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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: Dr. David Gleitman who wrote (28353)	8/5/1999 10:18:00 AM
From: Paul Merriwether	Read Replies (3) \| Respond to of 41369

Depends on what the tax consequences are going to be. Maybe it will dead cat bounce tomorrow?

To: Dr. David Gleitman who wrote (28353)	8/5/1999 10:22:00 AM
From: C Nelson Reilly	Read Replies (2) \| Respond to of 41369

Dr. Gleitman - You're cyber famous! From today's TheStreet.com: Leveraged to the Gills, Net Traders Bite Their Nails By Eric Moskowitz Senior Writer 8/5/99 7:00 AM ET As Internet stocks continue to falter, the fear is that no one quite knows how far this free fall will go. This time, the same individual investors who in the past have carried the bull market over various bumps may be the ones who'll pull it down. On Wednesday, TheStreet.com Internet Sector index fell 29.16, or 5.6%, to close at 489.91. The index is down some 40% since April. "Investors are going to be forced to sell at the wrong time," says one Nasdaq trader, who spoke on the condition of anonymity. "We are already seeing investors hit with margin calls and these calls are definitely going to be a big problem going forward." One Silicon Investor message board poster says he is sitting on a margin call right now. "Let's hope today's the day that the trend reverses into forward gear -- it better, I'm sitting on a margin call," says poster David Gleitman, a Brooklyn-based podiatric surgeon. Margin is the money a firm lends its clients to buy stock. A margin call is when the brokerage firm asks the client to deposit more money as security. What's most troubling to the Street's movers and shakers is how individual investors, most of whom have not lived through a sustained bear market, have been leveraging the gains they have made in tech stars such as America Online (AOL:NYSE) and Dell (DELL:Nasdaq) to pay for additional Internet stock buys. "The problem is leverage, and once you get the ball rolling in the opposite direction, it can get ugly," says John Fichthorn, a market maker with Quilcap. And it's not just the investors who are playing this leverage game. Companies such as Amazon.com (AMZN:Nasdaq), Ameritrade (AMTD:Nasdaq) and CNet (CNET:Nasdaq) are leveraging themselves with convertible debt deals. "Investors see companies leveraging themselves to the gills, so why shouldn't they?" asks Bill Fleckenstein, a money manager with Fleckenstein Capital. The leverage, or the amount investors have on margin, rose to such dangerous levels this summer that some clearing houses -- the firms who clear and execute trades for other firms -- raised the margin requirements for highly leveraged traders. Most online brokers raised their margin requirements at the start of the year to ward off speculative investments on margin. Schwab (SCH:NYSE), for example, has a margin requirement of 70% -- meaning traders need to put 70% or more of the cash into the stock purchase -- on such stocks as Amazon, Ameritrade, eBay (EBAY:Nasdaq) and Yahoo (YHOO:Nasdaq). Other companies such as CMGI (CMGI:Nasdaq) and Skymall (SKYM:Nasdaq) cannot be bought on margin, according to Schwab spokesman Mo Shafroth. Thus far, clearing firms haven't seen margin calls as of yet. Wexford Clearance Services president Ed Schlitzer, who notes he has had to raise his margin requirements to 40% for certain clients, says, "our correspondents aren't seeing any serious problems but I wouldn't be shocked to begin seeing some soon." Market makers haven't been taking advantage of all this Internet selling to short these issues. They are instead betting on the amount of volatility continuing, says Sage Clearing CEO Doug Engmann. "Ever since market makers got burned on shorting stocks earlier this year, they have resorted to betting on volatility," says Engmann. The bet they are making is called a "long premium," and involves buying a large number of puts and calls in a targeted sector. Their bet seems to be a good one: Tech stocks, after weeks of isolated Internet stock dips, took a beating Wednesday. The tech-heavy Nasdaq fell 48 points, or 2%. This latest trend has some market watchers thinking that tech stocks may soon follow Internet stocks downward. "The really interesting thing for me about these Internet stocks is not so much that they are in bear markets, but how little their bear markets have had an impact on the broader market. I cannot remember the last time the air was let out of a major speculative bubble without an impact on the broader market," says John Bollinger, president of Equitytrader.com. Even bullish sell-side analysts are sensing that there soon will be a great shakeout in e-land. Merrill Lynch analyst Henry Blodget says "75% of all Internet companies will either be acquired or [they will] fail." After pounding the table for many of skyrocketing Net names, investors are looking to Blodget to find a way out of this Heartbreak Hotel. "It's like I'm Elvis and now everyone is throwing garbage and stuff at me," says Blodget. While true panic hasn't quite set in among technology investors, individual Internet investors are seemingly forced to sell at the bottom. It may depend on how much pain highly leveraged Internet investors can endure before they give up the game.