[Posted 3:00 PM ET, Dec. 31]
Tsunami
American Red Cross
International Response Fund
P.O. Box 37243
Washington, D.C. 20013
800-HELP NOW
www.redcross.org
You all know what has to be done, not just today but for an
extended period of time. This is as important a cause as any
generation has ever faced.
Just last spring when I was in Singapore I took a boat trip to the
Indonesian island of Sumatra, though I was on the other side of
where this week’s devastation occurred. It’s nonetheless
haunting. And this week I talked to the employees of a new Thai
restaurant in my building that has opened this year. I’ve gotten
to know some of them and they are the sweetest people, yet they
are now heartsick for their native Thailand as one proceeded to
tell me of an entire family she was friends with that was lost at
Phuket.
But I also have to express my frustration at some of the
comments I’ve been reading from around the world. The
following was on the front page of Thursday’s Washington Post.
“Americans may want to ponder why a technological
civilization, one that has sent probes to distant planets, that can
measure the distance to the moon by bouncing lasers off mirrors
left by Apollo astronauts, that has equipped almost everyone
with a cell phone, hasn’t learned how to warn coastal villagers in
Sri Lanka that a tsunami may show up in the next couple of
hours.”
This reporter didn’t even attempt to do his homework. An
American came up with the warning system in use today in the
developed world but other nations either couldn’t afford to add
the links to their own countries or simply didn’t want to
participate. So to then draw the line and blame America for a
tragedy of such a scale as never before seen in the history of
civilization is beyond absurd.
And I read an op-ed in the Times of London that castigated the
Pope for “praying for the victims.” We don’t need prayer, wrote
the woman, we need money as she went on to infer the Pope is
somehow to blame.
I also can’t believe the insensitivity of President Bush who
simply needed to show his face late Monday / early Tuesday, 36
to 48 hours later instead of 72+ to avoid a scathing attack from a
world that isn’t exactly in love with the man or our nation these
days. You can argue whether foreign opinion is correct or not,
but Bush keeps bringing much of this on himself and at our
expense.
What I want is balance and some perspective. No natural
disaster of this particular kind, involving so many disparate
nations, is likely to occur again. Half my audience is from
overseas and they should also know that the United States,
between its government, private industry and its citizens, will
contribute far more than its fair share as the coming critical year
unfolds. We are a good people and we’ll deliver. It’s also vitally
important for the survivors to see packages stamped “From the
people of the United States,” “From Pfizer,” “From the
employees of General Electric.”
As the recovery begins and tens of millions begin to pick up their
lives, amidst the dark days and ashes will rise the best of the
human spirit. This is what I pray for; that the survivors and
rescuers, government, industry and the global community unite.
The dollars will be there but without faith, for those directly
impacted the task is almost insurmountable.
Thoughts on 2005
Here’s the frustration I have with President Bush. It’s a matter of
policies vs. execution. I agree with the former for the most part,
yet I’m often left shaking my head when it comes to the latter. In
the case of Iraq, soon we’ll know whether the lack of execution –
the total failure to secure even Baghdad, as well as on the
reconstruction front to cite but two obvious examples – prevents
the staging of an election that meets minimal standards of
legitimacy. American public opinion is teetering on the issue of
support for the war and it could fall off a cliff in a nanosecond.
But to those who continue to blast the mission itself, and I have
been receiving some thoughtful notes in opposition, I still just
ask, “Would the world have been safer with Saddam still in
power? Upon his death, would you have wanted his crazed sons
in control? And do we, the civilized world, simply sit back and
condemn the entire Middle East, ex-Israel, to a state of tyranny,
even of the soft variety as employed in the autocracies of Egypt
and Jordan? How does that make us safer in a world of weapons
proliferation?”
That’s the argument. We now wait to see if the U.S. and its
remaining allies can overcome the errors in execution.
I also find fault with the president for his taking so many issues
for granted. Nothing of a positive nature has occurred in the
realms of North Korea and Iran, though in the case of the latter
success in Iraq would obviously be a big blow to the mullahs. I
predict Tehran will test a nuclear devise by summer, while Kim
Jong-il must be up to 12 or more nukes by now.
