Publish date:

midday07-22-99's MIDDAY UPDATE

July 22, 1999


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Market Data as of 7/22/99, 1:31 PM ET:

o Dow Jones Industrial Average: 10,926.80, down 75.98, -0.69%

o Nasdaq Composite Index: 2,689.60, down 72.17, -2.61%

o S&P 500: 1,359.40, down 19.89, -1.44%

o TSC Internet: 598.46, down 16.85, -2.74%

o Russell 2000: 448.79, down 5.84, -1.28%

o 30-Year Treasury: 89 30/32, down 30/32, yield 5.962%

In Today's Bulletin:

o Midday Musings: Greenspan Says the Words Wall Street Doesn't Want to Hear
o Herb on TheStreet: For Those Who Think This Column Is Too Tough, a History Lesson

Don't Miss the TSC Series: Digital Music Unplugged

This three-day package explores investment rewards and risks created by the digitalization of the music industry, examining the impact that this trend will have on the financial world -- as well as those companies that will set the standard for the new medium.

Wednesday's installments:

Digital Music Unplugged: Investing in the New Music Revolution

Digital Music Unplugged: MP3 Takes Center Stage

Check out TSC Thursday afternoon for more stories from the series!

Also on

Wrong! Dispatches from the Front: Looking for Lost Leaders

Cramer's nervous when leaders like Nokia and Lucent pull off the highway.

The Chartist: The Daily Chartist: More Unhealthy Action

Helene Meisler continues to be suspicious of rallies which are so narrowly focused.

Bond Focus: Greenspan Sends Treasuries Packing

An emphasis in Humphrey-Hawkins on the possibility that the Fed will hike again next month reinvigorates the bears.

Networking: NetZero Shrugs at Y2K Problem

SEC filings reveal a startling lack of concern for possible network security and software issues.

Dear Dagen: Dear Dagen: Your Short-Sale Proceeds Draw No Interest From Brokerages

Yes, when you borrow shares and sell them short, the proceeds do earn interest. But usually not for you.

Midday Musings: Greenspan Says the Words Wall Street Doesn't Want to Hear


Justin Lahart

Senior Writer

Before the open today, people on Wall Street were talking about how

Alan Greenspan's

testimony this morning was the last, best chance for the stock market to hit new highs this summer. It's hard to give the stock market that has everything reasons to go higher, but they figured an even-handed speech from the chairman would entice it into a rally.

But the

testimony Greenspan gave was not even-handed at all.

The speech showed a

Federal Reserve

that, despite its return to a neutral policy directive on where rates are heading, is not really neutral at all. At the June meeting, said Greenspan, the

Federal Open Market Committee

"did not believe that its recent modest tightening would put the risks of inflation going forward completely into balance."

One comes away from reading this thing with the sense that the Fed, though it may not raise rates at its late-August meeting, will probably move to a tightening bias, with a good chance of a rate hike in October. Importantly, there's none of last year's "we won't tighten until we see the whites of inflation's eyes" stuff. In fact, lifting a bit of text directly from his June

speech before the

Joint Economic Committee

, Greenspan told Congress: "For monetary policy to foster maximum sustainable economic growth, it is useful to pre-empt forces of imbalance before they threaten economic stability. But this may not always be possible -- the future at times can be too opaque to penetrate. When we can be pre-emptive, we should be, because modest pre-emptive actions can obviate more drastic actions at a later date that could destabilize the economy."

Stocks and bonds sold off sharply on the speech. The

Dow Jones Industrial Average

was down 103.53, or 0.9%, to 10,899. The broader

S&P 500

was down 21.70, or 1.6%, to 1358.

Tech stocks were getting whacked. The

Nasdaq Composite

index was off 73, or 2.7%, to 2689.


(AMZN) - Get, Inc. Report

, down 13.7%, was weighing heavily on the Nasdaq, as it was on Internet Sector

index. The DOT was down 19, or 3.1%, to 596. The small-cap

Russell 2000

was down 5, or 1.1%, to 450.

The 30-year Treasury was off 25/32 to 90 2/32, sending its yield to 5.97%. (For more on the fixed-income market, see today's early

Bond Focus.)

Market internals were bad. On the

New York Stock Exchange

, decliners led advancers by 1,988 to 779 on 432.9 million shares. Downs were beating ups 2,405 to 1,168 on 588.1 million shares in

Nasdaq Stock Market

activity. New 52-week lows were outpacing new lows 44 to 28 on the Big Board while new high led 51 to 33 on the Nasdaq.

A Chart by Any Other Name

But while some trot out last year's chart and talk about how it's going to happen all over again, others have a more sanguine view of the selling.

"Yeah, we were short-term overbought," said Dick Dickson, technical analyst at

Scott & Stringfellow

. "Yeah, you're seeing some correction. I understand why people are worried, but I don't think it's time to run for the exits."

