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midday09-20-99's MIDDAY UPDATE

September 20, 1999

Market Data as of 9/20/99, 1:06 PM ET:

o Dow Jones Industrial Average: 10,804.27 up 0.64, 0.01%

o Nasdaq Composite Index: 2,878.06 up 8.44, 0.29%

o S&P 500: 1,333.61 down 1.81, -0.14%

o TSC Internet: 623.27 up 2.71, 0.44%

o Russell 2000: 433.06 down 1.39, -0.32%

o 30-Year Treasury: 100 25/32 down 6/32, yield 6.063%

In Today's Bulletin:

o Midday Musings: Holiday-Thinned Trading Leaves Stocks Bereft of Direction
o In a Bull Market, Scrupulous Accounting Barely Matters Community

You know's the place for great market commentary, but did you know it's also the place for intelligent investing discussion? Check out the great conversation going on on the following boards:

Jim Seymour on eBay

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Midday Musings: Holiday-Thinned Trading Leaves Stocks Bereft of Direction


Justin Lahart

Senior Writer

9/20/99 1:09 PM ET

Wall Street could use some collard greens and steak.

To say that trading is anemic today is almost an understatement. Even without many market players taking the day off in observance of Yom Kippur, things would likely be on the thin side. There has been little of the merger-and-acquisition news that usually comes on a Monday. With no major economic data out, investors remain in a sort of never-never land when it comes to interest rates -- fed funds futures show a market that is dead even on whether the

Federal Open Market Committee

will hike by its November meeting.

Moreover, the market's recent obsession with the dollar makes today a particularly dangerous time to take on new positions. The currency market is focused on tomorrow's policy meeting of the

Bank of Japan

. There has been a lot of speculation lately that Japanese policy makers have struck some sort of deal with the U.S., wherein the BOJ will increase money supply, and the

Treasury Department

will join Japan in intervening to beef up the dollar. Traders know that when they come in tomorrow, the dollar will either be significantly higher against the yen or lower, and that stocks will follow suit. Yet another reason to stay away.

"This is one day where there's not much to do," said Doug Myers, vice president of equity trading at

Wachovia Securities

in Atlanta. "It's slow, light volume -- not much going on." Wall Street looked on track for one of the lowest-volume days of the year.

So tentative is the action that thus far the market hasn't even shown the kind of volatility usually associated with thin volume. Major indices have spent time spent time on either side of the flat line -- but not by much.

Lately, the

Dow Jones Industrial Average

was down 4 to 10,799, while the broader

S&P 500

was off 3 to 1333.

The tech-muffled

Nasdaq Composite Index

was up 5 to 2875. Internet Sector

index was up less than a point to 621.

The small-cap

Russell 2000

was down 1 1/2 to 433.

Breadth was negative. On the

New York Stock Exchange

, decliners led advancers 1,637 to 1,074 on 316 million shares. There were 35 new 52-week highs and 118 new lows. In

Nasdaq Stock Market

action, decliners were beating advancing issues 1,935 to 1,539 on 438 million shares. There were 91 new highs and 46 new lows.

That poor breadth has been something of a trend lately, and it worries technical analysts greatly.

"The advance/decline line continues to slowly erode, and that means the market will eventually break its back," said Robert Dickey, managing director of technical analysis at

Dain Rauscher Wessels

in Minneapolis. "I think it will happen over the next few weeks. We'll see the big stocks catch up with the rest of the market, which is already a correction in progress."

Dickey suspects that any move down will be the same sort of quick and dirty drop that has characterized the market for much of the decade. "Hard and fast and over soon," he said. "I think it's going to be a short enough correction that by year-end the market will already be recovering."

Monday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Insurance underwriter



fell 1 7/16 to 66 1/16 after the company inked an agreement to buy

Guarantee Life


for about $296 million, in an effort to strengthen its group life and disability insurance operations. Guarantee rose 1 3/8 to 30 3/8. Jefferson-Pilot will pay $32 a share for Guarantee, in the half-stock, half-cash deal, which also includes the assumption of about $115 million in debt.



inched up 1/2 to 96 15/16 and



slipped 1/16 to 49 7/8 after

The Wall Street Journal

reported the two companies are expected to forge a joint business that would allow Ford to make cars in answer to online orders.