But what really concerns yours truly is the fact the U.S. is letting
China walk all over it and the first victim of our indifference will
be Taiwan. I see no cause for optimism on this front as the
administration has not made it clear to the communists to lay off
or face serious consequences.
President Bush also needs to confront Russian President
Vladimir Putin. Russia has nothing to fear from the West but
any student of Russian history, as Condi Rice is supposed to be,
knows they have a dangerous inferiority complex that requires a
shot of nationalism every few decades or it rots at the core. This
is what Putin is attempting to inject and it can have grave
consequences for the rest of us. I have done my best work over
the years on both Russia and China and now I predict that in the
case of the Kremlin it will go after Georgia, using another
terrorist attack on Moscow or elsewhere as a pretext for a move
on what Putin will label a sanctuary for the perpetrators.
I also believe 2005 will see the tide turn quickly against Turkey
in its bid for European Union membership.
But on the positive side, the Palestinians and Israelis will edge
closer to a relationship of trust. Terror will remain a threat, but
the respective leaders will be able to prevent widespread
violence. Israeli Prime Minister Ariel Sharon’s relations with his
own people, though, specifically the settlers, will worsen.
Wall Street
After what I view as a solid performance in forecasting the
equity markets for the period 1999-2003 (as good as any,
frankly), I missed badly in 2004 as I predicted the major
averages would decline 9 to 12 percent. Instead, it will be
virtually the reverse. [Final figures will be posted below by
Jan. 2]
I wasn’t a doom and gloomer on the economic front one year
ago, but I did envision a significant slowdown in the second half
(missed this as well) and I specifically predicted there would be a
“terror-induced ‘crash’ at some point, and / or a dollar-inspired
financial meltdown,” yet added concerted action on the part of
central bankers would limit the damage. Thankfully, I was
wrong here, too.
But my concerns haven’t changed one bit and throughout the
past year I offered up that the real issue is 2005 and the coming
global recession. If you look at the consensus forecasts for the
next 12 months it’s clear I could be very wrong yet again, though
I’ll stick with the dire tidings for now.
The current consensus calls for growth in U.S. GDP of 3.5% next
year as corporate profits rise about 8%, equities advance 7-10%,
the 10-year Treasury finishes the year at about 5% and oil closes
around $39 next 12/31. [Business Week and other sources]
Globally, Asia ex-Japan is projected to grow at a solid 6% rate
and China’s slowdown is expected to be minimal.
I see the following, most of which should look familiar to regular
readers.
–The China bubble will burst as the government fails to rein in
excessive speculation in the property markets, industrial capacity
and equities. There will be far more China Aviation Oil-type
scandals down the road and civil unrest may also become a
growing problem.
–On a price basis, the U.S. real estate boom has peaked, but as
I’ve stated before values don’t necessarily have to decline, they
just have to stagnate for a spell to have an adverse impact on the
all-important wealth effect.
–The American consumer will finally lighten up on the spending
front as we begin to more closely examine our debt burdens,
especially given the fact our leading asset, our home, has stopped
going up.
–After a brief flurry early in the year, the rate of capital spending
will slow, though in the example of a 3-legged stool – housing,
the consumer and cap-ex – it will be the strongest.
–Corporate profit growth, already decelerating, will be less than
expected.
–Visible signs of a slowdown, owing to a rapidly deteriorating
global economic outlook, will appear by the summer and by year
end most will admit the world economy is entering a recession.
Deflation, not inflation, will become the watchword, though we
could have one last inflation scare beforehand.
–There will be no dollar crisis, unless China decides to stick it to
us for political purposes. Otherwise, we catch a break on this
front until 2006, even as some key deficit numbers continue to
climb.
These are just a few of the items I will be grading myself on next
year, recognizing that a large-scale terror attack, a resurgence in
oil prices, and / or a major flare-up in one of the ‘hot spots,’ let
alone failure in Iraq, would only hasten a slide.
