[Posted 4:00 AM PT…Los Angeles]
It’s at times like these that all some of us can do is hope our leaders
do the right thing, while maybe a little divine intervention, or blind luck
is in order. There are so many moving parts when it comes to Iraq
and North Korea, for example, that it’s also difficult to know
where to begin.
For starters, though, the U.S. appears to be weeks from war. Friday
afternoon, Secretary of State Colin Powell said the U.S. will prove
Saddam Hussein has breached the key UN resolutions. Whether or
not this means that the U.S. will produce more evidence than has
already been gathered is the big question, it would appear, because
aside from the recent discovery of weapons shells by the inspections
team, America’s allies want even more proof before they will back us
in war.
British Prime Minister Tony Blair has been stalwart in defining the
mission, while adding, “the consequences of our weakness will haunt
future generations,” but support in his own party is minimal, as the
likes of France, Germany, Russia, Turkey and the Gulf nations all
insist on a second UN resolution before an attack on Saddam is
authorized. A new one will not pass unless there is more proof, this
much is certain.
UN inspections chief Hans Blix is clamoring for more time, to find a
real smoking gun, even as the Bush Administration says we have
enough evidence to convict. I, for one, agree with our President, but
I also believe we need more support from the international community
and it’s frustrating that U.S. intelligence has been unable to supply the
inspectors, or produce themselves, the true evidence any rational
person knows exists. I’m also frustrated by the fact that weeks ago
Israeli Prime Minister Sharon said Saddam was hiding weapons in
Syria. I believe him. Why can’t we find them there?
The problem for the U.S. has always been that we don’t want to give
away our hole card, for fear of moles in the UN team who could give
Saddam a heads up, or because we want to attack these spots in the
first wave of war. But, I’m sorry, it’s time to produce the goods and
hopefully that’s what Secretary Powell is preparing to do. There’s
also the small possibility we don’t really know where the worst stuff is
hidden. If this is the case, then God help us if an attack is launched
regardless, because the international community will scream bloody
murder.
And then there is the issue of Saddam’s neighbors, all of whom have
finally reached the conclusion that if he isn’t exiled or eliminated in a
coup, the result will be a permanent U.S. presence in the Gulf, a
democratic force for change, which could lead to the toppling of their
own monarchies and repressive regimes within years. First Iran, then
Syria, Saudi Arabia, Egypt and Jordan. Yes, far better to eliminate
the problem themselves before the U.S. is forced to do so.
Which leads us to North Korea, where even the staunchest
Republican has to admit the Bush Administration’s policy has been all
over the board. Or, as Senator John McCain put it, “(The) rapid
deterioration of our resolve is as reckless as it is dangerous.” McCain
is urging the U.S., its allies and the UN to isolate Pyongyang through
harsh sanctions, along with freezing Kim’s assets. Those in the
senator’s camp feel that we already have enough of a history to know
that negotiation will lead us nowhere. At some point down the road
we’ll be back to the brink, only this time instead of having one or two
nuclear weapons, as presumed today, Kim could have ten, or fifty,
with some slipping into the hands of others who also wish us great
harm. Particularly galling to McCain is the Administration’s position
ruling out use of force and you’ve noticed that the more the U.S.
placates Kim, the more he wants.
It’s times like these that produce the heroes and villains of
tomorrow’s history books. It’s also easy to see that the examples set
today will be critiqued for hundreds of years to come. Iraq and
North Korea are two different situations, yet the goal of regime
change is the same in each. Until then, the West can not rest easy,
while it’s also important to remind ourselves of Secretary of Defense
Rumsfeld’s recent statement that the United States can fight, and win,
two wars at once. Yes, we can, but at a staggering cost. We are not
truly prepared to fight both if Kim Jong-Il launches a preemptive
attack. So keep praying. It can’t hurt.
