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midday08-18-99's MIDDAY UPDATE

August 18, 1999

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Market Data as of 8/18/99, 1:15 PM ET:

o Dow Jones Industrial Average: 11,049.01 down 68.07, -0.61%

o Nasdaq Composite Index: 2,675.56 up 4.34, 0.16%

o S&P 500: 1,338.69 down 5.47, -0.41%

o TSC Internet: 576.11 up 18.25, 3.27%

o Russell 2000: 433.83 down 2.17, -0.50%

o 30-Year Treasury: 10 118/32 unchanged , yield 6.007%

In Today's Bulletin:

o Midday Musings: Wall Street's Raucous Celebration Fades Into Uncertainty
o Herb on TheStreet: The Other Side of This Column's Recent Delta Financial Story

Also on

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Midday Musings: Wall Street's Raucous Celebration Fades Into Uncertainty


Eileen Kinsella

Staff Reporter

8/18/99 1:29 PM ET

The party on Wall Street came to an abrupt halt this morning, leaving many traders with a nagging headache. To make matters worse, no one can remember what sparked the celebration in the first place.

A rally sparked by a weaker-than-expected

Producer Price Index

and an in-line

Consumer Price Index

was suddenly being viewed with a healthy dose of skepticism, and stocks tumbled as people tried to recall what all the excitement was about.


Dow Jones Industrial Average

dipped more than 97 points at its worst and spent the morning under water, lately down 74 to 11,043. The broader

S&P 500

took its cue and jumped in too, falling 6 to 1338. The

Russell 2000

was wet as well, off 2 to 434.

"This is a payback for several days of very strong markets that were not supposed to be," said Stanley Nabi, chief investment officer at

DLJ Investment Management

. "If (the inflation data) had been below expectations, then I would understand the market reaction. I don't know why the stock market has been rising so much."

It's not just a short-term dip that has people worried. Indeed, with the Dow closing up 70 points at 11,117 yesterday, things don't look too shabby, especially considering 11,209.84 is the all-time high. But now that the big hill of inflation anxiety is in the rearview and bellwethers like





(DELL) - Get Dell Technologies Inc. Class C Report

have done the earnings dance, investors are unsure of what big -- or even little -- things to look out for next.

The truth of the matter, said Nabi, is that little has changed, especially with regard to interest rates, which will most likely be hiked a notch on Tuesday when the Fed meets again. Aside from those actions Nabi said he is worried about the overall outlook for the market.

"I don't know what fuel is going to be that pushes this market higher," he said. "We are not in a good technical position. The market is near its all-time high, but if you look at new highs and lows, it's terrible."

The only issues that had good reason to party today were Internet stocks, and they were.

Merrill Lynch

Internet analyst Henry Blodget handed some issues an early Christmas present when he said he expected good things to come from the fall and holiday shopping season. Blodget said








were a "sound way to play the fundamental strength and renewed investor enthusiasm we expect to see during the fall and holiday shopping season,"



Also among those mentioned,

America Online


was up 3.9%,

(AMZN) - Get Inc. Report

was up 6.8% and



was 6.1%.

Toss in positive earnings from Dell and it looks like there just might be a reason to get down and celebrate. The

Nasdaq Composite Index

was moving higher, up 5 to 2676, while

The Internet Sector

index was up a strong 18, or 3.3%, to 576.

On the

New York Stock Exchange

, decliners were leading advancers 1,679 to 1,121 on 403 million shares, while on the

Nasdaq Stock Market

, 2,033 decliners were beating 1,560 advancers on 663 million shares. New 52-week lows were outpacing new highs 43 to 40 on the Big Board, while new highs were ahead of new lows 60 to 42 on the Nasdaq.

The benchmark 30-year Treasury was up 2/32 to 101 21/32, its yield at 6.01%. (For more on the fixed-income market, see today's early

Bond Focus.)

Tuesday's Midday Watchlist

By Tara Murphy
Staff Reporter


Earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified


As noted above, Merrill's Blodget sent the Internet sector soaring with positive comments on eight industry names. Blodget upped ratings on Yahoo! and Amazon to near-term buy from accumulate. At the midday, Yahoo! was jumping 8, or 6.1%, to 146 7/8, while Amazon shares were leaping 7 1/6, or 6.8%, to 116 3/8.

The analyst also expects eToys, America Online,, Excite@Home, Inktomi and Lycos to be strong fourth-quarter performers with the Holiday season right around the corner. Blodget called the group "among the highest quality of stocks" and said "we like them year-round -- but we like them even more now that they are down 50% from their highs and we are headed into the busiest season of the year."

Excite@Home shares were up 1 7/8 to 41, while eToys leaped 5 9/16, or 13.8% to 45 7/8. AOL jumped 3 5/8 to 101 1/8 and was up 2 7/16, or 14.6%, to 19 3/16. Lycos and Inktomi also reaped the benefits of Blodget's praises. Lycos climbed 3 3/4, or 8.9%, to 45 7/8, while Inktomi jumped 3 1/2 to 119 1/8.

