MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING FRIDAY, APRIL 3, 1998 (1)
TSE Takes Shine To Gold
TORONTO - Bay Street gained a big boost from the golds, which accounted for 22 points of the TSE 300's 69-point gain.
Canadian stocks rose as gold stocks regained some lustre.
"It's gold leading the market higher," said Jack Cook, vice-president of Scotia Investment Management Ltd.
The Toronto Stock Exchange 300 composite index climbed 69.33 points, or 0.9%, to 7612.73. Gold stocks accounted for 22 points of the TSE 300's advance. The index fell 9.8 points on the week.
The TSE's gold and precious metals subindex soared 392.86 points, or 5.6%, to 7398.62.
The price of bullion climbed US$6.10 to US$308 an ounce on the Comex division of the New York Mercantile Exchange.
About 151.6 million shares changed hands Friday on the TSE, up from 123.8 million shares traded Thursday.
Barrick Gold Corp. (abx/tse) gained $1.20 to $32.05 and Placer Dome Inc. (pdg/tse) jumped $1.35 to $20.10.
The TSE oil and gas subindex was the second-best performer. West Texas crude rose US25› to US$15.99 a barrel on the New York Mercantile Exchange.
Banks also gained as investors expressed optimism that low interest rates will prompt companies to use loans to finance expansion, raising the profits of lenders.
Royal Bank of Canada (ry/tse) rose 75› to $83.85, Canadian Imperial Bank of Commerce (cm/tse) gained 70› to $49.20 and Laurentian Bank of Canada (lb/tse) gained $1.05 to a record $34.
Fairfax Financial Holdings Ltd. (ffh/tse) rose $11 to a record $509.
Other Canadian markets advanced. The Montreal Exchange portfolio gained 28.16 points, or 0.7%, to 3837.03. For the week, it fell 37.96 points, or 1%. The Vancouver Stock Exchange rose 8.01 points, or 1.3%, to 643.43. It gained 19.26 points, or 3.1%, on the week.
Approaching 9,000: A Time for Reflection
MSNBC
NEW YORK -- Disappointment over the Dow's failure to close above 9,000 either Friday or after its strong performance Thursday is misguided. If the Dow closes above 9,000 next week, as is likely, it would come just over eight months after the index first closed above the 8,000 level on July 17, 1997.
Such a climb would represent the second-quickest 1,000-point advance in the index's history. As a point of reference, it took the blue-chip proxy 76 years to first reach 1,000 (it did so on Nov. 14, 1972).
So let's take a moment to reflect on what's gotten us on the verge of the 9,000 watermark. Key factor is the ongoing strength of the U.S. economy and accompanying low interest rates. Following some difficult and painful restructuring in the late 1980s and early 1990s, U.S. corporations are now streamlined and the envy of the industrialized world. The resulting productivity gains -- and new technologies -- enabled businesses to re-expand and new ones to emerge.
That in turn, generated employment rates at the highest levels in a generation, which breeds consumer confidence. Meanwhile, intense competition from global and domestic players, as well as workers' memories of layoffs, helped keep the power of organized labor in check. Hence, wages have risen, but not to levels that foster inflation. Demographics have also contributed to the situation; the aging of the U.S. population has fostered more savings and less conspicuous consumption.
Clearly, that's an oversimplified explanation of a $3 trillion economy. But it's an overview of why inflation is nearly non-existent and the stock market is at such lofty levels.
The second half of the Dow 9,000 equation is what's going on overseas. Economic troubles in Asia are a big reason why U.S. interest rates are relatively low and the Fed is unlikely to tighten policy in the foreseeable future. Foreign investors' view of U.S. securities as the "safe haven" is the other bonanza for Wall Street.
Despite all the hype about the "little guy" (and gal) and mutual-fund investors, the truth is that it's a myth to credit retail investors with the Dow's approach to 9,000.
"We don't think this market rally has been fueled by doctors in Toledo," said Douglas Wilde, international economist at Merrill Lynch. "All our indicators say it's been foreign money that has inflated asset prices in both the bond and stock markets, [chiefly] liquidity from Japan."
Indeed, the Securities Industry Association reported that $66 billion of foreign money flowed into the U.S. stock market in 1997, more than the level in the previous nine years combined. And overseas investors traditionally invest more in bonds than equities.
"The question is, where is [the money] going to flow to next?" Wilde asked. "Our view is that it's beginning to trickle out of the U.S. and could potentially create a problem. We don't think the market will correct like in 1987, but in our view we could be range trading for quite some time."
