Joining The Billion Dollar Boys Club

July 27, 2001
Marc Dupee

It’s historical. The biggest ever. But major media is
giving this event short shrift. JDS Uniphase
(
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PowerRating) said it is writing down
the value of companies it acquired on a two-year broadband buying spree, but is
now writing them off to the tune of $44.5 billion, probably the largest
quarterly loss in corporate history.

This makes JDS Uniphase just the latest casualty in a
string of companies to report quarterly losses in excess of $1 billion. JDSU’s
quarterly loss stretched well beyond to 11 digits.

Although JDSU warned it would take such action months
ago, the company still underestimated the magnitude of its impending loss and
says it overstated revenues by one-half last month and that it will fire an
additional 7,000 employees.

But markets are keying on the positive. Qualcomm
(
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PowerRating)
said profits would meet forecasts and is one of the top five point-gainers on
the session, up 3.83 at 63.50.

The Nasdaq is up 13.90 at 2036.86, the Dow is down 16
at 10,439, and the S&P 500 is up 5.09 at 1208.02.

Qualcomm is now the third most heavily weighted stock
on the Nasdaq 100
(
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PowerRating), comprising nearly 5% of the index’s weight.
Qualcomm’s weighting is greater than Cisco and Oracle’s, big-cap techs which
have weightings in the 4% range.

Exactly one year ago when JDS Uniphase tested up
to140 its all-time high of 153, it was among the top-five most heavily
weighted stocks on the Nasdaq 100. The stock is now trading at a 2 1/2-year
low, down 1.18 at 8.34.

The weakest gross domestic product figure (GDP) since
1993 is bolstering the odds of another Fed interest rate cut and traders are
also expressing optimism about easing monetary policy’s effect on stock
prices. The GDP report could give the Fed more leeway in lowering interest
rates and ups the ante that the Fed will be more aggressive in cutting
interest rates in coming FOMC meetings.

But the most accurate predictor of the Fed’s likely
actions, Federal Funds futures contracts, are not pricing in a for-sure
cut until September. For the August meeting, the
(
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PowerRating) is pricing in a
56% chance of a move to 3.5% from its current 3.75%. For September, the Fed
Funds
(
FFU1 |
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PowerRating) contract indicates there is a 98% chance of a 25-basis-point cut. Hence, it looks assured. For November and December the contracts
are saying the same thing: the [FFX1|FFX1 and
(
FFZ1 |
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PowerRating) are saying there
is a nearly even-odds chance of another 25-b.p. cut to 3.25%.
But that’s it; then right away next year, back-month Fed Fund contracts are
saying the Fed will tighten back 1/4% to 3.50%.

Joining The Billion Dollar Boys Club

BUY THE FEAR, SELL THE GREED

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