[Posted 7:00 AM ET]
Madrid
Our thoughts and prayers are with the good people of Spain this
week following Thursday’s heinous terrorist attack. Thanks to
the heroic leadership of soon to be departing Prime Minister Jose
Maria Aznar, Americans owe a lot to this nation for its stalwart
support in the war on terror. As of this writing it’s not clear
whether the bombs were the work of ETA, al Qaeda, or both.
Regardless, it was another awful week for Planet Earth as the
battle between good and evil continues.
Iraq
The groundbreaking interim constitution was signed on Monday
and two hours later Grand Ayatollah Ali al-Sistani called it an
“obstacle.” The power struggle between the Shiites, Sunnis and
Kurds will continue well into next year, but with the Shiites
making up 60% of the population, al-Sistani and friends feel like
it’s payback time following their brutal treatment at the hands of
Saddam’s Sunni / Baathist leadership. As for the Kurds they
seek veto power over any final constitution.
An interim government still needs to be put in place by June 30,
with national elections slated for January ’05. And one very
disturbing note…members of the new Iraqi police force were
responsible for killing two American civilians last Tuesday.
Meanwhile, CIA Director George Tenet was grilled by a Senate
committee on the subject of weapons of mass destruction and he
had to admit some of the government’s WMD claims went
unchallenged.
Wall Street
Publisher Mort Zuckerman summed up the mood across much of
America in the latest edition of U.S. News & World Report. The
level of anxiety in the middle-class is palpable. Many feel like
they’re falling further and further behind and as Zuckerman
notes, today’s two-income family is often finding it harder to
make ends meet than a single-income family a generation ago,
thanks to taxes and healthcare costs, for starters. Anxiety is also
fueled, rightly or wrongly, by the spread of global capitalism,
while memories are still fresh of the corporate scandals that
impacted millions of shareholders. It certainly doesn’t help to
read stories daily of the $millions taken down by corporate
chieftains, especially compared to just 10 years ago. Then, the
salary of a CEO was 40Xs the average wage earner. Today, it’s
more like 400.
The rising tide of populist anger is an issue confronting President
Bush as the campaign unfolds and this week’s desultory equity
markets didn’t help in this regard, either. I stick by my thought
that Dow 10000 remains a critical psychological barrier for
probable voters, most of whom have a stake in the stock market.
But then there is the action in the bond pits, with the 10-year
Treasury closing the week at 3.77%, meaning mortgage rates are
once again nearing record lows. Super for housing, no doubt.
The bond market, though, also seems to be saying that the jobs
picture will not turn around anytime soon, despite Federal
Reserve Chairman Alan Greenspan’s entreaties to the contrary,
and if this is the case then the consumer will begin to pull in their
horns, which in turn wouldn’t be good for corporate earnings.
It’s a similar mixed bag on the capital spending front. While
Texas Instruments had generally positive things to say, Oracle’s
earnings message was mixed while leading research firm IDC
concluded that global sales of computer microchips would peak
in 2004; again, not good for the share prices of those companies
anticipating strong growth well into 2005.
Greenspan also issued another warning on the gathering talk in
Washington and around the country of protectionism, while
President Bush chimed in from the campaign trail, correctly, that
America can’t retreat into economic isolation. Of course the
report of another record trade deficit, particularly with the likes
of China, doesn’t help matters, even if the big picture really
shows that our growing dependence on imported oil was mostly
to blame in this last one.
But back to China, here are some astounding facts, most gleaned
from the South China Morning Post. Despite all the talk on the
export side, you can’t ignore the fact that China’s own imports
rose 77% year over year in February, thanks to both the
consumer and the importation of raw materials. China accounted
for 4% of world GDP in 2003, but it sopped up 7.4% of the
world’s oil, 31% of the coal, 21% steel, 25% aluminum and 40%
of the cement. Put this all together and you shouldn’t be
surprised that investments in steel, electricity and cement plants
increased 96, 92 and 120 percent in ’03 as well. A government
minister admitted that there were signs of “irrational
investments.” Regardless of how you feel about the China boom
and its impact around the world, just know that when this bubble
pops it won’t be good for anyone. Or, to sum it all up, whether
it’s geopolitical tensions, the war on terror, or an American
economy seemingly stuck in neutral when it comes to job
creation, no wonder so many of us are anxious and feel like
we’re on the verge of sliding backwards.
