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midday09-28-99's MIDDAY UPDATE

September 28, 1999

Market Data as of 9/28/99, 1:26 PM ET:

o Dow Jones Industrial Average: 10,140.34 down 163.05, -1.58%

o Nasdaq Composite Index: 2,709.31 down 52.44, -1.90%

o S&P 500: 1,263.88 down 19.43, -1.51%

o TSC Internet: 612.03 down 16.97, -2.70%

o Russell 2000: 416.19 down 5.67, -1.34%

o 30-Year Treasury: 100 31/32 down 18/32, yield 6.061%

In Today's Bulletin:

o Midday Musings: Support Levels Snap as Selling Wave Builds
o Herb on TheStreet: Why Some Say Whole Foods Is Less Filling Community

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Midday Musings: Support Levels Snap as Selling Wave Builds


Thomas Lepri

Staff Reporter

9/28/99 1:25 PM ET

Bulls were lying low at midday as the market continued its late regression.

All the proxies were solidly negative. The

Dow Jones Industrial Average

was off 136, or 1.3%, to 10,168; the tech-enfeebled

Nasdaq Composite Index

was down 45, or 1.6%, to 2717; and the

S&P 500

was receding 16, or 1.3%, to 1267. Internet Sector

index was sinking 15, or 2.4%, to 614, while the small-cap

Russell 2000

was 6 lower to 416.

"We've broken some support levels, and that's significant in itself," said Jim Herrick, managing director of trading at

Robert W. Baird

in Milwaukee. "But the bottom line is that investors aren't focusing on earnings."

Earnings are still looking sweet for the most part. Analysts' third-quarter estimates are calling for growth of just under 20% from last year, according to Chuck Hill, director of research at

First Call/Thomson Financial




, for one, didn't disappoint last night, posting strong upside third-quarter numbers.

But with the market still distracted by fears over currency fluctuations, interest rates and inflation, next month's earnings just don't seem a good enough reason not to sell yesterday's strength today.

At least a tiny part of the market's fears over inflation is coming from the recent developments in the gold market, Herrick suggested. Gold was surging for the second straight day in response to the five-year cap on gold sales announced yesterday by 15 European central banks. That increasingly precious metal was lately trading above $305 an ounce, a level it hasn't seen since May of last year.

Now, gold's utility as an inflation barometer isn't what it once was. But Herrick isn't ready to discount it entirely as a factor in market psychology. "Everyone says that gold isn't an inflation hedge," he said. "But the market can't ignore it."

Gold strength was taking the

Philadelphia Stock Exchange Gold & Silver Index

up about 4.6%.

In other sector news, technology was moving lower almost unilaterally, led by the boxmakers. The

Philadelphia Stock Exchange Computer Box Maker Index

was lately down about 2.3%. Long suffering financial stocks were mixed in the wake of

Chase Manhattan's


acquisition of

Hambrecht & Quist


, with the

Philadelphia Stock Exchange/KBW Bank Index

up 0.3%.

Stocks were getting no support from bonds, which were selling off for the second straight day. The 30-year Treasury was lately off 24/32 to 100 26/32, its yield rising to 6.07%.

The greenback was lately quoted at 105.9 yen.

Volume was moderate. On the

New York Stock Exchange

, 497 million shares had traded, while 598 million shares changed hands on the

Nasdaq Stock Market


After yesterday's decent showing, breadth had reverted to the horrible state we've come to expect lately. Advancers were trailing decliners 851 to 2,003 on the NYSE, where there were 31 new 52-week highs against 209 new lows. In Nasdaq action, decliners were beating advancers 2,400 to 1,186, with 32 new highs and 101 new lows.

Tuesday's Midday Watchlist

By Tara Murphy
Staff Reporter


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


Chase was off 7/8 to 73 1/4 after it said that it would acquire Hambrecht & Quist, soaring 7 3/4, or 18.8%, to 48 13/16, for roughly $1.35 billion in cash, in an effort to boost its investment banking business. The transaction calls for Chase to pay $50 per share, a 22% premium, for H&Q. Last year, Chase held negotiations with

Merrill Lynch


, but they never came to terms. Chase said it would set a $200 million retention pool to keep key members of Hambrecht & Quist's staff.

