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midday09-27-99's MIDDAY UPDATE

September 27, 1999

Market Data as of 9/27/99, 12:58 PM ET:

o Dow Jones Industrial Average: 10,360.38 up 81.05, 0.79%

o Nasdaq Composite Index: 2,778.19 up 37.78, 1.38%

o S&P 500: 1,289.56 up 12.20, 0.96%

o TSC Internet: 634.64 up 17.03, 2.76%

o Russell 2000: 422.85 up 5.76, 1.38%

o 30-Year Treasury: 101 19/32 down 19/32, yield 6.002%

In Today's Bulletin:

o Midday Musings: Traders Get a Bounce on Dollar/Yen, Technicals
o Herb on TheStreet: Responding to a Fool's Attack on This Column's Comments on Estee Lauder Community

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Midday Musings: Traders Get a Bounce on Dollar/Yen, Technicals


Justin Lahart

Senior Writer

9/27/99 1:06 PM ET

When the

S&P 500

drops below 1280, when the

Chicago Board Options Exchange Volatility Index

rises up toward 30 -- back up the truck and buy. For the last half year, that would have been the best financial advice anyone could have given you. And damned if it doesn't look like it continues to hold today.

There was certainly a good chance that it might not have worked out this way. Heading into the weekend the consensus was that the


finance ministers meeting in Washington would refrain from saying anything about the recent strength of the yen. As is so often the case, the consensus was wrong. Included in the statement the G7 put out at the conclusion of its get-together on Saturday:

We shared Japan's concern about the potential impact of the yen's appreciation for the Japanese economy, and the world economy. We welcomed indications by the Japanese authorities that policies would be conducted appropriately in view of this potential impact. We will continue to monitor developments in exchange markets and cooperate as appropriate.

Also following the G7 meeting,

Bank of Japan


Masaru Hayami

said the BOJ is "exploring how we could improve money-market operations so as to assure the further permeation of liquidity in the context of the zero-interest-rate policy." Some took this as an indication that the BOJ is more conciliatory toward the idea of upping yen liquidity levels.

As a result of all this, the dollar strengthened against the yen. For the stock market, which has had a sort of moribund interest in the yen's gain and the theory of a hard landing for the American economy (basically, a capital flight out of the U.S. of A.), the reversal is a godsend.

And so stocks are jumping higher -- though given the technical position of the market, maybe a bounce would have come anyway.

"We crashed back to the bottom of the trading range of the past five months," said Peter Canelo, U.S. equity strategist at

Morgan Stanley Dean Witter

. "We flipped most of the technical indicators that I look at into grossly oversold territory." A bounce was in the cards.

This is not to say Canelo doesn't think the dollar matters. As it stands now, he thinks stocks will bounce to somewhere in the middle of the range they've been stuck in. "Where we go from there and when we break out higher -- which is my thesis -- will depend on the resolution of the alleged dollar crisis."

One swallow doesn't make the spring. Today's nice move in the dollar isn't necessarily going to hold, and plenty of firms are recommending taking advantage of the greenback rally to go long yen. And so today's move in stocks can still be called range-trading -- which isn't the kind of environment some people like to work in.

"It's too scary to buy here and it's also to scary to short," said Sam Ginzburg, managing director of equity trading


. "I'll buy it when it's stronger and I'll short it when it starts to go lower."

Ginzburg is hopeful, however, that stocks will break out. A couple of things have to happen first. First, the dollar has to stabilize. Second, the


has to be out of the way. He reckons that will happen at the Oct. 5 meeting, one way or the other. And third, earnings need to come in as well as everybody thinks they will.

"Then you have the recipe to head higher," he said. "We've got a shot for a really, really good upside. I may be a little late to the party, but I'll still be able to make some money."


Dow Jones Industrial Average

lately was up 83, or 0.8%, to 10,363 and the

S&P 500

was up 12, or 1%, to 1290. The tech-heavy

Nasdaq Composite Index

was up 38, or 1.4%, to 2778. Internet Sector

index was up 17, or 2.7%, to 634. The small-cap

Russell 2000

was up 6, or 1.4%, to 423.

Gold stocks were screaming after the weekend announcement that European central banks will limit their gold sales for the next five years. The glittery stuff lately was up $11.10, or 4.1%, to $279.60 an ounce. The

Philadelphia Stock Exchange Gold and Silver Index

, or XAU, was lately up a massive 13.7%.

