[Posted 2:00 AM ET…Rapid City, SD]
Wall Street
It’s so tough to stay focused on the Big Picture, with all the
“noise” investors have to deal with day to day, but a look at the
week’s economic data certainly doesn’t make one want to
abandon the double-dip camp. Sure, third quarter GDP came in
at 3.1% (slightly less than the consensus forecast), but the 4th
quarter is looking more like 2% (unless world peace suddenly
breaks out), and two big props for the economy, the consumer
and the auto sector are rolling over. Consumer confidence
continues to weaken, auto sales have hit the wall, and there are
very real signs the consumer is on the verge of packing it in.
Meanwhile, while the latest employment report for October
wasn’t as bad as some feared (a plus for Republicans right before
the Tuesday vote), the fact is the labor market is still weak in
what is supposed to be a roaring, Fed-induced recovery.
And speaking of the election and the Federal Reserve, this could
be a huge week with both, as Congress appears to be up for grabs
(at least in the Senate), while the Fed has to look at all the recent
data and opt to lower interest rates by 25-50 basis points (0.25-
0.50%). Not that this will really do anything, mind you,
particularly if the long end of the yield curve doesn’t do its part
to keep the housing boom going.
No, I don’t see a lot to be cheery about, though I acknowledge
comments from IBM’s chairman that the global economy may
have bottomed (I acknowledge them, but that doesn’t mean I
believe it), while Dell said it is seeing a pickup in corporate
demand. [The GDP report for the third quarter did contain a
significant item that business investment may be on the
increase.] None of these remarks, however, means we are back
off to the races…far from it… and as we get closer to Dow 9000,
for example, valuations look awful pricey all over again,
especially considering that already solid profit forecasts for 2003
are factored into the equation.
Lastly, the Street is totally ignoring the geo-political scene once
again. As was the case in the years leading up to 9/11, you can
go though long stretches where one can get away with reading
“People” instead of “Foreign Affairs,” but today we already
know what is coming down the pike, sooner rather than later, yet
caution is once again being thrown out the window. Oh, but you,
dear reader, know better. As actor Michael Conrad used to
intone on “Hill Street Blues,” “Guys, be careful out there.”
Street Bytes
–The broad averages registered gains for the fourth week in a
row, but the market has now more or less been treading water the
past two, with the Dow Jones this week tacking on 0.9% to the
8517 level, the S&P 500 adding just 0.4% to 900 and Nasdaq
picking up 2.2% to 1360. Volume has been light. October was
spectacular, though, with the month representing the Dow’s best
gain since January 1987.
–U.S. Treasury Yields
6-mo. 1.41% 2-yr. 1.74% 10-yr. 3.99% 30-yr. 5.03%
The short end staged a huge rally as the market priced in at least
a 25- basis point reduction in the federal funds rate when
Greenspan and Company meet on Wednesday. The long end
rallied sharply as well, with the yield on the 10-year touching
3.90% early Friday morning, before the rush back into equities
helped put a halt to the move. Nonetheless, if you own bond
funds it should have been a much better week for you.
–Underfunded pensions: This issue will only get worse (unless a
stupendous new bull market is under way). A CSFB survey
revealed that 325 of 360 S&P 500 companies with defined
benefit pension plans will have shortfalls this year, while UBS
Warburg notes that 118 of the S&P 500 continue to report a
pension surplus, even though they are actually running a deficit.
–The euro group: Italy’s prime minister called the Stability and
Growth Pact, the key to a stable euro, “stupid.” The 1993
Maastricht Treaty, which started the whole euro concept, called
for balanced budgets by 2004, with overall government deficits
of no more than 3% of GDP. Now, Germany and France are
piling up the debt (thanks to welfare benefits and rapidly aging
populations), when it was traditional debtor nations like Italy that
were once thought to be the chief problem. In other words, the
whole euro structure is a sham. It never provided the flexibility
needed for dealing with economic downturns. [But the currency
did reach parity with the U.S. dollar this week…sometimes you
get lucky.]