As for specific figures, I see the Dow, S&P 500 and Nasdaq
declining 5% on the year. I am sanguine on interest rates,
particularly the long end of the curve because of my projected
softness in the economy. This would of course ameliorate any
problems in the housing market at the same time, thus my
forecast of stagnation rather than actual significant price
declines. The 10-year could hit 5% at some point but it will
finish the year below that, say 4.30%.
I also see oil trading in the mid-$30s on average, which isn’t bad
for the sector when it comes to stock plays, incidentally.
Street Bytes
–Update 1/1: The markets finished mixed on the week with the
Dow Jones off 0.4% to close the year at 10783, while the S&P
500 and Nasdaq advanced, +0.2% and +0.7%, respectively,
to 1211 and 2175. Final year end return figures are posted
below.
–U.S. Treasury Yields
12/31/03
6- mo. 1.10% 2-yr. 1.82% 10-yr. 4.25% 30-yr. 5.07%
12/31/04
6-mo. 2.57% 2-yr. 3.07% 10-yr. 4.22% 30-yr. 4.82%
The Fed raised the funds rate five times and yields on the long
end of the curve declined. Inflation, at least of the official
variety, is tame and will remain so.
–Russian President Vladimir Putin’s senior economic adviser
Andrei Illarionov isn’t afraid to speak his mind, describing the
sale of Yukos’ top production unit as the “scam of the year,”
echoing the thoughts of deposed Yukos chairman Mikhail
Khodorkovsky who gave a similar opinion from his prison cell
this week.
But Illarionov added that Russia had moved to an
“interventionist model of economic development, with dramatic
interference from the state” and from its “utterly incompetent
officials some of whom have nothing to do with (the) economy.”
“Rather than being a potential ally of democratic countries,” he
continued, “we have witnessed a cool-down in the relationship
with many countries, if not the start of a cold war, which
naturally leads to the country’s isolation in the world and the
worsening of our foreign political position.” [Financial Times]
Meanwhile, back to Yukos, the Kremlin announced the
production unit that was sold to Rosneft, which was then to be
merged into Gazprom, will now be part of a new, national oil
company headed by two Rosneft executives with very close ties
to Putin. Per a previous agreement on energy cooperation,
though, China National Petroleum Corp. may be entitled to a
20% stake in the new entity, further solidifying a burgeoning
relationship between the two nations. Not good for the U.S.
–Staying on the China oil theme, Venezuela’s President Chavez
paid a visit to Beijing and announced that China will be allowed
to develop 15 oil and natural gas fields in his country as Chavez
seeks to diversify away from the United States, which currently
gobbles up 60% of Venezuela’s production. As I’ve been noting
the past few weeks in particular, the Bush administration ignores
China’s moves on the energy front at its own peril and we are
allowing Beijing to call all the shots.
–Fannie Mae’s departing CEO Franklin Raines is slated to
receive parting gifts of between $25 and $30 million, including
an annual pension of $1.37 million. The SEC, having just
slapped Fannie around for gross accounting violations, may try
to limit this award. I say let him have it, but mandate the funds
go directly to the Red Cross for tsunami relief aid.
–The Washington Post reported that President Bush is being
forced to delay his tax overhaul plan one year to focus on budget
cuts and Social Security reform. One early proposal on the tax
side that I particularly like is business being able to immediately
deduct the cost of investments rather than slowly writing them
off.
–I was pretty tough on brokerage firm E.D. Jones last week and
with good reason. Lead managing partner Doug Hill was forced
to step down this week as a result of the firm’s crooked mutual
fund sales practices and Jones admitted in a filing Monday that it
was guilty of rampant trading abuses, including thousands of
instances where orders were placed after the 4:00 PM close.
–The U.S. airline industry will lose another $5.5 billion this year
and for one of the struggling Big Six, U.S. Airways, it was a
disastrous week on the public relations front as baggage handlers
staged a sickout over the Christmas weekend.
But I also have to note the retirement of Continental Chairman
Gordon Bethune. This is a good man who did a solid job at the
airline, helping to turn it around through wisdom and sheer force
of personality. I know I’ve mentioned this before but Bethune
would make for a terrific national politician. As for the future of
the airline industry in general, he couldn’t be more negative right
now….
