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  • Author:
  • Publish date:'s MIDDAY UPDATE

September 21, 1999

Market Data as of 9/21/99, 1:21 PM ET:

o Dow Jones Industrial Average: 10,650.40 down 173.50, -1.60%

o Nasdaq Composite Index: 2,848.51 down 37.64, -1.30%

o S&P 500: 1,315.55 down 19.98, -1.50%

o TSC Internet: 625.03 down 3.97, -0.63%

o Russell 2000: 427.98 down 5.22, -1.20%

o 30-Year Treasury: 100 11/32 down 11/32, yield 6.095%

In Today's Bulletin:

o Midday Musings: Earnings Worries, Taiwan Disaster Unite to Flatten Stocks
o Herb on TheStreet: Labor Pains and Why Even E.T. Couldn't Phone Home Community

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Herb Greenberg: Labor Pains and Why Even E.T. Couldn't Phone Home

Jim Seymour: The Threat to eBay? Don't Buy It.

If you can't get enough great conversation on our boards, then check outTracy Byrnes and Ted Tesser for a tax chat tonight at 5 p.m. EDT on Yahoo!Register for Yahoo Chat at It's free!

Also on

Wrong! Dispatches from the Front: An Unsavory Combination

Apple, earthquake and Western Digital -- not exactly what we need in addition to a crummy trade report.

Asia/Pacific: Intervention Talk Goes for Naught in Japan

Tokyo was alive with talk of 'unsterilized intervention,' but the Bank of Japan stood pat.

Biotech/Pharmaceuticals: They're No Longer a Cheap Date, but Biotechs Still Appeal


asked some smart investors and analysts which stocks in the sector get their blood pumping.

Dear Dagen: Dear Dagen: Should I Dump My John Hancock Bank Fund?

Interest-rate concerns have depressed financial stocks in general, but there's no need to panic.

Midday Musings: Earnings Worries, Taiwan Disaster Unite to Flatten Stocks


Thomas Lepri

Staff Reporter

9/21/99 1:28 PM ET

Some renewed yen strength and the unlikely convergence of a couple of disasters (of both the natural and corporate variety) were keeping stocks deep in the hole at midday.

All the proxies were solidly lower. The

Dow Jones Industrial Average

was off 166, or 1.5%, to 10,658; the tech-embossed

Nasdaq Composite Index

was down 32, or 1.1%, to 2854; and the

S&P 500

was retreating 18, or 1.4%, to 1317. Internet Sector

index was sinking a more modest 2, or 0.4%, to 627, while the small-cap

Russell 2000

was 5 lower to 428.

"The market hasn't been acting well for the past couple of weeks," said Charles Crane, chief market strategist at

Key Asset Management

. "Today we have a couple of lightening rods for investors to aim their anxieties."

Rod No. 1: The 7.6-magnitude quake that hit Taiwan yesterday, killing more than 1,500 people and injuring about 3,700 others, is raising concerns in the market about some short-term production problems for the island's semiconductor industry.

By itself, that probably wouldn't be enough to roil the U.S. technology market. But compounding that natural disaster this morning was the fallout from


(AAPL) - Get Apple Inc. Report

profit warning. The company said last night that delivery problems with



G4 processors, which are used in Apple's

Power Mac G4

computers, would keep fourth-quarter earnings below the third-quarter results. Specifically, interim CEO

Steve Jobs

said that chip-shipping delays will leave Apple unable to fill all of the more than 150,000 orders for Power Mac G4s this quarter.

Semiconductor stocks were indeed feeling the pinch at midday. The

Philadelphia Stock Exchange Semiconductor Index

was off about 1.6%. Motorola was lately down 1.7%

Apple, itself down about 9.7%, was also dragging down computer manufacturers across the block. The

Philadelphia Stock Exchange Computer Box Maker Index

had fallen 3.6%.

"We're getting into the preannouncement period, and a lot of people taking things off table," said Tim Grazioso, manager of Nasdaq trading at

Cantor Fitzgerald

. "And it's much easier to take profits than to take losses."

