[Posted 7:00 AM ET]
15-0
This past week showed us all that if you stick to your convictions
and have character, anything is possible. President Bush has
both and it paid off.
Of most importance when it comes to our nation’s security was
the 15-0 vote in the UN Security Council. It didn’t come easy,
as many like yours truly were increasingly frustrated this past
month in particular over the dithering of Russia and France, but
in the end the U.S. and Britain prevailed and at least the clock is
now ticking in such a manner that the two can act while weather
conditions are still favorable, if need be.
I won’t waste your time this week with analysis that you’re likely
to hear ad nauseum over the coming days, except to give two
possible scenarios that have definite investment implications.
First, the possibility that Saddam is taken out by his own people,
at which point the Dow Jones rallies 1,000 points in an hour
(unless it’s son Uday who kills his father…not implausible, by
the way).
Second, Saddam preemptively lashes out against an Israel now
enmeshed in an ill-timed election campaign, perhaps catching
some in the military chain of command off guard. Of course he
would do this to rally the Arab street. It’s a risk that both Israel
and the U.S. have contingency plans for, but it nonetheless would
make for a black day on Wall Street.
The point of this little exercise is that we have now entered a
critical period, both politically and financially. A terror attack is
an unknown that, post-9/11, should always be in the back of
every investor’s mind. Iraq, on the other hand, is a known factor.
You can prepare for it, if you haven’t already done so.
Taking out Saddam will be a glorious day for the Free World, but
it has the potential to be even better if the U.S. stays committed
afterwards, as I’ve discussed for much of this year.
But to bet on this is mere gambling, not investing. I fully admit
that I could miss the first 1,000 points of a relief rally, while I
also can’t ignore some of the economic and financial
fundamentals that would largely remain in place in this country
afterwards.
So as bullish as you may be on military success over the coming
3-6 months, don’t forget the risks. If things don’t go as planned
and, as a result, the stock market tumbles, am I (and my family)
financially secure?
—
The Election
I have lots of random musings concerning Tuesday’s historic
vote down below, but for now let’s just say that President Bush
deserves all the kudos coming to him (except in one instance
noted later), while the election results also need to be put in the
proper context. As well as the Republicans did, particularly
compared to the past history of mid-term elections, remember
they only gained 2 Senate seats and 4 or 5 House seats.
Thankfully, at least for those of us who voted Republican, in the
case of the Senate it meant going from 49 to 51, instead of just
47 to 49.
But while some pundits discuss the fact that our nation is split
50/50, it’s really 53-47 Republican, which is the House vote if
you tallied it up nationwide. 6 points is 6 points…and it’s not
50/50. Republicans thus have the edge and get to set the agenda
on homeland security, tax policy and energy, to name a few. But
as for my own priority (aside from homeland security), it’s tort
reform. Somehow, we must overhaul a legal system that, for
example, allows folks to attach themselves to an asbestos class-
action suit when they are perfectly healthy. It’s killing the
economy, and it’s also hurting those truly in need by clogging
the courts and delaying legitimate claims.
But I imagine one of the first thoughts many of you had when the
final results from Tuesday became clear was, oh, what sweet
revenge. You haven’t seen a lot of Bill Clinton the past few
days, have you? Yes, character and conviction trump weasel all
the time.
Wall Street
So much for the 50 basis point cut in short-term interest rates.
The Federal Reserve surprised the markets with this bold move
on Wednesday, but the reasoning behind the action was flawed.
“…economic data have tended to confirm that greater
uncertainty, in part attributed to heightened geopolitical risks, (is
inhibiting growth).”
I don’t know about you but to me, geopolitical risk was
heightened immediately after 9/11, not just now, while on the
macro-economic side, issues such as overcapacity, valuation, and
corporate governance have zippo to do with Iraq and al-Qaeda.
Alas, the Fed made its bed and now it has to sleep in it, and, after
all, what’s 0.5% among friends? And if you’re a saver and you
now get 0.7% instead of 1.2% on your money market account (if
you’re lucky), as long as the price of pasta and peanut butter
and jelly doesn’t go up, you can still scratch out a meal or two if
you’re on fixed income.
But to take this issue perhaps a bit more seriously, in my opinion
the Fed is not only worried about the prospects for deflation, it
also made the move in a final effort to prop up the real estate
market, in the vain hope that if it can encourage Americans to
take on one more layer of debt, then maybe the economy can
skate by until business spending finally picks up in earnest.
