[Posted 7:00 AM ET]
Learn From The Past
In last week’s review, I wrote some comments about the
immense opportunity the West has in Iran, if we could only get
the reformers and the students to topple the clerics. What I
didn’t know was that on Friday USA Today ran a front page
headline, “Iran to give support on Iraq.” No, no, no. This is
the same mistake the U.S. has made so often in the past in this
region. This time the Bush Administration wants to ensure that
Iran will help if our pilots are downed and Iran is also
evidently allowing an Iraqi Shiite dissident group, based in
Iran, to aid the fight against Saddam.
But in the game of quid pro quo, this infers that the U.S. will no
longer consider Iran in the axis of evil, a position it deserves, and
it only strengthens the hand of the hardliners in Tehran.
Meanwhile the ‘good’ people in Iran have been looking to the
U.S. for support and at a critical juncture where real change is
possible, we are failing them.
I couldn’t help but put some of this in historical context while
watching the admittance of the 7 former Communist nations to
NATO this week. Think back to the 1980s, when thanks to the
leadership of Ronald Reagan, Margaret Thatcher and Pope John
Paul II, an atmosphere was created whereby the people of these
lands, along with the likes of Poland, Hungary, Czech Republic
and East Germany rose up and took back their rights. The
natives of the Communist lands saw Pope John Paul encourage
an unknown labor leader, Lech Walesa, to confront the system.
They saw Reagan challenge the Soviet leadership to tear down
the wall. And they observed as Thatcher told the world that
Mikhail Gorbachev was “someone we can do business with,”
which the West then took advantage of.
It was a combination of power and pragmatism. I don’t see the
same methods at work in the U.S. relationship with Iran, though,
and clearly we can not, nor should not, do anthing to help
the Ayatollah. Support the students and the reformers and the
regime will fall.
Wall Street
Take away Thursday’s market action and it was a slow week, but
it’s pretty hard to do this, especially when the gains across the
board for that day were of the 2.5-3.5% variety. The catalyst was
some solid economic news, like a fall in jobless claims and a sign
that the manufacturing sector has stabilized, along with the
release Wednesday after the close that Hewlett-Packard had beat
the Street’s earnings estimates. For a market that required a push
to keep the rally off the October 9 lows in tact, add the above up
and the advance made sense, right?
Well…jobless claims may have fallen, but all I read about were
new job cuts, including in sectors other than technology, while
H-P’s comments on the revenue side were far from outstanding.
And then you had the rather significant story of General Electric.
You know, G.E., a sizable company with a global presence. The
CEO finally fessed up and admitted it wasn’t doing that well
after all, a fact the market had sniffed out over the past six
months to be sure, but in lowering its guidance for 2002 and
2003, G.E. was also admitting that it really didn’t have a clue
about the future, despite its comments to the contrary. They lied
to you the past year, why suddenly believe them now?
So what happened to G.E.’s share price? Why it rose $2, that’s
what. Sure, the company announced a hike in its dividend at the
same time it gave you the distressing earnings news, and if you
believe its new forecast for 2003 the valuation is reasonable, but
that’s only if you’re confident about a global economic rebound.
Regarding the last point, one thing is clear. The rest of the world
is largely sitting on its thumbs, waiting for the U.S. to get its
house in order. Yes, once again it is up to us, my fellow
Americans, whether as individuals or as corporate managers, to
open up our wallets and let the cash registers ring. It would be
helpful, though, if just once the Japanese or the Germans, for
example, pulled their share of the load.
Unfortunately, don’t expect anything from either of these two.
The Japanese government announced another $25 billion in
public works spending (you would think 16 layers of asphalt
would be enough by now), in a last ditch attempt to rally the
economy and stop deflation, but it only adds more to a
treacherous government debt load, while the situation in
Germany has more to do with the relationship between
government and labor, with the latter chowing down on huge,
benefit-laden wage pacts, while the former doles out excessive
retirement benefits, the combination of which only impedes
growth.
So where does this leave us back here in America? While there
is no doubt that some of the news on the economy recently has
been better, anything more than a little rebound seems to still be
a pipedream. And from a valuation standpoint, Wall Street has
already factored in significant growth for 2003.
