The Arab Summit
Last week”s gathering went off as expected. The formal
statements blasted Israel for its treatment of the Palestinians but
at the same time kept the door open for future peace negotiations.
Of course, behind the scenes there is much more to the story. But
first, some comments from the leaders.
Yassir Arafat: “(Despite) the worst kinds of mass killings,
shelling, in addition to severe siege…our choice is the choice of
permanent, just and comprehensive peace.”
Egyptian President Mubarak warned Israel not to underestimate
Arab power but did say, however, that Arab leaders must protect
their people from “indulging in sensational attitudes.”
Saudi Crown Prince Abdullah proposed that Arabs raise $200
million for the Palestinians and $800 million to “retain the Arab
and Islamic character of (East) Jerusalem.” But also that the
Arab world couldn”t compromise on the issue of East Jerusalem
being the capital of a future state. Abdullah then accused the
U.S. of siding with Israel. Smart man, that Abdullah.
Syria”s President Assad: “As we strive for peace, Israel is striving
for war.”
Then you had the real hard-liners. Iraq, part of this gathering for
the first time since before the Gulf War, was represented by one
of Saddam”s key aides.
“Iraq”s clear stance is the call to liberate Palestine by jihad. The
so-called peaceful path will lead only to disappointment.”
And so the final declaration of understandings blamed Israel for
the “atrocities” and urged the U.N. to set up a war crimes
tribunal. But Egypt and Jordan, the only two Arab states to have
full diplomatic ties with Israel, maintained those relationships
(they don”t want to lose their U.S. aid). 21 of the 22 nations
attending signed the statement, with Libya walking out before the
end of the summit.
[Libya blamed the “weak” posture towards Israel, having sought
a complete cut in all ties.]
So how did Israel and besieged Prime Minister Barak react?
Barak praised Egypt for its “balanced approach.” And then he
called “timeout.” In doing so, Barak was saying it was
appropriate to reassess the whole peace process and, in order to
save his political skin, he sought the support of opposition leader
Ariel Sharon for the purposes of forming a national emergency
government. But, as of this writing, Sharon has said that he
would not join such a coalition unless Israel totally walks away
from the peace process.
So while Arab leaders peppered their speeches with vitriol to
appeal to the radicals in their midst, Prime Minister Barak sought
the same.
And as I stated last week, in both cases it”s all for naught because
future events are basically out of the control of the major players.
Fundamentalist terrorists like Hamas, Hezbollah, and Islamic
Jihad labeled the Arab summit leaders actions as empty gestures.
And it is worth noting that while the gathering was taking place in
Cairo, Palestinians marched in Hebron, burning photos of
Mubarak, King Abdullah (Jordan) and Saudi King Fahd. Such a
display is unheard of and wouldn”t have taken place without the
approval of the clerics.
And what of Arafat? After his tempered remarks at the summit,
he landed in Gaza, only to proclaim that anybody blocking the
Palestinians march to make Jerusalem the capital of a Palestinian
state can “go to hell.” But many experts believe Arafat is
increasingly irrelevant to the process and, despite initial reports to
the contrary, they also believe that his role in the early fighting
was limited. Arafat has become disengaged and evidently hasn”t
visited the West Bank (where the bulk of the deaths have
occurred) since the start of the latest conflict.
The New York Times” Susan Sachs quoted a former American
diplomat in the region who commented on the plight of many of
today”s Arab leaders.
“They feel truly threatened…when was the last time you saw a
demonstration in Saudi Arabia?”
Sachs observes, “In countries where there are parliaments,
independent media outlets, political parties, trade unions, and
other institutions of a civil society, government policies can be
discussed, without fear that a government will be overthrown.
But, almost without exception, Arab nations don”t have such
bodies.” [Not one of the Arab leaders at the summit is the
product of democratic choice.]
Last week, I discussed the exploding numbers of the “disaffected”
in the Arab world. Their Islamic leaders have no need for
moderate rhetoric. But while some argue that the only good
thing is that the population really isn”t politicized, that”s
irrelevant. Moderate Arab leaders will be targeted. It”s called
assassination.
Wall Street
This week the Dow Jones and the Nasdaq went their separate
ways for the first time since the week ending June 9 as the Dow
staged a powerful 3.6% rally to finish at 10590, while the Nasdaq
lost 5.9% to close at 3277.