Street Bytes
–It was a miserable week for stocks, the worst since last
September, though Friday’s rally prevented further damage. The
Dow Jones lost 355 points, 3.4%, to close at 10240, while the
S&P 500 and Nasdaq both lost 3.1% to finish at 1120 and 1984,
respectively.
–U.S. Treasury Yields
6-mo. 0.99% 2-yr. 1.51% 10-yr. 3.77% 30-yr. 4.72%
Bonds continued to rally on the poor jobs outlook and the move
was reinforced by Thursday’s attack in Madrid, leading to a
flight to quality and out of stocks, though some of the gains were
reversed with Friday’s action in the equity markets. The Federal
Reserve meets on Tuesday and no surprises are expected.
Meanwhile, everyone wonders where the heck the data is on
producer prices.
–Energy: The International Energy Agency continues to ratchet
up the worldwide demand figures thanks solely to China, which
is now #2 in the world in consumption of crude and a big reason
why the price of oil remains stubbornly high. No doubt, if the
price stayed at current levels this summer, it will have a negative
impact on tourism and travel and a further spike to $40 or above
would endanger the recovery. Some have called for the
government to release some of the oil sitting in the Strategic
Petroleum Reserve, about 640 million barrels worth, but the
impact of such a move is probably exaggerated. However, on
Friday the Senate did opt to block further purchases for the
reserve in an attempt to rein in prices and it worked, if only for a
day.
–It turns out Royal Dutch / Shell executives covered up the
recently disclosed 20% shortfall in reserves for 2 years and it’s
thus suspected the earnings were manipulated to allow these
same individuals to cash in on incentive bonuses.
–Halliburton now claims that the series of investigations into its
contract work for the Pentagon threatens the company’s liquidity
if it’s forced to refund gobs of money to the government for
overcharging. The Justice Department is also now involved,
meaning criminal charges could be in the offing.
–Reports out of India say IBM is doubling its workforce in
Calcutta to 4,000.
–Big developments on the medical front as there appears to be
irrefutable evidence that heart patients have a lower death rate
when treated with implantable defibrillators rather than drugs. In
another study, high doses of statins can help heart attack victims
even more than previously thought, as doctors now say the LDL
“bad” cholesterol target once set at 100 should really be in the
60s, a level achievable with increased dosages of drugs like
Lipitor.
–USA Today had an interesting piece on real estate and the
Boulder, Colorado area, emblematic of what is happening in so
many parts of the country. Along the lines of my earlier
remarks, the middle-class is being priced out of housing.
–Bad week for Bank of America as it faces $250-$300 million in
penalties for its role in the mutual fund scandal. Equally
damning was a record $10 million fine levied by the SEC for
lying during a separate investigation looking into items such as
front-running among some members of the research department.
–Remember when I said the property insurance premium for
both my office and condo development went down over last
year? A new study has confirmed this is happening nationwide;
for once a positive development.
–Inflation Update: Nonetheless…Mark R. reports that Ocean
Spray cranberry juice is up 18%.
–Sales of high-protein bison meat are up 36%!
–In his dullest annual report yet, Warren Buffett said nothing of
note, unless you want to call his continued bet against the U.S.
dollar newsworthy.
–No one has written more on Martha Stewart than the New York
Post’s Christopher Byron (author of “Martha Inc: The Incredible
Story of Martha Stewart Living Omnimedia”) and this week he
once again catalogued Martha’s history of lying. For the record,
I wrote on 2/7 in this space that she would receive 6 months,
though this would be below the federal sentencing guidelines
following her conviction on four counts.
–While overall spending on advertising rose 6% in 2003,
network television spots increased only 1.8% due mostly to the
shrinking audience for network fare.