Wall Street
It shouldn’t be a great surprise that stocks took it on the chin this
week, given the geopolitical background. It also didn’t help that the
news on the earnings front was tepid, at best, abysmal at worst.
Some recovery, huh? Whether it was Intel, Microsoft, IBM or the
Federal Reserve, the watchword was still “sluggish.”
IBM said the software market remains “difficult,” Intel cut its capital
spending forecast for 2003 to $3.5-$3.9 billion, down from $4.7
billion in ’02 (and $6.7 and $7.3 billion, respectively, for 2000 and
2001), Microsoft warned on the current quarter, while French
telecom equipment giant Alcatel, in the face of a generally good
report, still said the “market is contracting.” It goes back to Apple’s
Steve Jobs and his comment a week earlier that companies aren’t
spending.
And while a positive resolution to the twin crises of Iraq and North
Korea would make for a huge boost in confidence, and a temporary
rise in share prices, when it comes to business opening up its coffers
on the capital spending front, that’s where you look to items like
industrial production and capacity utilization, the former still lackluster
and the latter at a mere 75%. Who needs to spend? First use what
you already have.
As for the consumer, well, everyone was trying to parse the #’s on
retail sales, attempting to put a favorable spin on them, but the fact is
while auto sales surprised to the upside in December, most everything
else was flat at best. To be fair, though, for all of 2002 retail sales
were still up 3.4%, a slight decrease from 2001, but with the latest
reading on consumer confidence taking a hit, and the nation about to
watch a war on television, shopping may be the furthest thing from the
minds of many.
Then there is President Bush and his dividend plan. Forget it. After
the initial euphoria over the 100% exclusion, it isn’t just Republicans
such as Lincoln Chaffee and John McCain who are against it, others
are lukewarm at best. And now that I’ve had a chance to look at it in
more detail, while I still agree the dividend exclusion is a good thing,
to be honest I could take it or leave it. Specifically, the provision for
deducting retained earnings from capital gains upon sale is a windfall
for the rich…and to hold such a belief doesn’t mean you are
participating in the class warfare game. Also, if you thought that
adding dividends on tech stocks was such a great thing, there was
Microsoft announcing its first such payout, yet the shares fell $2
because the fundamental story for the company wasn’t quite that rosy.
At the end of the day, that’s what matters when gauging the potential
returns on an issue, not just the dividend.
Lastly, the news on the inflation front this week was, well,
deflationary. Producer prices ended the year with the biggest drop
since the 70s, while consumer prices in December rose just 0.1%.
There is still no real pricing power out there (outside of some highly
visible areas such as healthcare, I’ll grant you), which translates into
zero profit growth. For Morgan Stanley’s Stephen Roach, add it all
up and it still augers for deflation, at least a substantial risk of it. He
also added in an op-ed piece for Friday’s Financial Times that, like
yours truly, to target the stock market as the Administration has is a
huge mistake. For starters, much of it is still overvalued.
Street Bytes
–For the week the Dow Jones lost 2.3% to 8586, the S&P 500 fell
2.8% to 901 and Nasdaq declined 4.9% to 1376. Volume, by the
way, continues to be on the sick side, as the little guy shows few signs
of climbing back aboard the equity train.
–U.S. Treasury Yields
6-mo. 1.20% 2-yr. 1.68% 10-yr. 4.01% 30-yr. 4.92%
A nice rally due to falling stock prices and tame news on the inflation
front.
–Argentina defaulted on a $680 million debt payment. Not the kind
of thing you want to do if you’re looking to attract foreign investment.
–Energy: Oil and natural gas prices remained stubbornly high, as
pending war in the Gulf and the ongoing problems in Venezuela
continue to wreak havoc on the market. Yes, $30 oil and $5 natural
gas are beginning to impact the economy but, again, spare me the
cries over the price at the pump until we get over $2 for regular. The
news organizations show me nothing in throwing out the same old
interviews on the consumer filling his SUV. “$1.47 for regular! I
can’t believe how high it is!” It’s the same price as 3 years ago, you
idiot.