Much of the Dow”s gain came on Friday as its 210-point advance
was its strongest single performance since May. Talk of a soft
landing in the U.S. economy helped propel the average. But the
Nasdaq saw more incredible volatility as its action was dominated
by some high-profile earnings reports.
On the economic front, two important indicators were released at
week”s end; the employment cost index, which showed that wage
pressures were still tame, and the GDP report for the third
quarter, which had the economy rising at a slower-than-expected
2.7% rate.
Of course, just 24 hours before Friday”s release of the GDP, Wall
Street was saying that we needed to see 4% growth to prove that
corporate earnings were not falling off a cliff. Then the 2.7%
figure was printed and suddenly that was good news. It”s all a
bunch of bull, but I do my best to sift through it for you. If you
remember to wash your hands afterwards, you can keep from
becoming ill.
The 2.7% growth number (which could, admittedly, be revised
upwards at a later date for a number of reasons) represents a
significant decline from the 5.6% 2nd quarter figure. But it does
show that the Federal Reserve”s previous attempts to reign the
economy in are working and inflation has largely been held at bay.
In the old days, the mid-1990s, 2-3% growth, coupled with 2-3%
inflation, was the perfect tonic for the equity market. But
inflation is now running at 3.8%, not a disaster, but a concern if it
gets much higher; and if the economy were to continue to slow,
then more earnings bombshells will follow.
One item in the GDP report that augured well for future growth
was the fact that consumer spending picked up anew from its 2nd
quarter doldrums. We now await the Christmas season to see if
this trend holds up.
But on the earnings front, this week the story was in the fiber-
optics sector as a revenue slowdown at giant Nortel Networks
precipitated a sickening 9% decline in the Nasdaq
telecommunications index on Wednesday. The day also
represented Nasdaq”s worst performance since May as Nortel and
its optics brethren, JDS Uniphase and Ciena, among others, all
declined more than 20% for the session. Thursday morning
brought more selling and the Nasdaq touched 3080, close to its
“bottom” of 3026 established some 10 days earlier, before staging
another of its spectacular comebacks.
Late in the day, JDS Uniphase came to the rescue as rumors of a
strong earnings report hit the market. After the close on
Thursday, JDS complied with street-beating figures, both for the
quarter as well as projections for the future.
To get a sense of just how volatile Thursday was, a 200-point
intraday swing in the Nasdaq, here are some one-day price
ranges.
Juniper Networks (195-160)
Sun Microsystems (110-95)
JDS Uniphase (78-62)
Ciena (108-84)
Corning (78-60)
The fiberoptics stocks had represented the one sector that had
survived 2000”s tech bloodbath. But Nortel”s cautious stance not
only caught the attention of those who had argued that all tech
stocks will grow to the moon, forever, but that valuations for the
fiberoptics issues, particularly in a slowing economy, were
outrageous.
As it is, the big names in the group all still trade at 100 times or
more fiscal 2001 estimates (JDS is right at that level based on the
company upping their own estimate for earnings to $0.80).
So the action in these stocks best points out the conundrum.
Some technology issues still have spectacular growth rates, but if
the economy continues to slow, there will be more
disappointments down the road and when these stocks get hit,
brother, you better be diversified. Just look at Nortel. It lost
over 25% after reporting revenue gains of 90%! But that wasn”t
good enough for Wall Street.
If you haven”t learned by now, sit back, take a deep breath, and
lower your expectations.
Street Bytes
–First Call is now forecasting that corporate earnings for the 4th
quarter will rise only 13%, a drop from the 16% estimate of just 3
weeks ago. For the 3rd quarter, earnings will come in at a robust
20%. So looking ahead, you can see that the Street is rapidly
lowering its own expectations.
As for the technology sector, the stocks comprising the S&P tech
index were expected to grow at 29% for Q4 as of Oct. 1st. That
estimate has already been lowered to 23% as well.
This isn”t good, folks. For the past few years it was nothing but
upward revisions…now that trend has reversed.
–Tokyo”s Nikkei average closed the week at 14,582, its lowest
level in 19 months. And yes, 11 years ago it was 39,000. It
didn”t help that the top aide to Prime Minister Mori resigned over
his connections to right-wing extremists. Throw in the fact that
this guy also had an illicit affair and voila! It could be hara-kiri
time!
