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midday09-08-99's MIDDAY UPDATE

September 8, 1999

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Market Data as of 9/8/99, 1:11 PM ET:

o Dow Jones Industrial Average: 11,072.44 up 38.31, 0.35%

o Nasdaq Composite Index: 2,827.34 down 9.92, -0.35%

o S&P 500: 1,348.37 down 2.08, -0.15%

o TSC Internet: 597.82 down 3.79, -0.63%

o Russell 2000: 436.90 down 1.34, -0.31%

o 30-Year Treasury: 101 01/32 up 12/32, yield 6.043%

In Today's Bulletin:

o Midday Musings: Greenspan Relief Turns to Meyer Agita as Market Watches Fed
o Herb on TheStreet: Risks at SFX Entertainment? Plenty That Have Nothing to Do With Entertainment.

Also on

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Midday Musings: Greenspan Relief Turns to Meyer Agita as Market Watches Fed


Thomas Lepri

Staff Reporter

9/8/99 1:23 PM ET

"Over the past quarter-century I have appeared on many platforms with

President Ford

. He never seems to change, but I keep losing my hair." Thus did



Alan Greenspan

begin his

speech on the economic impact of technology at an event today honoring former President Gerald Ford in Grand Rapids, Mich.

All things considered, an isolated case of baldness is more palatable to this market than hints of unsustainable asset valuations. Or it was, anyway.

Unfortunately for the longs, Greenspan isn't the only Fed official speaking today. Hawkish vibes sent out by Fed Gov.

Laurence Meyer

in a Philadelphia

speech to the

National Association for Business Economics

were lately helping to knock stocks off their midday highs. Salient among Meyer's comments was his reiteration of Greenspan's recent acknowledgement that the Fed must consider stock valuations when it forms monetary policy.


Dow Jones Industrial Average

remained up 51 to 11,085, despite the considerable drag of



, down 2 1/8, or 2.9%, to 71 15/16. The

Nasdaq Composite Index

was down 6 to 2832, while the

S&P 500

was unchanged at 1350. The Internet Sector

index was down 2 to 599, and the small-cap

Russell 2000

was off 1 to 437.

Things started off a bit rockier than that, however. At 7 a.m. EDT today, the

Bank of England

caught the markets by surprise when it announced that it was raising its key short term interest rate to 5.25%. The move, predicted by none of the 26 economists polled by


last week, sent U.S. stock futures -- and, consequently, U.S. stocks themselves -- tumbling, along with the big European indices.

The early selloff was testimony to the market's extreme sensitivity to interest-rate concerns. "The Fed, the bond market and the equity market are all walking a high wire at this time," said Alan Ackerman, market strategist at


. "Events overseas could affect what the Fed does. This is not a time to be adventuresome in the market."

The major proxies' subsequent improvement suggested that, for the moment at least, interest-rate fears were subsiding a bit. Despite Meyer's hawkishness, the 30-year Treasury remained up 12/32 to 101, its yield falling to 6.05%. And yesterday's whipping sector, the

Philadelphia Stock Exchange/KBW Bank Index

, was still up 0.2% in today's recovery.

"I'm a little surprised," confessed Bob Basel, director of listed trading at

Salomon Smith Barney

, "because there's really no reason to bring

the market back. The market just lacks direction. It's a coin flip -- 'Which way do you want to go today?'"

"I don't see a lot of players or a lot of liquidity even though vacations are over," Basel added. Volume was indeed moderate. The

New York Stock Exchange

had seen 464 million shares traded, while 614 million shares had changed hands on the

Nasdaq Stock Market


A lot of the morning's moderate upside momentum, then, could be described as a tepid snapback from a short-term oversold condition. News that

Goldman Sachs'

(GS) - Get Goldman Sachs Group, Inc. Report

Uber-bullish strategist

Abby Joseph Cohen

has raised her 1999 S&P 500 target to 1380 from 1350 may also be helping sentiment a bit today, although it's hard to say exactly where sentiment in general stands in this Church-of-What's-Happening-Now.

Traders aren't taking anything for granted. "Even though the market was up 230 points on Friday -- and you've got to respect that -- there's a lot of indecisiveness out there," said Basel. If the

Producer Price Index

comes in too hot on Friday, he said, "they'll sell it off 150 points again. It's a daily event."

