[Posted 7:00 AM ET]
Remember how I used to write of having dreams about North
Korean bottle-rockets hitting the U.S. or slamming into South
Korea? Well, one night this week I actually dreamed of our
successes in the war on terror. Granted, this was a far more
pleasant experience, and thankfully we have had some, but the
first thought could now be a real-life nightmare.
A common theme around here has been, how can we continue to
expect the world’s thugs not to cross the line and unleash the
kind of attack, either on the U.S. or its allies, that doesn’t just kill
3,000, but perhaps 100,000? Of course we can’t.
The seizure of the North Korean ship packed with scuds, just in
time for the holidays, was a stark reminder of how hard the little
commies are working in their forges deep within the mountains
of Mordor. And while the intelligence community seems to have
a handle on when the weapons of death are loaded, we haven’t
been able to convince Sauron, a.k.a. Kim Jong-Il, to cease
production. Now Kim has also vowed to restart his nuclear
program, under the guise of supplying more electricity to his
decrepit people.
For its part the Bush Administration wants to play hardball, but
it’s in a box due to Saddam and his band of bioterrorists. War
with Iraq grows near, while at the same time we pray that Kim
Jong-Il doesn’t view that moment as an opportunity to catch
the U.S. unprepared to counter a massive attack from across the
DMZ. But it’s Christmastime, so may we have Peace on Earth.
Dream on, wrote the editor.
—
And then there is Saudi Arabia, the mere mention of which these
days should be enough to snap anyone out of their slumber.
Strategist Daniel Pipes has written some of the best pieces on the
topic and this week he addressed the link between the U.S.
government and the Kingdom. For decades a “culture of
corruption” has existed at the highest levels in Washington, he
notes, under both Democrats and Republicans, though it
generally hasn’t made it to the leadership of the U.S. Senate,
which at least gives one hope that at this level perhaps a drastic
change in policy can be promoted until we, as a people, demand
of our president that action be taken. Personally, though, I’m
beginning to think that there is something far deeper yet to be
revealed, that being the ties between Bush #41 and the Saudi
regime. I hope I’m wrong, but if you believe this line of
thinking, then it’s clear why the current administration is loath to
put the kind of pressure on the royal family that is warranted.
—
Turkey’s Islamic leader Recep Erdogan blasted the European
Union for its double standards in accepting countries with human
rights issues, like some of the new Eastern European members
and their own mishandling of minorities, while choosing to delay
Turkey’s formal candidacy to the union yet again. As expected
this week the E.U. told Turkey, “See you in two years…have a
nice flight home.”
I imagine that you’re all tired of my ranting and raving on this
topic. Frankly, I’m growing weary myself. I’m also less
optimistic about Turkey’s future than I have been in some time,
which is why I don’t envision investing here again until the fog
clears. Erdogan is talking about holding a referendum on war
with Iraq and the use of Turkey’s bases for U.S. forces, which
should it occur would be a disaster, with 70% plus voting “No,”
I imagine, as anti-American and anti-Western sentiment
continues to grow. The Bush Administration is doing its best to
keep Turkey from slashing its wrist, but you have to picture the
little guy in this largely impoverished nation. They can only take
so much abuse, even though much of it has been self-inflicted.
The worry has always been that once in power Erdogan and his
AKP would wait for the right time to steer the government
towards a more fundamentalist path. I am impressed by the man
thus far in his new role, and I am confident he’ll continue to
largely do the right thing, but I have this nagging shred of doubt.
—
Wall Street
After the great run-up from the October lows, the equity market
is now suffering from the Norfolk flu, the same illness that hit
the cruise ships, and the result hasn’t been pretty. A kind of
putrid odor is wafting over investors’ portfolios as we approach
yearend and the completion of a dreadful 3-year period. There
has also been a noticeable decline in enthusiasm as measured by
trading activity. Even the Federal Reserve got into the act this
week with its statement that the “economy (is) working its way
through its current soft spot,” though no real supporting evidence
that this was the case was offered, outside the now obligatory
reference to gains in productivity. Oh sure, the latest reading on
consumer sentiment showed another uptick, while the broad
reading on retail sales for November came in better than
expected, but at the same time we keep hearing from individual
retailers that the Christmas season is already grinding to a halt.
The weekly jobs data was none too cheery, either. In fact jobless
claims surged, though in this instance I stick with my suggestion
that the government eliminate this exercise and go to monthly
releases, because the weekly distortions and revisions have
become unwieldy.
Lastly, Friday’s report on producer prices revealed a sharp drop,
admittedly after a large increase the month before, which
nonetheless doesn’t give one a warm and fuzzy feeling when it
comes to pricing power and corporate profits. The D-word,
deflation, once again added to the stench.