–Oil: Energy stocks continued to report stupendous earnings but,
in the perverse ways of Wall Street, it was “sell” the news. My
beloved little drillers were hit hard and it”s possible I may have to
go on the North Korean diet.
The real message continues to be that no one believes high oil
prices will stick. I apologize for continually repeating myself but,
yes, prices will drop by the spring with a few spikes along
the way. But when you see the big oil companies (the
“integrateds”) producing at the same levels of a year earlier, while
the price of crude has doubled, that tells you they don”t think it”s
worth investing to find more oil if the price is going to fall back
below $20.
Of course this skittish attitude doesn”t help our nation wean itself
from its dependence on foreign oil.
But what is also interesting is this fact. Many analysts believe
that the recently reported earnings from the integrateds are as
good as they”ll get. Yet crude oil averaged $31.58 in the 3rd
quarter. We are now one-third through the 4th and it is holding
around $33. OPEC has vowed to release more oil per a previous
agreement but Iraq has been making waves about how they are
paid for their crude (they want euros, symbolically, rather than
$”s) and are threatening to stop production for a spell. Bottom
line, like everything else on the Street these days, the energy
sector can expect more volatility.
–Microsoft was the victim of a serious hack attack as their
computer network was broken into, exposing the source code for
many of their most popular software programs. E-mails to Russia
were uncovered. But the day the news was formally released
(Friday), the stock rose over $3.
–The Business Council, a group of grossly overpaid corporate
chieftains, issued a report which stated they see slowing growth
and rising inflation over the coming year.
–Because Nortel represents about 25% of Toronto”s key index,
that average saw its worst day, Wednesday, since the 1987 crash.
–Amazon told investors they had some $900 million in cash on
hand. Then it was discovered that they were valuing some
shareholdings as greenbacks to pump up the cash figure, a key
number for analysts as they try to determine whether or not
Amazon can survive. At the same time the SEC is investigating
Amazon”s accounting practices. So the stock rose $5.
–Chairman Jack Welch of G.E., the most respected corporate
leader in the world, will delay his retirement until the end of 2001
to aid in the integration of G.E.”s latest acquisition, Honeywell.
Since these are two Dow Jones components, that means that
eventually the good folks at DJ will have to select a replacement.
May I recommend Playboy Enterprises…that would jazz it up a
bit!
–The bond market reacted negatively to the GDP report as some
money was repatriated with the release of the slower-than-
expected growth figure. In addition, the rebound in blue chip
stocks had investors pulling money out of bonds.
U.S. Treasury Yields
1-yr. 6.15% 2-yr. 5.93% 10-yr. 5.71% 30-yr. 5.74%
–So much has been said about AT&T”s restructuring into 4 parts,
I really can”t add anything. Chairman Michael Armstrong”s latest
proposal was met with more selling and the stock closed the week
at $22.
Now that”s $1 higher than one of its children, Lucent, who fired
its CEO Richard McGinn for his incredibly lousy job these past
few years.
Which means you have a situation where yours truly is living
between the corporate headquarters of two failing titans of
American business. I can”t stand these negative vibes…and I fear
for the value of real estate in the area as the job losses mount.
Heck, no wonder I”m so negative overall. I”m surrounded by
failure. Aghh!!
International Affairs, Continued
North Korea: Secretary of State Madeleine Albright became the
first U.S. official to visit North Korea since it was formed 55
years ago. By all accounts, she had a grand time.
But if you saw the Third Reich-like display of 100,000 citizens
performing their revolutionary dance for both Albright and North
Korea”s Kim Jong Il, you had to wonder what the heck she was
so happy about. In a Friday editorial, the Washington Post noted
the following:
“We were amazed that the secretary of state would allow herself
to be photographed, smiling, as 100,000 essentially enslaved
laborers performed for her and one of the world”s most repressive
dictators. Secretary Albright clinked champagne glasses with Mr.
Kim; she found him to be ”very decisive and practical and
serious.” But about the nation”s 150,000 political prisoners, she
had no public comment.”
Of course we need to engage North Korea but one should be
alarmed at the speed with which we seem to be proceeding…all
to further the Clinton legacy. Even the French this week said they
would “establish diplomatic relations with North Korea only in so
far as North Korea shows by some gestures its wish to respond to
two of our concerns, – non-proliferation and improvement of
human rights.”
