midday06-30-99

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TheStreet.com's MIDDAY UPDATE

June 30, 1999

http://www.thestreet.com

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Market Data as of 6/30/99, 2:46 PM ET:

o Dow Jones Industrial Average: 10,923.00 up 107.65, 1.00%

o Nasdaq Composite Index: 2,676.26 up 34.15, 1.29%

o S&P 500: 1,363.15 up 11.70, 0.87%

o TSC Internet: 617.24 up 20.67, 3.46%

o Russell 2000: 458.26 up 4.18, 0.92%

o 30-Year Treasury: 89 22/32 up 26/32, yield 6.030%

In Today's Bulletin:

o Midday Musings: Market Pares Back and Gears Up for Its Date With the Fed
o Herb on TheStreet: Split Down the Middle as Tension Mounts on Hollywood Entertainment

Also on TheStreet.com:

Wrong! Dispatches from the Front: No Man's Land

The trader's twiddling his thumbs. But he can see the 2:11 p.m. border from here.

http://www.thestreet.com/comment/wrong/760758.html

TSC

Tax Forum: Global Tax Forum: Offshore Trading Accounts Are of Limited Value to U.S. Citizens

People set them up to try to avoid taxes. But it won't work.

http://www.thestreet.com/funds/taxforum/760469.html

SiliconStreet.com: When a Onetime Highflier Fades From the Radar Screen

Goldman's dissing of General Magic provides a cautionary tale for today's hotshots. Also: dissecting Lehman's 'Ten Uncommon Values.'

http://www.thestreet.com/comment/siliconstreet/760521.html

Biotech/Pharmaceuticals: With Arthritis Drug, Merck Engages Pfizer in Hand-to-Hand Combat

Merck's compound is angling for a fat slice of Celebrex's monster share.

http://www.thestreet.com/stocks/biotech/760380.html

Dear Dagen: Dear Dagen: Making Fund Boards More Independent and Accountable

An industry group came up with 15 recommendations for making boards more accountable. Here's how they could be improved.

http://www.thestreet.com/funds/deardagen/760701.html

Midday Musings: Market Pares Back and Gears Up for Its Date With the Fed

By

Heather Moore

Staff Reporter

Hey, don't do us any favors,

Fed

, it's not like anybody here has been sitting around waiting for you to call. OK, maybe earlier this month some of us were. But during the last two days, many of us have gathered the courage to get out of our

Doritos

-crusted beds and rack in some profits. And today, we're busy -- that's right, busy -- returning some of those gains and thinking about economic numbers

you

didn't provide.

So you see, while you've been messing around with your boys in D.C., we've been moving on without you. But if you do finally give a ring with that answer -- say at 2:15 p.m. EDT today -- we just might answer the phone. Don't expect us to necessarily be healthy enough to have a normal reaction, though.

This kind of passive-aggressive mentality has been in the stock and bond markets ever since an exceptionally strong

Consumer Price Index

number got Wall Streeters worrying about a rate hike. Then the debating

ad nauseam

began: We need an uptick in interest rates to ward off inflation; inflation -- what inflation?; we need a series of upticks to ward off inflation; we need nothing of the sort!; the

Federal Open Market Committee

is our best friend; the Fed's policy-setting arm is the enemy; etc.

For all the escalating drama, if the FOMC increases the fed funds target rate to 5% from 4.75% this afternoon as anticipated, there may be few, if any, fireworks. There could be heavy selling on word of a rate hike, no matter how foretold. There could be very little reaction at all.

Along with the FOMC's

bias (will it continue to lean toward raising rates? switch to neutral?), the markets instead may pay close attention, as it has been, to economic data. Tomorrow we have the release of the June

Purchasing Managers' Index

; Friday, it's the June

employment report

.

Today, markets were given further evidence of an expanding economy with the June

Chicago Purchasing Managers' Index

, which hopped to 60.0 from 57.9 in May. The prices paid index jumped to 57.2 from 52.5.

Bonds were less than thrilled. The 30-year Treasury recently was down 9/32 to 88 19/32, pushing up its yield to 6.09%. (For more on the fixed-income market, see today's early

Bond Focus.)

"I think the mood today is one of complacency prior to the big news, which is a forgone conclusion," said Brian Belski, chief investment strategist at

George K. Baum

in Kansas City, Mo. "And I think we've already priced in 50

basis points."

Belski sees a 0.25-percentage-point hike today and another 0.25-percentage-point tightening before the year's end. He expects a small rally after the news but just as much because today is the last day of the second quarter than anything else. Tomorrow, with the Fed news out the way and it being the first day of July and the first day of a new quarter, Belski expects a more substantial rally. He also called tomorrow the "last real trading day of the week" before the three-day Fourth of July weekend.

"This is the stock market in July," Belski said. "People are gonna stick around for the Fed -- that's the big thing -- rebalance or make any adjustments tomorrow, maybe work a half-day Friday and then take off for wherever they're going."