Which brings me to United Airlines and the Pension Benefit
Guaranty Corporation, with the latter stepping in Thursday to
take over the pension fund for United Airlines’ pilots. This is the
beginning of the nightmare scenario whereby the PBGC assumes
all major air carrier liabilities over the coming few years.
But in addition, as per my comment last week that it was tension
city between UAL’s pilots and flight attendants over the pilots’
contract negotiations and pension maneuvering, the flight
attendants have now authorized a strike.
–Evidence continues to pour in on what a good stretch the
American farmer has had. Farm income in Nebraska, for
example, is coming in 12% above 2003’s record level, terrific
news. I know my friends in the Oklahoma panhandle have had a
good run as well and no one deserves it more; one of those strong
families with old-fashioned values.
–One day after the U.S. announced it would be lifting a ban on
Canadian beef next spring, Canadian authorities said they may
have uncovered a new case of mad cow disease. More details to
follow, though the U.S. has already offered that a confirmed
positive would not impact the decision to lift the ban.
–A British medical journal has a story out that Eli Lilly has been
suppressing evidence Prozac could cause behavioral disturbances
going all the way back to the 1980s.
–China will hit the 400 million mark in mobile phone
subscriptions next year but the rate of growth is then expected to
slow sharply by 2006.
–In a stunning comeback, legendary fund manager Bill Miller of
Legg Mason Value Trust fame has once again beaten the S&P
500, the 14th consecutive year he has done so. Only about a
month ago he was about 4% behind the benchmark, but a large,
long-time holding in Amazon paid off handsomely as that stock
has staged a strong, late-year rally of its own.
–SSL International, maker of Durex condoms and other
consumer products, could be a takeover candidate according to a
story in the Financial Times. Any number of companies,
including Johnson & Johnson and Kimberly-Clark, would appear
to be a good fit.
–Italy, Spain and France bought $110 million of lobster from the
U.S. in 2003, up 83% in just five years, with 2004’s pace
expected to exceed this level. [Maine is responsible for 77% of
the total U.S. harvest.]
–I wrote in the past of my two trips to Turkey “where everyone
is a millionaire.” That’s because the standard currency
denomination was the one million lire bill, worth about 70 cents.
Well, as of January 1, the country is dropping six zeros.
–An average 30-second spot for the Super Bowl is selling for
$2.4 million, an increase of $100,000 over last year.
–Sales of furs hit a record $2.1 billion this year following a long
spell of punk receipts due to pressure from animal-rights groups.
–Amazon said consumer electronics surpassed book sales for the
first time in the company’s history.
–Shares in the Sharper Image tanked after it slashed its earnings
forecast due to “disappointing” sales, an item I found hard to
believe given how many times I went into my local outlet only to
find them out of poker chips.
–It was a joyous Christmas for the Trumbore clan as yours truly
doled out Shark Euro-ProX vacuum cleaners. Both my mother
and sister-in-law were thrilled to receive this hand-held with the
power of a jet engine, while my 11-year-old nephew wondered
aloud why I’m not doing commercials for Shark? A smart lad,
that boy. All in good time, I told him.
–My portfolio: Some of my speculative plays have been moving
up nicely recently, particularly the carbon fiber story where I
own some ‘calls’ in addition to the common. So I ended up the
year around 35% equities, the balance cash. I also finished up
over 10% for the year thanks almost solely to one position in
long-term Valero calls where I earned 200% on what was then by
far my largest single position. But, if I had held it another six
months it would have been 500%!
–In my office at home (as opposed to the world headquarters in
Summit, N.J.), I have the framed confirm from my very first
stock purchase, back when I was 15 years old. Jan. 22, 1974 (the
Dow Jones closed at 863 that day…on its way to a bear market
low of 577), my father took me to the local Hayden Stone branch
at the Short Hills Mall. We bought 25 shares of Cooper Labs at
$8, commission $9.24. A few years later I sold it for about $5, if
I recall correctly, needing beer money. May all your investments
in the New Year work out better than that one and may you be in
a position to drink premium should you so desire.