In addition to foreign buyers, Don Hays, chief market strategist at Wheat First Union, said it "is so obviously the case" that corporations rather than individuals have propped up the stock market.
"The Fed stats show that the public has been a dramatic net seller" of mutual funds in recent years, he said. "At the same time, you've had the highest amount of merger and acquisition activity in history, [plus] all the stock buybacks."
From 1995 to 1997, mergers and acquisitions reached new levels in each consecutive year, topping out at over $911 billion last year, according to Securities Data Co.
"We think that's what's been buoying the market," Hays said, because M&A activity inflates the value of companies that are potential takeover targets, while simultaneously diminishing the supply of outstanding common stock.
Stock buybacks defy quantitative analysis, because companies often announce repurchase plans and then never complete them. But the perception and practice of such programs clearly has aided the stock market.
Hays offered another view.
"In the old days, companies that bought back stock were considered not good because they couldn't find a better way to invest their money," he said. "Intel is buying back $100 million shares, [but] it's a company with flat revenues. They're not growing so they're trying to get the stock up some other way."
Both Hays and Wilde are admittedly un-bullish about the near to intermediate term prospects for the U.S. market, and our point here is not to try and strike fear into investors, or deny the market's impressive gains.
To that end, we offer views from Ben Hock, director of research at John Hancock Funds.
"To me, 9,000 represents the strength we see in the U.S. economy, with low inflation, and continued corporate earnings growth," Hock said. "Frankly, the market is reflecting good old-fashioned economic fundamentals and is acting accordingly."
Hock, who remains optimistic on the market's prospects, acknowledged the ongoing weakness in Japan's economy is a potential concern, but historically high price-to-earnings ratios of U.S. stocks is not.
"The last time P/Es were this high was back in the 1960s. If you look at economic numbers like GDP, inflation numbers, productivity, you will find this period compares even better than in that age," he said. "Yes, I want to be careful, but high P/Es are not in and of themselves enough to scare me out of this market. Theoretically, present P/Es are justified, and you can look for P/E enhancement."
And higher levels for the stock market, to boot.
The Week Ahead
It's a light week of economic data next week, with the producer price index for March on Thursday the highlight. First-quarter earnings season begins to gather steam next week with reports due from companies like Alcoa (AA), Motorola (MOT), Advanced Micro Devices (AMD) and Yahoo! (YHOO).
Also, next week is a shortened trading week, with no trading Friday in observance of Good Friday. It is likely traders will ensure that CNBC gets to run its "Dow 9,000" special before the long holiday weekend.
After The Bell
Neoware Systems (NWRE) warned that its third-quarter earnings will fall shy of expectations.
IntelliQuest (IQST) said its first-quarter earnings will not meet expectations.
Philip Morris (MO) and RJ Reynolds (RN) both announced increases in cigarette prices.
Genrad (GEN) canceled a $2 billion stock buyback plan announced last May. The company said it will use the funds to pursue an acquisition.
Cendant (CD) filed to sell $3 billion in debt, preferred, and common stock for "general" corporate purposes.
Patriot American Hospitality (PAH) said its merger with Interstate Hotels has been delayed, pending a judge's ruling on Marriott International's (MAR) attempt to block the deal.
Friday's Markets
The Dow poked its head over 9,000 several times Friday, but failed to close above the elusive level. The blue-chip index rose above 9,030 during the first hour of trading, but could not sustain its early momentum, ending the day down 3.24.
Obscured somewhat by the focus on the Dow, the S&P 500 and Nasdaq both managed to notch new records, albeit on modest gains. The S&P 500 rose 2.69 while the Nasdaq gained 2.44.
Clearly, the enthusiasm in stocks was contained relative to the performance of the bond market, which rose 7/8 of a point in response to a weaker-than-expected employment report for March.
Technology stocks were a drag on major indices, as was the energy sector. Financial stocks were strong in concert with bonds, and gold stocks were strong, but the session really lacked a major impetus.
The Dow Jones Industrial Average ($INDUA) rose above the 9,000 milestone in the first moments of trading, faltered, then shot above the 9,030 mark less than a hour later. The gains soon eroded, however, and the index spent most of the day trading in a tight range of between 25 points below and 10 points above break-even. The index failed to make much of a run toward 9,000 before closing off 3.24 at 8,983.41. Still, the Dow ended the week up 2.1%.