Strange days indeed. "We've had a surprisingly strange summer in the market," said Ackerman, noting the Dow's vicissitudes since May 31, during which period that blue-chip index has buzzed in a intraday range between 10,400 and 11,350. "Stocks have been all over the lot," he said. "In the meantime, we've had two rate hikes, and now we have the possibility of a third."

Que sera, sera, perhaps. Ackerman said he's looking for the market to stay in a tight trading range through the beginning of October, when the Fed next meets. "That range is likely to be an overlay of the market's performance since May 31," with lows near 10,330 and highs near the 11,300 level.

Breadth was not inspiring. Decliners were leading advancers 1,620 to 1,160 on the NYSE, where there were 52 new 52-week highs against 61 new lows. In Nasdaq action, decliners were beating advancers 2,082 to 1,530, with 119 new highs and 58 new lows.

In sector news, the

Dow Jones Transportation Average

was extending yesterday's 1.5% drubbing, lately off 22.73, to 0.7%, to 3086.76, though up from a session low of 3061.51. Meanwhile, oil stocks were romping higher, with the

American Stock Exchange Oil & Gas Index

up about 1%.

Wednesday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Global Crossing


ascended 3 7/8, or 19.1%, to 24 1/8, and


(MSFT) - Get Microsoft Corporation Report

slipped 5/8 to 93 5/8 after the companies announced a joint venture with



Asia Global Crossing

, which will provide network-based telecommunications services throughout Asia. Responsibility for the management and operation of the network will fall on Global Crossing. Global Crossing will initially own 93% of the joint venture with Softbank and Microsoft each owning 3.5%.

Ingram Micro


plunged 5 13/16, or 30.1%, to 13 1/2 after it said it expects to post earnings of 10 cents to 14 cents a share for the third quarter, falling short of the 13-analyst estimate of 41 cents. The company also said it has started a search for its next CEO to succeed Jerre L. Stead. Stead will remain chairman and CEO until a successor is in place and will then continue to serve as chairman.

Mergers, acquisitions and joint ventures

America Online


added 1 9/16 to 94 7/8 after it said

TV Guide


will supply television program listings to the Internet service provider. TV Guide rose 4 11/16, or 16.6%, to 33.



added 1/8 to 43 3/4 after saying it is acquiring privately held

for $78.3 million in stock plus the assumption of the company's stock option plan.



, a U.K. pharmaceuticals concern rose 2 1/16,or 24.4%, to 10 1/2 after saying it is in talks, which could lead to a recommended cash offer for the company,





lost 1/4 to 16 3/4 after saying it would buy



VarTec Telecom

for $100 million in cash and stock.



slipped 7/8 to 154 1/16 after it announced it has struck a bill payment service deal with



. CheckFree fell 3/16 to 37 9/16.

Earnings/revenue reports and previews

Carbide Graphite


inched up 1/16 to 12 15/16 after posting fourth-quarter earnings of 32 cents a share, beating the two-analyst estimate of 30 cents but down from the year-ago 54 cents.

Esterline Technologies


lost 1 1/16, or 6.6%, to 14 15/16 after reporting third-quarter earnings of 34 cents a share, missing the two-analyst estimate of 39 cents and coming in below the year-ago 45 cents.

H.J. Heinz


lost 3/16 to 45 1/4 after reporting first-quarter earnings of 65 cents a share, missing the 14-analyst estimate of 66 cents but beating the year-ago 60 cents.

Korn/Ferry International

(KFY) - Get Korn Ferry Report

added 5/8 to 17 5/8 after it posted first-quarter earnings of 15 cents a share, beating both the two-analyst estimate of 11 cents and the year-ago 5 cents.



slipped 15/16 to 26 1/2 after it posted second-quarter earnings of 34 cents a share, ahead of the two-analyst estimate of 31 cents and up from the year-ago 25 cents.



lost 1/16 to 32 1/2 after posting fourth-quarter earnings of 48 cents a share, beating the two-analyst estimate of 30 cents and up from the year-ago 16 cents.



slipped 1 1/32, or 16.8%, to 5 1/8 after saying it expects to post a third-quarter loss due to shipping delays and other problems.

Stewart Enterprises


climbed 1/4 to 6 1/4 after it reported third-quarter earnings of 26 cents a share, beating both the 10-analyst estimate of 25 cents and the year-ago 25 cents.

Value City


lost 3/16 to 12 3/8 after posting second-quarter earnings of 12 cents a share, in line with the five-analyst estimate of 12 cents and beating the year-ago 9 cents.