Elsewhere on the energy front, there is renewed hope that drilling in
the Arctic National Wildlife Refuge could still become reality as it
moves through the congressional budget process. Drill baby, drill.
–The group responsible for officially declaring when the U.S.
economy enters recession, and emerges from one, still isn’t ready to
say that the current slump, which began in March 2001, is over.
Personally, I still see a double-dip at some point this year, though
equity prices will move largely in reaction to developments on the
geopolitical front.
–One of the more arrogant a-holes in the corporate world, Steve
Case, resigned as chairman of AOL Time Warner and was replaced
by CEO Dick Parsons. Case refuses to take any responsibility for
the ill-fated merger between AOL and Time Warner. Personally, I’m
sick of AOL, having to use it from time to time on the road, especially
those messages, “New Features: The files you need are now being
downloaded…” I don’t need your freakin’ files! In fact, AOL is
now a candidate for “Corporate Sleazeball of the Year.”
–Meanwhile, in other Net news, Yahoo handily beat earnings
estimates, and we give them credit for that, but once again the issue
comes down to valuation. I’ve never had anything against these boys,
but at $18, it’s still selling at 76 Xs 2003 estimates of 25 cents a
share. And then once again you have the case of eBay, which upped
its ’03 forecast to $1.12. Call it $1.20. The stock is still trading with
a multiple of 65. What am I missing here? You know, when it comes
to Steve Case, Yahoo and the Net in general, economist Robert
Samuelson summed it up brilliantly, opining:
“The obvious truth about the Internet (though one rarely
acknowledged) is that it’s not especially important. Of course it has
grown spectacularly…(we e-mail, buy from eBay)…But if the
Internet collapsed tomorrow, most Americans would go on with their
lives in a way that would not be true if, say, they could no longer drive
their car.”
–G.E.’s revenues were up just 4% for 2002. I guess you could say
that really wasn’t too bad, given the overall global economic
environment. But future growth prospects remain stagnant, it would
appear. G.E. also announced it was abandoning the long-running
slogan “We bring good things to life,” substituting “Imagination at
work.” Pretty lame, if you ask me.
–Goldman Sachs is placing a $1.3 billion bet on Japan’s future, the
value of its new investment in banking giant Sumitomo Mitsui.
–Continental Airlines, a personal fave (I was upgraded yesterday),
announced it was “running on all cylinders,” at least according to
Gordon Bethune, CEO. But he still sees a loss for all of ’03. You
know I’ve thought of Bethune lately. He should quit the next time he
can post a profit, tell everyone he accomplished his mission, and then
run for high political office. This is a great man and leader, with that
maverick, John McCain touch. Plus, Bethune still flies Continental’s
planes himself from time to time, so imagine him at the helm of his own
campaign jet, flying in to adoring crowds in Columbia, SC,
Manchester, NH, and Des Moines, Iowa.
–Advanced Micro Devices reported another truly awful quarter.
Every time you want to get optimistic about the company’s prospects
which, granted, have much to do with the overall economy, they
body-slam you back to the canvas.
–Sun Microsystems also had a dire earnings report, with record
losses, and then said it won’t give any guidance for the current
quarter.
–The New York Times’ Gretchen Morgenson broke the story that
Lehman Brothers analyst Holly Becker and hubby Michael
Zimmerman, a trader with a large hedge fund outfit, are being
investigated for insider trading. The probe focuses on a computer that
was installed in their home, from which Zimmerman could gain access
to research reports in progress at Lehman, a huge advantage,
especially in the heady days of yesteryear.
StocksandNews was able to obtain an audiotape of a conversation
between Holly and Michael.
Holly: Honey, check out what Judy Doolittle is writing on Blomart.
Michael: This is good…very, very goooood. It’s actionable. Ha!
Holly: Let’s buy a new townhouse!