The Nasdaq Composite Index (COMP) also did a bit of a stutter-step in the early going, but spent most of the day in positive territory. The tech-gassed index rose as high as 1,860 but spent most of the day trading between 1 and 6 points above its opening level. The Nasdaq ended the day up 2.44 points at 1,855.40, notching its fourth straight record close. The index rose 1.7% for the week.
The S&P 500 Index (SPX) also set a new record, rising 2.69 to 1,122.70. The broad measure of stocks rose 2.5% for the week. The Russell 2000 Index (RUT) slid 0.64 to 485.79, but ended the week up 1.8%.
In NYSE trading 640 million shares traded hands while the breadth of the market favored advancers by a slim 15-to-14 margin. In Nasdaq activity, 869 million shares were exchanged, while breadth was essentially even.
The bond market's rise came in the wake of the Labor Department's report that the number of U.S. jobs dropped by 36,000 last month, the first decline since January 1996. Economists had forecast a gain of some 220,000 non-farm jobs. As a result of a sharp decline in construction jobs due to El Ni¤o-driven rains, the nation's unemployment rate rose to 4.7% from 4.6% in February.
A strong overnight performance by the U.S. dollar, which rose to its highest level versus the Japanese yen also fostered the bond market's rally, which pushed prices up more than 1 1/4 at its best level. The market ended off its best level, but the yield on the benchmark 30-year Treasury bond fell to 5.78%.
Technology Stocks
The Nasdaq's rise was fostered by its biggest names as the Nasdaq 100 Index (NDX) rose 3.56 to 1233.74. However, the Morgan Stanley High Tech Index (MSH) slid 4.43 to 547.47.
Shares of Sun Microsystems (SUNW) and Oracle Corp. (ORCL) fell Friday amid concern over the near-term outlook for network-computer products. Sun Microsystems fell 1 5/16 to 41 1/8, while Oracle, the Nasdaq's most heavily traded issue, fell 2 to 28 1/8.
IBM (IBM), the only firm to sell a substantial number of networking computers, fell 1 3/16 to 104 5/8 and was one of the biggest drags on the Dow.
PC makers failed to respond, but Microsoft (MSFT), whose domination of the market for software used in PCs is directly threatened by networking computers, did rise 1 11/16 to 93.
Firms that make semiconductors used in PCs posted a mixed performance. Industry leader Intel (INTC) managed to rise 3/8 to 76 3/4, while Advanced Micro Devices (AMD) shed 1 1/8 to 28 9/16, and National Semiconductor (NSM) dipped 9/16 to 20 1/4.
Other chip and equipment makers were treading downward, sending the Philadelphia Semiconductor Index (SOX) down 3.79 points to 305.53.
Applied Materials (AMAT) reversed some recent strength, sliding 1 3/8 to 37 1/2. Elsewhere in the group, KLA-Tencor (KLAC) shed 2 1/16 to 38 7/16 and Asyst Technologies (ASYT) dropped 7/8 to 24 7/8.
Kulicke & Soffa Industries (KLIC) sparked the weakness in the chip equipment sector. After acknowledging warning that third-quarter earnings would not meet expectations, the stock shed 3 to 20 3/4.
Networking-equipment makers and telecom firms produced new gains. Leading the way was Lucent Technologies (LU), which rose another 3 11/16 to 73 1/8, and Ericsson (ERICY), up 3 to 52 3/16, while Cisco Systems (CSCO) rose 7/16 to 70 11/16.
Qualcomm (QCOM) rose 2 1/4 to 55 3/4 after the telecom-equipment company said it was awarded a $117 million contract to make and supply portable and fixed Code Division Multiple Access phones to Globalstar LP (GSTRF). Globalstar slid 1/4 to 64 3/4.
DSC Communications (DIGI) regained some of its recent losses, rising 2 5/16 to 18 15/16.
MasTec (MAST) rose 6 1/2 to 58 despite a downgrade from Montgomery Securities to "hold" from "buy."
Internet related stocks paused from recent head-spinning gains, as Yahoo! (YHOO) dipped 1 7/16 to 102 7/16 and Amazon.com (AMZN) shed 2 1/16 to 93. Among smaller names, Onsale (ONSL) slid 2 5/8 to 33 1/4.
Level 3 Communications (LVLT) slid 7 3/8 to 62 1/2 on word that the Federal Communications Commission is recommending higher fees for such long distance phone calls made via the Internet.