Offerings and stock actions

AnnTaylor Stores


rose 2 3/4, or 7.1%, to 41 3/4 after its board authorized a buy back of $40 million common shares or convertible debt and an $85 million capital spending plan for fiscal 2000. The clothing retailer said the spending plan would subsidize a 90-store real estate expansion.

Ditech Communications


has filed a 2.5 million share offering with the

Securities and Exchange Commission


Analyst actions



lost 3/4 to 28 15/16 after

Donaldson Lufkin & Jenrette

initiated coverage of the stock with a market perform rating.


(AT) - Get Atlantic Power Corporation Report

lost 2 1/16 to 69 after

Banc of America Securities

rolled out coverage with a buy rating and set a price target of 90.



slipped 5/16, or 5.6%, to 5 5/16 after

ABN Amro

dropped its rating to hold from outperform.


(AAPL) - Get Apple Inc. Report

peeled off 3/8 to 75 3/4 despite a lift from

Warburg Dillon Read

, which raised its price target to 90 from 75 while maintaining a buy rating.



partied 6 1/16 to 153 after

SG Cowen

began coverage with a buy rating and a price target of 165.



shed 5 1/16, or 32.7%, to 10 7/16 after

Lehman Brothers

sliced its price target to 20 from 32. Late yesterday, the company said it expects to report third-quarter earnings of 21 cents a share, missing the analyst estimate of 26 cents.



slipped 1/8 to 8 7/8 after

Goldman Sachs

upped its rating to market outperform from market perform.

Hilton Hotels

(HLT) - Get Hilton Worldwide Holdings Inc Report

fell 3/8 to 10 13/16 after

Merrill Lynch

sliced its rating to long-term accumulate from a buy.


moved up 1/4 to 48 3/16 after

Morgan Stanley Dean Witter

rolled out coverage with an outperform rating. Merrill Lynch stamped the stock with near-term accumulate, long-term buy ratings.



tumbled 5 1/2, or 33.6%, to 10 15/16 after Lehman Brothers chopped its price target to 20 from 28 and its fiscal 1999 estimates to 69 cents a share from 94 cents. The company late yesterday warned of a profit shortfall.



was unchanged at 39 3/8 after Warburg Dillon Read initiated coverage with a buy rating and a price target of 50.


rose 1 13/16, or 11.7%, to 17 5/16 after

U.S. Bancorp

started coverage of the stock with a strong buy rating and set a price target of 28.


(NOK) - Get Nokia Oyj Report

tacked on 1 7/8 to 88 3/4 after DLJ initiated coverage with a top pick rating.



lost 1/8 to 26 3/8 despite a hand from Goldman Sachs, which initiated coverage by placing the stock on its recommended list.



inched up 1/8 to 12 3/4 after Warburg rolled out coverage with a buy rating and set a 12-month price target of 23.



climbed 11/16 to 47 5/8 after Merrill Lynch upgraded it to near-term buy from near-term accumulate.


Procter & Gamble

(PG) - Get Procter & Gamble Company Report

rose 1/4 to 103 1/8 after

The Wall Street Journal

reported that the company is preparing to launch an upscale hair-care brand called Physique.



was unchanged at 14 15/16 after it said Phillip Rollhaus would retire from his role as CEO on Sept. 30 but remain as the company's chairman. The highway safety products maker said Leslie Jezuit would replace Rollhaus as chief executive and will continue to act as president and COO.

Herb on TheStreet: Risks at SFX Entertainment? Plenty That Have Nothing to Do With Entertainment.


Herb Greenberg

Senior Columnist

9/8/99 6:30 AM ET

Wednesday wallop:

Encore, encore:

That's what Wall Street is banking on from Robert Sillerman, the genius behind

SFX Broadcasting

, and his

SFX Entertainment


. In a mere two years, through dozens of acquisitions and alliances with some of the biggest names in show biz, SFX has become the country's largest concert promoter and operator of music venues, the largest developer and manager of touring Broadway shows and the largest producer and promoter of specialized motor sports events. It's also well on its way to becoming the largest producer and promoter of family-oriented entertainment shows.

In other words, SFX Entertainment is hoping to do to the live entertainment industry what SFX Broadcasting, which was sold at a hefty profit to

Capstar Broadcasting

, did to radio stations. There are plenty of critics of Sillerman's latest venture, but so far those who have bet against him have probably wished they hadn't. (Just ask all those short-sellers who covered, after taking big losses, earlier this year.)

