From: Linda (firstname.lastname@example.org)
Date: Fri Jul 14 2000 - 22:53:39 PDT
Hmmm....let's see. Issue a sector downgrade, frighten all the weak
longs into selling and take out the stops, then load up the following
day on shares at a discount....
Tech Stocks : Semiconductors
Salomon Analyst's Negative Report Buried by Semiconductor Bulls
By Joe Bousquin
7/14/00 8:39 PM ET
Today you're Henry Blodget. But tomorrow? Rodney Dangerfield, perhaps.
Jonathan Joseph, a Salomon Smith Barney analyst, knows the feeling. He
managed to rally long-dormant semiconductor bears with a July 5 call to
arms that drove the industry's leading index down 9.3%. Amid potshots
from rival firms, Joseph managed for one day to galvanize investors
with a contrarian report citing a host of industry-specific and
But the pendulum swung back on Joseph with stunning speed, as the chip
stocks bounced back 4.5% the next day. Ironically, driving the rally was
a big bullish bet on the semiconductor industry -- placed by the
trading desk at none other than Joseph's firm, Salomon Smith Barney.
It's unclear whether that trade -- covering some $56 million worth of
the Merrill Lynch Semiconductor HOLDRs, a security that tracks the
semiconductor stocks -- was executed for Salomon or for a client. But
someone, either within the firm or at one of its clients, made a
multimillion bet against Joseph's view.
"Someone said this call is bunk," says a West Coast hedge fund trader
who watched the trade post. "The irony is where the trade was executed."
Salomon declined to comment, except to say Salomon is "the leader in
trading semiconductor stocks. Market participants recognize and
appreciate this when deciding who should execute their trades."
In his July 5 call, Joseph cut the chip sector to neutral from
outperform, pointing to higher inventories, softer prices and a spike
in spending as possible signs of a top. In the note, he cut his ratings
on Advanced Micro Devices, National Semiconductor, Silicon Storage
Technology and Texas Instruments. (Of those companies, Solly has
performed recent underwriting for Advanced Micro and Silicon Storage.)
The note flew in the face of months of bullish sentiment on chips and
took the air out of semiconductor stocks, which had surged 66% since
the beginning of the year.
The next day, analysts at other firms predictably took exception,
mocking Joseph's thesis in their reports like, "End of the Cycle?
We Don't Think So." Firms such as J.P. Morgan and ABN Amro rebutted
the analyst's comments.
Less predictably, Glen Yeung, an analyst who covers
semiconductor-equipment stocks for Salomon, issued a note seeking
to protect issues he covers from Joseph's attack on the chip stocks.
"While it is undeniable that the fortunes of chipmakers will ultimately
impact equipment fundamentals ... we believe the fundamentals will
get better before they get worse," Yeung wrote.
The Other Shoe
Then, on July 6, Solly's trading desk crossed 643,000 shares of the
semiconductor HOLDRs, according to AutEx/BlockData, a division of
Thomson Financial. Traders who watched the trade post say it was a
buy, or a bet that the sector would go up.
That trade accounted for nearly half of the 1.4 million shares traded in
the HOLDRS that day. In the weeks preceding July 6, daily volume
in the HOLDRS averaged around 200,000 shares.
That Solly would be involved in a big chips trade isn't surprising.
According to AutEx/BlockData, Salomon is the leading volume trader of
the 16 names listed in the Philadelphia Stock Exchange Semiconductor
Index. Since Jan. 1, it has accounted for 9% of all the trades in those
names tracked by AutEx. The next most active firm, Morgan Stanley Dean
Witter (MWD:NYSE - news), has made 8% of the trades in those names.
Whatever the story behind the big Solly block trade, Joseph isn't
surprised. "Traders take positions against the analysts all the time,"
Joseph says. "Their loyalty is to the tape and nothing else. And I want
to make clear that there is never any discussion whatsoever between the
analyst and the desk before a research call is made."
So far, the July 6 trade has been a good one; the HOLDRS are up 13%
since then. That means those 643,000 shares are now worth about
$65 million, or $9 million more than when they crossed Solly's desk.
Not bad pay for a little more than a week's work.
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