its yield up to 5.94%. (For more on the fixed-income market, see today's early

Bond Focus.)

Madden emphasized that Federated doesn't see any signs of substantial inflationary pressure. "While we may have some uptick in inflation in this pistol-hot economy," he said, "it's still very hard for me to see how this means a major increase in broad inflation. As everyone has pointed out, wage costs are under control and we continue to have excess capacity around the world, which holds down domestic costs."

He also cited yesterday's news that

Merrill Lynch


plans to offer online trading as a deflationary influence. "This outbuilding of the Net will cost consumers less money two years from now. The Net has forced retailers to get on the train. Networks always save time and money. That Merrill is meeting

Charles Schwab's


price -- this is big."

After rising as high as 10,627.60, the

Dow Jones Industrial Average

lately was down 118.42, or 1.1%, to 10,477.84.

Allied Signal







(XON) - Get Intrexon Corporation Report

were among the seven Dow components in positive territory. Indeed, oil was one of the session's few bright spots, with the

American Stock Exchange Oil & Gas Index

rising 1.1%.

The broader

S&P 500

was falling 12.52, or 1%, to 1281.74, and the smallish-cap

Russell 2000

was dropping 6.27, or 1.4%, to 431.19.

The lately beaten

Nasdaq Composite Index

continued to acquire more bruises, and was down 43.31, or 1.8%, to 2368.72. Separate New York analyst meetings could move




MCI WorldCom


later in the day.

Internet bellwethers saw no end to the suffering, as

America Online


fell 4.9%,



sank 4% and

(AMZN) - Get, Inc. Report

tumbled 5.7%. Internet Sector

index was losing 27.31, or 4.9%, to 529.53.

Breadth was negative and volume was fair. On the

New York Stock Exchange

, decliners lead advancers 1,796 to 990 on 393.6 million shares traded. And the downs had the ups 2,374 to 1,165 on 465.5 million shares in

Nasdaq Stock Market


Wednesday's Midday Movers

By Thomas Lepri
Staff Reporter

Headlining today's movers are the brokers, which are looking pretty funky, though not in a good,

Bootsy Collins

sort of way.




Morgan Stanley Dean Witter


were taking hits after

CIBC World Markets

TheStreet Recommends

analyst Steven Eisman cut them both to buy from strong buy and reduced his 2000 earnings estimates for the companies to $3.45 from $4 a share and to $6.40 from $7 a share, respectively. PaineWebber was off 3 13/16, or 8.5%, to 40 15/16, while Morgan Stanley was down 5 3/4, or 6.3%, to 86. Eisman also lowered his 2000 earnings estimate on Merrill Lynch to $5 from $5.70 a share, sending that stock down 4 5/8, or 6.2%, to 70 5/8.

The poster child

du jour

for the continuing Net stock slump is Spanish language Web portal

StarMedia Networks

(STRM) - Get Streamline Health Solutions, Inc. Report

, which was giving back some of its recent big gains, falling 17 3/16, or 28%, to 44 1/8.

In other news:

Volpe Brown

started coverage of



with a buy rating, but that wasn't enough to ward off a drubbing shared with the rest of the Net sector: AdForce was off 8 1/2, or 29.6%, to 28 1/4.

Polish cable TV network


(ATEN) - Get A10 Networks, Inc. Report

was surging 5 5/8, or 45.2%, to 18 1/16 on news that Europe's second-largest cable company,

United Pan-Europe Communications


, agreed to buy it for $1.15 billion.


(MSFT) - Get Microsoft Corporation (MSFT) Report

has an 8% stake in UPC, which was lately off 1/4 to 41 1/4.

There seems to be only so much capital to go around in the online bookselling business, and that limited supply has been shrinking lately.


was lately trading below its IPO price of 18, off 2 7/8, or 14.4%, to 17 1/8.

British Steel

(BST) - Get BlackRock Science & Technology Trust Report

was jumping 3 9/16, or 16%, to 25 3/4 after the mellifluously named Dutch steel and aluminum firm


said it was in merger talks with the company.



was letting off some steam gathered during its market debut last week, down 6 1/4, or 16.1%, to 32 1/2.



was tumbling 7 1/2, or 13.9%, to 46 3/4. Competition between toy retailers in the capital markets will heat up later this week when

Zany Brainy's

-- say it again, Zany Brainy's -- IPO is expected to be priced.

This isn't the way M&A arbitrage is supposed to work. But investors are bullish on chemicals firm



plan to acquire



, a maker of polymer films for the auto and industrial markets. Geon was lately up 2 7/16, or 7.7%, to 34 1/8, while O'Sullivan was advancing 2 11/16, or 28.7%, to 12 1/16.

Software company



was sliding 10 5/8, or 18.7%, to 46 3/8 after

Morgan Stanley Dean Witter

started it with a neutral rating.