Finally, admittedly none of this takes into account the successes,
or setbacks, on the terror front. 1,000-point swings, in both
directions, appear inevitable, while you obviously wont’ be
surprised when I say that, personally, I will continue to err on the
side of caution.
Street Bytes
–The market had another solid week, as the bull run of the last
seven took the averages to levels not seen since June and July.
The Dow Jones registered its 7th straight weekly advance, up 2.6%
to 8804, while Nasdaq climbed another 4% to 1468, extending
the latter’s gain since 10/9 to a superb 32%.
–U.S. Treasury Yields
6-mo. 1.27% 2-yr. 2.06% 10-yr. 4.18% 30-yr. 5.02%
Lots of talk this week about the steepening yield curve (the
widening spread between yields on the short and long ends),
which normally precedes an authentic economic rebound. The
long end lost some ground, as well, due to a flight back into
equities. On the inflation/deflation front, the consumer price
index for October revealed that the CPI has been running at a 2%
rate for the past 12-month period. Admittedly, we are still a
ways from outright deflation.
–The settlement between the New York Attorney General’s
office, the SEC and Wall Street over the conflicts of interest
accusations should not preclude further investor lawsuits, but as
of this writing it is impossible to add additional commentary
without seeing the details. What is upsetting to some of us, thus
far, is the fact that one or two firms could be getting off easy
even as they illegally destroyed e-mails, at least according to
some of the reporting on the issue. As for the ongoing saga of
Sandy Weill and Jack Grubman, as the New York Times’s
Gretchen Morgenson reiterated last week, what these two did
was nothing but simple fraud and cost the little guy dearly.
–Computer Associates’ founder Charles Wang stepped down as
chairman. This is a real sleazy character if there ever was one.
–Gateway failed to disclose a two-year-old SEC investigation
into its accounting for 2000. Unbelievable. Another reason to
buy Dell.
–Folks, as my friend Mark R. (who’s in the brokerage business)
and I were discussing the other day, be careful with some of the
closed-end bond funds being offered these days. Make sure you
are presented with the risk factors, because if interest rates were
to take off (not my personal opinion), you could get hit hard.
–Shares in Home Depot were slammed on a disappointing
earnings and revenue outlook. There’s also way too much clutter
in its stores. I still can’t find my dish sprayer.
–My portfolio: I remain 77% cash and 23% energy. As for
Turkey (where I recently sold out of a 4% position), the market
there is up about 10% from the levels where I exited. Despite
the initial euphoria over the election results, though, it still isn’t
time to jump back in, as some of my notes further below explain.
But with the recent rally in the overall U.S. market, I’m
beginning to lick my chops on issues like eBay and Amazon
from the ‘short’ side. As I’ve written earlier, however, it’s too
risky to play it this way before Christmas, as I would expect the
news from the online sector to be largely positive leading up to
it.
–So I’m watching Maria Bartiromo on CNBC Wednesday
morning when she suddenly chirps that she personally owns
shares in Citigroup. I was floored, for the simple reason that I
never heard her disclose this in the past, particularly when she
was defending chairman Sandy Weill. Conflict of interest? Thy
name is Money Honey.
–Scary article in the Times highlighting the potential problems
faced by Lucent retirees, both on the pension and medical
insurance fronts. Not that this was necessarily news, but I
wonder if most retirees really understand just how much their
benefits could be impacted in the event of a Lucent bankruptcy?
–Hong Kong has now had 48 straight months of falling prices, in
case you wondered what the definition of deflation was.
–This week it was reported that Citibank will be the first U.S.
financial institution to open a retail banking operation in
Moscow. Well, if Citi is looking for a great place to launder its
investment banking gains, it found the right place.
International Affairs
NATO: Years ago, I was not for NATO expansion being forced
down the throat of the Russians, while now I do not deny that
there are real benefits for the West. Back then we couldn’t know
if Russia’s Vladimir Putin was a pragmatist or a hardcore
nationalist. Clearly, the addition of the latest 7 nations will
benefit the war on terror and it’s great to see how eager the likes
of Bulgaria and Rumania are to support the U.S. But it’s also
true that NATO is being redefined. After all, here are the facts.