Network Solutions


and the

Commerce Department

are expected to announce a deal that would increase competition for registering new Internet addresses. Network Solutions was in talks for a year before it said it would permit rival firms to register new Web site names in its 5 million-address database, which includes names ending in .com, .org and .net. To register their customers, rivals will have to pay a $6 per name each year, a discount to Network Solutions registration charge of $35. The deal calls for Network Solutions to manage its database for at least four more years. Shares of Network Solutions were leaping 7 1/2, or 10.3%, to 80 1/8.


Securities and Exchange Commission

announced that it has filed 30 enforcement actions charging 68 individuals and entities with fraud and/or abuses of the financial reporting system. The agency said the charges represent a "veritable cookbook of recipes for fraudulent accounting and reporting." Among those charged is former

Minnesota Vikings


Fran Tarkenton

, who allegedly "helped direct a multimillion-dollar financial fraud that resulted in overstatements of net income exceeding 200%" as head of software and consulting company


. The Hall of Famer agreed to pay a total of $154,187 in penalties, without admitting or denying the charges.

Mergers, acquisitions and joint ventures

America Online


was advancing 7/8 to 102 1/8 after it said it has entered a content agreement with


. Shares of were climbing 1 5/8 to 47.


Future Network

said it sold 182,492 shares in AOL, realizing $18.3 million.

Anadarko Petroleum


was slipping 15/16 to 29 3/4 after it signed a $770 million deal with Algerian state-owned oil and gas firm


to quadruple production from an Algerian oilfield.




Cyprus Amax


amended their merger agreement to permit each company to explore all strategic alternatives. Asarco was unchanged at 26 15/16, while Cyprus shares were sliding 1/8 to 19 7/16.



is expected to announce an equipment purchase from merger partners

General Instrument





that could be valued at up to $1 billion, the


said. The paper said AT&T plans to buy up to 2 million more cable TV set-top boxes from General Instrument and 1 million cable modems from Motorola. AT&T shares were down 1 to 42 3/8, while Motorola was jumping 3 1/16 to 89 5/8. Shares of General Instrument were mounting up 2 1/8 to 48 3/8.

El Paso Energy


was bouncing up 3/16 to 38 1/16 after it said it plans to divest some assets following its acquisition of



once it signs a consent decree with the

Federal Trade Commission

. Sonat shares were advancing 5/8 to 37 3/4.



was stumbling 2 3/16 to 96 3/8 after it said that it has forged a $1.1 deal to buy German-based

Siemens Electromechanical Components

. The transaction is part of a huge reorganization effort by


, which is selling nine subsidiaries.

Earnings/revenue reports and previews

Consolidated Products


was tumbling 2 7/8, or 22.1%, to 10 1/8 after warning it would post fourth-quarter earnings only slightly higher than the year-ago 21 cents a share. The companies blamed delayed store openings and higher labor costs for the disappointing results.

Offerings and stock actions


was climbing 3, or 25%, to 15 1/8 after making its trading debut. The stock priced yesterday after being priced at $12 per share.


Infosys Technologies


was soaring 8, or 6.6%, to 128 after it said it would not deliberate a stock split at its Oct. 8 board meeting.

Suiza Foods


was mounting 1 1/16 to 36 5/16 after it said that it approved an additional $100 million for its share-buyback plan.

Analyst actions



was plummeting 6 3/8, or 9.5%, to 60 5/8 after

Warburg Dillon Read

cut the shares to buy from strong buy.

Goldman Sachs

lowered its rating on the shares to market outperformer from its recommended list.

British Airways


was falling 3 9/16, or 6.1%, to 54 7/16 after analysts at

ABN Amro

upped their pre-tax loss forecast,

The New York Times




was slipping 1 11/16 to 61 7/8 after

ING Barings

initiated coverage of the stock at hold.