Still, critics abound inside and outside the entertainment biz. One of their biggest gripes: They say the economics of the biz, SFX style, simply don't make sense. SFX, for example, pays top dollar -- often overpaying -- to snare acts in what has become a low-margin, no-growth biz. And while the number of mega-seat venues has increased over the past decade, the number of touring acts has fallen by roughly half, according to industry insiders. What's more, "This isn't radio," says a report from David Tice's

Behind the Numbers

research service. "One of the major flaws in the SFX strategy is that the company has almost no control over its largest revenue stream," Tice's report says. "Since it doesn't own the talent, it cannot dictate when these bands or shows tour."

But SFX CEO Michael Ferrel dismisses the criticism and counters that while the economics of the biz may not make sense from a traditional earnings standpoint, it makes perfect sense when viewed on earnings before interest, taxes, depreciation and amortization.

And that brings us to the real point of this item: Even without the industry-related issues, red flags would be flying high over SFX for other reasons, starting with the company's focus on EBITDA. Whenever a company tells you it's "an EBITDA story," watch out. EBITDA is defined differently by different companies. SFX says as much in its recent


filings for a secondary offering. It's often a convenient way to draw investor attention away from the real story: good old-fashioned earnings. In the end, when all of the acquisitions end, SFX will be judged on its earnings.

Red flag No. 2: acquisitions. No matter what biz it may be in, SFX is a rollup, and rollups tend to be growth stories as long as they're rolling up (or acquiring) new companies. Once the rollups stop, so usually does the growth. The lead risk factor, in SFX's recent prospectus, is that "if we are unable to complete pending or future acquisitions, our stock price may suffer."

Red flag No. 3: The pressure to make acquisitions for the sake of acquisitions can lead to costly mistakes. Just ask

Family Golf Centers


; one bad acquisition almost did


company in.

Red flag No. 4: debt, and SFX has lots of it -- $1.4 billion as of June 30. And there's no sign of it going down. SFX itself warns of debt as a risk in its prospectus. In fact, the company recently lined up another credit line of $1.1 billion to help finance pending and future acquisitions.

Finally, red flag No. 5 (one of my favorites): too many underwriters. This column has always chided companies for having any more than three; in the last revision of its prospectus SFX had six -- count 'em,


! That many underwriters, especially at a company expected to generate lots of investment banking biz, not only guarantees that the new stock will find buyers, but pretty much guarantees positive analyst comments from Wall Street.

CKE Restaurants


was a classic: It had five underwriters on its last deal. Despite numerous concerns raised by short-sellers about the company's fundamentals, it received glowing recommendations from analysts


they finally realized that it couldn't cook up the profits it promised.

It's too early to say whether the same will be true with SFX. Unfortunately for investors, nobody will know until the final curtain falls.

Oh, what a tangled web:

In an earlier episode of the thickening plot of



, an item

here suggested that CHS CEO Claudio Osorio was betting against CHS' stock when it was much higher, by buying puts and selling calls on CHS' stock as a so-called collar. He was doing this through another company he controls called


, whose main asset is 7.5 million shares of CHS, which does all its business overseas. Osorio insisted the move wasn't a bet against CHS, which loaned $20.7 million to Comtrad, but a way to protect the value of CHS shares owed to individuals who sold their companies to CHS. (A mouthful, I know, but keep reading.)

Fast forward to last quarter's 10-Q, filed last month: Comtrad, which also was on the hook for $10 mil to a bank, couldn't pay its loan back to CHS, and CHS' shares had fallen too much to cover the amount owed, so CHS wrote off the loan.

Fast forward again, this time to last week, when Comtrad filed to sell 2.5 million shares of CHS stock worth around $10 million at the time. A bet against the future of CHS or a liquidation to pay off the bank? CHS officials couldn't be reached. Still, this much is for sure, according to one industry observer, who is short CHS stock: If CHS' financial condition does worsen, a clear benefactor would be

Tech Data

(TECD) - Get Tech Data Corporation Report

, which warned last week that its biz is hurting because of price-cutting in Europe. Tech Data didn't name names, but on a conference call it said that one of its European competitors was in jeopardy of losing product supply because of its financial condition. Can't imagine who that might be.

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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