–Japan: Reform program #694 (or is it #695?) was to focus on
nonperforming bank loans, as well as the safety net for those
thrown out of work when the government finally forces some
banks out of business. Alas, this much anticipated version is
meeting with another tepid response. It’s not awful, it’s just not
good enough. If the government and the banks don’t tackle the
bad debt issue head on, then those seeking loans for legitimate
new business ideas won’t stand a chance.
–Brazil: Leftist Luiz da Silva won with 61% of the vote, but now
we wait to see what happens next, particularly with regards to
payment on Brazil’s huge debt obligation, which has big
implications for many U.S. financial institutions. One thing
Lula’s victory has done and that is it’s energized the Left across
all of Latin America.
–Kate L. up in Rochester, NY gave me a heads up early in the
week concerning Bausch and Lomb’s CEO Ron Zarella, who
lied about getting a MBA from NYU (he only took some courses
there), as Kate urged me to issue a “sweep it under the rug”
award to B&L’s board for not addressing the situation. Well, the
board did decide to withhold a $1.1 million incentive bonus as a
penalty, but kept Zarella in the top slot, a total embarrassment.
–EBay’s Meg Whitman reaffirmed prospects for the coming
Christmas season, adding that with regards to the company’s
overseas ventures, “I didn’t know it would take off in places like
Brazil and Argentina and Germany.” Yeah, but try collecting
from the first two.
–Goldman Sachs downgraded Wal-Mart because it was too
pricey. A valuation call! Some rationality is returning to the
market after all. Separately, I walked into a Wal-Mart in
Spearfish, SD this week and noticed Starter sweatshirts for $8. If
I hadn’t already bought one from every college I visited on this
trip of mine, I would have loaded up.
–Yes, I gave Harvey Pitt the benefit of the doubt from day one,
but his performance in handling the William Webster nomination
to be the SEC’s chief accountant was disgraceful. He has to go,
right after the election.
–New York Attorney General Eliot Spitzer is losing patience
with Wall Street. A deal was to have been reached by now
(Spitzer’s deadline) on resolving the conflicts of interest issue
and the links between investment banking and research. Spitzer
wants the big firms to subsidize independent research that the
little guy would then have access to. Meanwhile, Citigroup
announced it was splitting up, with a new unit called Smith
Barney (what goes around comes around) to be under the
direction of 37-year-old Sallie Krawcheck, formerly head of
research firm Sanford C. Bernstein.
–“For Wall Street, lining its own pockets with gold comes well
before protecting the average American investor.” –Lynn
Turner, former SEC chief accountant on the myriad links
between Enron and the big investment banks. Don’t get swept
up in the current rally in some financial stocks (unless you’re
nimble). The lawsuits will be flying for years and years.
–G.E. set aside an unspecified amount to cover $4.4 billion in
loans to US Airways and UAL. It claims they are secured by the
aircraft, aircraft engines and peanuts. Separately, CEO Jeff
Immelt said G.E.’s sales would grow in 2003 at a rate 2 ½ times
that of the U.S. economy. Let’s hope it’s not 2 ½ times zero.
–Cigna announced it was under investigation by the SEC for
some of its recent announcements, as company shares have
tumbled in recent weeks and it’s struggling with its business
model.
–Qwest reported it was writing down investments of $40
grillion, while also reversing $500 million in revenues because it
cheated. Aside from this, everything else is fine.
–Energy: Oil related issues rose strongly at week’s end, making
up for the prior one’s losses. The price of crude itself stabilized
in the $27 range, even as there are growing signs inventories in
some products continue to tighten. I can also tell you from
firsthand experience that winter has arrived in some parts of the
country. Many towns in North Dakota, for example, registered
all-time October lows this past week (but my car started!). Then
again, no one lives in North Dakota, a real election issue that
made the ballot this year as the remaining citizens vote on
whether or not to give its young people money for staying home
after college, but I digress.
–My portfolio: Thanks to the rally in my equity holdings, I’m
about 23% energy, 4% Turkey and 73% cash.
Iraq / North Korea
It bears repeating from time to time that some in the world
continue to play this dangerous game of betting that no leader
will ever truly cross the line and unleash the worst weapons on
humankind. With regards to Iraq, both President Bush and chief
negotiator Colin Powell continue to insist on “consequences” as
part of any UN Security Council resolution, but this has now
been going on for over 7 weeks. A vote should have been held
this past week, but now we’re told it’s possible the next one. The
President was in a box because of the delay since he couldn’t
then make a decision to ignore the UN just days before the
election, it being too explosive an issue.
