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midday12-14-99's MIDDAY UPDATE

December 14, 1999

Market Data as of 12/14/99, 1:10 PM ET:

o Dow Jones Industrial Average: 11,181.89 down 10.70, -0.10%

o Nasdaq Composite Index: 3,611.14 down 47.03, -1.29%

o S&P 500: 1,409.66 down 5.56, -0.39%

o TSC Internet: 1,121.84 down 32.17, -2.79%

o Russell 2000: 465.52 down 4.86, -1.03%

o 30-Year Treasury: 97 19/32 down 1 11/32, yield 6.300%

In Today's Bulletin:

o Midday Musings: Bonds' Battering Weighing Down Equities' Juggernaut
o Herb on TheStreet: Trying to Justify Qualcomm at These Levels Community's message boards have personality! Check out these great conversations fueled by TSC's thought-provoking commentary. And make sure to visit the Community section every day for the latest discussions and information on upcoming chats and appearances.

Herb Greenberg: The Return of the MonEmailbag

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Midday Musings: Bonds' Battering Weighing Down Equities' Juggernaut


Thomas Lepri

Staff Reporter

12/14/99 1:16 PM ET

It's been a while since stocks have paid much mind to bond yields. But though the carnage that is today's Treasury market was starting to turn more than a few heads in the equity market, the serious rubbernecking has yet to start.

Weighing on the bond market today was a stronger-than-expected spike in

retail sales

, which the Census Bureau said rose 0.9% in November from a revised 0.3% clip the previous month. Excluding automobiles, sales rose a more moderate 0.4%. But the headline number was big enough to spook the bond market -- economists polled by


were looking for sales to grow 0.5%.

All this despite a quite benign

Consumer Price Index

. The CPI rose 0.1% overall, a tenth of a percentage point below expectations. The core CPI, which excludes food and energy prices, rose just 0.2%, matching estimates.

The 30-year Treasury was off 1 10/32 to 97 20/32, its yield rising to 6.29%. The March bond futures contract, which equity players typically watch more closely than the cash bond, was down 1 8/32 to 93 2/32. (For more on the fixed-income market, see today's early

Bond Focus.)

"The U.S. economy remains strong," said Peter Boockvar, equity strategist at

Miller Tabak

. "Today's sales figures confirm that. And as long as the economy remains strong, that raises the possibility that the


will have to do something."

The bond market was helping to keep the equity proxies underwater. Technology and Net shares were getting the worst of it, with the

Nasdaq Composite Index

off 44.02 to 3614.15 and Internet Sector

index down 28.13 to 1125.88. But the broader big cap market was faring better: The

Dow Jones Industrial Average

was up 18.96 to 11,211.55 while the

S&P 500

was off 2.41 to 1412.81.

Boockvar was surprised to see the selling as muted as it was.

"It's interesting how well the market trades relative to bonds," he said. "The yield is getting close to 6.30% again and the market's barely down. I don't know whether the market doesn't care or whether it thinks this is a short-term thing."

It's not that technology stocks weren't getting roundly hammered today. It's just that the extent to which those losses were linked to the Treasury market's performance is unclear.

"Technology is starting to show some chinks in the armor," Boockvar said. "



today is down 10,



reaffirming last week that Q4 and Q1 will be affected by Y2K and concerns about rising inventories in the semiconductors."

Computer maker Solectron was selling off after its first-quarter results revealed disappointing revenues, which analysts chalked up to component shortages. The stock lately was off its session lows, down 7 1/16, or 7.8%, to 83 15/16.

The broader sector proxies weren't faring much better. The

Morgan Stanley High Tech 35

was down about 2%. And a note from

Bear Stearns

saying that inventory buildups are putting semiconductor stocks at near-term risk was helping send the

Philadelphia Stock Exchange Semiconductor Index

down 5.2%.

But, unbeknownst to those unable to take their eyes of the Nasdaq, the broad large-cap market has been in a narrow range for the past month -- ever since the last

Federal Open Market Committee

meeting. Specifically, the S&P 500 has been bouncing between 1390 and 1430, with few signs of making a convincing breakout.