Copper Mountain


was climbing 2 3/8 to 90 1/4 after

Volpe Brown Whelan

started coverage at buy.



was declining 15/16, or 5.8%, to 15 1/16 after

Salomon Smith Barney

cut the stock's price target to 17 from 24.



was slipping 5/16 to 22 1/8 after Salomon rolled out coverage of the stock with an outperform rating and a price target of 26.

Merrill Lynch upgraded a pair of gold companies, upping

Barrick Gold


to long-term accumulate from accumulate and

Homestake Mining


to near-term accumulate from neutral. Shares of Barrick were up 13/16 to 24 15/16, while Homestake was advancing 5/16 to 10 1/8.



was bouncing up 1/16 to 27 5/8 after

SG Cowen

started coverage of the stock with a strong buy rating.


was hopping 1 1/2 to 41 after


started coverage of the stock with a buy rating.



was sinking 1 1/2, or 6.4%, to 21 3/4 after Salomon Smith Barney initiated coverage with a neutral rating. Salomon also gave neutral ratings to



, which was falling 5 3/8, or 16.2%, to 27 5/8, and



, down 5/8 to 17 1/4.

MGM Grand


was up 11/16 to 48 1/4 after

Lehman Brothers

upped its third-quarter earnings estimates to 52 cents from 41 cents a shares and raised its price target to 55 from 50.

Micron Electronics


was stumbling 1 3/8, or 11.2%, to 10 13/16 after PaineWebber cut its shares to attractive from buy.

Banc of America

upped its ratings oil companies

Burlington Resources





to buy ratings from market performers. Burlington shares were tumbling 1 3/16 to 36 3/8, while Unocal was down 1 1/4 to 35 15/16.

Park Place Entertainment


was advancing 15/16, or 8.65, to 11 3/4 after

Morgan Stanley Dean Witter

started coverage of the stock with a strong buy rating.

Protein Design Labs


was up 7/8 to 31 3/8 after SG Cowen initiated coverage of the stock with a buy rating.




was declining 2, or 5.5%, to 33 15/16 after it said that its president and CEO, Gert Munthe, will resign by the end of the year, primarily for personal reasons.



was bouncing up 3 3/8 to 103 after it said that it would embark on a $939 million restructuring program to transform itself into an Internet-based firm.

Nortel Networks


was popping 1 1/2 to 49 7/16 after it unveiled a new network technology for the Internet which it said will avoid information traffic jams.

Herb on TheStreet: Why Some Say Whole Foods Is Less Filling


Herb Greenberg

Senior Columnist

9/28/99 6:30 AM ET

Food for thought:


Whole Foods Market


should've paid closer attention to what happened to



when it announced not long ago that it was creating a new Internet biz. Wall Street just


the idea, demanding that Starbucks pay more attention to the tepid growth of its core coffee biz.

Along comes Whole Foods, a supermarket chain and direct marketer of nutritional supplements. Last week it announced a new Internet strategy and plans to spin off its new Internet unit as a separate public company within a year. Wall Street's reaction: The stock fell by nearly 10% the day after the announcement.

Why? In announcing the change, the company said that the earnings of its core biz could grow by 15% to 20%. Huh? This is the same company analysts thought would grow more in the range of 20% to 25%.

Rarely is it a good sign when a company switches strategy, especially when it makes a big deal about becoming a dot-com. In the case of Whole Foods, it's hard


to think that the company is trying to divert investor attention away from the real story: The earnings growth of its core supermarket biz is starting to stall.

Signs of trouble, in recent quarters, have included a steady decline in the inventory yield, which some short-sellers view as the single most important warning of trouble. Another measure of how much profit your inventory is yielding, inventory yield is calculated by taking gross profit, subtracting payables and dividing by inventories. One money manger once told me that when the inventory yield stops growing, it's like a doctor telling you that you have an abnormal heartbeat or a clogged artery. At Whole Foods, inventory yields have been declining for two years. Also in decline: inventory turns and every major return, including return on invested capital, return on assets and return on equity.