There are certainly profits there for the taking. The Nasdaq opened the session just shy of its all-time high. To Grazioso, today's selling is partly payback for the marked narrowness of the market's recent rallies: "We've been talking about how most of the move in the Nasdaq and the Dow has been limited to a small basketful of stocks. When these things happen, people sell those stocks."

Accordingly, tech bellwethers were suffering of late.


(CSCO) - Get Cisco Systems, Inc. Report

was down 1.4%,


(MSFT) - Get Microsoft Corporation Report

2.1% and


(INTC) - Get Intel Corporation Report


Without much positive news to focus on, things seem stretched in the short term. Earnings season doesn't fully kick off until mid-October. Until Oct. 5, when the

Federal Open Market Committee

next meets to decide the fate of short-term interest rates, investors will be forming their sentiment on earnings from preannouncements, which aren't inspiring anyone right now.

"I think it's sideways to down until you get some kind of positive news," Grazioso said. "Right now, sentiment's slightly negative for earnings. Looking at Apple, it's not a demand problem. Earnings should be up, and they're down."

That sentiment should change sooner or later. Analysts are gearing up for earnings to come in 20% ahead of last year, according to

First Call/Thomson Financial

. But Crane isn't expecting an upside breakout for the market until investors can get over their anxieties over such diversions as interest rates, Y2K concerns, high valuations and a possible slowdown in the U.S. economy (no problem, right?): "All these things are starting to chip away at the market's condition. Will it turn into an outright rout? I don't think so. Third-quarter profits are going to be quite good. There will still be investors' propensity to buy on dips. I'm just not sure when they'll come off the sidelines."

Of course, even without Apple, stocks would be swimming upstream against the tide of yen buying set off by the

Bank of Japan's


decision to keep its monetary policy unchanged. Egged on by reports by newswire services and in the Japanese press, market participants had been poised for the BOJ to ease policy by increasing the supply of yen through open market operations.

When it became clear that that wasn't going to happen, the dollar retraced all of the gains it had made against the yen since Friday, moving almost immediately through the 105 yen level.

The dollar also was coming under pressure this morning from the latest

international trade

report, which showed the U.S. trade deficit unexpectedly setting a new record in July, a massive $25.1 billion.

The greenback was lately quoted at 104.8 yen.

The bond market sold off early in response to the BOJ news, setting the stage for a downside session for equities. The 30-year Treasury had lately stabilized a bit, down 11/32 to 100 10/32, its yield rising to 6.10%. (For more on the fixed-income market, see today's early

Bond Focus.)

Volume was moderate and breadth was nothing to write home about.

New York Stock Exchange

decliners were squashing advancers 2,141 to 691 on 425 million shares, with 32 new 52-week highs against a massive 205 new lows. In

Nasdaq Stock Market

action, decliners were beating advancers 2,339 to 1,220 on 588 million shares, with 57 new highs and 76 new lows.

The Score Soon: Trading 22, Sleep 2

Just can't get enough of that after-hours, before-hours, whatever-hours trading?

Island ECN

and the


online brokerage are betting on it big-time. They plan to offer trading 22 hours a day and on weekends by next year, an official of their parent company said today.

The first step would be an extension of the current 8 a.m.-to-8 p.m. EDT Island session to midnight-8 p.m., probably within three months, said Edward Nicoll, president and COO of

Datek Online Holdings

. He was speaking at a


online trading conference in New York.

Sometime later, probably next year, Island's session would swell to midnight-10 p.m., Nicoll said. Finally, trading would be extended into the weekend. Nicoll offered no details on the hours of the weekend session.

Datek and Island have no plans to extend the trading day past 10 p.m., as a two-hour break is needed for trade clearing and system maintenance, Nicoll said. The expanded hours are meant to appeal to investors in Asian and European countries, he said.