Estonia, Lithuania, and Latvia currently have between them 3(!)
tanks and zero aircraft. If each nation contributes to the new
rapid reaction force, however, then militarily it’s worth it.
Russia: It was not a good week for Putin as he watched NATO
expand to his borders, but President Bush made a well-timed
visit to St. Petersburg to stroke Vladimir a bit, particularly on the
anti-terror front, though it is not clear exactly what may have
been said between the two on the vital issue of Chechnya. As for
Iraq, it appears the U.S. is cutting deals on energy, offering
Putin assurances that Russia will receive its fair share of the
oil market in any post-Saddam world, though as I’ve been writing
this should have been wrapped up last spring.
But I want to address another critical issue of today and the years
ahead. The U.S. must do a better job in helping the Russians
eliminate their nuclear and biological stockpiles. Recently
former senator Sam Nunn, co-author of Nunn-Lugar, gave an
update on where we stand in this regard and he revealed that
“roughly half of the nuclear weapons-grade material in Russia
remains inadequately secured.” This is enough material to make
thousands…thousands…of nuclear bombs. In a similar vein, the
situation on the bio/chemical side is just as severe.
Additionally, as Nunn and others point out, from the Russian
standpoint existing security at the plants is focused on theft by
employees. But, looking at the recent example of the Chechen
attack in Moscow, what would happen if 40 or 50 armed terrorists
took on these weapons storage facilities? Russia has no answer
for this. Are you worried? You should be.
Turkey: There are conflicting signals emanating from
Washington with regards to the U.S./Turkey relationship and
here’s another reason to be concerned. While President Bush is
saying all the right things, and while Rumsfeld, Cheney and
Powell urge Congress to offer up more support, the fact is that
actual aid to the nation continues to be derailed. Nothing
frustrates me more, as you’ve undoubtedly gathered over the past
year in particular, and it’s been largely because we’ve had idiots
in Congress like Dick Armey who have no concept of our vital
foreign policy interests. Alas, at least Armey, who once
boasted he didn’t own a passport, is leaving. Come January, our
representatives better get their act together and for his part
President Bush needs to expend some political capital to back the
Turks at this critical juncture. Of course between now and then
the European Union will also be weighing in, as they are
expected to once again humiliate Turkey in preventing its formal
candidacy into their elite club, the one with the secret
handshakes.
As for Turkey’s role in any conflict over Iraq, there are new
reports that Turkey plans to invade northern Iraq in order to
prevent a flood of Kurds into its country. I back this. More next
week.
Israel: Sadly, with the latest suicide bombing in the country this
week, we have another example of the fact that the tightest
security in the world is still no guarantee of safety. Those
looking at the creation of the new Homeland Security
Department in the U.S. need to keep this in mind and have
realistic expectations of its eventual effectiveness. Simply put,
you’re playing with percentages, and whether it’s Bethlehem or
London or Chicago or Tokyo, you’re trying like hell to reduce
the odds of a catastrophic attack.
Latin America: Does anyone care about this region anymore?
Venezuela is once again on the verge of civil war and Argentina
will be in the news this coming week because it is limiting cash
withdrawals.
Nigeria: Goodness, gracious. What idiot decided to stage the
Miss World pageant here? A bad idea grew worse, as over 100
died in rioting caused by the Islamic fundamentalists who took
offense when a newspaper writer said that Muhammad was
capable of taking one of the contestants as his wife. Then
suddenly on Friday, pageant organizers announced they are
moving it to London, but the damage has been done and this
nation is not far off from outright civil war between Christians
and Muslims.
Random Musings
–The Bush Administration is pondering whether or not to
mandate higher fuel efficiency standards for SUVs, a whopping
1.5 mpg by 2007. If ever there was a no brainer, this is it.
Detroit has to suck it up and get it done and if it costs the
American car buyer a few hundred extra bucks, tough. From a
2004 election standpoint, it also makes eminent sense, especially
since the President should be pushing his overall energy plan,
one that will inevitably tick off some greenies.
–When I wrote my column last week, I didn’t realize that South
Dakota Republican John Thune had thrown in the towel on his
senate race, even though he fell just 524 votes short and should
have demanded a recount due to the fact that votes were clearly
bought on the Pine Ridge Indian Reservation. [I’ve been there…
trust me, these aren’t the best people in the world.]
