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midday11-05-99's MIDDAY UPDATE

November 5, 1999

Market Data as of 11/5/99, 1:19 PM ET:

o Dow Jones Industrial Average: 10,756.47 up 116.83, 1.10%

o Nasdaq Composite Index: 3,097.38 up 41.43, 1.36%

o S&P 500: 1,376.96 up 14.32, 1.05%

o TSC Internet: 812.30 up 15.49, 1.94%

o Russell 2000: 442.33 up 2.43, 0.55%

o 30-Year Treasury: 101 08/32 up 31/32, yield 6.027%

In Today's Bulletin:

o Midday Musings: Long Side of Wall Street All Smiles With Rally Rolling On
o Herb on TheStreet: Why Action Performance's Credibility Has Crashed Community

You know's the place for great market commentary, but did you know it's also the place for intelligent investing discussion?

Whether it's Cramer's commentary or breaking news, each day we'll be bringing the conversation straight to you.

Check out our message boards in the Community section:

Also on

Wrong! Dispatches from the Front: Where Are the Champions, My Friends?

This market is positively giddy. But Cramer just doesn't hear or read about it in the way he would picture it.

Options Buzz: Antitrust Anticipation Jacks Up Microsoft Options Prices

Volatility is rising ahead of word from the feds. *Extra* The Analyst Brain Drain Hits H&Q

Noted Internet analyst Danny Rimer is set to become a venture capitalist at the Barksdale Group.

Fixed-Income Forum: Interest-Rate Options for Bond Bulls

Our exploration of ways to profit from a big move down in interest rates concludes with a look at options.

Midday Musings: Long Side of Wall Street All Smiles With Rally Rolling On


Brian Louis

Staff Reporter

11/5/99 1:14 PM ET

Investors and traders were saying a big thank you to the October

employment report

today as major market gauges were cruising into the afternoon enjoying a steamy rally.

Today's much-anticipated

nonfarm payrolls

data have sent waves of cheer through Wall Street as the economic report sent stocks and bonds rallying, padding their already recent juicy gains. Market players were heartened by the report, which eased dramatically inflation fears and worries that interest rates are heading higher.

Today's Market: Join the discussion on


Message Boards.


Labor Department

said nonfarm payrolls gained 310,000 in October, barely missing the


average forecast of 313,000. The unemployment rate, which had been expected to remain at 4.2%, dropped to 4.1%, a level it hasn't seen since January 1970. But offsetting the drop in the unemployment rate was the fact that average hourly earnings, which had been forecast to rise 0.3%, rose just 0.1%, and eased wage-inflation fears. Despite the good news in today's report and in recent inflation data, there's still a chance the

Federal Open Market Committee

will raise the target on the fed funds rate on Nov. 16.


Dow Jones Industrial Average

was up 102, or 1%, to 10,742. Powering the Dow the most was

J.P. Morgan


, followed closely by

American Express


. On the downside, the biggest drag on the blue-chip gauge was



, as traders dumped the stock in the wake of the company's earnings report released yesterday after the close.


S&P 500

was up 14, or 1%, to 1377. The

Nasdaq Composite Index

was up 39, or 1.3%, to 3095. The Nasdaq Comp is on pace to close up for the seventh session in a row, and to close at an all-time high for the sixth consecutive day.

Helping boost the S&P 500 and the Nasdaq Comp was supercharged, superperforming



, which was flying again, up 29 5/8, or 11.2%, to 294. Providing the fuel for Qualcomm's advance today was word that

Deutsche Banc Alex. Brown

analyst Brian Modoff raised his target on the wireless phone equipment maker to 320 from 250. On Wednesday, he raised his target to 250 from 225.

Elsewhere among story stocks,

Cobalt Networks


was making a whopper of a debut, soaring 502.2%.

The small-cap

Russell 2000

was up 2, or 0.5%, to 442. Internet Sector

index was up 16, or 2%, to 813.



was surging and leading the gains in the DOT.

Financial sector gauges were on fire. Again. The

American Stock Exchange Broker/Dealer Index

was up 2.9%, the

Nasdaq Financial Index

was up 1.2% and the

S&P Insurance Index

was up 3.5%.

In the Treasury market, the 30-year bond was lately up 25/32 to 101 3/32, yielding 6.05%, but off its intraday peak. (For more on the fixed-income market, see today's early

Bond Focus.)

In tech, semiconductors and telecom-type stocks were sizzling. The

Philadelphia Stock Exchange Semiconductor Index

was up 2.6%, while the

Nasdaq Telecommunications Index

was up 2.5%.

Bruce Bittles, market strategist at

J.C. Bradford

in Nashville, Tenn., said the market's recent rally was a combination of several factors, including too many bears in the stock and bond markets, a rally in bonds and strong earnings news.