Those of us in the double-dip camp, though, conclude that the
Fed’s move isn’t going to work, especially when the European
Central Bank acts the way it did, opting to shirk its responsibility
in failing to cut its own rates, much to the chagrin of European
businessmen.
And then you have some Big Picture items back in the States,
like the aforementioned explosion in personal mortgage debt,
along with the budget mess that every state government finds
itself in, to name just two. Plus there is this ongoing, rather
important issue, that being, how the hell can you trust the quality
of earnings?
Street Bytes
–Wall Street saw its collective rally cool this week, as the Dow
Jones posted its 5th straight weekly increase, but only 0.2% to
8537, while the S&P 500, -0.7%, and Nasdaq, -0.1%, lost ground
for the first week in five. The market is tired and in need of a
new catalyst and the Fed’s move wasn’t it.
–U.S. Treasury Yields
6-mo. 1.24% 2-yr. 1.85% 10-yr. 3.86% 30-yr. 4.76%
Just two weeks ago most everyone had written off bonds, but
thanks to the Fed’s move on the short end, and mostly punk
economic data to help the long end, along with a good reception
for a 10-yr. auction, you all have one last shot to refinance or
take that equity out, just as Dr. Greenspan ordered.
–Both Cisco Systems and Applied Materials reminded tech
investors that the long-awaited recovery in the sector is a ways
off. Cisco said its revenues for the current quarter would
actually decline, while AMAT announced it was reducing its
worldwide workforce by 11%, something about overcapacity and
lack of demand.
–Brazil: New president Luiz da Silva, who won’t be sworn in
until January, said in an interview, “We will fulfill all the
contracts that the Brazilian government has signed.” Good
enough, especially if you are an institution that is on the hook for
$millions, but new pressures may emerge between now and
Lula’s inauguration that could change attitudes.
–Japan: Prime Minister Koizumi is once again facing heated
debate over reform plan #965. The sickest banks must be shut
down, but that means pain and further layoffs. The opposition
wants none of that and so the nation slides deeper and deeper
into the abyss.
–Energy: OPEC is currently producing between 2-3 million
barrels per day more than its stated quota and this supply
increase has helped push down the price of crude further to levels
not seen since June, which is, of course, a plus for the world
economy and, eventually, world demand for oil. But war is also
imminent so a spike in prices is not out of the question either,
ergo, I remain positive on the sector.
–McDonald’s, in announcing it wouldn’t meet earnings
expectations for the full year also said it would close 175 stores
overseas. This speaks volumes about the whole idea of
globalization. Broaden it out and look at how direct investment
has dried up in Latin America, where the influx has gone from
$326 billion in 1996 to $128 billion in 2002. Aside from China,
what nations are seeing any capital infusion from abroad?
–Microsoft: The favorable court ruling for the company hit late
last Friday and while I was aware of it sitting out in Rapid City,
SD at the time, I honestly didn’t think it was that big a deal,
because I believed it had been already factored into the share
price and, as it turns out, after an initial pop, it was. It also looks
fairly valued to me.
–Sure hope none of you have a big position in Tenet Healthcare.
All kinds of problems here, with two top executives announcing
they were leaving on Friday as Tenet is investigated on a
number of levels for pricing issues. But I’m most concerned
about the two doctors who performed unnecessary heart
procedures. If this is endemic to the whole organization, geezuz,
should I be approached by a doctor in the parking lot asking me
if I want any surgery today, I’ll have to think twice.
–Then there is Amazon.con. The best stories on the company
over the years have been written by Barron’s Mark Veverka, who
once again points out that Amazon is playing all manner of
accounting games. But this week the New York Post’s John
Crudele also had a great piece addressing a very simple issue,
that being, how many shares does Amazon have outstanding?
Depending on the source, you get ten different answers. Why
does this matter? It has everything to do with reported earnings
and a manipulation of shares outstanding allows you to fudge the
bottom line.
–Rudy Giuliani would never agree to be SEC chairman because
it does nothing for his 2008 ambitions.