The strategist is calling for a more "ambiguous" second-quarter earnings season than are many of his peers, saying companies can beat year-ago quarters easily but will have a tough time topping first-quarter figures. During earnings season, Belski expects bond yields to make a short-term top -- he says bonds will continue to suffer from inflation fears after today's FOMC news -- and stocks to trade "mixed to down." We won't get our summer rally, he said, until early fall.

The

Dow Jones Industrial Average

lately was down 32 to 10,783, off its intraday low of 10,731.45. Getting hit the hardest was a mixed bag of sector representatives, including

Boeing

(BA) - Get Report

,

General Electric

(GE) - Get Report

,

Hewlett-Packard

(HWP)

and

Union Carbide

(UK)

.

On the upside among the gilded 30 were

Chevron

(CHV)

,

General Motors

(GM) - Get Report

and

IBM

(IBM) - Get Report

. The broader

S&P 500

was down 8 to 1344, but the small-cap

Russell 2000

was up 2 to 456.

With the

S&P SmallCap 600

up 0.4% today, Belski predicted small-cap stocks will outperform in the coming months with the help of a continued growth/value story influencing the market.

Yesterday's star, the tech-driven

Nasdaq Composite Index

, was down 6 to 2636, above its earlier low of 2621.06. The

Nasdaq 100

was losing 0.7%, with

Cisco

(CSCO) - Get Report

one of the few keeping its head above water.

Internet names marched on with continued confidence, lifting

TheStreet.com Internet Sector

index up 8, or 1.3%, to 604.

Market internals were mixed on stronger volume than one might expect before news from the Fed. (Several traders called were too swamped to come to the phone.) On the

New York Stock Exchange

, decliners were leading advancers 1,472 to 1,333 on 409 million shares. But the ups had the downs 1,919 to 1,700 on 529 million shares in

Nasdaq Stock Market

activity. New 52-week highs were outpacing new lows 63 to 34 on the Big Board and 146 to 25 on the Nasdaq.

Wednesday's Midday Movers

By Aaron L. Task
Senior Writer

News the

Justice Department

is launching an antitrust investigation of the undersea cable business of a consortium consisting of some of the biggest telecommunications companies in the world has cast a pall over the group.

MCI WorldCom

(WCOM)

was down 5 1/4, or 5.6%, to 88 5/16;

Sprint

was down 1 7/8, or 3.4%, to 53 3/16;

AT&T

(T) - Get Report

was off 3/4, or 1.5%, to 54 13/16; and

Level 3 Communications

(LVLT)

was down 1, or 1.5%, to 67 13/16.

At the other end of the spectrum (far-reaching pun intended), Net issues -- particularly of the e-commerce variety -- continued to garner huge interest among investors.

E-Loan

(EELN)

, which soared 164% in its public debut yesterday, was up 2 3/16, or 5.9%, to 39 1/2 after trading as high as 43 1/2.

nFront

(NFNT)

, which gained 33.8% yesterday, was up 2 5/16, or 17.3%, to 15 3/4, though off a morning high of 17 1/2 on its second day of trading. Meanwhile,

Digital Island

(ISLD)

, which rose a relatively modest 18.8% on its first day yesterday, was up 5 5/16, or 44.7%, to 17 5/16. Also,

Mail.com

(MAIL)

, which went public June 18, was up 6, or 47.1%, to 18 13/16.

In a more established but somewhat similar vein,

National Discount Brokers

(NDB)

is building on the momentum generated yesterday by some favorable analyst commentary, lately up a further 8 9/16, or 18.8%, to 53 3/4. Finally,

Equitex

(EQTX)

was up 2 3/8, or 21.4%, to 13 13/16 after announcing plans to introduce online mortgage lending, following its recent acquisition of privately held

First Bankers Mortgage Services

.

In other news:

Corning

(GLW) - Get Report

was up 4 9/16, or 7%, to 69 3/4 after

I-21 Future Communication

said it will use Corning fiber for 80% of the 8 million kilometers of optical fiber it plans to deploy in Europe's largest broadband network. I-21 is a unit of

Interoute Telecommunications

, a privately held, pan-European telecom group.

Covad Communications

(COVD)

was up 5 1/2, or 13.3%, to 46 3/4 after

Morgan Stanley Dean Witter

initiated coverage with a market outperformer recommendation.

Danka Business Systems

(DANKY)

was down 2 7/32, or 30.6%, to 5 1/32 on word its agreement to sell an outsourcing unit to

Schroeder Ventures

has been terminated.

Gainsco

(GNA)

was up 1 15/16, or 46.3%, to 6 1/8 on news an investor group including rainmaker

Richard Rainwater

has agreed to acquire a 23% stake in the property and casualty insurer for $31.6 million. The group --

Goff Moore Strategic Partners

-- also acquired warrants enabling it to increase its stake going forward.

i-Cube

(ICUB)

was up 4 7/16, or 23.4%, to 23 7/16 thanks to a Morgan Stanley Dean Witter upgrade to strong buy from market outperformer.

Iridium World Communications

(IRID)

was up 31/32, or 9.8%, to 10 7/8, though down from an earlier high of 11 5/8, after its lenders agreed to extend its $800 million secured credit facility through Aug. 11. This is the third extension received by the satellite phone company since March. (

TheStreet.com's

Herb Greenberg wrote about the company last

Friday.)