Yup, I’ll stick with my double-dip scenario, thank you. The war
is coming, CNN’s ratings will soar and the malls will be empty.
A quick success in Iraq, though, coupled with revolution in
Iran, would be enough to temporarily snap us out of our stupor.
Now that would make for a great belated Christmas present,
wouldn’t it? That’s also assuming North Korea and al-Qaeda
are neutralized, but I’m close to wearing out my welcome in
some of your households so let’s move on.
Street Bytes
–For the week the Dow Jones lost 210 points, 2.5%, to close at
8433, while Nasdaq finished below the 1400 level for the first
time in five weeks, off 4.2% to 1362.
–U.S. Treasury Yields
6-mo. 1.26% 2-yr. 1.84% 10-yr. 4.07% 30-yr. 4.95%
Basically unchanged. The U.S. dollar fell this week due to the
uncertain pace of growth in this country. Not that Europe or
Japan are any better, mind you, but there is the always looming
issue of how the U.S. finances its current account deficit. I still
don’t see this as a truly market-moving event beyond the current
noise, and as I’ve noted before you can only cry wolf so often,
but, in a similar vein gold has finally begun to break out of its
multi-year range and this can’t be ignored.
–Due to the timing of this column and the Sunday deadline for
the New York transit workers, I won’t waste any ink on this until
next week, but suffice it to say a prolonged walkout would be a
disaster, not just for the City, but for all union workers because
the backlash will be severe.
–In 2000, California received $17 billion from taxes on capital
gains and cashing in of stock options. The estimate for 2002 in
the same categories is just $5 billion. Overall, California faces a
deficit of $6 billion, which means thousands face layoffs, or, if
they’re lucky, a salary freeze.
Some commentators keep remarking that President Bush still
hasn’t asked Americans to make a real sacrifice in the war on
terror, but I keep telling you items like the above represent the
kinds of sacrifices we will have to make in this new era, i.e., a
stagnant economy as deficits rise, much of which will be a result
of huge increases in spending on homeland security and the
military, while the states raise taxes to make up for plunging
revenues. Over time long-term interest rates will also rise. Add
it all up and I fail to understand the bull’s case for equities.
–Energy: Heretofore, OPEC had an official production quota of
21.7 million barrels per day, but the actual figure has been
running in the 24.4 million range, ergo, some engineers are
forgetting to turn off the spigot when they retire for the evening.
“Honey, you left the freakin’ oil on!” Well, the powers that run
OPEC have now ruled that the formal level of production should
be 23 million barrels, while they hope that a campaign for a more
responsible workforce can help make up the difference.
Basically, the cartel is worried that prices could plummet in the
spring, when demand normally drops after the peak winter
months, so they are looking to tighten discipline now.
The price of crude this week, however, was impacted more by
the growing crisis in Venezuela, where President Chavez is
desperately trying to hold onto power in the face of a crippling
strike which spread to the vital oil industry. Crude now sits at
two-month highs. Of course the looming battle with Saddam is
another bullish factor.
–My portfolio: Goodness, gracious. Ever since 1998 I have been
out of technology, with the exception of a few small “trades.”
But each time I’ve ventured forth to place one of these 2-3% bets
I’ve lost, witness the latest effort, Taiwan Semiconductor, which
I noted I had purchased last week. So thanks to depreciation in
this one, my 3% initial stake now represents 2% of my overall
portfolio assets. Thankfully, my precious drillers rallied big time
and this position currently stands at about 26%. The other 72%
is cash, preferably $10s and $20s.
Back to Taiwan Semi, I’m still convinced there is a PC upgrade
cycle in the offing that could lead to a positive surprise or two,
but if this stock falls a little further it’s going to hit my ‘stop.’
Always set these, boys and girls. It prevents one from being a
total ass.
–The signing of the trade pact between the U.S. and Chile
(which still needs to be ratified by Congress) is a positive
development and helps to pave the way for a broader agreement
throughout the hemisphere, that is if the anti-Gringo forces can
be restrained.
–The ties between Citigroup, J.P. Morgan Chase and Enron are
far deeper than initially thought to be. “Ka-ching, ka-ching,”
mused the attorneys.
–Christopher Byron of the New York Post had a piece on Sears’
severe credit card woes, which are compounding an already sick
company’s problems as revenues continue to decline, while there
is also $20 billion in long-term debt that needs to be serviced. A
recent Goldman Sachs report notes that 7% of Sears’ borrowers
are now at least 2 months behind in their payments, and that’s
with an interest rate of 21%.