You should know our allies, who are supposed to come first, are
very worried because our actions could screw up their own
diplomatic efforts. Both South Korea and Japan may see their
efforts relegated to the background.
Kim Jong Il talks a good game, but the fact is that he hasn”t been
sticking to the promises he made with South Korea last summer.
At the same time, while Japan clearly wouldn”t mind an end to the
North”s long-range missile program, they would like to be part of
the dialogue.
North Korea”s people are starving. And even in cases where food
aid (including America”s contribution) is reaching the people, like
those children Albright was taken to, the diet is pitiful.
Kim Jong Il is no fool. He needs to feed his army first to maintain
the peace internally. Then he can only hope for a good harvest or
two to take care of the rest. The U.S., South Korea and Japan
will send him billions. I don”t see us getting anything in return
and, for the South Korean people in particular, ironically this
generous handout to their Northern brothers could help create
political turmoil in their own land. Why? South Korea is
desperately trying to reform its own economy. But they have a
tremendous debt load which sending billions across the border
will only exacerbate. President Kim Dae Jung is a heroic figure,
but he”s old. He can hold his people together, his successor may
not. The next U.S. president will be spending a lot of time on this
region. How much? Oh, about 10 times more than on the
prescription drug issue.
Peru: Boy, this country has given any writer worth his or her salt
a terrific screenplay. Early in the week, former spy chief
Montesinos returned from exile in Panama, although his
whereabouts were not known. A coup seemed imminent. Then
President Fujimori reached an agreement with opposition leaders
to move up the date of the new election to April 8 from June.
The next day, Fujimori mysteriously took off with his defense
chiefs. We learned Thursday that he, personally, was
spearheading an effort to capture Montesinos, which has proved
unsuccessful thus far. I just hope Fujimori locked the palace door
before he left.
Balkans: Folks, believe it or not, unless NATO rushes aid in to
Serbia, they have a huge problem on their hands. The power grid
is in need of massive repairs and the choice seems to be between
having electricity and paying the army. Russia has offered to get
them some fuel but Serbia owes them $300 million as it is. This is
far from a stable situation, post-Milosevic.
As an aside, the Gore campaign attempted to make hay out of a
comment from Bush foreign affairs expert Condoleeza Rice,
wherein she said that the U.S. should contemplate turning Balkan
peacekeeping chores over to the Europeans, allowing the U.S. to
focus on keeping the peace in the Persian Gulf and Asia. I agree,
since the extended peacekeeping missions we become involved in
limit our ability to defend our allies or wage war.
Canada: Big election called for November 27 as Prime Minister
Chretien attempts to take advantage of good times and win a 3rd
term.
Germany: 600 neo-Nazis staged a march through one of their
cities. At least they were met by 20,000 protesting the sick
demonstration.
Turkey: Follow-up to remarks of the past few weeks. Congress
thankfully declined to pass the Armenian genocide resolution
which would have severely strained U.S. – Turkey relations.
Ivory Coast: Actually, this West African nation gave us a stirring
display of democracy as the people took to the streets, convinced
police and army units to follow them, and then overthrew the
military leader who had taken over 10 months earlier in a coup.
Let that be a lesson to all of you who may be plotting your own
one.
The Election / Endorsements
–NBC has the electoral map reading 209-175, Bush. [270
needed to win.] U.S. News shows it 197-171, Bush.
–Clearly, Ralph Nader has become a big factor in states such as
Minnesota, Wisconsin, Michigan, Washington and Oregon.
–Hillary: The New York Times endorsed Ms. Clinton with these
words:
“We are placing our bet on her to rise above the mistakes and
difficulties of her first 8 years in Washington…” Lowering the
bar?
–Corzine / Franks, New Jersey Senate Race: But the Times, in a
stunner, endorsed Republican Bob Franks; Jon Corzine”s
spending now having hit $60 million.
“…Mr. Corzine is arguing that a confidentiality agreement with
Goldman Sachs, the investment firm he once headed, prevents
him from telling New Jersey voters the specific sources of the
money for this tidal wave of personal spending. But New
Jersey”s voters did not sign an agreement with Goldman Sachs,
and they have a right to know how a multimillionaire candidate
amassed the wealth that enables him to spend almost $2 million a
week on advertising.”
The Wall Street Journal added:
“It would be ironic indeed if Mr. Corzine became the latest
boutique liberal to lose his maiden bid for public office in part
because his consultants couldn”t bring themselves to tell him to
stop spending before he grossed out enough voters to send him
looking for another hobby.”