Why is it, though, that Republicans like Thune, John Ashcroft (in
his 2000 race against Jean Carnahan), even all the way back to
Richard Nixon and the 1960 presidential election, always
‘honorably’ throw in the towel? In all 3 cases they may have
won, though Nixon’s act, in particular, was a real profile in
courage. Just blowing off steam…I’m ticked.
–Speaking of Ashcroft and the revised Justice Department
regulations concerning issues like wiretaps, if you’re a law-
abiding citizen, what should you care? If you’re a crook or
potential terrorist, I hope you’re nailed. And for the handful of
innocents that may be unjustly ensnared, again, that’s what
“60 Minutes” is for.
–There is increasing talk the Administration is anxious to tackle
tort reform, especially on the asbestos front. Sa-lute!
–It’s disgraceful that single-hull tankers are still used to transport
oil, witness the disastrous spill off Spain, and your heart has to
go out to those in the region who earn their living off the ocean.
Also, pity those poor birds that migrated all the way across the
Atlantic, only to land in that s—.
–The recent National Geographic survey on global literacy has
attracted quite a bit of attention for its appalling revelations when
it comes to the lack of knowledge exhibited by Americans age
18-24. Much of the attention, though, has been focused on our
young peoples’ inability to locate countries like Israel, Iraq, or
Japan on a map. But I looked at some other questions not in the
general news stories and here is one that I think tops them all.
Q: Which of the following organizations endorses the euro as the
common currency for its members?
World Trade Organization (WTO)
North Atlantic Treaty Organization (NATO)
European Union (EU)
Organization of Petroleum Exporting Countries (OPEC)
North American Free Trade Agreement (NAFTA)
90%+ of 18-24-year-olds in Europe knew the correct answer, EU
(I didn’t want to embarrass any of you). Only 44% of U.S.
young adults (part of the key television demographic for
advertisers, by the way) got it right.
Folks, this isn’t about not knowing where the Pacific Ocean or
New Jersey is. This is freakin’ common sense, especially when
the answer is staring you in the face. We are truly a nation of
illiterate idiots.
But I have a simple solution for this. Get our kids to read a good
newspaper once a week. In fact, every student should receive the
daily ‘state’ paper when they get to school each morning. That’s
just my opinion, I know I’m right.
–I have a piece up on my “Hott Spotts” link concerning the
AIDS crisis in Eurasia (defined as Asia plus Russia). One of the
disturbing issues is how ignorant many government officials are,
including those in India who recently praised Bill Gates for
being, well, Bill Gates, while appearing to scoff at his $100
million contribution to fight HIV as he called it a catastrophe in
the making. Then you have Russia, where the government
spends less than the published figure of $6 million on AIDS. $6
million. By comparison the U.S. spends $6 billion.
–In Zimbabwe, the government of Robert Mugabe, who, by the
way, is still very much in the running for “Dirtball of the Year,”
has banned citizens from swearing or making offensive gestures
as his motorcade passes. I wonder what happens if you write that
he should be taken out?
–Charity in the U.S., Part XXV: Stephanie Strom had a piece in
the Times detailing the accounting methods at the United Way.
Basically, like so many charities in this country, they fudge the
#’s to make the percentage of your contribution that covers
expenses appear smaller than it is. In the case of the United Way,
however, 80% still goes to good causes…with that number being
the minimum limit for what the government considers
reasonable.
–Actually, I was at wits end the other evening when I was
solicited 3 times for cancer-related charities. I imagined all of a
nickel was going towards research, so they got a phone slammed
in their ear.
–I had a little fun with classical art last week, giving my heartfelt
opinions on the likes of Rembrandt and Monet, but I noticed the
other day that Sotheby’s in London had an auction for some of
Russia’s traditional art from the 18th, 19th and early 20th century.
While in Moscow, I visited the Tretyiakov Gallery, which has a
massive display of Russian artwork and I have to tell you, the
paintings from the likes of Vladimir Makovsky are just as good
as any of the more well-known figures, yet I saw Makovsky’s
work was slated to go at auction for around $200,000. I only
bring this up because I know I have quite a few British readers
and in all seriousness, if I had that kind of cash to spend, I’d snap
these babies up. You’ll have a 3- to 5-bagger within ten years as
the Russian artists finally get their due. Just a semi-educated
opinion.