As has been the case lately, individual stocks were punished by profit warnings.
Viasoft (VIAS) plummeted 9 5/16 to 18 1/16 after warning that first quarter earnings will not meet expectations.
Natural MicroSystems (NMSS) tumbled 8 1/8 to 30 1/4 following its warning that first quarter earnings will not meet expectations.
Landmark Systems (LDMK) fell 1 3/4 to 8 after the software developer said first quarter diluted earnings would be between 7 and 8 cents a diluted share, below analysts' expectations.
Imnet Systems Inc. (IMNT)shares tumbled 6 3/4 to 15 11/16 after the company said it will not meet Wall Street expectations for its fiscal third quarter earnings.
Pegasystems (PEGA) fell 2 7/16 to 18 after the company reported fourth quarter earnings of 15 cents per share, 7 cents shy of what analysts were expecting.
On the upside was SeaChange International (SEAC), which rose 2 13/16 to 8 3/4. Wedbush Morgan upped its rating on the stock to "buy" from "hold."
Active Issues
In addition to IBM, the Dow's assault on history was foiled by Eastman Kodak (EK), which slid 1 13/16 to 64 9/16; Procter & Gamble (PG), down 1 7/16 to 88 1/8; and Chevron (CHV), off 1 1/2 to 81 15/16.
WD-40 Co. (WDFC) fell 1 1/4 to 30 1/2 after the lubricant maker said earnings for its fiscal second quarter fell to 40 cents a diluted share from 42 cents a year earlier.
American Express (AXP) led the Dow gainers, rising 4 1/2 to 99, while Walt Disney (DIS) climbed 2 1/16 to 110 15/16.
With interest rates falling sharply, financial stocks were in rally mode Friday, sending the Philadelphia KBW Banking Index (BKX) up 4.99 to 862.67.
Merrill Lynch (MER) rose 2 11/16 to 86 5/8 after a Wall Street Journal article said the broker is one of several firms being considered by Citicorp (CCI) for a possible merger. Citicorp rose fractionally.
Other strong gainers in the sector included BankAmerica (BAC), up 1 5/8 to 87 9/16, and Wells Fargo (WFC) which rose 4 5/8 to 334 1/8.
Airline stocks failed to post a discernible trend, as the AMEX Airline Index (XAL) rose less than one point.
Delta Air Lines (DAL) rose 1/16 to 117 5/8 while UAL (UAL) climbed 2 1/8 to 95 5/8 after the Wall Street Journal reported the firms are in preliminary talks about a broad strategic alliance.
Trans World Airlines (TWA), however, slid 1 5/16 to 10 1/8 in heavy trading on word that it could post a "substantial" loss in the first quarter. Analysts were already expecting the flyer to lose 70 cents per share in the period.
Elsewhere in the sector, Northwest Airlines (NWAC) fell 1 1/16 to 57 13/16.
Like the airlines, big drug stocks were mixed, but the AMEX Pharmaceutical Index (DRG) rose 4.09 to 646.95.
Leading the gainers was Warner-Lambert (WLA), up 5 1/16 to 184 and Pfizer (PFE), up 2 3/16 to 101 7/8.
On the downside were Eli Lilly (LLY), off 1 1/8 to 58 5/8; SmithKline Beecham (SBH), down 1 3/16 to 64 7/16; and biotech bellwether Biogen (BGEN), which fell 2 to 46 5/8.
A $5-per-ounce rise in gold prices helped spur shares of Getchell Gold (GGO) up 2 1/8 to 24 1/8, Newmont Mining (NEM) up 2 1/2 to 32 7/8, while Barrick Gold (ABX) climbed 13/16 to 22 1/2.
Among stocks in the news, Sunbeam Corp. (SOC)dropped 10 7/16 to 35 1/8 after the company announced that first-quarter earnings would fall below estimates. Coleman Co. (CLN), in the process of being acquired by Sunbeam, fell 5 5/16 to 26 3/8.
EquiMed (EQMD) tumbled 4 7/8 to 13 5/8 on word that it has received an extension before filing its fiscal year report, known as a 10-K, with the Securities & Exchange Commission.
Position Fiber Systems (PFSCF) slid 1 3/4 to 6 9/16 after saying it expects to post a loss in its fiscal fourth quarter due to delays in a product launch.
ThrustMaster (TMSR) shed 3 1/4 to 9 following its report that first quarter losses will exceed the 7-cents-per-share shortfall that analysts were projecting.