Caroline Humer

Tuesday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

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


Mergers, acquisitions and joint ventures

Bell Atlantic


moved up 5/8 to 64 1/4 and

Vodafone AirTouch

(VOD) - Get Vodafone Group Plc Report

rose 4 1/4 to 216 1/4 after the companies said they have forged a new nationwide U.S. wireless telephone pact. According to the deal's terms, Bell will hold a 55% stake in the venture, carrying a value of more than $70 billion.


(BFO) - Get BlackRock Florida Municipal 2020 Term Trust Report

lost 1 1/8 to 50 3/8 after saying it will buy


for an undisclosed amount.

Dutch supermarket company



fell 3/16 to 33 1/4 after it said it made a deal with Britain's

Hilton Food Group

to sell the main meat processing division of

Albert Heijen

, the company's flagship supermarket chain.



rose 3/16 to 32 1/8 after it inked a $330 million mobile infrastructure pact with

Leap Wireless



Cricket Communications

. The deal calls for Ericsson to provide Cricket with digital mobile systems that supply voice and data services. Leap jumped 6, or 34.3%, to 23 1/2

Qwest Communications


lost 1/4 to 29 15/16 and

U S West


was unchanged at 56, after the companies said that federal and state applications for their $35 billion agreement will be finished by tomorrow. In a joint statement, the companies said roughly 500,000 Qwest shareholders and a million U S West owners would receive a copy of their final joint merger proxy for their stockholder meetings on Nov. 2.

Suiza Foods


lost 5/8 to 32 5/8 after it announced plans to buy

Southern Foods Group

in a deal valued at $6 billion. According to the terms of the transaction, Suiza would hold a 66.2% stake in the merger, with the remaining interest held by

Dairy Farmers of America

, which owns half of Southern Foods. The joint business, which will be known as

Suiza Fluid Dairy Group

, will receive raw milk from Dairy Farmers. Suiza said that Southern President and CEO Pete Schenkel would replace Suiza President and CEO G. Irwin Gordon, who has decided to leave the company, upon the deal's completion.

Earnings/revenue reports and previews

Apple shares fell 7 11/16, or 9.7%, to 71 3/8 after the company warned investors that it would post fourth-quarter earnings well below the previous quarter's results of 69 cents a share, missing the 19-analyst estimate of 76 cents,


reported. Apple blamed the disappointing earnings on delivery problems with Motorola's G4 processor chips, which are used in Apple's

Power Mac G4

computers. Shares of Motorola slipped 1 9/16 to 89 1/8.

BE Aerospace


lost 23/32 to 15 3/16 despite the fact the posted second-quarter earnings of 55 cents a share, in line with the seven-analyst estimate of 55 cents and beating the year-ago 45 cents a share.



fell 1 to 30 after warning investors that it would report disappointing fiscal 1999 results from $3.20 to $3.30 a share.

Countrywide Credit

(CCR) - Get CONSOL Coal Resources LP Report

rose 1 5/16 to 31 7/16 after it posted second-quarter earnings of 91 cents a share, in line with the 15-analyst estimate of 91 cents and beating the year-ago 81 cents.

Discount Auto Parts


slipped 3/4 to 17 after posting first-quarter earnings of 44 cents a share, missing the five-analyst estimate of 45 cents and the year-ago 42 cents.

Goldman Sachs

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

dropped 1 3/8 to 59 3/8 despite posting third-quarter earnings of $1.32 per share, easily beating the 11-analyst estimate of $1.09 cents.

International Multifoods


fell 5/16 to 22 9/16 after it reported second-quarter earnings of 27 cents a share, in line with the six-analyst estimate of 27 cents a share and beating the year-ago 24 cents.



edged down 1/16 to 6 15/16 after posting fourth-quarter earnings of 2 cents a share, missing the three-analyst estimate of 4 cents a share but up from the year-ago 72-cent loss.

Pepsi Bottling Group


lost 9/16 to 33 3/8 despite reporting third-quarter earnings of 59 cents a share, beating the three-analyst estimate of 55 cents but down from the year-ago 81 cents a share.

Western Digital

(WDC) - Get Western Digital Corporation Report

lost 5/16 or 6.8%, to 4 5/16 after it preannounced a first-quarter loss of $1.20 to $1.30 a share, well below the 11-analyst estimate of a $1.06 loss.