–Merrill Lynch Chairman and CEO Stanley O’Neal received
total cash and prizes of $28.4 million for 2003. We congratulate
Mr. O’Neal for a job well done and assume he’ll spend it wisely.
–A study for Consumer Reports revealed that for the first time in
24 years the average domestic car was deemed more reliable than
European autos. Overall, Toyota and Honda are still the best.
On a related note, Volkswagen announced it will be laying off
5,000 (mostly in Germany) due to miserable sales.
–My portfolio: I had a tough week as my energy stocks and
other assorted flotsam tumbled with the rest of the market. So
I’m about 43% equities / 57% cash, the latter in 10s and 20s.
International Affairs
Iran: The head of the International Atomic Energy Agency,
Mohammed ElBaradei, said he was “seriously concerned” about
Iran’s various declarations on its nuclear program as inspectors
keep finding things not originally made public as was Iran’s
obligation. But the U.S. agreed to accept Europe’s softer
demands on disclosure, so Tehran then said it will continue
with its program of enriching uranium while threatening
European countries if they allowed the U.S. to bully them
around. Then at week’s end, the mullahs said the inspectors
wouldn’t be allowed back for about six weeks. Events could be
spinning out of control by May, unless the world community has
the will to put the brakes on Iran’s nuclear intentions.
Meanwhile, the people suffer. In inflation adjusted terms,
Iranians today earn ¼ of what they did before the revolution 25
years ago. [Afshin Molavi / Washington Post]
South Korea / North Korea: In a stunning development,
President Roh was impeached, the first time a South Korean
leader has been so. The opposition’s move, in the works for
weeks, wasn’t expected to go anywhere but Roh has been
battered by one corruption scandal after another, while others
have been concerned over his conciliatory line with North Korea.
Of course the political chaos could not have come at a worse
time. One can only assume the North continues to develop
nuclear weapons and Pyongyang could always do something to
further destabilize the South, perhaps a large-scale terrorist attack
(just thinking outside the box). South Korea’s Constitutional
Court now has 180 days to approve or reject Roh’s ouster.
China: Beijing is worried the democracy movement in Hong
Kong is getting way out of hand and officials have ruled out free
elections by 2007 / 2008. The communists don’t want to see
these thoughts spread to other cities and are threatening to
declare a state of emergency. The vice-chairman of the National
People’s Congress said the following on Friday.
“We will definitely not tolerate a small number of people who
engage in activities aiming at opposing the central government
and aiming at seceding from the country.” [South China Morning
Post]
Taiwan: By the time next week’s column is posted, the polls will
have closed here (3/20). In light of the above and Beijing’s
treatment of Hong Kong, how can you not be for independence
for Taiwan? President Chen Shui-bian has my vote.
Russia: Sunday is election day and I’ll have far more next week.
For now, here are two thoughts on today’s Russia and this sham
vote.
From the Washington Post. “A Russian press account reported:
‘In order to assure a sufficiently high turnout for the 14 March
presidential election, the health care directorate of the
Khabarovski Krai administration has ordered local hospitals not
to admit patients who do not have certificates of voter
registration from the local election commission.’ Vote or die?”
And from U.S. News, a popular Russian joke: “In America,
there is democracy. You can walk up to the White House and
declare that you hate President Bush. In Russia, there is also
democracy – you can walk up to the Kremlin and declare that
you hate President Bush.”
Indonesia: In another blow in the war on terror, the high court
here reduced the sentence of the leader of Jemaah Islamiyah.
He’ll now be set free in April. I wrote a few weeks ago of how
unpopular the U.S. has become in this nation. Now you see
some of the consequences.
Austria: Out of nowhere, Jorg Haider and his Freedom Party
scored a huge upset as he won an election for governor of the
province of Carinthia; just in time for the vote later in the year
on Turkey’s candidacy for the European Union, the editor wrote
cynically.
Zimbabwe: What a bizarre deal here, and so, shall we say,
African. The government seized a plane full of mercenaries that
had flown in from South Africa and it was at first thought the 64
men were preparing for a coup in Zimbabwe. But now it appears
they were to be used to topple the government in Equatorial
Guinea, which is between Cameroon and Gabon, in case like me
you forgot where the hell this place is. But Zimbabwe’s Robert
Mugabe is making waves about trying the mercenaries in his
country, with execution being a distinct possibility.