–There seems to be little doubt that spending on advertising has
finally stabilized in most segments. A 30-second spot for the
upcoming Super Bowl, for example, is going for $2.2 million,
the same rate as three years ago, but an improvement over the
prior two.
–As noted earlier, trading volume has suddenly dried up over the
past two weeks, a decline of about 20% to an average of 1.25
billion shares a day on the Big Board. To put this in further
perspective, 9 of the top 20 all-time volume days on the NYSE
occurred this past July, with the lowest of these 9 being 1.93
billion.
–I don’t understand the selection of Bill Donaldson to be
chairman of the SEC. He’s nothing more than a shill for Wall
Street, when what is needed is a kick-ass prosecutor who also
knows how to keep his mouth shut. With his extensive Wall
Street background, though, Donaldson would have made a great
Treasury Secretary. Then again, no one asked me.
–The new CEO of WorldCom, Michael Capellas, has received
heat for his pay package, which would grant him $1.5 million in
salary, a signing bonus of $2 million, plus other performance
incentives, like oodles of stock once the company emerges from
its mess. Critics say this sends the wrong signal. I say, hey,
what if he blows out a knee or tears his rotator cuff? These guys
increasingly have short careers, after all.
–I have yet to hear anyone else mention this, but you know that
tanker off Spain that could be leaking 33,000 gallons of oil per
day until 2006? Put a rig on top of it.
–Inflation Update: Mark R., having jetted out to Colorado for
his annual ski adventure, reports that lift tickets are up 8-10%.
But there is no one on the slopes. More importantly, and
downright depressing, is the additional fact that some bars are
closed because of the lack of patronage.
–According to the Journal, 27 whistle blowers have come
forward with information regarding Bristol-Myers’ passion for
manipulating its earnings reports in the late 90s. As Lauren
Bacall would say of our new heroes, “Just put your lips together
and blow.”
–Coca-Cola made waves with its statement that it will no longer
provide quarterly earnings guidance for analysts. Honestly, you
learn more by checking out what the skateboarders are drinking
down at your local 7-11.
–Shares in United Airlines, already in bankruptcy, are
nonetheless trading over $1.50. What am I missing? They will
be worthless at some point.
International Affairs
Iraq: One other comment here. Saddam is known for his
mistakes and he just made a big one in canceling a contract with
the Russian energy giant, LUKoil. This only helps swing
Moscow more into our orbit.
Israel: According to the polls, a majority of people in Israel now
favor removing the more provocative settlements. Aside from
the political problems these have created, the chief issue is
security. An already stretched military is forced to defend
40,000 isolated settlers, which is taking them away from more
important basic security in the cities. Separately, buried in the
other news of the week was the incident where 5 unarmed
Palestinians were killed when they were caught climbing a wall
in Gaza. They may have been just looking for work, but in
today’s charged atmosphere tragic accidents are a regular
occurrence.
Syria: President Assad once again felt compelled to defend
Palestinian suicide bombers. He will be traveling to London this
week in what promises to be a most controversial visit.
South Africa: Spooky stuff going on here, as recent arrests of
right-wing extremists point to a determined effort to take the
government down. Some of the weapons stockpiles being
uncovered are massive.
Colombia: And speaking of weapons, authorities in Bogota
discovered 5 devices, each of which would have leveled an entire
street. The government also foiled another plot to assassinate the
president.
Argentina: Time for your monthly reminder. More than half of
this once rich nation is living in poverty. Staggering.
Serbia: Once again the people here went to the polls to elect a
president and once again less than 50% turned out, thereby
invalidating the vote. A constitutional crisis looms as there is
growing concern the contest was manipulated to prevent the
current president, Kostunica, from gaining another term.
Random Musings
–Since I’ve been rather hard on the Saudis, I thought you’d like
to see another opinion, this one from David Tell of the Weekly
Standard, who writes of spokesman Adel al-Jubeir.
“His reviews have been excellent. He is ‘dapper,’ ‘dashing,’
‘polished,’ ‘earnest,’ ‘well-tailored,’ and ‘ultra-modern.’ He
‘beguiles.’ He is ‘the Sultan of Spin.’ And this is just the sober
stuff, from the unimpeachably serious Post and Times.
“The thing of it is, though – and this is the part that makes you
think al-Jubeir leads a truly charmed existence: He’s actually a
lying sonofabitch.”
What? You thought it was going to be favorable? And did you
know that al-Jubeir is going out with NBC’s Campbell Brown?
That’s the word.
–You won’t find yours truly defending Trent Lott, and his Friday
afternoon mea culpa didn’t cut it. Coupled with Democrat Mary
Landrieu’s win in the Louisiana senate race, so much for the
Republican’s momentum. The senate is 51-48-1, effectively 51-
49. Some of my fellow elephants need to wipe that smug look
off their faces. We have our work cut out for us.