Offerings and stock actions

Alteon WebSystems

raised the size of its planned IPO to four million shares from three and raised the expected share offering range to $17 to $19 a share from $14 to $16.

Lehman Brothers

is serving as the deal's lead underwriter.

Analyst actions

Bed, Bath & Beyond

(BBBY) - Get Bed Bath & Beyond Inc. Report

added 1 1/4 to 30 1/8, after


raised its rating to a strong buy from a buy. Bed Bath & Beyond will become part of the S&P 500 at the close of trading today.

Coinmach Laundry


rose 1/8 to 9 3/4 after

Merrill Lynch

started coverage with near-term and long-term accumulate ratings.

Dan River


fell 3/8 to 6 1/4 after

IJL Wachovia

rolled out coverage with a neutral rating.


(DD) - Get DuPont de Nemours, Inc. Report

rose 3/8 to 62 1/16 after

Morgan Stanley Dean Witter

reinstated coverage with a strong buy rating.


(FSR) - Get Fisker Inc Class A Report

fell 5/8 to 22 13/16 after

Donaldson Lufkin & Jenrette

initiated coverage with a buy rating.


(GT) - Get Goodyear Tire & Rubber Company Report

fell 4 9/16, or 8.8%, 47 3/8 after

J.P. Morgan

sliced its rating to a market perform from a long-term buy.

GST Telecommunications


slipped 2 5/16, or 21.1%, to 8 5/8 after Morgan Stanley hammered down its price target on to 15 from 18.

Banc of America Securities

cut its fiscal 1999 earnings estimates to $5.04 a share from $5.33.

Lincoln Financial

(LNC) - Get Lincoln National Corporation Report

lost 5/8 to 40 after J.P. Morgan started coverage with a market perform and set a price target of 45.

MGIC Investment

(MTG) - Get MGIC Investment Corporation Report

gained 1 9/16 to 44 15/16 after Lehman Brothers upped its fiscal 1999 and 2000 earnings per share estimates to $4.03 from $4.00 and to $4.65 from $4.60 respectively.

Park Place Entertainment


climbed 9/16 to 11 1/8 after J.P. Morgan rolled out coverage with a buy rating and a price target of 14.

Rite Aid

(RAD) - Get Rite Aid Corporation Report

was off 1 7/16, or 7.9%, to 16 11/16 after Morgan Stanley sliced its rating to neutral from outperform.



added 9/16 to 46 1/8 after Morgan Stanley reinitiated coverage with a strong buy rating.


(TAGS) - Get Teucrium Agricultural Fund Report

climbed 7/16 to 11 1/4 after


initiated coverage with intermediate market-perform and long-term outperform ratings.



lost 3/16 to 103 after

Deutsche Banc Alex. Brown

began coverage with a strong buy rating


ESS Technology


lost 1/8 to 14 3/8 after saying it chose Executive Vice President Robert Blair to become its president and CEO. Blair is replacing Fred Chan, who will continue to serve as the company's chairman.



added 3/8 to 17 3/4 after saying it tapped President and COO Craig Conway to serve as the company's CEO.


lost 5/32 to 6 13/16 after saying it tapped George Platt to become its new president and CEO. Platt will replace William Jobe, who stepped down in July.

Herb on TheStreet: Labor Pains and Why Even E.T. Couldn't Phone Home


Herb Greenberg

Senior Columnist

9/21/99 6:30 AM ET

Drying out

Phone home:

The last thing I wrote, in my final

pre-Floyd column, was that while officials of several companies hadn't called me back, I did hear from a guy named Lou, who runs the


(SVM) - Get Silvercorp Metals Inc. Report

franchise in these parts. And right there, while the deluge was at its worst and while water was filling my basement, he had promised to come out first thing in the morning to start sopping up the basement. Only thing I hadn't counted on was Lou getting flooded. Turns out Lou's shop was in a northern New Jersey town called Lodi, which was buried under enough water to fill many basements.