Foreign Affairs
China: Beijing, recognizing it has little to fear from Washington,
issued new warnings to Taiwan and any attempt on its part to
declare its independence from the mainland. A new national
defense paper said relations between the two were “grim” as the
government blasted the “vicious rise” of pro-independence forces
while adding the “armed forces will resolutely and thoroughly
crush it at any cost.”
Meanwhile, the South China Morning Post reported that China
has power shortages in up to 1,500 locations a day with demand
expected to rise another 60% by 2010.
Ukraine: Viktor Yuschenko handily defeated Prime Minister
Yanukovych in the re-run for president, 52-44, with international
observers praising all aspects of the vote. Yanukovych, though,
refused to concede, proclaiming “I will never recognize such a
defeat because the constitution and human rights were violated.”
But on Thursday the Supreme Court knocked down his petitions.
Yuschenko’s supporters are still barricading government
buildings in an attempt to prevent the bitter loser from creating
mischief with a rump government before Yuschenko is sworn in
around Jan. 14.
For his part President Putin has been largely silent this time as he
awaits his February summit with President Bush in Slovakia, at
which point Putin is expected to give Bush a piece of his mind on
how the West is spoiling his plans to recreate the Soviet Empire.
Israel: Hamas won 9 of 26 local elections in a clear sign that the
favorite for the Jan. 9 vote, Mahmoud Abbas, will not simply be
handed the reins of power without a fight. But in another
positive sign, 560 prominent Palestinians called for an end to
violence in a front page newspaper advert.
Pakistan: President Musharraf announced he would retain control
of the military after announcing earlier in the year that he would
relinquish the post, citing both the need to fight terrorism and
pursue peace with India as the chief reasons for his anti-
democratic decision. Don’t expect the White House to criticize
Musharraf’s move.
Random Musings
–Time Magazine selected President George W. Bush as its
“Person of the Year” but in reaching its annual decision Time
normally seeks to recognize the individual or group that had the
biggest impact, for better or worse. I, on the other hand, view it
differently. Who, if anyone, set the best example for others to
follow? It’s admittedly imperfect, as bespeaks the history of my
own selections.
2001 – George W. Bush
2002 – no one, as I cited “unfinished business in Iraq”
2003 – Bush, Tony Blair and John Howard for their leadership
This year I thought about passing once again because I’m not
giving it to the president simply because he won the most
important election in terms of world consequence. The key is
results and as spelled out above I have problems with Bush on
the foreign policy front. This has not been a great year, with one
notable exception…Afghanistan.
And so while he is the first person to admit he would not be
standing where he is today without the support of President Bush
and the United States, I nonetheless select Afghan President
Hamid Karzai for defeating seemingly insurmountable odds just
a year ago to become the overwhelming choice of his people in
the nation’s first democratic election.
Yes, Bush deserves credit here, too, but in the end it was Karzai
who got it done. No doubt his country remains a shaky place and
will be for the foreseeable future, yet today it is what it is…a
model for the entire region and those people who yearn to be free
of tyranny.
As for Bush, every American, regardless of their political stripes,
should hope he is a unanimous selection in 2005.
–My “Dirtball of the Year” pick is always more straightforward.
2000 – Zimbabwe’s Robert Mugabe
2001 – Osama bin Laden
2002 – Mugabe
2003 – Saddam and bin Laden
And this year…Abu Musab al-Zarqawi. No further explanation
should be required.
–Regarding the above, though, I do have to add the selections of
reader Scott P., who had Kofi Annan as “Dirtball” and Bill
Cosby for “Man of the Year.” Cosby is deserving of praise for
continuing to tell it like it is as many in Black America squander
opportunities that the poor of Southeast Asia or Paraguay would
relish. As for Kofi, the White House will continue to hold him
up, feeling it needs his support, however limited, in Iraq. But
yes, this is a man deserving of scorn as unfolding evidence in ’05
will further prove.