–The sudden resignation of Henry Kissinger for the 9/11 panel is
an embarrassing blow to the President. Speaking of Bush, if you
missed his Friday remarks on the smallpox vaccination program,
it was rather sobering.
–I didn’t read the Time magazine cover story on Indian casinos,
but I saw William Safire’s piece on the scandal that is finally
coming to light. These so-called “Native-American” operations
bring in $13 billion in revenue and $5 billion in profits, but it’s
the non-Indians who are cashing in, while 80% of Indians in the
U.S. haven’t received one nickel.
–I have written often of the demographic time bomb in Europe,
but it bears repeating now and again. In 2001, one in four
regions in Europe actually saw a decline in population, including
immigration. Of course this has huge economic implications
down the road as governments grapple with the need for higher
taxes to offset soaring social costs for the aging population, while
in many areas the coming housing glut could lead to a crash in
real estate values. As Thomas Fuller reports in the Herald
Tribune, some cities are already tearing down apartment blocks
because there is no market for the units.
And then you have a situation where, believe it or not, there is a
growing health problem due to the lack of demand for water in
some parts. How can that be? What’s already in the pipes is
largely stagnant, and thus a breeding ground for disease. Bet you
didn’t think of that one…I certainly hadn’t.
The overall birthrate in Europe is down to 1.47, 2.1 being the
fertility rate needed to replace the current population.
–Jack Wheeler, who pens a column for the “Strategic
Investment” newsletter, had a great idea; the people of Iran and
Iraq should rename their countries Persia and Mesopotamia. It
would help them in carving out new identities. Now all we need
is regime change in both.
–As a Roman Catholic I have limited my comments on the
problems in my church, other than to say like all of you, I’m
totally disgusted. I used to be a generous donor, but there are
certain areas where I will no longer contribute when I know the
funds are merely being used to pay off lawsuits. That said,
Barron’s had a piece in the 12/9 edition on the problems faced by
many of the legitimate groups in this current environment.
Catholic Charities USA is one such organization that over the
years has done a world of good and you should know that 89% of
your donation goes to the truly needy.
–Australia’s High Court has ruled that an Aussie citizen can
press his libel case against Barron’s for an article in which the
plaintiff alleges he was defamed. This is creating quite a stir in
the journalistic community, for obvious reasons, but it won’t
keep this intrepid reporter from calling it as I see it. Robert
Mugabe and Prince Bandar are still dirtballs, and remember,
folks, in just two weeks we’ll have our exclusive “Dirtball of the
Year” awards.
–Please don’t buy your children any video games for Christmas,
as we’re trying not to turn our nation’s future into a pile of mush.
May I suggest, instead, the Baseball Encyclopedia (to enhance
your child’s math skills) and a basketball (for hand-eye
coordination). Actually a go-cart would be great for the latter as
well, but follow local ordinances.
–This just in…my good friend Trader George finally has cable.
He has resisted it all these years, but now he can gather his
family around the television and watch “Capitol Gang” on
Saturday nights, just like we do here at StocksandNews.
–Scientists report that our planet has begun to assume more of a
pumpkin shape due to climate change. As more water melts
from the ice caps it flows to the equator, thereby causing a bulge.
Seriously. Something to think about next time you’re washing
the car.
–My full-service broker called me Sunday morning with the
comment, “Now I know why you like to go to Turkey.” Yup,
Miss Turkey won the long-delayed Miss World pageant. So we
congratulate Azra Akin (who really lives in the Netherlands, if
I’m not mistaken) on her victory. But I had to remind D.P. that
most women in Turkey don’t wear short skirts. The slacks are
rather tight, though.
–Lastly, I was watching the Army/Navy game last weekend and
loved this Navy commercial. “Life, liberty and the pursuit of all
those who threaten it.” Brilliant. Go get ‘em.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $333…highest in 5 years.
Oil, $28.44
Returns for the week, 12/9-12/13
Dow Jones -2.5%
S&P 500 -2.5%
S&P MidCap -2.1%
Russell 2000 -2.2%
Nasdaq -4.2%
Returns for the period, 1/1/02-12/13/02
Dow Jones -15.8%
S&P 500 -22.5%
S&P MidCap -15.2%
Russell 2000 -20.6%
Nasdaq -30.2%
Bulls 50.5%
Bears 24.2% [Source: Investors Intelligence]
*I’m losing patience with those who say pessimism is rampant
on Wall Street. The above figures continue to show otherwise.
Have a great week. I appreciate your support.
Brian Trumbore