Separately, Microsoft,




Ticketmaster Online-CitySearch


announced their newly formed online auction network,


, which will compete with the No. 1 online auction site,



. Investors didn't exactly seem thrilled, with Excite down 3/4 to 37 5/8, while Ticketmaster Online added 7/16 to 26 1/4. eBay however, was getting some unwanted attention, down 7 1/8, or 5%, to 133 7/8.

FairMarket said the network could connect with more than 46 million visitors, or 73.3% of all Internet users. Among other participants in the new venture,



lost 3/4 to 43 11/16,


edged up 7/8 to 38 13/16,



zoomed 2 1/4, or 12.4%, to 20 3/8 and



doled out 1/2, to 48 3/8.

Mergers, acquisitions and joint ventures



fell 3/4, or 5.9%, to 12 after the company announced plans to sell its entertainment and aviation divisions as an alternative to a spinoff, the

The Wall Street Journal




added 7/16 to 41 1/8 after it announced its acquisition of four Internet service providers: Brazil's

ServNet Servicos de Informatica e Communicacao

, Hong Kong-based

Vision Network

and Spain's

Infase Comubicaciones


Ciberia Internet


German drug maker


said it would buy New Hampshire-based



, for $9.50 a share, or about $100 million. Schering said its goal is to become active in the radiopharmaceutical business, which involves the use of radioactive chemicals to test the location, size or function of tissues, organs and blood vessels. Diatide lifted 1 1/2, or 19.7%, to 9 9/64.





proposed merger with



, in which Sonera has a major interest. VoiceStream added 3, or 5.4%, to 59, while Aerial flew 5 5/16, or 26.7%, to 25 1/4. Meanwhile, Aerial's majority shareholder,

Telephone & Data Systems


gained 3 1/4 to 78 3/4, after saying it canceled plans to spin off the digital cellular phone company in light of the VoiceStream merger. TDS said it would tender its 59.1 million-share stake to VoiceStream.

Earnings/revenue reports and previews

A.G. Edwards


inched up 1/16 to 24 13/16 after the company posted better-than-expected second-quarter results of 86 cents a share, compared with the two-analyst estimate of 81 cents, and up from a year-ago 74 cents.

Consol Energy


slipped 5/16 to 13 3/16 after the company lowered earnings expectations for the quarter and the year, citing lower prices for bituminous coal. Consol said it expects results for the current quarter to between 12 cents and 18 cents a share, while the single analyst estimate calls for earnings of 51 cents a share.

Dole Food


fell 1 3/8, or 5.7%, to 22 5/8 after it warned investors it would post third-quarter break-even results or a possible loss, missing the four-analyst estimate of 13 cents a share.

Offerings and stock actions

Best Buy


tacked on 2 1/4 to 48 1/2 after it set a stock buyback plan worth $200 million. The retailer said it finished a $100 million repurchasing plan last October and now has roughly 205 million outstanding shares.

Cost Plus


lost 1/16 to 47 1/4 after it set a 3-for-2 stock split.

Analyst actions

ASM Lithography


added 5/16 to 65 1/4 after

Credit Suisse First Boston

raised its fiscal 1999 and 2000 earnings estimates to 62 cents and $2.25 a share, respectively.

Complete Business Solutions


fell 1 1/16, or 7%, to 14 1/16 after

Donaldson Lufkin & Jenrette

sliced its rating to buy from top pick.

Duke Energy


rose 5/8 to 56 1/2 after First Boston upgraded the stock to buy from hold, and raised 2000 earnings estimates to $3.95 a share, from $3.85 and 2001 earnings-per-share estimates to $4.29 from $4.12.

General Electric


moved up 7/8 to 120 7/8 after

Merrill Lynch

added the stock to its Focus One list, and said it could hit 150 by next year.



fell 2 5/16, or 6.5%, to 33 1/4 despite some help from First Boston, which upped its rating to strong buy from buy.



added 1/8 to 33 after

Warburg Dillon Read

upgraded the stock to buy from hold.


powered up 5 3/8, or 9.2%, to 63 15/16 after Warburg Dillon Read upped its rating on the stock to strong buy from buy.



fell 2 11/16 to 58 1/4, despite First Boston's optimism about its net pricing yields and an increased 2000 earnings estimates to $3.55 a share from $3.00.



climbed 5 7/8 , or 5.3%, to 116 5/16 after Credit Suisse First Boston started coverage with a buy rating.