New Jersey”s paper of record, the Star-Ledger, nonetheless
endorsed Corzine but labeled his spending “obscene.”
But this just in…last week I complained that the Republican
Senatorial Committee had refused to give Bob Franks a dime.
Friday, they announced that help was on the way. I”m giddy as a
schoolboy.
–Al Gore: The Washington Post, in endorsing Gore, had the
following to say.
“Neither Mr. Bush nor Mr. Gore communicates a sense of inner
conviction.” [A la Reagan or McCain.] But the Post goes on to
add, “Mr. Gore has shown himself…to be a man of good
character.” Where”s my defibrillator?……Clear!!!!…
–Commentator Al Hunt on the presidential election: “These are
two sorry candidates.” Those of you thinking about voting for
Ralph Nader, do it. I”m still proud of the two votes I gave a 3rd
party.
Random Musings
–Last Monday night on “Crossfire,” Jesse Jackson was
commenting on George Bush”s plan to privatize a portion of
social security. The reverend was totally out of control, as usual,
when he got a little confused. “Two weeks ago [it was 5 days
earlier], the market dropped 400% [he meant, at one point the
Dow was down 400 points…but it rallied back that same
day…and the result was irrelevant anyway to the issue], and you
would have lost one-sixth of the Social Security fund.” Geezuz,
will this guy ever get a real job?!
–Here”s my penalty for Roger Clemens, the Yankees nut case.
Delay what would otherwise be a first-year selection when he
becomes eligible for the Hall of Fame by two years. Then again,
if that were to happen, he”d be liable to take out a whole town.
–For those of you who take long flights, you need to be aware of
a new finding that there is a legitimate danger of blood clots
forming due to inactivity. Doctors recommend an aspirin before
the flight and water only during it. While most clots dissolve
when you land, some may move up into the heart and lungs days
later. Aside from walking around during the flight, you should
rub your calves. Be careful, however, in rubbing your neighbor”s.
–So last Saturday, word had it that President Clinton was burning
up the phone lines during the Arab summit. Then I see him
attending the President”s Cup Golf Match. “Hey Yassir, it”s me,
Bill. Yeah, Tiger is fine. Say, about those terrorists of yours…”
–U.S.S. Cole: As more details continue to come to light, you
have to be disturbed if you are the parent or spouse of one
serving in our armed forces. A Pentagon analyst resigned the day
after the attack as he felt his superiors had ignored his assessment
of the security risk. The Cole was only under a “medium” alert
when the attack occurred.
–John McCain and Bob Kerrey…now that would have been an
awesome ticket.
–Russian men now have a life expectancy of just 59.8 due mainly
to excessive smoking and vodka. That”s our social security cure!
We wouldn”t have to disburse a dime and solvency would be
ensured.
–Russia also announced that the 130-ton Mir space station will
plummet to earth sometime in February. Now if they could just
maneuver it over Baghdad…
–Finally, I think it”s important for you to know of an e-mail I
received this week, an item of which I am very proud.
“Dear Professional,
You have been selected as a potential candidate for a free listing
in the 2000-2001 Edition of the International Executive Guild
Registry.
Please accept our congratulations for this coveted honor.
Since inclusion can be considered recognition of your career
position and professionalism, each candidate is evaluated in
keeping with high standards of individual achievement. In light of
this, the International Executive Guild thinks that you may make
an interesting biographical subject.”
I share this distinct honor with you, my devoted readers, and my
parents. But I”m leaving out my fraternity days.
Gold closed at $265
Oil, $32.74
Returns for the week, 10/23-10/27
Dow Jones +3.6%
S&P 500 -1.2%
S&P MidCap -2.3%
Russell 2000 -1.6%
Nasdaq -5.9%
Returns for the period, 1/1/00-10/27/00
Dow Jones -7.9%
S&P 500 -6.1%
S&P MidCap +13.3%
Russell 2000 -4.9%
Nasdaq -19.4%
Bulls 43.4%
Bears 32.1% [Source: Investors Intelligence]
CONTEST: This is it. November 1st is the deadline to get your
entry in to our “Pick the Dow” contest…your chance to win
$2,500 of my money!!! [Don”t worry…it”s legal tender.]
Brian Trumbore