As for North Korea, how can we possibly expect Kim Jong-Il to
act rationally? This week Pyongyang flatly rejected any
suggestion that it abandon its nuclear weapons program, as
meetings with Japanese ministers went sour. North Korea is
snubbing its nose at the rest of the world, but the U.S. has
another problem in that while the Bush team wants to isolate the
Commies, immediate neighbors South Korea and Japan prefer a
more diplomatic approach. The two, along with China, have yet
to officially condemn North Korea’s nuclear blackmail. This is a
scary, scary situation, with millions of lives immediately at risk,
let alone a future Armageddon if Kim isn’t stopped.
More International Affairs
Russia: The story of the storming of the theater by Russian
special forces broke as I was wrapping up my review last
Saturday, and it’s a good thing I didn’t comment then because it
would have been based on faulty information from the Kremlin,
an all-too-common occurrence in this land, going back hundreds
of years, quite frankly. Yet despite the knowledge that the
military in effect gassed to death about 120 of its own people,
President Putin is receiving the approval of 85% of his people for
his handling of the crisis, and to be fair, it’s hard to see what
more he could have done once the Chechen terrorists started
killing hostages early Saturday morning.
Putin has used the Chechen act of aggression as an excuse to
sweep Moscow for more suspects, and this has met with some
early success, including the arrest of one man purportedly
carrying 18 lbs. of mercury, enough to kill thousands. There are
well-founded fears, however, that civil rights will be trampled,
just as in days gone by.
But the lesson that should have been learned by all with the
handling of the rescue mission is the following: It is truly
amazing that the U.S. and the old Soviet Union fought a Cold
War for almost 50 years and there were no accidents due to
miscommunication or total lack thereof. Heck, even in the
Yeltsin years we almost went to war when Russian officials
mistook a Norwegian satellite launch for an actual attack from
the West (and Norway had told Russia beforehand). We were
minutes from disaster.
As for last week’s total secrecy on the part of Russian authorities
as to what gas was used, which resulted in the deaths of
innocents because physicians didn’t know what they were
treating, I find it deeply disturbing.
Turkey: The long-awaited election is Sunday and the Islamists
are set to win 30% of the vote and gain control of a new
parliament, after cobbling together a coalition. All eyes will then
be on the military and the old guard, corrupt politicians and
authorities that have held this country back ever since the days of
Ataturk. I won’t prejudge the Islamist Justice and Development
Party, but one thing is for certain; the existing system isn’t
working.
Israel: Prime Minister Sharon’s own coalition collapsed with the
withdrawal of the moderate Labor Party, so Sharon has had to
turn to the far-right for support. It’s possible there will be a call
for a new election within 90 days, which means the timing of one
during a probable military campaign against Iraq could be even
dicier than would otherwise be.
Australia: Authorities have launched a vigorous crackdown on
potential Islamic terrorists within its borders following the Bali
attack on its citizens. Our Aussie friends have also remained
steadfast allies in our coming war with Saddam.
Random Musings
–The Election: Throughout the past two weeks I have been
traveling through some of the states with the hottest races, but
none more so than in South Dakota, where President Bush visited
Thursday in support of Senate candidate John Thune, while Vice
President Cheney was here in Rapid City, Friday. I had heard
what an intense Senate race this was, but what has struck me the
past few days here has been the volume of ads. Never in all my
life, living mostly in the New York media market, have I seen
and heard more ads than in South Dakota.
And it’s not just because we’re in the final days. This stuff has
been going on for months and months as Thune seeks to unseat
incumbent Democrat, Tim Johnson. But what gets me is the
number of radio ads being run by the, now get this, “American
Chiropractors Political Action Committee” in support of
Johnson. I had no clue there was such an animal. At one point I
heard 3 straight spots run by these guys. So, to all you
Republican chiropractors out there who may be contributing
(forcibly) to a PAC, this is where your money is going.