But Dickson did concede that "seasonable factors are a worry now because bad things have happened to the market in July and August."

Even without worrying about the ogres of August, there's an argument to be made for staying out of the market here. The news has been so good this year, it's hard to imagine even more good news coming down the pike in the next month or so. Many portfolio managers have already put on gains that are way better than what they made last year. Why not lock them in and head to Montauk? No need to get cocky and risk losing it all like in 1998.

"The market has given a great showing," said Ned Collins, executive vice president of U.S. stocks at

Daiwa Securities America

. "It's a sleepy summer, people are having great year and they're going to let nature take its course."

Thursday's Midday Watchlist

By Heather Moore
Staff Reporter


(XRX) - Get Xerox Holdings Corporation (XRX) Report

was down 5 1/2, or 9.9%, to 49 15/16 after saying ongoing pressure from both unfavorable European exchange rates and weakness in Brazil and Japan may harm future earnings. The company also posted second-quarter earnings of 62 cents a share, in line with the 12-analyst

First Call

estimate and up from the year-ago 54 cents.

(AMZN) - Get, Inc. Report

was down 17 3/16, or 13.7%, to 108 1/4 after last night posting a second-quarter loss of 51 cents a share, in line with the 21-analyst forecast and wider than the year-ago loss of 12 cents. Amazon also set a 2-for-1 stock split. Today,

Bear Stearns

downgraded Amazon to attractive from buy.

Morgan Stanley Dean Witter's

Mary Meeker deepened her 1999 estimated loss to $1.82 from $1.68.

Merrill Lynch's

Henry Blodget said in a research note that "profitability, if any, remains a next-millennium phenomenon." He also deepened his 1999 loss estimate to $2 from $1.74.

America Online


was down 5 1/16 to 110 after last night reporting fourth-quarter earnings of 13 cents a share, topping both the 30-analyst estimate of 11 cents and the year-ago 6 cents. Today, Morgan's Meeker increased her 2000 earnings estimate for AOL to 60 cents from 56 cents a share and her 2001 view to 90 cents from 80 cents.

Mergers, acquisitions and joint ventures

Charles Schwab


was up 7/16 to 47 9/16 on word it,

Donaldson Lufkin & Jenrette



Fidelity Investments

TheStreet Recommends

agreed to take equal stakes in an electronic communications network (or ECN) based on


, which is owned by

Spear Leeds & Kellogg

. DLJ was up 5/16 to 52 5/16.

wrote about the move in a story

this morning.

Earnings/revenue reports and previews

General Semiconductor

(SEM) - Get Select Medical Holdings Corporation Report

was down 1 7/16, or 16%, to 7 9/16 after last night reporting second-quarter earnings of 14 cents a share, a penny short of the two-analyst view and down from the year-ago 19 cents. The company warned it expects 1999 earnings to fall short of 1998's 74 cents, citing additional interest charges from the restructuring of a credit agreement. Estimates call for 1999 earnings of 72 cents.


(NOK) - Get Nokia Oyj Sponsored ADR Report

was down 6 15/16, or 7.1%, to 87 7/8 after posting a second-quarter profit of 877 million euros, up 61% from the year-ago period. Net profit increased to 581 million euros from 365 million euros in the year-ago period, a jump of 59%.

Analyst actions



was down 1 5/16 to 29 5/16 after

Credit Suisse First Boston

started coverage with a buy and a 12-month price target of 38. Last night, the company reported second-quarter earnings of 13 cents a share, in line with the nine-analyst estimate. The year-ago loss of 92 cents included charges; Atmel did not provide per-share operating figures for the period.



was down 6 5/8, or 19.7%, to 27 after Credit Suisse First Boston and

SG Cowen

both downgraded the stock to buy from strong buy.

Goldman Sachs

lowered the stock to market outperformer from the firm's recommended list. Last night, the company posted first-quarter earnings of 24 cents a share, ahead of the 15-analyst prediction of 21 cents and above the year-ago 15 cents. The company's chairman also backed a 35% to 40% growth rate in 2000 and said he's "very bullish" on the fiscal year's outlook. While the company beat earnings estimates, its license and international revenue numbers were below forecasts, CSFB said.


ADC Telecom

(ADCT) - Get ADC Therapeutics SA Report

was up 1 7/8 to 45 1/16 on last night's news it will replace

Nalco Chemical


in the S&P 500 July 30.

Suez Lyonnaise des Eaux

of France is acquiring Nalco in a tender offer that expires that day.