Michael: Anything you want, my precious.
–Two former senior officials at Datek Online (since acquired by
Ameritrade) were fined over $40 million ($70 million in total for the
firm) for fraud in executing trades. The little guy was abused again, as
it turned out. You’ll recall this company’s slogan was “Datek Online:
Built to trade.” Built to game the system, was more like it.
–Kmart is closing 326 stores, resulting in the dismissal of 37,000
more workers as part of its reorganization under Chapter 11. Last
year they shut 283 and laid off 22,000. Something about a failed
business model.
–My portfolio: I purchased a foreign operated telecom company this
week with about 6% of my assets. All I’ll say is it’s not in Europe or
North America and I haven’t mentioned it in this space before. So,
that means I’m about 24% energy (another volatile week for the oil
service sector), 2% tech (ditto…Taiwan Semi), 6% Mystery Telecom
Inc., and 68% cash.
International Affairs
Turkey: The Turks insist on waiting until a 2nd UN resolution
authorizing force before they open up their bases in any big way to
U.S. ground troops (though they are bending some at last word).
I’ve discussed this topic enough, for now, but I do have to criticize
columnist William Safire for his recent column blasting Turkey.
“Surely Ankara should make the Turkish public aware of America’s
interest in cushioning any shock to its major local ally,” he wrote.
That’s the problem, Mr. Safire. The public is aware…of how the
U.S. blew them off following the first Gulf War.
In a related topic, columnist Jim Hoagland wrote the following.
“Twelve years ago this month, the United States went to war against
Iraq on Iraqi territory and incurred enormous moral obligations to the
people of that nation. But in contrast to its postwar actions in
Germany, Japan, Korea, Kosovo, Bosnia and elsewhere, the
American government ran away as fast as it could from those
obligations. They remain, and they are sufficiently important to have
the United States now fulfill them.”
Mexico: Relations between the U.S. and Mexico are souring rapidly
and last week saw the resignation of foreign minister Jorge
Castaneda, a good ally of America. President Bush has blown this
one. The unsaid excuse is that after 9/11 he doesn’t have time for this
nation and his “amigo” President Vincente Fox. Very shortsighted.
Colombia: America’s involvement deepened as we just sent more
Green Berets to help train the military in its battle against the rebels.
In the past ten days, there have also been 4 car bombs in major cities,
killing scores.
Zimbabwe: Last weekend there were all kinds of rumors swirling
about that government insiders were going to force 2-time “Dirtball of
the Year” winner President Robert Mugabe out of office in exchange
for his immunity from prosecution, allowing him to go into exile. New
elections would then be held in two years, with a caretaker
government in the interim. But by week’s end, most were squashing
such talk.
Singapore: The U.S. and Singapore are near completion on a
comprehensive trade pact. This is a good thing. I love these people;
no nonsense, hardworking, and great allies in the war on terror. And
gosh darnit, drop-dead gorgeous women.
Random Musings
–According to the Washington Post, it was Condoleezza Rice who
convinced President Bush to inject himself into the University of
Michigan law school affirmative action case. The Administration is
offering a narrow interpretation in a brief to the U.S. Supreme Court,
however, and then there were reports that Rice herself was
backpedaling some.
–The President also weighed in on the medical malpractice issue, but
even I think his idea of establishing a limit of $250,000 for “pain and
suffering” is too low. Otherwise, he’s definitely on the right track.
–The Los Angeles Times reported that President Bush may use his
State of the Union address to announce a new, ambitious effort to
develop a nuclear-powered rocket for the purposes of human
exploration of Mars. Now how psyched am I? I’ve been calling for
a more aggressive policy in this regard for years and there isn’t a
better time than the present to launch it. The cost will be huge, of
course, and Bush (Rove) may opt not to bring up the topic in such a
forum so as to avoid drawing attention to the deficit implications, but
finally it appears NASA will be given the go ahead. And not for
nothing, but this could be a tremendous jobs program.