–Last year at this time I cited a Newsweek poll that had Howard
Dean leading the race for the Democratic nomination at 26%,
with Wesley Clark at 15%, and Al Sharpton and Joe Lieberman
at 7%. John Kerry was far down the list, yet in less than two
short months it all changed dramatically. Kerry proved to be a
terrible candidate but he forever deserves credit for a great
comeback when all had written him off.
–Looking back on the year and the revelations concerning Abu
Ghraib as well as stories of abuse in Afghanistan and
Guantanamo, I can’t help but be reminded of a quote from Alexis
de Tocqueville.
“America is great because she is good, and if America ceases to
be good, America will cease to be great.”
I would urge some of my conservative brethren to keep this in
mind as they attempt to slough off the issue. One who would
have never condoned it is George Washington, who as George
Will pointed out in a recent column insisted on treating British
prisoners with respect even as their side was guilty of atrocities
during the Revolutionary War. Granted, in some instances today
we are dealing with nothing but animals but an America that
crosses the line courts disaster. [On Friday the Journal reported
the administration is now backing off its earlier approval of harsh
interrogation tactics.]
–According to the latest information from the Census Bureau,
the average life expectancy for women in America is 80.7 years
and for men it’s 74.9. In the area of median family income we
have the following:
Asians $60,900, Whites $54,600, Hispanics $34,100, Blacks
$33,500.
–I’ve been writing the past few months about the resurgence in
violent street gang activity in America, including some very
worrisome trends involving the Central American-based variety.
To give you an idea of the dangers that potentially lie ahead, in
Honduras a gang boarded a public bus and shot 28 to death.
–So I’m watching “This Week” last Sunday when a reporter for
the Washington Post condescendingly says of Commerce
secretary-designate, and Kellogg chairman, Carlos Gutierrez,
he’s “an expert on selling cereal.” What an ass, I thought. I
admittedly remain the only person in America convinced
Gutierrez could be a great figure if given the opportunity by the
White House.
–Interesting editorial in the Wall Street Journal on Thursday
discussing Chile’s nationwide program to have all high school
graduates proficient in English, the universal language of
commerce. I meant to raise this very issue last week in wrapping
up commentary of my trip to both Chile and Paraguay. Many
times I thought of this in both countries because it is far from a
stretch to draw a line between a nation’s understanding of
English and its overall prosperity. I didn’t come across one
person in Paraguay (except at TAM Airlines…Brazilian) who
spoke English fluently while in Chile countless restaurant
employees did, to cite but one telling example. As I noted last
time Paraguay also happens to be ranked 100th of 104 nations by
the World Economic Forum. Whether other peoples want to
admit it or not, as the Journal opined “English is a staple of the
21st century and modern society. (Chile’s) commitment to
making it part of a standard education is a pledge that no child
will be left behind.”
–My year in travel: A few years ago I could make the claim I
was the only one in the world to travel to Turkey, Slovenia and
the Micronesian island of Yap all in the same year. [The clincher
was Deadwood, South Dakota.] This year I’m the only one who
has been to Paraguay, Singapore, the PGA’s Q-School and the
Daytona 500. I count my blessings that I’m able to do these
things though each year I vow to slow down. All I know about
this coming one is I’m getting in shape so I can run some road
races.
—
God bless the men and women of our armed forces.
God bless America.
Pray for Southeast Asia.
—
Gold closed at $438…12/31/03…$416
Oil, $43.45…………..12/31/03…$32.52
Returns for the week 12/27-12/31
Dow Jones -0.4% [10783]
S&P 500 +0.2% [1211]
S&P MidCap +0.7%
Russell 2000 +0.3%
Nasdaq +0.7% [2175]
Returns for the period 1/1/04-12/31/04
Dow Jones +3.2%
S&P 500 +9.0% [10.9%, total return]
S&P MidCap +15.2%
Russell 2000 +17.0%
Nasdaq +8.6%
Bulls 62.9…another multi-year high, Jan. 1987
Bears 19.6 [Source: Chartcraft / Investors Intelligence]
Have a safe and prosperous 2005. I greatly appreciate your
support over the years.
*Next week I resume my normal posting schedule, 7:00 AM ET,
Saturday.
Brian Trumbore