–As for the overall election results I’m not even going to hazard
a guess, and since I’ve been out of my home state for two weeks,
I can’t tell what’s going to happen there either. But on Tuesday
I’ll pull the lever for all the Republicans like I normally do and
then hit the bake sale!
–The gloves are off. I was respectful in my remarks concerning
the death of Paul Wellstone last week, having to comment just
hours after the plane crash. But then I observed the Democrats’
response in Minnesota with that pitiful “memorial service” on
Tuesday evening. The remaining members of the Wellstone
family were despicable, as were many in the audience, which
booed Republican officials in attendance. Ironically, though, this
may have been Jesse Ventura’s finest hour; first in the way he
handled the tragedy in those initial moments, and then in his
condemnation of the political rally that evolved out of such a
“prayerful” remembrance. Ventura, leaving the fiasco early said,
“I felt violated.”
Then I watched Walter Mondale’s first press conference on
Thursday morning. Goodness, gracious. Minnesotans, I know
nothing about Norm Coleman, but do you really want a man who
clearly has lost 90% of his brainpower? Mondale is over…
finished…pin a nametag on his windbreaker and hope he doesn’t
step in front of traffic.
–The New York Times endorsed New York Republican
Governor George Pataki in his reelection bid. In my humble
opinion Pataki is the best choice for New York, especially if it’s
to get its share of federal dollars in the wake of 9/11. But many
of us are intrigued by the 3rd party candidacy of billionaire and
Paychex founder Tom Golisano. We need more legitimate
independent candidacies like his and some of my friends from
Golisano’s Rochester, NY base adore the guy. He truly is a great
American success story.
–State governments, most of which must maintain balanced
budgets, face a $37 billion cumulative shortfall in 2002 and a
projected $49 billion one in 2003. Tax revenue has fallen an
average 13% for the year ending June 30. Add it all up and it
spells…l-a-y-o-f-f-s.
–Immigration, Part 98…and other issues: After my comments
of last week, there were certainly some interesting developments
on this front. First you had the Haitian situation in Miami. The
Haitians don’t want to be treated any differently than Cuban
refugees and, let’s face it, this is politics. But isn’t Haiti a lot
better off than Cuba? I mean after all, Jimmy Carter won his
Nobel Prize in part because of his efforts there (along with Bill
Clinton’s). Why gee, Wally, what’s everyone complaining
about?
In a somewhat related matter, you then had the Canadian
government issuing a travel warning to its citizens of Middle
Eastern origin. Don’t go to the U.S. because you will be
profiled, is the essential message. Damn right, they will.
Canada, particularly Montreal, is teeming with al Qaeda types.
It’s a new world, Prime Minister Chretien. Start carrying your
share of the load.
But then there is President Bush and his total abandonment of
Mexican President Vicente Fox. “My amigo,” Bush proclaimed
as he sought out Fox immediately after the 2000 election. Fox is
the first legitimately elected Mexican leader, ever, and he
deserves our full support as a vital ally and neighbor. But he has
one request. Reach an agreement on the status of the 5-6 million
illegals in the U.S. and then proceed with real reform, including
tightening the borders (on both sides) as well as improving the
process for “legal” immigration to the U.S. It’s been almost two
years and Bush has been tone deaf.
So guess what? Fox is suffering politically and now he’s playing
hardball on Iraq (Mexico being a current member of the UN
Security Council). And the immigration issue just festers…with
the worrisome possibility that some of the wrong folks continue
to slip through the net.
–There was a large peace rally in Washington last Saturday, led
by those two great Americans, Jesse Jackson and Susan
Sarandon. Ms. Sarandon said, “Let us hate war in all its forms,
whether the weapon used is a missile or an airplane.” Terrorism
should not be fought with violence, she added. Under a
Sarandon administration, I would give America about, oh, 2
years…Planet Earth, maybe 5.
–We note the murder of rapper Jam Master Jay of Run DMC.
He was one of the good guys in this otherwise screwed up music
scene that mostly poisons our youth and has helped prevent some
segments of Black America from achieving the gains that other
minorities have made.