Bear Stearns

started coverage of information technology services firm

Metro Information Services


with a rating of attractive. But the stock was getting beaten down a rather unattractive 5 3/4, or 24.3%, to 17 15/16.

Earnings/revenue movers

Preannouncement season is upon us, folks, and the fun is just beginning.

American Home Products


seems to have stabilized after last night's

warning that second-quarter earnings would likely come in about 7 cents below the 25-analyst First Call outlook of 41 cents a share, and that full-year 1999 earnings would fall about 11 cents shy of the 27-analyst forecast of $1.89 a share. The stock dropped sharply in after-hours composite trading, but was bouncing back today, lately up 1 3/16 to 53 3/16. AHP earned 39 cents in the year-ago second quarter and $1.78 for 1998. The company blamed a global slump in grain and livestock prices and said it was considering strategic alternatives for its agricultural product and livestock units.

Adobe Systems

(ADBE) - Get Adobe Inc. Report

was little changed -- up 5/8 to 73 1/8 -- after it said it expects to report second-quarter earnings slightly above its previously estimated range of 62 cents to 66 cents a share. The 11-analyst view for Adobe's quarter was 64 cents a share. Adobe also said it would take a $15 million restructuring charge to cut about 9% of its worldwide staff.

Fast-food franchiser

CKE Restaurants


was getting rocked after cutting its first-quarter earnings forecast to between 35 cents and 37 cents a share, well below the 45-cents-a-share 12-analyst estimate. CKE, which blamed the slackness on poor results from its

Carl's Jr.



chains, was lately down 4 7/8, or 27%, to 13 3/16.

Weighing in with an actual earnings report was Web communities firm



, which was off 13/16 to 18 3/4 after the company reported a first-quarter loss of 1 cent a share, a dime narrower than the four-analyst call and a penny wider than last year's break-even quarter.

Herb on TheStreet: What Does Guidant's Move Into Minimally Invasive Heart Surgery Mean for CardioThoracic?


Herb Greenberg

Senior Columnist

CardioThoracic Systems


, no stranger to this column, was last

mentioned for walloping rival



(from a sales and market value standpoint) in the market for minimally invasive cardiac surgery. That column quoted Larry Haimovitch, of

Haimovitch Medical Technology Consultants

, who is long CardioThoracic, as saying he believes the company will be cash-flow positive in the third quarter and profitable in the fourth quarter.

Now the question: What's the likelihood the company will be acquired, perhaps before then? Hard to say, and CardioThoracic CEO Rich Ferrari is mum. (Gave the standard "can't comment on any of that" statement.) However, the issue has been stirred in the wake of an analyst meeting held by



, whose products are used in heart surgery.

At the meeting, according to several analysts who were there, Guidant specifically mentioned a desire to move more aggressively into the minimally invasive heart surgery market. Guidant officials couldn't be reached yesterday, but one Guidant analyst said he believed that, ultimately, Guidant would enter the market by developing products internally and making acquisitions.

Enter CardioThoracic, which is currently considered the healthier of the two minimally invasive heart surgery companies. (The other, of course, being Heartport.) "There's a time when minimally invasive becomes so minimally invasive that it becomes as attractive, in terms of invasiveness, as angioplasty and stenting," Haimovitch says. He believes the acquisition of CardioThoracic by


company is a "when, not if" type of situation.

The "when," according to

Banc of America Securities

analyst Kurt Kruger, is likely to be later rather than sooner. "The bloom is somewhat off the minimally invasive rose," says Kruger, who has a buy rating on CardioThoracic. His firm, in its former incarnation as

Montgomery Securities

, helped bring CardioThoracic public. "It's like the


football team. Three yards and a pile of dust. They'll have to prove the numbers will work."

Short Positions

Internet insanity:

An item here several

months ago caused the Hostile React-o-Meter to spin outta control when it mentioned the possible risks of the key Internet stocks. (Like, how dare I?)

The one risk the column didn't mention (of course) was the most obvious: that thang they call the market. Duh!

Timing is everything:

Just last Friday analyst Tom Brown of

Tiger Management

was quoted

here explaining why he didn't like big banks but why he liked the new wave of financial services companies. Among his favorites:




Telebanc Financial


, and yesterday they agreed to merge! (The guy is telepathic, I tell ya, TELEPATHIC!)

Message board melee:


item on



message boards sparked a number of emails from readers who say that what occurs on AboveNet's boards and

Lernout & Hauspie's


boards is really no different than what occurs on


boards. "From what I have seen, all message boards are filled with the same cheerleading numbskulls who are hyping/touting/wishing/charting/whatever their stocks to higher and higher market caps," writes Bill Boatwright. "I don't frequent them, but every time I look at one to see if there is anything behind a stock's move, I see the same stuff: NO credibility, NO intelligence." Not to mention libelous (which, based on messages forwarded this way, appears to be the case with some messages posted by the


). There's your Lernahoulian alert for the day.

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.


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