Tell us what you think on our

message boards.

At last check -- yesterday -- his phone was still out of order. He wasn't alone, of course. If you haven't heard, the geniuses at

Bell Atlantic




(T) - Get AT&T Inc. Report

kept a critical amount of switching devices for long-distance and wireless phones in the basement of a building in a flood zone. That meant that, until late Sunday, we couldn't make calls outside of our town, which meant we couldn't access the Internet and we had no cellular service. We were isolated, I tell ya,


(I ranted enough about this on

"" on

Fox News Channel

-- bad timing for

Mike Kagan

, our guest, to recommend Bell Atlantic!)

Being without a phone was one thing, but at least you could travel 20 miles to find a cell that was working for a wireless chat. Going cold turkey off email, my primary link to the outside world, was maddening. Never realized just how much of an Internut I've become. Scary. What's even more scary, though, is to think that the same geniuses that put the phone system in the flood zone are responsible for making it Y2K-safe!

Labor pains:

Hate to keep referring to Jeff Matthews of

Ram Partners

, the guy who penned the

(AMZN) - Get, Inc. Report


here recently and who warned a

year ago about how auto-parts maker

Federal Mogul

(FMO) - Get Fiduciary/Claymore Energy Infrastructure Fund Report

looked like an accident waiting to happen.

But he's got another theme that is equally compelling (at least I think so): rising labor costs. This is something


on Wall Street is really talking much about -- the impact of rising labor prices on profitability. Yet Jeff says it was mentioned as a challenge by company after company at last week's

Donaldson Lufkin & Jenrette


growth-stock conference. With the job market


tight, all sorts of companies are being forced to boost their labor costs to attract workers, in what amounts to a wage war. It's particularly noticeable in the fast-food industry.

One analyst recently talked about how wage costs last quarter were up more than 5% at


(WEN) - Get Wendy's Company Report

, and execs from

CBRL Group

(CBRL) - Get Cracker Barrel Old Country Store, Inc. Report


Cracker Barrel

) have recently been making similar comments. Just yesterday, in reiterating his neutral rating on


(SBUX) - Get Starbucks Corporation Report


Morgan Stanley Dean Witter

analyst Robert Ohmes said in a

First Call/Thomson Financial

report that the company's North American retail business "continues to experience pressures on the labor-expense line."

What do you think about labor costs and accounting practices? Let us know on our

message boards. The tight labor market is so bad that

Hon Industries

(HNI) - Get HNI Corporation Report

, which makes office furniture and filing cabinets, recently warned that it would miss its third-quarter numbers, in part because it can't find enough people to work in its factories.

So, if labor prices are rising, why hasn't this showed up in consumer prices? I'll leave that to


to answer. But one explanation is that some industries, especially retail and fast food, are hard pressed to pass along the higher prices. Unless that changes, Jeff expects to see tighter margins and lower profits. Which stocks will suffer the most? Jeff is betting against those like Starbucks and Wendy's, "where the charts look bad for whatever reason and where fundamentals are deteriorating because of labor."

A trend worth watching.

Accounting antics:

Beg to differ with


comments at a speech last week on accounting, the one where he said accounting won't matter until the bull market ends.

Hey, buddy, it already matters. Companies are getting whacked in record numbers for being overly aggressive. And don't be surprised if you see a new round of write-offs and restatements early next year after auditors, fearing the wrath of the

Securities and Exchange Commission

, get tougher than ever during the year-end audit.

Hey, but this from the guy who




on last week's TV show.

Who do you think should play Herb, Gary B. and the rest of the TSC gang? Join the Herb

message board..

Rhoda's husband, eh?!:

That's who

G.B. Smith's


says should play me in

TSC: The Movie

. Considering that

David Groh

appears to have fallen off the face of the earth, should that tell me something?! (P.S., Gary: My wife thinks

Peter Yarrow

-- you know, Paul and Mary's cohort -- better suits you than

Brad Pitt

! Maybe you could become the Singing Chartman! If you only had a hammer...)

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.

Copyright 1999,