Random Musings
–In a 3-man race including Ralph Nader, John Kerry leads
George Bush 50-44-2 (USA Today / CNN / Gallup) and 48-44-3
(ABC News / Washington Post). The USA Today survey did
contain some good news for the president as 55% said the Iraq
war was worth it. Phrased differently, however, only 46%
supported Bush on Iraq according to the ABC / WP poll and 57%
want the country to go in a new direction, while 59% view Kerry
as “honest and trustworthy,” vs. 54% who see Bush in the same
light. And a Florida survey of prospective voters there has Kerry
in the lead 49-43. Finally, when one looks at the potential Nader
impact, in 2000 it was believed that 47% of his supporters came
from Gore, 21% from Bush. But it’s early, sports fans, and there
are bound to be 3 or 4 big geopolitical events that will help shape
things between now and November. For starters, Pakistan’s
tribal leaders could find Osama for us…and I think they will.
–On the economy, a Wall Street Journal / NBC poll had more
bad news for the president, as by a 51-45 margin the electorate
disapproves of his handling of the economy.
–And then there is the Hispanic vote. Bush captured 31% in
2000, but he seems stuck on this figure today and his
immigration initiative from back in January is going nowhere
fast.
–I have made no secret of my support and admiration for Senator
John McCain, primarily because I feel he would have made for
our best leader in this time of war. But for the life of me I can’t
understand his comment that he would be interested in being
John Kerry’s running mate; disappointing, to say the least.
–I told you the Kerry camp would have a field day with
President Bush’s assertion he would spend only one hour on the
9/11 commission. The administration was forced to back off 48
hours later.
–Each year, 3 times as many Chinese students are graduating
with degrees in engineering than in the U.S.
–George Will: “The American Center has no stomach for what
looks increasingly like a struggle over mere custody of the word
‘marriage.’”
–The lead article in the Sunday Styles section of the New York
Times was titled “On Campus Rethinking Biology 101:
Transgender students have needs…” Oh brother. In some
schools such as at Brown, Sarah Lawrence and Wesleyan,
campus health services no longer require students to check off
‘M’ or ‘F.’
–An Oregon University study has discovered that 8% of
domestic rams are homosexual. Could be a Bravo show there.
–In a poll for USA Today, 6 in 10 oppose gay marriage. 54%
now favor “civil unions,” a percentage which is rising. An ABC
/ Washington Post survey had approval for civil unions at 51%,
while 52% disapprove of the way President Bush is handling the
subject.
–Some folks at UCLA’s Medical Center sold donated body parts
for profit…just another reason to choose cremation.
–An arrest was made in the torching of 125 SUVs in California
last year. The Caltech grad is an admitted member of the Earth
Liberation Front and more arrests are expected.
–A local girl overdosed from drugs the other day and according
to the story heroin use is “epidemic among teens in the suburbs.”
What a waste.
–I was in Washington, D.C. this week for my annual trip to do
some sight-seeing. Of course the area around the Capitol is all
torn up because of the construction of the visitor center, cost of
which has soared from an estimated $70 million in the early 90s
to about $500 million today, speaking of waste.
–My trip also meant another visit to the Vietnam Wall, where I
looked up the name of Lt. John L. Geoghegan (3E – 56), a
soldier whose memory I adopted after reading the book “We
Were Soldiers….” Every time I touch his name there, it helps
put everything else in perspective.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $395
Oil, $36.19
Returns for the week of 3/8-3/12
Dow Jones -3.4% [10240]
S&P 500 -3.1% [1120]
S&P MidCap -3.0%
Russell 2000 -2.8%
Nasdaq -3.1% [1984]
Returns for the period 1/1/04-3/12/04
Dow Jones -2.1%
S&P 500 +0.8%
S&P MidCap +3.8%
Russell 2000 +4.7%
Nasdaq -0.9%
Bulls 56.1
Bears 20.4 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