"There's not a good deal of direction right now," said Richard Dickson, technical analyst at

Scott & Stringfellow

in Richmond, Va. "What direction there was had been up, but what we're seeing right now is a market that, on a two- to four-week basis, is extremely overbought. But on a one-week basis, it's neutral to moderately oversold.

"That produces this push/pull effect," Dickson continued. "It tries to rally, but it's overbought. So it goes down, but there's really no reason to be going down," because of the better short-term condition of the market. "I think we'll churn around until we can work off this two- to four-week overbought condition," he said.

The weakness in bonds was sending banks and brokers into tailspins. The

Philadelphia Stock Exchange/KBW Bank Index

was down 1.4%, while the

American Stock Exchange Broker/Dealer Index

had fallen 2.8%.

In other sector news, oil and oil service stocks were moving higher. The

Philadelphia Stock Exchange Oil Service Index

was up 2.6%, while January crude futures were up a scant 16 cents to $25.54.

Paper stocks were absolutely ripping. The

Philadelphia Stock Exchange Forest & Paper Products Index

was up 2.9%.

Small caps were shaving off points from their recent resurgence. The

Russell 2000

was down 5.26 to 465.12.

Market Internals

Breadth was solidly negative on strong volume.

New York Stock Exchange:

1,067 advancers, 1,879 decliners, 592 million shares. 46 new 52-week highs, 393 new lows.

Nasdaq Stock Market:

1,444 advancers, 2,467 decliners, 902 million shares. 156 new highs, 102 new lows.

Tuesday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Red Hat


was sinking 23 3/8, or 9.5%, to 223 and



fell 3.3%, to 104 1/8, despite saying they entered into a sales initiative.

Shares of

American Airlines




were rising about 3, or 5.1%, to 66 7/8 after the company said it will spin off its 83% interest in computer services company

Sabre Holdings

. AMR will distribute 107 million shares of Sabre common stock to AMR shareholders, who will receive 0.7 shares of Sabre for each common stock of AMR. Sabre also named William Hannigan as its new president and CEO, effective immediately. Hannigan was formerly president of SBC Global Markets at

Southwestern Bell


Mergers, acquisitions and joint ventures

General Motors


slipped 0.8% to 70 13/16 after it said it is well-positioned to acquire the financially floundering

Daewoo Motor

, citing past relations between the two companies, said a GM spokesperson Kay Lee. Lee said that executive vice president Louis Hughes and GM Korea president Alan Perriton launched a proposal, headed by

Korea Development Bank

, to Daewoo Motor's local creditors. According to Lee, the proposals indicate GM's assessment of Daewoo's assets and debt but do not offer a price.

Emerson Electric


was unchanged at 53 9/16 after it said it has entered a $980 million cash and debt agreement to acquire the telecom products division of

Jordan Industries




lost 1 1/4 to 50 3/8 after it said it has agreed to provide content for

Sega Dreamcast

Internet users.

Silicon Valley Group


gained 1 5/16, or 9.8%, to 14 3/4 after it said it won a $100 million order for its Micrascan 193 lithography system from an unnamed chip maker.


Justice Department

has brought antitrust lawyer Stephen Axinn on board to examine

MCI WorldCom's


planned $115 billion acquisition of



, indicating that the acquisition will be scrutinized by federal regulators,

The Wall Street Journal

reported. Shares of WCOM fell 1 1/8 to 78 1/16, while Sprint was down 1 3/4 to 66 1/4.


started coverage on MCI with a buy rating and set a 12-month price target of 122 a share.



slipped 0.4% to 33 3/4 and

Titan Exploration


lost 5/8, or 16.1%, to 3 3/8 after the companies said they will merge their oil and gas assets in the Permian and San Juan basins to form a new publicly traded exploration and production company called

Pure Energy Resources


Unocal will control 65% of the new company upon completion of the merger, which is expected in the first quarter. The new company will have 50 million common shares outstanding, and should result in cost savings of at least $5 million per year, the companies said in a statement.