Bittles said he thinks the Fed will raise interest rates when it meets on Nov. 16. "That's still in the cards," he said.

If the Fed does hike by 25 basis points, what's the effect on the market? "I don't think any at all," Bittles said.

Bittles said the market's enjoying a very strong short-term rally that has the potential to carry into Thanksgiving. He said the market could consolidate its gains in December and then rally in January with the Dow making new highs then.

Volume was heavy overall and breadth was decidedly positive (see below).

Speaking of breadth, its poor condition has been a sore spot for many market analysts for some time.

Louise Yamada, director of technical research at

Salomon Smith Barney

, pointed out that there's more buying power in the rally that started last Thursday and it suggests at least some follow-through. Overall, she expressed concern about the narrowness of the market's advance although she did say the advance/decline line has improved.

She noted that only 56% of the weight of the S&P 500 is looking technically positive.

Meanwhile, among other indices, the

Dow Jones Utility Average

was up 0.1%; the

Dow Jones Transportation Average

was up 0.8%; and the

American Stock Exchange Composite Index

was down 0.2%.

Market Internals

New York Stock Exchange:

1,738 advancers, 1,170 decliners, 607 million shares. 81 new 52-week highs, 68 new lows.

Nasdaq Stock Market:

2,057 advancers, 1,667 decliners, 803 million shares. 174 new highs, 45 new lows.

Nasdaq Announces Net-Based European Exchange

The Nasdaq Stock Market announced a joint venture to establish a new Internet-based European equities exchange by the fourth quarter of next year, in a move the exchange's chairman called a step toward a global electronic stock market.

The venture, which is to be called


, is backed by

News Corp.'s


venture capital fund,


of Japan and

Viventure Capital

of France. It would be Nasdaq's second overseas expansion; the

National Association of Securities Dealers

, which operates the Nasdaq exchange, recently announced a similar venture in Japan.

"Investors here will have easy access to companies here," NASD Chairman Frank Zarb said in announcing the European venture in a morning press conference in London, and linked to New York.

"Not all entrepreneurs are born in America," News Corp. Chairman Rupert Murdoch said from Australia in a satellite link to the press conference.

Zarb downplayed the impact the new European exchange might have on existing exchanges in London, Frankfurt and Paris. "We should not be ... considered a threat to venerable existing institutions," Zarb said. "We have a lot of respect for the existing institutions."

Zarb said one challenge the venture faces is different regulatory rules in England, France and Germany. "It's going to be more complicated than I'd like to see," he said.

Zarb said the kind of growth that's occurred with individual investors in U.S. stock markets may replicate itself in other countries.

"In the United States, Mr. and Mrs. Main Street have come to Wall Street," he said. "We anticipate that that general trend will occur elsewhere."


Robert Kowalski

Friday's Midday Watchlist

By Tara Murphy
Staff Reporter

Mergers, acquisitions and joint ventures



rose 15/16 to 90 15/16 after saying it would not pursue



unsolicited $79.7 billion rival bid for the company. Pfizer launched the offer in response to a planned merger between

American Home Products


and Warner. Shares of American slipped 13/16 to 54 3/16 while Pfizer dropped 2 7/16, or 6.5%, to 34 13/16.

Although the Warner board said its proposed merger with AHP is in the best interest of shareholders, it did not say it was refusing Pfizer's bid. Warner also said it would defend its actions in legal proceedings brought on by Pfizer, calling the claims "totally without merit."

wrote about Pfizer's bid in a story

last night.



gained 5/8 to 55 5/8 after saying it has begun a $9.50 a share tender offer for

TriStar Aerospace


, which it said TriStar's board has approved. TriStar inched up 1/16 to 9 1/16.

Synthetic Industries


jumped 3 1/2, or 12.3%, to 32 1/16 after it said it would be sold to a unit of


and other investors, in a deal valued at $535 million. The transaction, which calls for Synthetic to be bought for $33 a share, is set to close in mid December.



, an integrated communications company, jumped 13 1/8, or 26.7%, to 62 3/4 after it said it has raised $500 million in new capital to expand its buildout of local broadband networks, with the investor group led by



and private equity firm

Hicks Muse Tate & Furst

Shares of Microsoft slipped 3/4 to 91.

joint newsroom covered the Teligent news in a

story today.

In other Microsoft news, a crucial ruling, the "findings of fact," is expected today in the Microsoft antitrust trial.

Earnings/revenue reports and previews


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




dropped 2 1/16, or 7.8%, to 24 7/16, after yesterday reporting fourth-quarter earnings, excluding charges, of 10 cents a share, in line with the 20-analyst estimate but down from the year-ago 14 cents. Excluding charges, fourth-quarter earnings fell 37% to $212 million from $296 million a year earlier amid a slump in its home-video and product-licensing businesses. Including the charge, net income fell to $85 million.