Network Plus

(NPLS)

was up 60.2% to 25 5/8 after

Goldman Sachs

priced the telephone service provider's IPO top-range at $16.

Newcourt Credit Group

(NCT)

was up 11/16, or 5.6%, to 12 7/8 after saying merger discussions with

CIT Group

(CIT) - Get Report

, rumored to have been on the verge of collapse, are continuing. CIT was off a fraction.

Copper giant

Phelps Dodge

(PD) - Get Report

was up 2 7/16, or 4.1%, to 61 7/16 after announcing plans to reduce costs and improve operating performance by further curtailing higher-cost production, The moves will result in a nonrecurring aftertax charge of $61 million, or $1.05 a share, in the second quarter.

Pinnacle Holdings

was up 4 7/16, or 23.4%, to 23 3/8 after

last night announcing plans to acquire

Motorola's

(MOT)

North American antenna site business for $255 million in cash. Motorola was down 1.5%.

Private Bancorp

(PVTB)

was up 47.6% to 26 9/16 after

Everen Securities

priced the bank holding company's IPO at $18.

Tellabs

(TLAB)

was down 1 15/16, or 2.8%, to 67 1/2 on word it is acquiring privately held

NetCore Systems

for about $575 million in stock.

VaxGen

(VXGN)

was up 17.8% to 15 5/16 on its first day of trading.

Prudential Securities

priced the offering for the biotech concern at $13, the low end of the expected range.

Earnings/revenue movers

Franklin Electronic Publishers

(FEP) - Get Report

was down 1 1/17, or 22.4%, to 3 11/16 after posting a fourth-quarter loss of $2.73 a share vs. a loss of 11 cents a year ago. The company also said it expects a "substantial loss" in its fiscal first quarter.

Herb on TheStreet: Split Down the Middle as Tension Mounts on Hollywood Entertainment

By

Herb Greenberg

Senior Columnist

Scripts don't get any better than this. At least not on Wall Street.

On one side we have

Fox Entertainment Group

(FOX) - Get Report

and

Rentrak

(RENT)

, a distributor of video tapes, which have sued video rental company

Hollywood Entertainment

(HLYW)

, alleging various accounting improprieties.

On the other we have Hollywood, which has denied all wrongdoing.

On one side we have one of my very best and smartest sources, who is very long Hollywood. He has gone so far as to hire a law firm to comb through every detail of two lawsuits. A brief compiled by

his

law firm suggests the suits are a joke.

On the other we have another one of my very best sources, who is very short Hollywood. He, too, has also combed through every detail of the two suits, and actually hired law firms to sit through hearings related to the suits. His interpretation: The suits could bring Hollywood down.

And, finally, on the Hollywood side we have Jerry Hirschberg, a debt analyst for

Standard & Poor's

, who recently placed Hollywood on CreditWatch with positive implications -- a good thing.

On the raising-a-warning-flag-on-Hollywood side we have

Moody's

analyst Marie Menendez, who recently downgraded Moody's rating on the company's bank debt and changed her ratings outlook to negative.

Of all the differences, Hirschberg's and Menendez's may be the most striking. Bond analysts, by nature, tend to be more critical than stock analysts because they report for investors who have first claim on a company's assets. If they're doing their job right, especially with a deeply in-hock company like Hollywood, they should be an early warning sign of trouble.

In this case, the differences in their interpretations couldn't be more acute.

Hirschberg likes the industry growth trends, isn't concerned about whether the company has the cash to cover its interest obligations and believes the company will benefit along with rival

Blockbuster

from the recent trend toward revenue-sharing with movie studios. (Such revenue-sharing agreements allow both Blockbuster and Hollywood stores to stock dozens of copies of the latest and greatest movies by sharing the revenue with the movie studios.)

Menendez's less-than-enthusiastic analysis, on the other hand, cites uncertain business conditions, questions the company's ability to pay interest on debt and critiques that very same trend toward revenue-sharing.

Hirschberg believes revenue-sharing should help Hollywood and Blockbuster take additional share from smaller competitors. Menendez, on the other hand, thinks it's only a matter of time before revenue-sharing spreads to these smaller competitors.

And Menendez believes revenue-sharing has caused Hollywood to lose its edge over Blockbuster because Hollywood has

always

spent heavily on its own to have enough of the hot movies in stock. "That helped them in the early growth years," she says. "When revenue-sharing came in that went away."

As a bond analyst, Menendez measures the probability of default and the severity of the possible loss. She notes that Hollywood has a $300 million line of bank credit, and banks are at the top of the claim-to-assets food chain. Tapes are its most liquid asset, which means they're the easiest to sell.

If for some reason Hollywood were to run into a serious cash squeeze, and was forced to sell its tape inventory to pay back debtholders, she believes "the certainty of the value

of the tapes has severely deteriorated because of the sheer number of tapes pouring into the market."

A Hollywood spokesman, however, says the company is selling more tapes at a higher price than ever before.

This is getting better than a B-rental.

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

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

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