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THE DAY AHEAD: E-commerce hype may not save Net stocks

The conventional wisdom is that e-commerce hype will save Internet stocks this fall so investors shouldn't fret about the recent downswing.

The thinking goes something like this:

"We expect a second-half rally driven primarily by consumers moving up to a considerably higher level of spending online across multiple retail categories with real money flowing across the Web," said Keith Benjamin, an analyst with BancBoston Robertson Stephens in a recent report.

E-Commerce: Net stock savior?

But that e-commerce fueled rally, however, may not happen.

It would be heresy not to see e-commerce fuel Net stocks this fall, but it isn't guaranteed.

Last year Internet stocks went bonkers on glowing projections for e-commerce. It didn't matter what the study was or who conducted it. E-commerce sales would be in the billions and investors gave Net stocks valuations like the revenue was already in the books.

The e-commerce pop kicked off in late September and October and carried Net stocks to big gains in the fourth quarter and the year. This year could be different.

For starters, these e-commerce projections are old hat now and Wall Street may be desensitized. And that doesn't count the fact that e-commerce is everywhere and isn't all that surprising these days.

On a recent vacation in France, a small wine vendor pointed me to his e-commerce site to buy wine in Francs back in the U.S. I wasn't terribly surprised.

No surprises. No hype. No big e-commerce fueled rally.

If the e-commerce studies -- JUPITER PREDICTS ECOMMERCE TO BE A $1 GAZILLION MARKET IN 2002 -- don't boost Net stocks Wall Street could be in for a shock.

"If we're all clued in to it investors may buy Net stocks ahead of the e-commerce talk and there may not be a rally at all," said Abhishek Gami, an analyst with William Blair.

Put simply, e-commerce may not bail out Net stocks this year. A lot of things can happen in the next two months -- psychology could change, folks could be euphoric and interest rates could be stable -- but the e-commerce-fueled rally may not be a given.

Instead of waiting for e-commerce to save the day, Gami said he is focusing on macroeconomic issues, namely interest rates. Net stocks get pounded when there's a threat of rising interest rates. Given the Federal Reserve is meeting August 24, Net stocks are running in place.

And given the Fed's history of moving in threes -- three rate hikes or three rate cuts -- the interest rate fears will last until the next meeting in October and Net stocks could be stagnant.

"When the fear of interest rate hikes goes away, we'll get a real rally," said Gami. "That's the real catalyst."

K-Tel jams

It's just like the old days. K-Tel International (Nasdaq: KTEL) spiked 30 percent Friday on a press release that amounts to zilch in the real news department.

Here's the so-called news: K-Tel retained, a division of Inland Entertainment, to provide online strategy consulting.

This isn't the typical "exploring strategic alternatives" release. In fact it probably shouldn't have been a press release at all. K-Tel simply hired a consultant. Big deal.

At least the news got the message boards jumping. Here's one message board comment worth noting.

"The stock goes up because they are going to retain an Internet consultant. What has this consultant did for them so far?
1. Almost drive them into bankruptcy.
2. Almost got them delisted."