Investors who heeded the advice of

Salomon Smith Barney

analyst Leanne Baker, who upped the sector to outperform from market perform on Friday (as opposed to raising ratings on the companies today like some other firms) should probably send her some flowers.

Market internals were good, though volumes suggest Ginzburg isn't the only one who's reticent about playing too hard today. On the

New York Stock Exchange

, advancers were outpacing decliners 1,795 to 1,053 on 431 million shares. There were 19 new 52-week highs and 177 new lows. On the

Nasdaq Stock Market

, advancers were ahead of decliners 2,050 to 1,481 on 527 million shares. There were 48 new highs and 68 new lows.

The benchmark 30-year Treasury was down 18/32 to 101 17/32, its yield rising to 6.02%. (For more on the fixed-income market, see today's early

Bond Focus.)

Monday's Midday Watchlist

By Tara Murphy
Staff Reporter


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



(INTC) - Get Intel Corporation Report

was jumping 3 15/16, or 5.2%, to 79 9/16 after it unveiled its most-recent Pentium III line of microprocessors and the Intel 810E chipset, which enables ordinary Celeron-chip PCs to be upgraded to use Pentium III chips. Intel validated a statement made by


(RMBS) - Get Rambus Inc. Report

that it pushed back the 820 Chipset debut as a result of "platform validation issues that may result in memory errors." Intel said that it developed two Pentium III processors, operating at 533-megahertz and 600-megahertz clock speeds, that work with a faster 133-megahertz bus, the data nucleus, which exchanges data between components.

Rambus was plummeting 9 3/4, or 13.7%, to 61 9/16 after underwriter Morgan Stanley Dean Witter downgraded the shares to outperform from strong buy and

SG Cowen

cut them to neutral from buy.

Mergers, acquisitions and joint ventures

Aurora Foods

(AOR) - Get iShares Core Growth Allocation ETF Report

was off 5/16 to 14 1/2 after it said it is buying


(K) - Get Kellogg Company Report

Lender's Bagels

business for $275 million. Shares of Kellogg's were was up 1/16 to 37 1/16.

Cirrus Logic

(CRUS) - Get Cirrus Logic, Inc. Report

was hoping 1 5/8, or 16%, to 11 3/4 after it said it would provide


(MSFT) - Get Microsoft Corporation Report

with chips that would power future portable music players. Cirrus said its new


Internet audio chips would energize Microsoft's

Windows Audio Media

format, possibly by Christmas. Microsoft was climbing 1 7/16 to 92 3/8.


(DELL) - Get Dell Technologies Inc Class C Report



(IBM) - Get International Business Machines Corporation Report

will unveil an expansion of their $16 billion pact this morning, according to a


report. Dell was popping 1 1/16 to 44 3/4, while IBM shares were up 7/8 to 125 7/8.

Grupo Mexico

on Friday said it was offering $26 a share for


(AR) - Get Antero Resources Corporation Report

, which is above

Phelps Dodge's

(PD) - Get PagerDuty, Inc. Report

bid for Asarco. Asarco shares were advancing 3 1/8, or 13.2%, to 26 11/16, while Phelps was jumping 3 1/4, or 6%, to 57 13/16.



was up 1 to 44 1/16 after it said it is purchasing a 19.5% stake in

Hain Food Group

(HAIN) - Get Hain Celestial Group, Inc. Report

, a nearly $100 million investment, confirming a report in

The Wall Street Journal

. Hain was slipping 2, or 7%, to 26 1/2 on the news.

If the companies agreed to sell off certain assets, an

MCI WorldCom


acquisition of



might obtain the regulatory go-ahead, federal officials said, the


reported. MCI was skidding 1 3/8 to 74 3/4, while Sprint shares were down 15/16 to 54 15/16.



was soaring 15 15/16, or 12.3%, to 144 3/4 on news that

Royal Bank of Scotland

was planning to launch a takeover offer for the bank. The Bank of Scotland has already expressed interest in acquiring NatWest.