On a pro forma basis, the new company will have reserves of 175 million barrels of oil equivalent, and will produce approximately 40,000 barrels of oil equivalent per day, 60% of which is natural gas.

ValueVision International


lost 7/8 to 43 1/2 after it said it has purchased a 14% interest in



for $10 million. Shares of BigStar gained 1 7/16, or 25.8%, to 7 1/8.

Earnings/revenue reports and previews


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




gained 3/16 to 8 11/16 despite

warning investors after yesterday's close that it expects to post fourth-quarter earnings of 10 cents a share, missing the five-analyst estimate of 19 cents a share. AutoNation said it would shut down 23 of its used-car megastores and combine six other stores with new vehicle businesses. The closings, which will cut the companies' work force by 1,800 jobs, along with previously announced restructuring changes, will have the company assuming a fourth-quarter pretax charge of $430 million to $490 million.

In addition, the company said it has added $500 million worth of common stock to its current share repurchasing plan.

Morgan Stanley Dean Witter

sliced its rating on the stock to a neutral from outperform.

Best Buy


dropped 4 1/8, or 7.9%, to 47 1/2 after it reported third-quarter earnings of 37 cents a share, missing the 16-analyst estimate of 38 cents but up from the year-ago 25 cents.

Commercial Metals


gained 5/8 to 31 1/16 after it posted first-quarter earnings of 70 cents a share, beating the five-analyst estimate of 65 cents, but down from the year-ago 75 cents a share.



slipped 3/8, or 9.2%, to 3 11/16 after it warned investors that fourth-quarter results would miss the two-analyst estimate of a 45-cent loss. The company expects to post a fourth-quarter loss between $1.15 and $1.30 a share, down from the year-ago $1.62 loss. The company blamed tough operating conditions for the disappointing results.



gained 2 3/16 to 49 11/16 after it said it sees fourth-quarter operating net at $1.60 to $1.65 a share, above the current eight-analyst estimate of $1.48 a share. FMC said it sees 1999 operating net at $5.95 to $6.00 a share, also above the eight-analyst estimate of $5.81 a share.

General Electric


slipped 1/16 to 148 3/4, despite an announcement from Chairman and CEO Jack Welch, who said the company is comfortable with the 13-analyst consensus estimate of $3.22 a share and expects to post fiscal 2000 EPS at $3.70 a share. GE's fiscal 2000 estimate is a penny better than the 13-analyst consensus number. Welch said the company is set to make $20 billion to $25 billion in acquisitions in 1999 and said that it has "no intention" of selling its


television network.

Pier 1 Imports


slipped 3/8, or 5.9%, to 6 despite reporting third-quarter earnings of 16 cents a share, beating the 16-analyst estimate of 14 cents a share, but down from the year-ago 19 cents a share.

Offerings and stock actions



popped 4 1/16, or 9.1%, to 48 13/16 after its


division, maker of the Palm Pilot, filed with the

Securities and Exchange Commission

to raise up to $100 million in an initial public offering.

Goldman Sachs


Morgan Stanley Dean Witter


Merrill Lynch


Robertson Stephens

are serving as the deal's underwriters.

According to the prospectus,

America Online








said they will buy shares through a private placement equal to up to 4.5% of Palm stock. AOL lost 3 7/8 to 90 1/8, Motorola dropped 4 13/16 to 123 7/8 and Nokia shed 8 3/16 to 158 7/8.

Thomas Industries


climbed 3/4 to 18 7/8 after it set a share-repurchasing program for 15% of its common stock.



lost 1/4 to 55 5/8 after it filed with the

Securities and Exchange Commission

to split off the rest its



unit once the stock price hits $20. Blockbuster was unchanged at 15 3/4. In August, Viacom held an IPO for 20% of the movie rental chain, with plans to split off the business. However, Blockbuster's stagnant $15 stock price has analysts wondering if Viacom will follow through with its intentions.

Analyst actions

Morgan Stanley Dean Witter

downgraded shares of



to neutral from outperform. Shares of Ahold slipped 1 1/2, or 5.1%, to 27 3/4.