–Uh oh, I suddenly have a case of writer’s block. Quick, get me
Giuliani Partners!
–Memo to my friends in Texas: Does anyone really like Molly
Ivins down there? Personally, she makes my skin crawl.
–U.S. News reports that Socks the cat will be the grand marshal
at Little Rock’s Christmas Parade. Aside from the fact this is
absurd, one would hope the people of this city would have
honored a rescue dog. [Pssst…to the rest of you, now you know
whose 18-24-year-olds can’t identify the Pacific Ocean.]
–Nice to know that JFK was such a drug addict. And we’re still
here!
–Finally, after last week’s review I spent another few days in
Moscow and have some last thoughts.
Regarding my comment on Russian women, an old friend Allen
H. reminded me that the girls come with families. Thanks,
Allen, you may have saved me…
On Saturday afternoon I was walking through the GUM
shopping mall, which at one time was the world’s largest,
admiring again the wealth in the city, when I spotted a café
where you could sit by the main walkway and enjoy an adult
beverage or two (in my case Germany’s Paulaner Beer). Let’s
face it, I live for moments like this. You can learn a ton just
observing people and it’s one of life’s great joys…
Incredibly, officials at the airport didn’t collect my customs
form, either entering or leaving the country. I handed it both
times to them and they didn’t want it. This is not a small deal
and I can’t recall having this happen anywhere else. Think about
it. Just from a marketing standpoint, wouldn’t you like to have
some idea as to what foreigners are buying? I said last week the
Russians often show an incredible lack of curiosity. I now rest
my case…
Lastly, in my travels in the city I kept thinking of something
Andy Rooney said on “60 Minutes” a few days before I went to
Moscow. Rooney was talking about the Chechen theater attack
and related his past experiences with the Russians, going back to
his WW II army days. “They’re a good people,” he concluded.
Coming from a man I admire, it was a vapid and trite remark.
It’s also the kind of statement you can make about any nation’s
people, without revealing anything.
Of course I met some super folks in Moscow and I honestly can’t
wait to return. But there is something in the Russian character
that has led to some of history’s truly awful moments, and you
can’t say the same for most other countries. All of us have had
our past “issues,” but only a few have allowed the likes of a
Stalin to flourish.
Outside the Kremlin you stand before the Tomb of the Unknown
Soldier, a reminder of the immense price that Russia paid in
World War II, with at least 20 million losing their lives (other
estimates go up to 30 million), yet you always need to ask
yourself when you hear this staggering figure, but how many
died because of Stalin’s own wickedness? Alas, we’ll never
accurately know the answer to that one.
And so it is that near the memorial, there is a building that once
housed all of Lenin’s artifacts (they’ve since been moved) and
each day a group of stalwart Communists lines up to sing songs
and blare over a loudspeaker how great the “good old days”
were. My hotel was a few blocks from Red Square and the
Kremlin and each day I’d walk over just to take in the scene.
The last day I saw 8 or 9 elderly women straight out of central
casting, all holding pictures of Stalin while singing the praises of
the Mother Russia of yesteryear. It was one of those moments
I’ll always remember and I was about to take their picture when I
opted not to out of a sense of pity. I walked away, distraught that
they still didn’t get it.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $320
Oil, $26.76…highest in 3 weeks.
Returns for the week, 11/18-11/22
Dow Jones +2.6% [8804]
S&P 500 +2.3% [930]
S&P MidCap +2.7%
Russell 2000 +3.7%
Nasdaq +4.1% [1468]
Returns for the period, 1/1/02-11/22/02
Dow Jones -12.1%
S&P 500 -19.0%
S&P MidCap -12.5%
Russell 2000 -18.1%
Nasdaq -24.7%
Bulls 49.4%
Bears 24.7%* [Source: Investors Intelligence]
*Those of you keeping track of these figures need to note that the
data from two weeks ago, 11/9, was revised. The correct
bull/bear figures were 49.4/29.3. I also suspect this week’s bear
figure of 24.7 may be a little on the low side.
Have a blessed Thanksgiving. We are a truly fortunate people.
Brian Trumbore