This includes a $132 million charge related to consolidation as well as costs associated with its acquisition of Internet search engine



. Shares of Infoseek were lately slipping 5/8 to 33 15/16.

Great Lakes REIT


rose 3/16 to 15 5/16 after it posted third-quarter funds from operations of 50 cents a share, beating the three-analyst estimate of 47 cents and up from the year-ago 44 cents.



lost 1 1/4 to 25 1/4 after it posted a third-quarter loss of $1.12 a share, narrower than the three-analyst estimate of a $1.39 loss and the year-ago $1.92 loss.

Speedway Motorsports


toppled 13 7/8, or 30.2%, to 32 1/16 after it warned it expects to post a loss for the third quarter. The 11-analyst estimate currently calls for the company to earn 3 cents a share. The company said it expects to generate a profit in the fourth quarter, however it said it is likely net earnings will be $3 million less than expected.

Offerings and stock actions



rose 1 5/8 to 55 1/8 after it announced its plans for a 3.5 million-share secondary offering.

Analyst actions

Warburg Dillon Read

cut its rating on



to hold from strong buy. Shares of Aflac were hopping 5/16 to 52 7/16.

Lehman Brothers

upped its price target on



to 70 from 60. Shares of Altera were climbing 2 1/2 to 57.


upped its price target on



to 42 from 35. Digex shares were mounting 2 1/2, or 7.3%, to 36 5/8.

Morgan Stanley Dean Witter

sliced its rating on

Eastern Enterprises


to neutral from outperform. Eastern Enterprises was advancing 1/4 to 56 1/2.

Morgan Stanley rolled out coverage of



with an outperform rating and set a price target of 25 on the stock. LTX was adding 1 1/16, or 6.1%, to 18 5/16.

Goldman Sachs

initiated coverage of



including it on its recommended list. NTL was gaining 4 1/2, or 5.6%, to 84 1/2.

U.S. Bancorp Piper Jaffray

boosted its price target on



to 68 from 55. Despite the upgrade, Radware was losing 6 3/4, or 12%, to 49 9/16.

PaineWebber upgraded shares of



to buy from attractive. Staples shares were falling 13/16 to 17 9/16.

PaineWebber rolled out coverage of



with a buy rating and a price target of 82. Shares of Tandy bounced 3 3/8, or 5.5%, to 64 3/8.

Robertson Stephens

upped its rating on

Varian Semiconductor


to strong buy from buy. Shares of Varian were climbing 2 7/16, or 9.6%, to 26 3/8.


The Inside Wall Street column in

Business Week

, which is penned this week by Gary Weiss, offers up a positive story on



, citing

U.S. Trust

portfolio manager David Tillson, who's been buying shares of Sherwin-Williams, in a bet that the company will soon climb out of its current troubles. Shares of Sherwin-Williams were advancing 5/16 to 22 11/16.




Philip Morris


garner positive mention in the column, citing value investor Andrew Bischel, president of

Spare Kaplan Bischel & Associates

, who has been buying up shares of both those beaten-up stocks. Shares of Mattel were slipping 1/16 to 13 5/8, while Phillip Morris was skidding 1/8 to 25 15/16.


JDS Uniphase


was jumping 3 1/8 to 195 after reports that it is the subject of a positive item in the column with Robert Gillam, president and chief investment officer at

McKinley Capital Management

in Anchorage, Alaska, singing the stock's praises.

Yesterday, JDS Uniphase agreed to buy

Optical Coating Laboratory


Shares of Optical Coating were hopping 2 3/4 to 170 9/16.

joint newsroom wrote about the deal in a story


Herb on TheStreet: Why Action Performance's Credibility Has Crashed


Herb Greenberg

Senior Columnist

11/5/99 6:30 AM ET

Herb's Latest: Join the discussion on


Message Boards.

When writing a daily column like this, sometimes, even after lots of legwork, you yank a column at the last minute because you can't quite pull everything together to prove your point. Such was the case several weeks ago when a column of

Tuesday Trinkets appeared as a last-minute replacement for a column that had been written, and pulled, on

Action Performance



Action is in the biz of making and distributing


die-cast replicas and collectibles, and it's no stranger to this column. Not long ago, in fact, the Arizona company was the

focus of an item here that questioned whether it was trying to unclog its distribution channel by selling merchandise at fire-sale prices. (At the time Action was on the verge of taking its

unit public; ain't seen hide nor hair of


deal yet. But more about that in a moment.)