–A new report issued by the auditor appointed by the bankruptcy
court reveals that the fraud perpetrated by WorldCom far exceeds
initial totals. It also further proves how obsessed the company
was with meeting Wall Street expectations. Personally, I
enjoyed the disclosure that part of the $100s of millions lent to
CEO Bernie Ebbers was $100 million that he then pledged to his
alma mater. If you’ve been with me a while, you’ll recall how
I’ve slammed our great philanthropists, who in many cases are
nothing but crooks. At WorldCom Ebbers played with company
funds in order to receive the adulation of his community (“Oh,
that Bernie, he was so good to the school, the art center, the
hospital…I can’t believe he’s guilty of all this!”). Case closed.
Life in prison without parole.
–With money market yields approaching 1% or less, that means
that under the ‘Rule of 72,’ your money doubles in 72 years!
Yippee!
–My portfolio: I’m now about 77% cash (earning enough for a
six-pack) and 23% energy. If you’re following along the past
few months, I’ll explain what happened to Turkey in a moment.
–CSFB replaced strategist Tom Galvin with a fellow by the
name of Paddy Jilek. Trader George and I agree that with a
name like Paddy, we look forward to insightful suds analysis.
–Lucent lawn update: Despite the fact that drought restrictions
have been lifted in New Jersey thanks to a recent plethora of rain,
the front lawn at Lucent’s headquarters still looks like crap.
Remember, boys and girls, first impressions are very important if
you’re a prospective customer trying to ascertain the health of
this company. That’s not prudent cost cutting in my book. You
wouldn’t let your lawn go to hell before selling your house now,
would you?
–Lots of talk on market performance and the pre-election cycle
for 2003. Just a reminder, I have those figures on my “Wall
Street History” link, the 10/4/02 edition.
–Mark R. was telling me about a recent presentation he attended
given by Marvin Rothman. Years ago, Rothman was the first
analyst to take on the system while working for Janney
Montgomery (a Philadelphia-based firm), when he issued a
highly negative report on Donald Trump’s casino holdings.
Trump was furious, but Rothman was right. Marvin then
suffered the consequences, which I need to leave at that. But
from time to time, it’s important to acknowledge those who had
the integrity to do the right thing.
International Affairs
Turkey: There is no more fascinating country in the world right
now, as the Islamist AKP won an outright majority of the seats in
parliament in Sunday’s vote. [The AKP scored 34% of the
popular vote, but because only one other party garnered the 10%
minimum, under the system the remaining seats were
proportionally divided, thus giving the AKP over 60% of them.]
The AKP’s leader, Recep Erdogan, who is ineligible to be prime
minister but will be wielding the power nonetheless, said all the
right things in the first days after the election, like in meeting
E.U. requirements for candidacy as well as the nation’s role in
NATO.
Turkey’s financial markets soared on the prospects for stability,
over 30% in just 4 days, yet at week’s end the military was
reminding everyone that they were prepared to act if Erdogan
tries to turn Turkey into an Islamic Republic, while E.U. official
Valery Giscard d’Estaing (a former French president), dissed
Turkey’s E.U. bid, saying its admission would mean “the end of
Europe.”
Of course all of this is going to play out while the U.S. and its
allies prepare for war against Turkey’s neighbor. In this regard,
Erdogan initially said he would support an attack on Iraq if the
UN approved such action, but by Thursday he was backpedaling.
Meanwhile, a story was released that the U.S. was preparing a
substantial aid package (including military aid) for the Ankara
government, obviously as an enticement to support our move
against Saddam. [Congress needs to approve it first and this
should be a topic for a lame duck session, but I doubt it will be.]
So for now that’s where we stand. I suspect that with the 15-0
vote in the UN, and with proper support, the military will force
Erdogan to back any U.S. attack.
But I need to tell you what I did with the 4% of my portfolio that
was invested here. I have explained that after Turkey’s
election, and after the shooting started in Iraq, if I thought
conditions warranted it I was going to increase my investment
here substantially. But on Tuesday my position was up 20% in
just two days and, folks, I don’t care how bullish an investor you
are on something long term, whenever you can get that kind of
return in such a short period of time you take it, thus, I sold out
my position. Simply put, I strongly felt the market was getting
ahead of itself, particularly since the new government isn’t even
in place yet, let alone the war hasn’t started. I will be back in
this market at the appropriate time.
Israel: Benjamin Netanyahu agreed to join Prime Minister
Sharon’s cabinet as foreign minister, even as he prepares to
challenge him to be Likud Party leader ahead of the just called
early election for January 28. As I said last week in addressing
the possibility this vote may come about, the timing is awful
given the imminent action against Saddam.