Unistar Financial Service


was halted for news with its last trade at 27 5/8 on Tuesday. The stock tumbled 55% over two days last week, and

The Wall Street Journal's

"Heard on the Street" column reported today that documents filed with the

Texas Department of Insurance

say Unistar last month told regulators it plans to sell a key subsidiary to its principal shareholders. The company's CEO said Unistar hadn't disclosed the planned sale in financial filings because it concluded it was too small to be a material transaction, the newspaper reported.


Herb on TheStreet: For Those Who Think This Column Is Too Tough, a History Lesson


Herb Greenberg

Senior Columnist

From the "for what it's worth" file:

If you haven't read Carol Loomis' "Recipe for Jail" cover story in the current


, you're missing a valuable piece of journalism by one of this country's most credible financial writers. It should be required reading in both "Investment 101" and "Management 101." For the former, so shareholders realize what happens if they ignore warnings that a company in which they're invested may be cheating; for the latter, so execs know what's in store for them if they do cheat.

The story included a chart on execs who've been sent to jail for their misdeeds. One familiar to longtime readers of this column is Chan Desaigoudar, CEO of

California Micro Devices


in the mid-1990s, who remains free while appealing a three-year jail sentence. By the time I was done writing


saga, readers were no doubt bored to tears as they have been with similar sagas that seem to take up so much of this column's space.

But pieced together, these sagas present abbreviated case studies that should serve as reminders of how far some managements will go to make their businesses look better than they really are.

Like many items here, the Cal Micro story started with a fairly innocuous column in the

San Fran Chronicle

that cited high and rising receivables. Headlined "Does Cal Micro's Balance Sheet Portend Blowup?", the column noted how the chip fabricator appeared to be on quite a roll if you did nothing but look at its press releases. Not only were its earnings and sales posting impressive year-over-year gains, but it had just sold 10% of itself to

Hitachi Metals

. (And a big outfit like that wouldn't


do its due diligence, would it? Ha!)

Cal Micro blamed the high receivables on favorable credit terms extended to "approximately" 10 Asian customers and distributors "to avoid shipment delays." (A likely story, right?)

Not even close.

Less than two months later the company disclosed, deep in its fourth-quarter earnings report, that it was taking back from overseas customers and distributors $8.3 million in unsold resistors and capacitors that had led to those high receivables. That equaled a whopping 21% of all of its product sales in the last fiscal year.

Which brings us to the best part: When I asked Desaigoudar and his treasurer, Steve Henke, in a joint interview how many distributors were involved, neither would give specifics.

So I asked again. "How many?" After a moment of silence, Henke said, "Between seven and eight."

Which countries were they in? "The Far East," said Desaigoudar.

Again, which countries? "The Far East."

Asked again to identify the countries, there was silence, and then Henke said, "I'd say all of them are either in Taiwan, Hong Kong or Singapore..." He wasn't sure about Malaysia.

(Why should that matter? Because any time a company takes back that much inventory from foreign distributors, it knows not only what countries those distributors are in, but the names of the owners, their wives, their kids and their birthdays!)

Oh, and when I told Desaigoudar that skeptics were wondering whether Cal Micro had inflated sales in prior quarters to make itself look more attractive to Hitachi and other investors, he snapped, "That's ludicrous."

Which of course is what they all say.

P.S.: Cal Micro never filed for bankruptcy, but shareholders have never recouped anywhere near where the stock was at its highs.

Short Positions

Sunset on Sunrise?:

Something you don't often see -- a gutsy analyst initiating coverage on a company with a price target a quarter of where the stock is currently trading. That's just what Richard Leza of

John G. Kinnard

did yesterday to

Sunrise Technologies


, citing concern over the company's potential to sell its laser treatment for corrective eye surgery. (See my

reports on the company months ago, which have been followed in recent days by

those of my colleague

Jesse Eisinger

.) What makes Leza's nonrecommendation so noteworthy is his price target, given what he considers the best-case scenario -- 3 1/2 -- for a stock that closed yesterday at 15, down 2, or 12%. Sunrise officials were unavailable for comment.

For the record:

Upon rereading a recent

item here on



, I notice I said that investor Charles Stewart answered the number listed in a research and development agreement between his

Systle Corp.

and Sabratek with a blunt "hello." Sorry, there was no number for Stewart in the agreement, as there were for the other parties mentioned. That number came from one of his 13-Ds.

Who is more lovable?

The Iridiots

The IDT-iots

The Lernahooligans

The Iomegans

None of the above

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.

Erin Arvedlund with Thomas DeMark on Yahoo!

Thursday, July 22

TSC Staff reporter Erin Arvedlund will be chatting with Optionswriter Thomas DeMark on Yahoo! at 5 p.m. EDT.

Register for Yahoo! Chat at: It's free! on TV! Each weekend, catch on Fox News Channel for a half hour of the same unique financial journalism and commentary you've come to expect from TSC on the Web. Saturdays at 10 a.m. ET and Sundays at 1:00 p.m. ET.

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