Salomon Smith Barney

said it initiated coverage of

Barnes & Noble



Borders Group


with outperform ratings. Analyst David Strasser pegged Barnes & Noble's 12-month price target at 26, and Borders' at 19. Barnes & Noble slipped 1/8 to 21 1/8 while Borders inched up 1/16 to 15 1/4.

Goldman Sachs

rolled out coverage of

Classic Communications


, placing the stock on its recommended list. Merrill Lynch also began coverage with an intermediate, long-term buy rating. Shares of Classic Communications were popping 2 1/16, or 7.1%, to 30 7/8.

Salomon Smith Barney upped its rating on

Exodus Communications


to a buy and set a 215 price target. Shares of Exodus Communications were climbing 2 1/4 to 170 3/16.



dropped 9 5/8, or 10.1%, to 83 1/16 after Morgan Stanley Dean Witter cut its rating to outperform from a strong buy.

Banc of America Securities

upped its rating on several retail stocks, including

Dayton Hudson






Ames Department Stores





and Whitehall Jewelers, to strong buys from buys.

Shares of Dayton Hudson were mounting 1 7/16 to 69 7/8, while Kohl's was sliding 1/2 to 65. Shares of Ames Department Stores were bouncing 2 1/2, or 9%, to 30 1/4 and Fred's was gaining 2 11/16, or 19.3%, to 16 1/2.

Morgan Stanley Dean Witter downgraded shares of

Hughes Electronics


to outperform from strong buy. Shares of Hughes Electronics were sinking 3 to 89 1/8.

Merrill Lynch sliced its rating on

Orbital Sciences


to intermediate-term neutral from accumulate. Shares of Orbital were losing 2 1/8, or 16.3%, to 10 7/8.

J.P. Morgan

began coverage of

Quaker Oats


as a market performer. Shares of Quaker Oats were slightly lower to 64 1/4.

Goldman Sachs added

Rohm & Haas


to its recommended list. Shares of Rohm & Haas were hopping 2 5/16, or 6.2%, to 39 1/4.

ING Barings

began coverage of



with a buy rating. Shares of Scient were skidding 4 1/8 to 96 3/4.

Morgan Stanley sliced its rating on

SCI Systems


to neutral from outperform. Shares of SCI Systems were stumbling 4 to 81 1/2.

First Boston rolled out coverage of

Symyx Technologies


with a buy rating and a price target of 40. Shares of Symyx Technologies were adding 5/8 to 28 1/2.

First Boston reinstated coverage of



with a strong buy rating. Viant shares were bouncing 1/2 to 118 5/8.

First Boston started coverage of



with a buy rating and a price target of 85. Shares of Xircom were hopping 1 11/16 to 64.




was losing 1 11/16, or 19.1%, to 7 1/16 after it said CEO Gary Lauer is departing the company to join another firm.



was shedding 1/8 to 7 15/16 after it said it would pay


$18.75 million to settle a suit brought on by the sneaker cushion supplier. The lawsuit claimed that Reebok violated its agreement with Supracor when it bought material from one of the material supplier's competitors. Reebok said it plans to assume a fourth-quarter charge as a result of the settlement and legal fees.

Herb on TheStreet: Trying to Justify Qualcomm at These Levels


Herb Greenberg

Senior Columnist

12/14/99 6:29 AM ET


Don Luskin

, our guest on "" on

Fox News Channel

over the weekend, looks like the ultimate genius after recommending



, which at the time traded at 391 1/2 with a market value of $64.6 billion. It rose another 26 1/16 yesterday, but not because of his comments on the show. It rose because Qualcomm agreed to sell its mobile communications system to two of China's largest transportation companies.

But still, isn't all of the good news already priced into the stock? And what about comments from the

Yankee Group

, which I raised in a weekend

Cutting Room column -- gratis

Scott Moritz's

earlier story on

-- that in three years Qualcomm will be lucky if its technology captures even 15% of the market?

Luskin said Monday he believes he'll be glad he held onto the stock -- even at its current levels -- three months from now and three years from now. "To me, the bet on Qualcomm is the bet on a megawave in cellular, which is the idea behind wireless telephony. Half the people in the world have never made a phone call, and when they do it'll be on CDMA, and Qualcomm has all the patents -- much the way



owns Windows."