North Korea: The Commies in Pyongyang said they were
prepared to negotiate over its nuclear weapons program, to which
a U.S. official replied, “It’s hard to see how we can have
conversations with a government that has blatantly violated its
agreements.” And by week’s end North Korea was back to its
dangerous little game, this time threatening Japan with renewed
missile tests over the country, while Washington warned Tokyo
to take the threat seriously.
China: The Communist Party congress is meeting to select a new
generation of leaders, as President Jiang Zemin goes from being
front and center to operating from behind the curtain. Jiang has
sought to ensure that his policies, if not his name, will be thought
of in the same terms as Mao and Deng, and in his keynote
address he emphasized that the country must continue to “move
forward or we will fall behind.” Of course Jiang was referring to
the continued push to a market-oriented economy, not more
democracy. We also now welcome new #1, Hu Jintao, and await
a reprisal of Abbott and Costello’s routine.
–Hong Kong: Related to the above are the ongoing problems
here ever since the British left. In an interview with Keith
Bradsher of the New York Times, Hong Kong’s #2, Regina Ip,
said “I don’t think democracy is the panacea for all problems.”
Is it any wonder, then, that the local economy and real estate
market are collapsing?
–Russia: With the sweep of suspected Chechen terrorists
following the hostage taking, tensions have escalated further. I’ll
be reporting from Moscow next weekend…tune in.
Election Tidbits
–1/4 of voters made up their mind in the last four days.
–Nationwide, turnout was about 39%. Pitiful.
–I was particularly glad that Lindsey Graham won his Senate
race in South Carolina. Always liked the guy.
–I have never been a fan of Richard Gephardt, but as I noted in
October the man deserves a ton of credit for supporting the
President early on in the debate on Iraq. And while everyone is
dismissing a Gephardt candidacy for president (with pundits now
proclaiming it’s going to be John Kerry…which means it won’t),
I wouldn’t be so sure. Gephardt is an old-time liberal who can
now say with conviction he has always been strong on the anti-
terror front (Kerry can’t get away with this after his questioning
of the President’s policy on Iraq), and remember, it’s the activists
who vote in primaries. Just musing. I could be wrong.
–Minority voters did not turn out in strong numbers, even in
Texas where Democrats were running a Hispanic and a Black for
governor and the senate, respectively.
–My friend Dan L. said that in the end there really wasn’t much
of a difference between Tom Golisano and Ross Perot. Both
flaked out big time right before the vote. Admittedly, you have
to live in the New York area to appreciate this, but picture a 3rd
party candidate, in this case Golisano, spending $55 million of
his own money to run for governor of New York. Then just two
days before the election, he floats this story that he’s dropping
out, but you all need to stay tuned because he’s going to take 2
minutes of TV time on Sunday to explain his decision.
Well, yours truly had just put in a good word for this man last
week (even though I supported Pataki) and I’m thinking, boy,
you’re going to look like a real jackass. So what does he do? He
announces he’s staying in the race and gets 15% of the vote, but
I, for one, will never take him seriously again. [I hope my
Rochester, NY friends don’t either!]
–Yup, that memorial service for Paul Wellstone really backfired,
but Norm Coleman deserves credit for being a classy candidate.
As for Mondale, the poor guy never should have been pushed out
there in the first place.
–As for my home state of New Jersey, to tell you the truth I
haven’t given a damn ever since the national Republican Party
screwed my man, Bob Franks, in his 2000 bid for the senate
against Jon Corzine. You’ll recall that Corzine outspent Franks
(the latter being one of the few honest politicians left in America)
by about $65 million to $6 million, yet Franks lost by only a few
points. Belatedly, the elephants in Washington gave him four
quarters in the final week of the campaign, which was enough to
pay some tolls. Ever since, I haven’t given a nickel to the RNC,
while they have wasted tons in soliciting further donations from
me. And then this year the Republicans threw up (pun intended)
a so-so candidate who didn’t stand a chance when Robert
Torricelli pulled his illegal stunt. So now that the good folks in
Massachusetts had the common sense to elect a Republican
governor, New Jersey assumes the mantel as the worst place in
America to be affiliated with the Party of Reagan. [California
isn’t much better, come to think of it.]