(NKE) - Get NIKE, Inc. Class B Report

was bouncing up 1 to 54 13/16 after it said it will allow online sporting goods dealer

Fogdog Sports

to sell its full product line, reversing an earlier stance of blocking Web-only stores from selling its goods,

The New York Times


Home shopping network



was advancing 2 1/16, or 7.8%, to 28 5/8 after it said it finished the $28 million sale of two Houston, Texas television stations to privately-held

Pappas Telecasting

and will use the proceeds for business growth. ValueVision said that, as a result of the sale, it would assume a third-quarter pre-tax gain of $22 million, bringing the company's cash to about $290 million. The latest deal will allow the company to join


in an effort to re-brand its TV shopping network as


and its online shopping site as


Earnings/revenue reports and previews



was up 15/16, or 6.8%, to 14 5/8 after it warned that it expects third-quarter revenue and earnings to fall short of analyst estimates due to fewer surgical procedures and competitive pressures. Osteotech said it expects earnings of 15 cents to 17 cents a share, well below the 10-analyst estimate of 24 cents a share, and lower than the year-ago 19 cents. The company said it expects to return to more favorable earnings growth in the fourth quarter.

Palm Harbor


was stumbling 1 3/8, or 8.5%, to 14 3/4 after it said it expects second-quarter earnings of 44 cents a share, flat with the year-ago figure, and below the two-analyst estimate of 48 cents a share. The company said it had a large unsold retail inventory.

Analyst actions

AGL Resources


was down 7/16 to 16 5/16 after


cut its fourth-quarter earnings estimate to 3 cents a share from 13 cents and its fiscal 2000 estimate to $1.05 from $1.25.

Air Express


was mounting 7/8 to 21 7/8 after Merrill Lynch upped its rating to a near-term accumulate from neutral.


(BCS) - Get Barclays Plc Report

was jumping 5 1/2 to 119 after

Donaldson Lufkin & Jenrette

upped its rating to a buy from market outperform.

L-3 Communications

(LLL) - Get JX Luxventure Limited Report

was climbing 15/16 to 38 1/16 after

Credit Suisse First Boston

raised its rating on the shares to strong buy from buy.

National Data


was up 1/4 to 24 7/8 after SG Cowen cut its rating to neutral from buy. Cowen cut its fiscal 2000 earnings estimate to $2.25 from $2.35 and its fiscal 2001 estimate to $2.60 from $2.77.


(NEM) - Get Newmont Corporation Report

was pushing up 3, or 13%, to 25 15/16 after

Goldman Sachs

upped the shares to trading buy from outperform.



was sliding 5/16 to 41 7/8 after Morgan Stanley Dean Witter upped its price target to 50 from 42.

Werner Enterprises

(WERN) - Get Werner Enterprises, Inc. Report

was climbing 1 1/2, or 9.2%, to 17 7/8 after Morgan Stanley upgraded it to a strong buy from outperform.


(W) - Get Wayfair, Inc. Class A Report

was advancing 1 1/16 to 26 9/16 after

J.P. Morgan

upped its rating to buy from a long-term buy.


(WY) - Get Weyerhaeuser Company Report

was hopping 1 1/4 to 56 13/16 after J.P. Morgan raised its rating on the shares to a buy from market perform.



was up 1/16 to 37 after

ABN Amro

upgraded the shares to buy from outperform.


(ZBRA) - Get Zebra Technologies Corporation Class A Report

was popping 1 1/4 to 46 after

Banc of America Securities

upgraded its price target to 56.

Offerings and stock actions


(FDX) - Get FedEx Corporation Report

, parent of

Federal Express

, was mounting 3/16 to 35 3/8 after it said it would buy back up to 15 million shares, or about 5% of the total outstanding.


General Electric

(GE) - Get General Electric Company Report

was bouncing up 1 1/16 to 119 1/8 after said it launched a $50 million fund to invest in European-based Internet companies seeking early-stage financing.

Liberty Media


was advancing 1 1/2 to 35 5/8 after it said


(T) - Get AT&T Inc. Report

it approved its repurchase of 135 million Liberty shares. Shares of AT&T were up 9/16 to 43 3/16

Lockheed Martin

(LMT) - Get Lockheed Martin Corporation Report

was hopping 1 1/8 to 31 3/4 after it announced its plans to cut business divisions and possibly divest eight non-core units, which account for 9000 employees. The company said the restructuring changes would not impact its fiscal 1999 and 2000 estimates of $1.50 and $2.16 respectively.



was climbing 1 1/4, or 11.3%, to 12 1/4 after it named Tom Rogers, president of

NBC Cable

, chairman and CEO of Primedia, confirming a report in today's

New York Times




was sinking 6 7/16, or 26.7%, to 17 11/16 after researchers said that studies are indicating that AIDS drugs are failing to effectively suppress the disease, reported in


. Trimeris is the maker of an experimental infusion inhibitor called




(GILD) - Get Gilead Sciences, Inc. Report

, which makes reverse transcriptase inhibitor


, was falling 5 3/8, or 7%, to 71 7/16.