American Home Products


added 1/8 to 46 1/8 after a story in

The New York Times

said Wall Street analysts fear the planned fen-phen settlement may go too far to accommodate plaintiffs, leaving the drugmaker open to lengthy legal proceedings. According to the


, the company and plaintiffs agreed to an initial draft of a memorandum of understanding, which has American Home Products handing over $4 billion to former fen-phen users. Despite the doubts,

Salomon Smith Barney

analyst Christina Heuer raised her rating on the stock to outperform from neutral, citing strategic events including the settlement and potential merger and acquisition activity.



slipped 3/16 to 21 1/8 after it filed a complaint in federal court in Manhattan alleging that

Phelps Dodge's


unsolicited bid for it and

Cyprus Amax


is a violation of U.S. antitrust laws. Cyprus also slipped 1/8 to 17 7/16, while Phelps Dodge fell 5/16 to 57 11/16. Asarco is seeking damages for what it says is Phelps' wrongful interference with Asarco's proposed merger with Cyprus.



added 1/8 to 71 3/8 after

The Wall Street Journal

reported the head of the commercial-vehicle division, Kurt Lauk, resigned from the company's management board. The story also said Thomas Stallkamp's role as Chrysler's president is in jeopardy.



was unchanged at 46 5/8 after the


said it unveiled plans to launch 10 trial

Computer Doctor

centers in its stores to service computers and install software. In a Bull Market, Scrupulous Accounting Barely Matters


Adam Lashinsky

Silicon Valley Columnist

9/20/99 7:30 AM ET

Editor's note: Adam Lashinsky never expected to become anything close to an authority on accounting issues. He still isn't. But first as the high-tech stocks columnist for the

San Jose Mercury News

and now as the Silicon Valley columnist for

, he's found himself writing repeatedly about the green-eyeshade crowd, its policies and its controversies. For the most part, that has endeared him to the accounting profession, which doesn't necessarily want to be agreed with as much as it is delighted to be paid attention to at all. And that is how Lashinsky ended up as the California CPA Education Foundation's luncheon speaker at its annual high-tech industries conference last week in Los Angeles and San Jose. In the spirit of


founder James J. Cramer, a heavily edited, polished and factually enhanced text of that speech follows


Let me first tell you that I am far more amused to be addressing a roomful of accountants than you possibly could be listening to a journalist. I studied history and political science at the

University of Illinois at Urbana-Champaign

(I graduated before

Marc Andreessen

even showed up), where my only connection to the now-famous computer science department was that I had a roommate who was a computer-room monitor. This meant we had access to the laser printer late at night, so I could print my term papers without having to wait in line.

I did, however, take an accounting class at Illinois, a one-semester condensed version of the two semesters accounting majors endured. Taking our cue from the coursebook's abbreviations, nonaccounting majors called this short-form course "Accy. (pronounced ACK-ee) for Idiots." Idiotic it was not, of course. And that one semester of accounting has served me well as a business journalist. Thanks, Dad, for forcing me to take it.

In any event, I am here to deliver hopeful news to you: The rest of the world -- especially Wall Street and employees in Silicon Valley -- care deeply about accounting. In short, accounting matters. And I'm going to recount just a few of the accounting brouhahas into which I have injected myself over the last two years. But there is a downside to my hopeful message: Accounting counts, but in a great bull market it may not be relevant. Put differently, in case after case, simply pointing out questionable accounting practices has had much less impact than one might assume. And that calls into question whether or not the outside world should continue to care about accounting or if it's best left to the likes of you and, sometimes, me.

First, however, consider an anecdote to illustrate just how arcane the world of Silicon Valley accounting can seem to outsiders. Early in my earnest education phase of covering the Valley, I came across a curious comment in a quarterly filing by



, describing its acquisition from

Netscape Communications

of an R&D-stage company called


. Oracle paid about $77 million in stock and proceeded to take a charge to earnings of $75.6 million. Why? Because "in the opinion of management and the appraiser, the acquired in-process research and development

associated with Navio had not yet reached technological feasibility and had no alternative future uses."