Herb's Latest: Join the discussion on

TSC message boards



What about that Yankee Group study? Says Luskin: "Those who can, do. And those who can't, consult. And those who can't consult, become technology consultants." (Such a yukster.)

And this FYI: One other longtime Qualcomm hedge fund holder told me yesterday he has sold most of his position. Unlike Luskin (showing there's more than one way to interpret this story), he believes much of the good news is already priced into the stock. But he did say if Qualcomm sells its telephone division (which is on the block) to either






, the stock would probably go higher on that news alone.

Short Positions

One press release too many?:

Rules of thumb from this column include the warning to never blindly fall in love with a company that issues too many press releases; to be extra careful if that same company does too many stock splits; and to start worrying if those stock splits occur when the stock price is in the single digits.

Which brings us to

Track Data


, an online data provider. (The following story is true!) Since Oct. 25, Track Data has issued a news release almost every day -- so many that on Nov. 17 it actually issued a press release that apologized for


issuing a press release on that day. "Track Data announces no press release today," blared the headline. CEO Barry Hertz was quoted as saying: "I want to apologize to our faithful stockholders who are looking each morning for our latest corporate developments. Rest assured that we do not take this lack of news lightly."

That string of press releases included one, on Nov. 1, when the stock was 4 47/64 (split-adjusted), announcing a 2-for-1 stock split. Then, yesterday, with the stock at 9 1/4, the company declared


2-for-1 split. The news releases announcing both splits were almost identical, with Hertz declaring, "With only 25% of our common stock owned by the public, we believe the stock split will provide greater liquidity for our stockholders, as well as attract institutional investors.''

Excuse me, Mr. Hertz, but the capitalization of a company doesn't change after a split, which means that after the split three-quarters of your stock will


be held by insiders.

Any comment? Track Data's spokeswoman didn't return my call. (Yep, I know, based on Track Data's stock price, what Hertz has done has worked. Doesn't mean it's right.)

Anyone seen the pit crew?:

As this column

noted last week,

Action Performance


announced that Chris Besing, former Action CFO, had unexpectedly (and without explanation) left the company's

subsidiary, where he was CEO. goracing's president, Lonnie Boutte, also left.

On the same day it disclosed Besing's and Boutte's departure (to counter the bad news?) Action, which makes die-cast


replicas, announced that Howard Jacobs, who joined Action in July from



, "will become Action's chief marketing officer for Action and all of its domestic and international subsidiaries."

Well, Action hasn't issued a press release,


, yesterday the company confirmed to my associate,

Mark Martinez

, that Jacobs is no longer with the company. When did he leave, where did he go, why did he leave? Action declined comment, but not through its normal spokesman, Scott Williamson. When Martinez called Williamson's direct line, it rang into voice mail for Jacobs. (Huh?) Where was Williamson? That's what Mark wanted to know, so he called CFO David Husband's office, where a receptionist issued a flat, "No comment."

L&H, the saga continues:

The news is so good at

Lernout & Hauspie


that last week

Lehman Brothers

analyst Brian Skiba cut his fourth-quarter earnings estimates from 27 cents to 21 cents. That's not all. Skiba, in a note to clients, said that Lernout's new deal with Microsoft ain't all that big a deal. The deal calls for Lernout's document translation service to get a button on Microsoft's Office Update Web site. One page of translation is free; additional pages require a fee. "With regard to the Microsoft relationship, in our view, this does not really take it onto a new level," Skiba wrote. Skiba pointed out that Lernout paid a fee to be included on the site just as other companies like





have done.

The size of the fee? Neither Lernout nor Microsoft would say, but according to sources at companies that were offered the same deal, Microsoft has been offering similar deals to other translation companies for $25,000 per month, plus commissions on any revenue generated on its site. Skiba reiterated his neutral rating on the stock.


If you missed

yesterday's revival of the


, take a peek. The more questions we get, the more frequently it will run.

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,