Mergers, acquisitions and joint ventures

Lucent Technology

(LU) - Get Lufax Holding Ltd American Depositary Shares two of which representing one Report

was off 1 3/4 to 64 3/4 after it said it has made a tender offer for all of the outstanding shares of



. Lucent upped the offer's deadline to midnight August 24, from August 17. Lucent said its $9 per common share offer has earned the company about 47% of SpecTran's outstanding shares. SpecTran was unchanged at 8.


(AES) - Get The AES Corporation Report

was up 2 3/16 to 57 3/16 after it announced plans to acquire

Drax Power Station

, Western Europe's largest coal-fired power plant, from Britain's

National Power

for $3 billion.


said it has agreed to acquire

Olsten Staffing


in a deal that calls for Olsten to split off its health services unit. Shares of Olsten were up 1/4 to 9 3/4.


(CSCO) - Get Cisco Systems Inc. Report

was off 1/4 to 64 after it announcing plans to invest $50 million in


, which produces technology that makes Web sites operate more quickly. Cisco will take a roughly 4% stake in the company.


(LU) - Get Lufax Holding Ltd American Depositary Shares two of which representing one Report

was down 1 3/16 to 64 11/16 after it agreed to acquire

Excel Switching


for $1.7 billion in stock. Lucent will issue 0.5580 share for each Excel share, or $37 a share based on Lucent's closing price yesterday. That's a 34% premium to Excel's closing price of 27 9/16. Excel Switching soared 7 5/16,or 26.5% to 34 7/8 on the news.

Food Lion


was off 2, or 22.4% to 8 9/16 after it agreed to buy

Hannaford Brothers


in a deal that could be worth as much as $4 billion. Food Lion also set a 1-for-3 reverse stock split and said it would form a holding company to facilitate acquisitions. At the midday, Hannaford Brothers rocketed 8 1/8, or 12.7% to 71 13/16.

Earnings/revenue reports and previews

Applied Materials

(AMAT) - Get Applied Materials Inc. Report

was off 4 7/8, or 6.8%, to 66 7/8 after yesterday's third-quarter earnings report of 61 cents a share, 8 cents ahead of the 29-analyst estimate.

Bon-Ton Stores


was unchanged at 5 1/8 after it reported a second-quarter loss of a nickel a share, in line with the three-analyst estimate.



was up 1/16 to 16 5/16 after it posted a break-even second quarter, in line with the two-analyst estimate.

Consolidated Stores

(CNS) - Get Cohen & Steers Inc Report

was off 11/16 to 17 3/8 after it reported a second-quarter loss of 4 cents a share, in line with the 14-analyst estimate.

Dell hopped 3 3/8, or 8.2%, to 44 1/2 after it reported second-quarter earnings after yesterday's close of 19 cents a share, 2 cents ahead of the 30-analyst estimate.

Lycos reported fourth-quarter earnings last night of a penny a share, slightly better than the 21-analyst expectation that the company would break even.



was getting slammed 5 1/8, or 22.1%, to 18 after late yesterday warning that its 1999 earnings will fall well short of analysts' expectations. Downgrades flew fast and furious, coming from Merrill,



Goldman Sachs


ING Barings


Banc of America Securities




was up 11/16 to 25 13/16 after it reported second-quarter earnings of 11 cents a share, in line with the 18-analyst estimate.



was up 7/8 to 31 1/2 after it posted second-quarter earnings of 12 cents a share, in line with the 12-analyst estimate.

Offerings and stock actions

Salomon Smith Barney

cut the price range for


, an 11.5 million-share IPO, to $9 to $11 a share from $15 to $17.

said it anticipates an initial price of $8 a share, lower than its previous range of $10 to $12. The email and online direct marketer said its upcoming 5 million-share IPO stands to rake in $36.2 million in net proceeds, a decline from last week's estimate of $50.2 million.

NovaMed Eyecare

(NOVA:Nasdaq) had not made its trading debut by midday.

Donaldson Lufkin & Jenrette

priced the 4 million-share IPO at $8 a share last night, below its already lowered pricing range of $9 to $11 a share. The IPO was originally scheduled for 7.1 million shares at an expected $11 to $13.

Stewart Enterprises


was unchanged at 6 3/8 after it said it would initiate a 5%, or 5.6 million-share, repurchasing program. The buyback will only include the funeral and cemetery service provider's Class A common stock and will be transacted in the open market or in private negotiations.

Analyst actions

Applied Materials was down 4 7/8 to 66 7/8 after


cut the stock to buy from strong buy, while

Morgan Stanley Dean Witter

upped its earnings estimates for the stock.



was off 7/8 to 29 after

U.S. Bancorp

dropped its fourth-quarter loss estimate to 14 cents a share from 12 cents.