–And speaking of Republicans getting hosed, while everyone is
lining up to congratulate our President, in the interest of fairness,
let me tell you where he blew it big time. South Dakota. I was
there less than two weeks ago when the President blew into town
(twice) in support of Republican senate candidate John Thune,
and the locals were waiting to see if Bush would mention
drought relief, many farmers in the state (and surrounding ones
as well) having suffered immense damage this summer. He
didn’t. [This is the same President who backed the colossal,
subsidy laden $200 billion farm package last spring that does
virtually nothing for the little guy, while drought relief, like
emergency aid for flood victims, is simple good government.]
Folks, it was Politics 101. Thune then lost by just 500 votes,
but it’s still hoped a recount will reveal the chicanery that took
place on the Pine Ridge Indian Reservation, where 92% voted
Democrat.
–Lastly, the best part of the whole election, aside from the
repudiation of Clinton, was seeing the Democratic National
Committee chairman Terry McAuliffe get his comeuppance.
This lying, evil, sleazy, despicable, corrupt SOB represents the
worst in America.
Random Musings
–Colin Powell earned his paycheck the past two months with his
superb effort in the UN Security Council. It is far better that we
have this international backing. I imagine he could also write a
helluva book on the whole experience.
–We note the success of the CIA and its predator aircraft, which
took out six al-Qaeda in Yemen. The war on terror has already
met with much success, but post-9/11 incidents such as that in
Bali remind us just how daunting the task is.
–Houston, we have a new candidate for “Dirtball of the Year,”
Egyptian President Hosni Mubarak, who has allowed the airing
of a 40-part series on government-owned television called “The
Protocols of the Elders of Zion,” an anti-Semitic diatribe based
on a real-life forgery from the early 20th century. Even the
show’s producer agrees it’s a sham, yet Mubarak is letting it run.
Gotta keep the “street” happy, right Hosni?
–A New York Times/CBS News poll revealed that 66% said life
would not be better for their children than it was for them. I
don’t disagree with that. It might turn around for their great
grandchildren, though.
–New York City won the U.S. bid for the 2012 Olympics. The
final selection isn’t announced until 2005, but this is an
incredibly stupid idea.
–Chronic wasting disease, a k a Mad Cow Jr., is spreading
across the deer population and drawing concern among scientists
nationwide.
–Looking for the perfect Christmas gift, particularly in the
northeast? Mark R. has an oldie but goodie, that being coal for
the stocking, especially if heating oil prices rise. It’s also a way
to teach your children about energy efficiency, Mom and Dad.
Why they’ll thank you for decades afterwards.
–No postage increase until at least 2006. It turns out the U.S.
Postal Service discovered it was paying too much into the
retirement fund. The liability is $5 billion, not the $32 billion it
was reporting. Personally, I’d check Dennis Kozlowski’s
accounts for the difference.
–Ah yes, Winona Ryder. One leading business anchor actually
described her trial as “truly fascinating.” Thankfully, many of
you like Jimbo and Jeff B. felt otherwise. That it was a leading
story amidst the Election, the Fed and Iraq, speaks volumes
about our society. Let me remind Ms. Ryder, however, that if
she had been found guilty in China, she might have faced
execution.
–The recent surge in earthquake activity around the world means
but one thing…the return of Godzilla.
–I noticed in Sky Mall magazine (that thing you pick up 15
minutes before landing), that they offer a coin changer, which
means I wouldn’t have to embarrass myself by taking my coffee
cans full of change to the Coinstar located in my neighborhood
grocery store. Then again, maybe I’ll just include the change as
part of the sale price of my place if I ever move.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $321
Oil, $25.78
Returns for the week, 11/4-11/8
Dow Jones +0.2% [8537]
S&P 500 -0.7% [894]
S&P MidCap -2.1%
Russell 2000 -1.2%
Nasdaq -0.1% [1359]
Returns for the period, 1/1/02-11/8/02
Dow Jones -14.8%
S&P 500 -22.1%
S&P MidCap -16.6%
Russell 2000 -22.4%
Nasdaq -30.3%
Bulls 50.0% [Source: Investors Intelligence]
Bears 23.7% [Don’t forget, sports fans, this is a ‘contrarian’
indicator!]
Note: In being granted a visa to go to Moscow this week,
authorities learned of my occupation. Just my way of saying if
you don’t see the next WIR at the appropriate time, I had
problems with the laptop, if you catch my drift.
Brian Trumbore
**Remember the Veterans!**