The theme of the aborted story was how something at Action didn't add up. It pointed out how Action CEO Fred Wagenhals had been making a big deal about a tie-in Action was doing with

Home Depot


for a special replica of a

Habitat for Humanity

racecar. The tie-in was linked to an Oct. 10 race in Charlotte, N.C., in which popular driver

Tony Stewart

would drive the Habitat car. On Sept. 3, Wagenhals was quoted on

as saying: "The Action cars are on the water headed for the U.S. right now. So, they should be on the market by the middle of September as projected, in plenty of time" for the race.

Then, on Sept. 29, at a

Banc of America Securities

investment conference in San Francisco, Wagenhals bragged that the fourth fiscal quarter, ending Sept. 30, would include an $8 million order from Home Depot for the Habitat project. His comments were followed, on the same day, by an internal report to brokers by Banc of America Securities analyst Chris Hansen (BofA is's lead underwriter). Hansen confirmed that Action "has just shipped its $8 million Home Depot promotion." (That's important because according to its


, it recognizes revenue when it's shipped.)

That implied that the $8 million order, including the cars and other memorabilia, had been shipped


the end of the quarter and booked as revenue and that the cars would start appearing in Home Depot stores by early October. (Not September, as Wagenhals had said earlier.) As it turns out, they didn't start arriving until the weekend


the race. Even then, calls to Home Depot by me and

Mark Martinez

, my assistant, found that some Home Depots still hadn't even received any of the merchandise. Remember, these are the same cars that Wagenhals had bragged, back on Sept. 3, were on the water headed to the U.S. (Must've been a slow boat from China!)

Fast forward to last night at 6:31 p.m. EST: Action issued a warning that its fourth quarter earnings would be 30 to 33 cents per share, or roughly half of what Wall Street was expecting. One reason for the disappointment? (It doesn't get any better than this, folks.) According to Action, $8 million "of sales associated with a premium promotional program, which was shipped in the fourth quarter of fiscal 1999, could not be recognized until the first quarter of fiscal 2000." (The company didn't come right out and say it was the $8 million Home Depot deal, but during the quarter Action discussed no other $8 million promotional deals.)

So, let's get this straight. Wagenhals said on Sept. 29 they had been shipped. The quarter ended Sept. 30. The products, however, didn't get into Home Depot stores until three weeks later. (Since when does it take three weeks to ship products from the manufacturer to the retailer?) Now the company says the products were shipped in the fourth quarter, but that it won't be able to recognize revenue until the first quarter. But according to its 10-K report, Action recognizes revenue when products are shipped.

Like I said, something definitely doesn't add up.

Oh, and about that offering. Word from sources close to the company, several weeks ago, was that the IPO was being delayed until Action's stock got a little higher. Based on what's likely to happen to the stock today, it'll have to wait longer than it expected. Interestingly, one reason Action gave for its quarterly disappointment was a $3.2 million pretax "charge" associated with the "continued support of its subsidiary."

Just one problem:, as Action said, is a subsidiary. Since when can a company take a charge against costs associated with running a subsidiary? Aren't those usually ongoing expenses? A charge should be for a business that is being written off, but Action clearly said this charge is related to the "continued support" of its subsidiary.

Now something


doesn't add up.

The company declined comment last night, but I suppose all of this will be cleared up on the conference call the company is holding this morning with analysts. Assuming it will take these kinds of questions.

Short Positions

EarthShell shattered:

What a disaster! This column, for the past few years -- even




went public -- has

raised questions about it and its biodegradable

Big Mac

container that by now was expected to be in widespread distribution by




However, in what amounts to yet another in a string of disappointments, the company disclosed last week that it had withdrawn its package from tests in 30 McDonald's stores because of a defect in the inner lining.

EarthShell's comment Thursday: "Although the timing and the capital required to complete the project has been greater than we originally anticipated, we think the technology is very sound and demand is very strong for the product. We are making commercial quality product that has been used favorably by our customer and in pilot projects. We have had some hurdles, but we have a plan in place to address them and are focusing on accomplishing those objectives."

Haven't we heard that before? The stock, which got as high as 18 in its heyday, is now 1 19/32.

Toying with Tyco:

Can't say I disagree with some



had Wednesday regarding the good example



was setting by saying that it was pulling out all stops to go overboard with disclosure. (Wonder how much they paid a crisis PR firm for


advice! Brilliant spin control, I say.) But as I wrote on JJC's boards yesterday: "You can never over-disclose."

Unfortunately, much of what winds up snaring a company is, indeed, already disclosed. It's just that nobody either sees it, pays attention to it, or has a clue what it means and how it ultimately affects the quality of the earnings -- nobody, that is, until the short-sellers come along, wearing their forensic caps. Disclosure is no sure bet that a company won't be aggressive. Remember, just because something is GAAP, and is approved by the auditors, doesn't mean it's right and doesn't mean it won't come back to bite investors you-know-where at some point in the future.

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,