Herb on TheStreet: Responding to a Fool's Attack on This Column's Comments on Estee Lauder


Herb Greenberg

Senior Columnist

9/27/99 6:30 AM ET

Last week's

item that questioned the quality of

Estee Lauder's

(EL) - Get Estee Lauder Companies Inc. Class A Report

latest quarter stirred quite a response (er, series of responses) from

The Motley Fool's

Dale Wettlaufer. Smart guy, that Dale. We've corresponded over the years. We've agreed; mostly disagreed. Love that First Amendment. This time, once again, we agree to disagree. The item in question, this time around, pointed out how one short-seller suspected the cosmetics concern had managed its allowance for doubtful accounts in a way to help the company meet Wall Street estimates. (Actually not just


short-seller, but one of the best I know when it comes to spotting signs of trouble before everybody else.)

Dale went through a quite thorough and impressive analysis of Estee Lauder's receivables vs. the short-seller's allegation. "I think it's an unfounded one," he wrote, "and I think it's wrong to accuse a reputable company -- however much Herb Greenberg disclaims it as only a possibility that the company might have done it -- of engaging in accounting chicanery to fool investors. Sure, one should question things and the rewards are great enough to tempt many companies, even reputable companies, into using accounting skullduggery to 'make their numbers.' But Greenberg is relying heavily on someone who is talking up their position, someone who is short Estee Lauder based apparently on its valuation."

As if that's some crime?! No hiding under rocks, here. The reality is that, in the end, the short-seller's performance (and credibility) is based on


analysis and convictions; ditto for me and this column when it comes to choosing whom to quote, and what stories to pursue, even if and when their names aren't used. (No pride in giving myself or my sources failing marks in this column's

semi-annual report card , though it often takes more than six months for a company's fundamentals to fully unravel.)

What Dale did say, which I agree with, is that my analysis didn't go deep enough. But by "deep enough" I mean that in my quest to keep it simple (I often just grab a chunk of a story), I didn't put the doubtful-account situation, and how it helped earnings, in context with the short-seller's reason for being short Estee Lauder in the first place.

That reason: It operates in an industry in which the general sales trend is down and the competitive dynamics are changing. So, why pick on Estee Lauder, which by all accounts is a fine company? Because at 35-times forward earnings -- the kind of multiple rewarded for fast earnings growth -- the quality of profits has got to be pristine. Yet this is a company whose sales are growing slower than earnings. That can mean one of two things (and this is how short-sellers view the world): That company has been cutting costs (not the case at Estee Lauder, whose margins already are high) or it has been juggling some of its numbers to make earnings look better. (Plenty of companies do this; it's the time-honored practice of managing earnings to meet Wall Street expectations.)

In the case of Estee Lauder: The last fiscal year, which ended in June, was the first year in which Estee Lauder's provision for uncollected bills was lower than the amount actually charged off. (Historically, at Estee Lauder, it has been the other way around.) The provision is a discretionary number that has a direct hit on earnings. The actual amount charged off was a balance sheet item. As a result, the company reported a respectable 15% gain in earnings.

Had the charge-offs and provision been kept more in line with one another, the short-seller's contention is earnings growth would've been even lower. The example used here was that the company would've missed estimates by 2 cents per share -- not what you want to see at such a high multiple company. "History is that when the top line is growing slower than the bottom line and management pushes levers, sooner or later there's a problem that they can't hide," the short-seller said. "I'm not saying next quarter, but the trend is happening."

Time will tell if he's right, but I remember when this very same short-seller told me a year or so ago, when Wall Street was in love with

CKE Restaurants


, that


falling comp store sales wern't a good sign because falling comp store sales are never a good sign for a restaurant company. At the time CKE traded in the mid-20s. Today it's around 7.

Pass the perfume, please.

(Okay, Dale, your turn.)

It's Official

An item

here Friday mentioned that


had joined with


(DIS) - Get Walt Disney Company Report

Buena Vista Internet Group

-- not

Action Performance


, as had been originally announced -- to produce its e-commerce site. Nascar said the same thing in its own press release issued Thursday night. Bray Cary, VP of Broadcasting and Special Projects, says Nascar doesn't see Action as a competitor and says Nascar's relationship with Action ended last fall when Action told Nascar it didn't want to honor that agreement. (Funny, Action, which put out a press release when the deal was struck, never said a word publicly when it was killed.)

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,