Hormel Foods (HRL) slid 3 to 35 7/16 thanks to a downgrade from Prudential Securities to "hold" from "buy."
A downgrade from Merrill Lynch to "reduce" from "neutral" sent shares of National Power PLC (NP) down 2 1/4 to 37 1/8.
Simon Transportation Services (SIMN) fell 5 15/16 to 9 1/8 on news that it will lose as much as 36 cents per share in its second quarter.
Bertucci's (BERT) rose 2 1/4 to 10 thanks to a $10.50-per-share buyout offer from privately held NE Restaurant. The offer tops by $2.00 per share a bid made by executives of the chain.
Letchworth Independent Bancshares (LEBC) rose 3 1/8 to 61 1/2 after the banking company set a 3-for-1 stock split.
Better-than-expected earnings helped send Dollar Tree Stores (DLTR) up 4 to 57 1/8.
Major overseas markets ended the week mixed.
London: British shares eked out a third consecutive record. The FT-SE 100 index closed at 6064.2, up 11.4 points, or 0.2%, and up 124.9 points, or 2.1%, on the week.
Frankfurt: Germany's blue-chip index set a new high. The Dax index closed at 5223.52, up 46.86 points, or 0.9%, and gained 140.36 points, or 2.8%, on the week.
Tokyo: Early gains evaporated after Moody's lowered its outlook on Japan. The 225-share Nikkei average closed at 15,517.78, down 185.12 points, or 1.2%, and down 1221.48 points, or 7.3%, on the week.
Hong Kong: The Hang Seng index closed at 11,052.68, down 137.03 points, or 1.2%, and fell 682.82 points, or 5.8%, from last week.
Sydney: The Australian share market closed higher. The all ordinaries index rose 13.8 points, or 0.5%, to 2770.8, a gain of 8.1 points, or 0.3%, from a week ago.
Scam artists spin Web of deceit
The Financial Post
Securities regulators in British Columbia and Alberta said Friday they are investigating an elaborate copycat scheme to defraud Swedish investors via the Internet.
The probe was launched after the B.C. Securities Commission identified a Web site operated by Turner Phillips, a fictitious investment dealer that claimed to run its operations from an office in Vancouver.
While Turner Phillips billed itself as a "corporate finance specialist," commission staff found the company's only connection with Vancouver was a mail drop and answering service with forwarding relays to locations in the state of Washington and Ontario.
"This scheme was quite sophisticated,'' said Lang Evans, a compliance officer with the BCSC.
Investigators discovered that the contents of Turner Phillips' Web site were copied verbatim from the Web site of a Calgary investment dealer which he declined to name.
It appears the Web site was part of a two-tiered fraud perpetrated on investors.
After suspect securities were sold to investors, the buyers were later approached again and offered the opportunity to sell their original securities for a profit.
The catch was that in order to sell they had to post an advance cash fee with Turner Phillips as an insurance bond.
Investors caught in the scheme usually lost their original investment plus the advance cash fee when the repurchase offer was not completed.
Evans said it isn't yet known how many Swedish investors lost money in the scam. "Any complaints are usually only the tip of the iceberg,'' he said.
Canadian and U.S. regulators are working with the RCMP to find out who was behind the scheme.
They believe the perpetrators were copying a similar scheme involving Hathgate Dreyfus & Pierce, which sold shares in three small U.S. companies before it was closed by Portuguese regulators last November.
While claiming to be registered in Ireland, HDP sent out statements from Portugal - where it claimed to be based - and ran its sales operations from Spain.
Portuguese regulators discovered HDP's activities were actually directed from an office in England.
As in the Turner Phillips case, offers to buy securities from customers were dependent on the payment of advanced fees, which regulators said inevitably disappeared, multiplying investors' losses.
Surveillance officials say it's no surprise the Internet is being increasingly used as a mechanism to defraud unwary investors.
"It's really just a new medium with the same old swindles,'' said John Stark, chief of the Internet unit at the U.S. Securities & Exchange Commission in Washington.
In the past two years, he said the SEC has investigated at least 24 cases of Internet fraud.
"These were all cases of out and out fraud where someone was trying to steal from someone else and we ended up suing,'' he said.
Meanwhile, the BCSC is advising people to protect themselves by contacting bona fide regulatory agencies to confirm certain basic facts.
Such questions, said Evans, should include asking whether dealers who operate via the Internet are actually registered to operate in the provinces in which they claim to be located.
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