–So I’m watching Al Sharpton on “Meet the Press,” Tim Russert is
being his usual balanced self, actually offering Sharpton a softball
question or two, and Reverend Al doesn’t get it, as he confronts
Russert at each turn. This is one dumb clergyman, my friends. And
Sharpton is also an idiot when it comes to the issue of bombing on the
Puerto Rican island of Vieques, a righteous cause for the dimwitted.
Sharpton told Russert that he would hold Bush to his commitment to
pull out by March.
What the Rev. is forgetting, though, is that when the U.S. Navy bows
to the pressure and moves its training grounds elsewhere, it will also
be closing the Roosevelt Roads facility, which is merely the largest
employer in Puerto Rico.
–Britain and Ireland are in an uproar over reports that former British
Prime Minister Edward Heath sanctioned the Bloody Sunday
massacre of 1/30/72 in Londonderry, a charge the now 83-year-old
vehemently denies. Documents have been uncovered which
purportedly show that “hooligans,” riot leaders, were targeted in an
effort to restore law and order during the height of “the Troubles.”
–Illinois Governor George Ryan commuted over 160 death
sentences in his last day in office, ostensibly to avoid his own
prosecution in a bribery scandal, or so the story goes. Personally,
while I feel like I have moderated my positions in some areas, I’m
getting more and more hardline when it comes to the death penalty.
Life is a privilege. If you abuse it, you pay the cost.
–The head of the National Highway Traffic and Safety Administration
said anyone buying an SUV for safety reasons is nuts.
–A comprehensive study reveals that the # of children being treated
with psychiatric drugs has tripled over the past 15 years. Unlike with
adults, few safety studies have been conducted of the drugs’ impact
on children.
–British rocker Pete Townshend of the Who was charged with
distributing child pornography, following an investigation into a
particular web site. Some 75,000 used their credit cards to gain
access to the sick material and for their part British officials have
already made 1,300 arrests in connection with the case.
–There are widespread reports of a German satanic cult operating on
the border with Luxemburg. The members are said to be cannibals.
Probably not a good idea to pick up hitchhikers in these parts.
–Speaking of “Dark Shadows,” an Oregon man killed his fiancée in a
New York hotel the other day because she had scammed him of
$95,000. The two had met at a fan convention for the long-running
television series. You know, folks, this is just another reason to limit
yourself to attending “Leave It to Beaver” reunions. Then again, you
have those fans of Eddie Haskell.
–Finally, I’m here in Los Angeles, the jumping off point this afternoon
for a little adventure. I’m heading off for a month on the QE II, all by
my lonesome. Of course, it’s going to be a blast, assuming I’m not
sick the whole time.
Now some of you might be thinking, “Didn’t you just buy a company,
Mr. Editor?” Well, yeah, but I paid for this cruise back in April, you
see and…I don’t expect any sympathy, that’s for sure.
Anyway, CSI MultiMedia will still be there when I return, thanks to
our crack staff which knows far more than I do anyway, and in the
meantime, as long as the computer system holds up, you’re bound to
get an interesting story or two in the coming weeks. I will keep this
column going, as well as “Bar Chat,” where admittedly the more
colorful material may be relegated.
So stay tuned. Oh, by the way, I’m well aware this boat is a floating
target. The world has changed, that’s for sure.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $356
Oil, $32.96
Returns for the week, 1/13-1/17
Dow Jones -2.3% [8586]
S&P 500 -2.8% [901]
S&P MidCap -2.5%
Russell 2000 -2.1%
Nasdaq -4.9% [1376]
Returns for the period, 1/1/03-1/17/03
Dow Jones +2.9%
S&P 500 +2.5%
S&P MidCap +0.6%
Russell 2000 +1.3%
Nasdaq +3.1%
Bulls 50.0%
Bears 27.2%
Have a great week. I appreciate your support.
Brian Trumbore