Host Marriott


was up 1/16 to 10 1/16 after Morgan Stanley initiated coverage with an outperform rating and set a price target of 12.

Procter & Gamble

(PG) - Get Procter & Gamble Company (The) Report

was off 3/16 to 95 3/16 after

Lehman Brothers

added the company to its Global Recommended Portfolio.



was unchanged at 27 11/16 after Merrill Lynch downgraded it to a near- and long-term neutral from an accumulate rating.

Herb on TheStreet: The Other Side of This Column's Recent Delta Financial Story


Herb Greenberg

Senior Columnist

8/18/99 6:30 AM ET

Tuesday triumph:

Delta dawn ... or disaster:

That would've been a more appropriate headline on an

item here a few weeks ago about

Delta Financial


, a subprime lender that was a favorite


of a portfolio manager who is just as likely to be short as long. The idea behind the item was that Delta was a winner by default in an industry that has had its share of bankruptcies. And it suggested that the short-sellers who were still short Delta were hanging on to a position that had been lumped in with an old, long-forgotten basket of subprime shorts.

Maybe, but one longtime Delta skeptic has since chimed in, saying he's no more comfortable with Delta than he was with any other of the subprime lenders that were done in by aggressive accounting and questionable lending practices.

This short points to some serious grist about Delta's lending practices. First, there's the agreement Delta struck in June, out of the blue, with the

New York Attorney General's

office over questionable lending practices. (The basic allegation was that Delta made improper loans with higher-than-allowable terms to consumers who couldn't afford them.) The company itself only acknowledged the deal in a press release


the attorney general issued its own release.

Now hear this: Forget New York's attorney general. Delta hasn't yet issued a press release, but according to its 10-Q, filed late Monday, the company disclosed that earlier on Monday it had struck a new "global settlement" with not only the New York attorney general, but -- oh, by the way -- also with the

U.S. Justice Department

and New York's banking department.

Instead of resulting in a cash charge of $6 million, called for in the original deal, the new agreement will cost the company $12 million in the form of reduced interest charges on existing loans and stock that will be put in a trust for the purpose of educating and counseling consumers on lending practices.

Whoa! Time out!! Stop the presses!!! They settled with not only the New York attorney general, but also with the U.S. Justice Department and the New York banking department, and it was presented, like an afterthought, in a quarterly



Who even knew the Justice Department was involved here?

Marty Cohen, Delta's financial VP, says the DOJ probe was part of an informal probe of the entire subprime industry. And the banking department stepped up its probe, he says, after the company cut its deal with the attorney general. And the attorney general? "We're the largest subprime lender in New York state," Cohen says. "So, who do you look at?"

So, why no press release about the latest deal? "We're waiting for the New York banking department to issue their own press release," he says.

Cohen adds that the company never admitted any wrongdoing, and says the settlement is "positive news" because it puts the issue to rest.

Unless, as the short-seller believes, this kind of crackdown on lending practices could cost Delta some of its most lucrative business.

In which case this would indeed be a Delta ... disaster.

P.S.: Cohen says these kinds of loans are not a big part of their business. The analyst originally quoted here, Alan Fournier, of

Pzena Investment Management

in New York, sticks solidly by his long story.

Is there a translator in the house?:

In explaining the delay (mentioned here

yesterday) in filing its second-quarter 10-Q,



said Tuesday: "The delay in the filing of the Registrant's Form 10-Q within the prescribed period was caused by the consummation of acquisitions of four companies during the second quarter and immediately thereafter, conforming such companies' policies and procedures with the policies and procedures that were in place at the Registrant prior to the acquisitions and reviewing the Registrant's financial information with its independent accountants."

Now, in English: They made four acquisitions and they want to make sure the acquired companies have the same practices and policies as Sabratek. (Isn't that the due diligence they're supposed to do


they do the deals?) Oh, and its auditors (as we already know) are reviewing Sabratek's financials.

Lesson learned, courtesy S. Smith:

"I guess you can call me an


, but a very humble one. My club purchased 20 shares of the company (granted, not an earth-shaking number by any means), but enough to lose $1,200 for us. For a brand new club, this is a loss, both financially and emotionally. We thought, 'What a great technology -- it can't lose.' When it went down, we confidently thought it was because of the satellite-launching problems.

"Of course, now we know the whole story, but that doesn't save us from the possibility of bankruptcy. If anything good has come of it -- it is THE LESSON. Never invest in a company you know little about, with less than zero performance history. A $1,200 lesson, but one well learned."

The right attitude. (They're not mistakes, just expensive lessons.) And let me add this: Trading in



has been halted since the company's bankruptcy filing. If and when it ever resumes, don't get hoodwinked (as some no doubt will) into thinking that the existing stock is a bargain. Never forget that with very few exceptions, existing stockholders of a company that files for bankruptcy get little if anything of any newly issued stock.

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.

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