What's more troubling to some analysts, though, is that ever since missing earnings last January, the company has come up with different excuses for each miss. In the first quarter, expenses were out of control. Then, in the second quarter, store-opening expenses were too high. Investors don't like excuses. "Even after missing estimates significantly last January, the numbers are still being moved around a little bit,'' says analyst Sandhya Raju of

Merrill Lynch

. In other words, they're erratic.

The apparent result: a Whole Foods dot-com, to be called

when it launches next spring. What's more, CEO John Mackey says he plans to spend considerable time with the Internet unit. That concerns Raju, who worries that the core biz itself "won't get what it needs" in terms of management attention, especially since the company has stepped up the number of new store openings, which have been going well.

Whole Foods execs couldn't be reached. A spokeswoman, who had never heard of

, took my questions and promised to pass them along to the proper person. If somebody ever gets back to me, I'll get back to you.

Cutting room:

The part of "" show on


that I like the least, as a participant, is predictions. It's where I have to come up with


, based on what my sources tell me, that won't eventually come back and haunt me. It's hard for a biz journalist to make predictions -- that's not what we do. But if you read my column with any frequency, you can get a pretty fair picture of what I'm likely to predict. (I generally stay away from macro calls, like the market or

Dave Kansas'

fabulous -- no, make that

unbelievably fabulous

-- call on gold. Three weeks ago, he said it was going


! Fifteen years of doing nothing, and then along comes Kansas and gold has its biggest gain in 15 years!)

So, there I was last week with a prediction to make, and the best I could come up with (or the one I liked best) was my column suggesting that



would buy

Hollywood Entertainment


. My sources were excellent, and despite


constant haranguing of journalists who write what he considers "rumors," I felt this was a story that was way too good not to write. (Hollywood and Blockbuster merging? Bitter enemies? You gotta be kidding!)

Enter the show's Word on TheStreet segment. Cramer's to my left. He doesn't know what I'm going to predict until I say it on the air. (

Gary "Mr. TV" Schreier

tries to keep it that way so we get some real spontaneity in this segment.) I mention the Blockbuster/Hollywood thing, and Cramer, clearly agitated, asks, "Are you telling me, if I buy this Hollywood Entertainment, I'm going to make some money on this?" (You could see the fire in his eyes when he started talking. You could feel the heat less than a foot away.)

To which I say, "There could be some antitrust issues that could cause this not to happen."

Cramer: "Are you telling me..."

Me: "But what I'm telling you -- no, what I'm going to tell you -- is these guys are in discussions."

Cramer: "All right."

Me: "I can't tell you anything more than that."

Him: "Because I'll tell you, I'm going to buy the stock."

Me: "That's your decision."

Him: "All right."

Me: "That's a decision you have to make and live by."

If you read between the lines, Cramer, who just


those kind of speculative stories, was trying to get me to commit. But I'll


commit on that kind of story. Discussions are discussions, and deals aren't deals until they're signed. So why write about them? Because that's what I do. I report. I hear from two exceptional sources that the two companies have been talking about merging, and if I believe it's true, I can't just sit on it.

That's where Cramer and I part ways. He keeps talking about making you money. Fine, he's a hedge fund manager. That's not my job. I'm not an analyst. I'm not a broker. I'm a reporter. I work for a news organization. My job is to report, to keep you informed. And with Blockbuster/Hollywood, that's what I did. I kept you informed on what may eventually be quite a story.

Did the same thing on the show: Based on the quality of my sources, I said that they believe a deal is likely to occur by year-end.

But what I didn't say -- and what I wish I could always say and what I wish could always be printed at the top of this column in neon lights -- is something I've written here frequently: Making


investment decision based exclusively on what you read in this column, or read and/or hear anyplace else, is a sure way of eventually getting yourself in trouble. This should merely be a starting point for your own research. That said, lemme tell you, I take what I write seriously and take no pride in giving me and/or my sources failing marks in this column's

semiannual report card.

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,