Now, in plain English this sounded an awful lot like Oracle had just exchanged $77 million in stock for something worth roughly $1 million. Confused, I phoned the father of a friend in Chicago who was a longtime partner with a major accounting firm. "What's this in-process R&D charge business all about?" I asked. The short answer: "I don't know. Call my partner in San Jose. He'll know."

Lesson learned: Don't feel bad if you don't understand the goofy things you read in securities filings. Trained professionals don't always get it either.

Now consider some of the other accounting topics I've struggled to make interesting for the average reader.

  • In early 1998, I chastised Web advertising firm Doubleclickundefined for reporting as "revenue" a figure most of the rest of the world would better recognize as "billings" or "gross merchandise revenue." Why did this matter? Because unprofitable Internet companies typically are valued on a price-to-sales basis. Bigger revenue mean bigger valuations. Doubleclick, by the way, subsequently refined the way it reports revenue. But did it ever matter? Arguably not. The young company's stock has soared throughout.
  • For a while, the accounting industry was in a dither over a new directive called SOP 97-2, a fundamental rewriting of accounting policies for technology companies, especially software concerns. I devoted considerable time and ink to explaining what it meant while imploring readers to pay attention. Shortly after that, the accounting profession decided its SOP 97-2 directive wasn't quite ready for prime time, and nobody talks about it anymore. Important, yes. But relevant?
  • The former Excite search directory company created a stir about a year ago when it announced its first "profitable" quarter. A lower-down paragraph beneath the hoopla in its news release, however, was telling. "On a GAAP basis," it began, referring to the Generally Accepted Accounting Principles that all U.S.-listed companies must use to report their performance. Think about that. "On a GAAP basis," Excite wasn't profitable after all. But never mind such silliness. Excite ultimately was acquired for billions of dollars by another unprofitable company, now known as Excite@Home (ATHM) , which itself had changed its accounting presentation once after a chat with the Securities and Exchange Commission. Whatever.
  • PeopleSoft (PSFT) , the software company, creatively followed the lead of the pharmaceutical industry by deploying what's properly called off-income-statement financing of its R&D. By creating, capitalizing and spinning off Momentum Business Applications (MMTM) , PeopleSoft shifted some of its research expense to a shell company with no employees. The goal: lower PeopleSoft's expenses in the near term while retaining rights to buy back the fruits of the technology in the future. But did pointing out that this was a sham matter? Nah, PeopleSoft's stock cratered when its business dried up, not because people were outraged over its accounting practices.
  • Beundefined and NetObjects (NETO) both carried "going concern" warnings in their initial public offering prospectuses this year. Accountants know this technically means, "We need the cash or we could go bankrupt," or in other words, cease to be a going concern. But Silicon Valley pros tut-tut such talk. Everyone knows that doing an IPO is simply the cheapest way to raise money but not the only one. So why would you get all hot and bothered over a little "going concern" warning? Both companies successfully raised tens of millions of dollars.
  • William Larson, CEO of Network Associatesundefined, had the chutzpah to tell analysts in a conference call that Network Associates would keep making its projections because of "honey-pot" reserves it was stashing. I'd like to think this was the genesis of SEC Chairman Arthur Levitt's crackdown on the use of "cookie-jar" reserves. And indeed, this is perhaps the weak link in my thesis, because aggressive merger accounting and discernible channel stuffing may well have masked an eventual business slowdown at Network Associates, whose stock plunged when Larson's honey pot ran dry.
  • Finally, just last week, Goldman Sachs analyst Rick Sherlund assured investors that some new business-to-business e-commerce companies were confidant of their ability to smooth out future quarterly performance by saving current sales to be recorded in the future. Sherlund acknowledged that the SEC might not look kindly on such a practice. But after all, it's common knowledge that that sort of behavior goes on. Accounting matters? Only to a point.

It's worth noting that my colleague

Herb Greenberg

has built a career out of scrutinizing balance sheets, particularly the "receivables" line item, as a way of ferreting out companies whose rising inventories are hiding fading sales.

But on balance, accounting matters less than does the great bull market, the forgiver of almost all transgressions. Accounting will matter again, to be sure. But perhaps not until investors' irrational exuberance becomes rational scrutiny.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

Copyright 1999,