–A study from Public Agenda reveals that 90% of parents say
TV programs are getting worse each year because of the adult
themes on shows airing from 8:00-10:00 PM (7:00-9:00 Central
and Mountain!). Just look at “Friends,” which I personally
enjoy. You all know it is totally unsuitable for its time slot.
–The EPA announced that the average fuel economy is 6%
below the high point of 15 years ago. The government, the car
manufacturers and the American people are all to blame.
–New doubts are emerging on the FBI’s single man theory for
the anthrax cases. We asked Gomer Pyle for an analysis. “Soo-
prize, soo-prize.”
–There are also new doubts about the intelligence level of
America’s youth, when “Jackass the Movie” is #1 at the box
office.
–Finally, last October I took a one-week trip out West to visit
some places I hadn’t seen in about 35 years, mostly concentrated
in the Black Hills region of South Dakota. This year my trip was
far more extensive, taking me through 7 states and 2,250 miles,
much of it on back roads. So I have a few general observations
I’d like to share.
It’s amazing just how much open space America still has. There
were times when I drove for 20 miles without seeing a soul,
though the thousands of head of cattle told me some human may
have been responsible for them. And last Saturday driving
through Wyoming I passed a sign for the “Shirley Basin Mine
Sites,” an important reminder of the environmental battles to
come in this region. I’m here to tell you, there is plenty of room
for both mining and conservation (as there is in the Arctic
National Wildlife Refuge when it comes to oil), in case anyone
asks me.
If you are any kind of history buff, or just romantic about tales
from the Old West, there is nothing better than tooling around in
this vast region. I now feel like I finally have some idea what it
was really like for those heroic, yet foolhardy settlers. The land
is tough, conditions often brutal, yet they persevered. When I
hear talk of the American spirit from here on, I’ll think back to
the 1800s, that’s for sure.
I didn’t see too much wildlife along the way, though I did happen
upon more than a few antelope. But I wasn’t attacked by any
bears or mountain lions, which was a good thing. [Mountain
lions are definitely making a comeback, by the way. They even
have them in the Oklahoma Panhandle these days.]
It was also pounded into my head that a “market forecast” has
nothing to do with stocks and bonds, but rather weather
conditions in Brazil and Australia, for example, and the impact
on our own crops and commodities.
Speaking of which, I never tire of seeing cattle. I should have
been a rancher, but as some of you know, I’m scared of horses.
So the other day I meet this rancher couple in Spearfish and we
have dinner and I’m explaining how I could use a golf cart
instead, but they seemed a bit skeptical.
The folks I met along the way were as friendly as any in the
country, particularly in the many gas stations, coffee shops and
diners that I frequented. These folks are the heart and soul of
America. God love ‘em.
But in case you’re wondering if I had any bad moments traveling
around by myself, there was just one uncomfortable one. I
pulled into a remote rest stop in Wyoming and there was only
one other car in the lot, a beat up one at that with three rather
frightening characters inside. So, (a) I could venture into the
restroom and risk being mugged (or worse) as they helped
themselves to the cash I had on me or, (b) move on. Well, after a
lifetime of traveling, I’d like to think my sense of impending
danger is pretty good, so I proceeded to burn rubber out of there.
I really shouldn’t end a tale of an otherwise awesome trip on this
note, though, so let me conclude that as I wrapped up events
today in Rapid City, before I set down to pen this week’s review,
I visited Mt. Rushmore. The weather was gorgeous, there were
all of about 3 other tourists there, and I stared at the four wise
men carved in stone. America, man’s last best hope on earth, I
mused.
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $319
Oil, $27.13
Returns for the week, 10/28-11/1
Dow Jones +0.9% [8517]
S&P 500 +0.4% [900]
S&P MidCap +0.4%
Russell 2000 +2.9%
Nasdaq +2.2% [1360]
Returns for the period, 1/1/02-11/1/02
Dow Jones -15.0%
S&P 500 -21.5%
S&P MidCap -14.8%
Russell 2000 -21.5%
Nasdaq -30.2%
Bulls 43.4%
Bears 28.3% [Source: Investors Intelligence]
*I will be posting at the normal time, 7:00 AM ET, next
Saturday.
Have a great week.
VOTE!!!
Brian Trumbore
