The Federal Reserve announced this week that they will try and
be clearer when it comes to their upcoming statements on Fed
policy. For example, in the past they would speak of adopting a
“tightening” or “neutral” bias when informing the markets on
what they may do about interest rates in the future. The markets
then invariably misread the Fed. [Actually, after a day or two of
indecision, they took it all to mean, “Buy!”]
So now, the Fed will issue statements like, “We think a slowdown
in the economy is the greater risk,” or, “Inflation is a greater
risk.” In this manner, they hope to more clearly define their
concerns, or lack thereof..
Well, I got to thinking, why not expand the choices? I mean the
Fed could issue pronouncements like, “Technology stocks are
severely overvalued, sell,” or, “Half the corporations in America
are cooking their books in order to beat expectations,” or, “We”re
going to keep raising rates until you guys get it right.” Well?
This week it was as if the Fed said, “Keep buying technology.
Valuations no longer matter.” The Nasdaq climbed to record
levels the last 3 days of the week, finishing up 4.2%. But the
Dow Jones suffered through one of its worst point drops ever,
471 to be exact, off 4% to close the week at 11251. Some of the
damage in the Dow was simple profit-taking. Some of it was
event related, like Procter & Gamble”s rumored bid for Warner
Lambert, a move that, if true, was roundly booed by Wall Street.
There was no denying one thing, however. 4th quarter profit
reports have been nothing short of spectacular. The research firm
First Call is now estimating growth of 20% for the period. And as
the economy rocks on, the future for profits continues to look rosy.
But is it really? After all, if you paid careful attention to some of
the reports, the profit gains were often the result of the strong
performance in the company”s own investment portfolio. Now
there”s nothing really wrong with this. The public just needs to
be reminded that some day this process may reverse itself. I
know it”s hard to believe but yes, Virginia, some day companies
portfolio”s may actually lose money! Now don”t get too upset.
I”m just trying to be realistic. [The Wall Street Journal had an
excellent article on this topic last Thursday.]
So the issue becomes, are stocks feeding on themselves rather
than on real growth in their businesses? When it comes to
earnings, is this as good as it”s going to get? I mean, we all keep
hearing there is no real pricing power. You also hear there is no
inflation. How long can productivity gains continue to save the
day?
Now I imagine many of you right about now are shaking your
heads. There he goes again, you”re saying. But Brian, what
about all of these spectacular technology stocks and the “New
Economy?” Hey, I hear you. I would just caution that not all of
them can register 100-1,000 percent gains every year. One bad
earnings report and the company is toast. My only suggestion is
that for the average investor, with many of the tech leaders at
incredibly lofty levels and priced for perfection, you are much
better off in a technology mutual fund, where a couple of bad
apples won”t spoil your day.
And as for the rest of corporate America and their own special
brand of accounting and beating expectations, you”re beginning to
hear the rumblings I forecast some time ago. Aggressive
bookkeeping practices (this week Lucent was a target), are being
looked at more closely. Buyer beware.
As for bonds, 6.75% on the 30-year Treasury didn”t spook the
momentum investors. [The long bond finished the week at the
6.70% level.] You”d think the highest rates in almost 3 years
would have had even more of a negative impact than the 1.6%
loss registered by the S&P 500. Bond traders, on the other hand,
were spooked by the spectacular surge in crude and heating oil to
levels not seen since the Gulf War. You can blame the oil shock
partly on the weather but some respected experts, like the
International Energy Agency, are now warning of actual
shortages next summer unless OPEC loosens up on the
production side. Inventories are falling rapidly and I”m sure you
will hear more talk this week of the U.S. releasing some of its
strategic petroleum reserve to blunt the falling supplies.
Personally, however, I”m probably going to treat myself to a
premium beer this weekend thanks to the success of my oil
services stock play.
*Oh, and one other investment item of note. Margin debt is up
25% in just the last two months. Then again, no one cares.
Russia
This week we began to learn more about the kind of leader
Valdimir Putin may be. Back in December, Putin”s Unity Party,
coupled with a coalition of centrist / liberal reform types, won a
majority in parliament, the Duma. It was thought at the time that
Putin would now have the backing to pass real economic reforms
since the Communists could no longer block action as they had
with Yeltsin in charge.
So what does Putin do? He cut a deal with the same Communists
to divvy up the key leadership positions, totally ignoring the
centrists, thus sending a message that economic reform is not tops
on his agenda. One quarter of the Duma walked out in dramatic
fashion, including the three former prime ministers who have
seats; Primakov, Kiriyenko and Stepashin. [I”ll take ”Russian
leaders for $100,” please.] And to top it off, the Communist who
was speaker under Yeltsin was re-elected.
Now can you see why I rail against the Russian apologists in our
own press? For example, a Russian strategist by the name of
Anders Aslund wrote an op-ed piece complaining that the West
was “underselling Russia”s economy.” Aslund said, “The pro-
government parties could not have gained a near majority in the
recent parliamentary elections if Russians had not felt better about
the economy, as opinion polls have indicated.” Earth to Anders.
The December election was not about economic reform. It was
about Chechnya and a perception that Putin will be a strong
leader.
By acting the way he did this week, Putin proved to me to be
lacking in political skills. Before the Duma fiasco, he had no real
opponent for the March 26th presidential election. Now he may
get one or two.
As for the war in Chechnya, have you seen the footage? I wrote
a piece for “Bar Chat” about two weeks ago comparing the action
in Grozny to Stalingrad. It is. The world hasn”t seen this kind of
warfare since World War II and Korea. The Russian death toll is
now estimated to be over 3,000 and a rebel force of about 5,000
(between those in Grozny and the surrounding mountains) is
wreaking havoc on a Russian army of 100,000. Grozny is a
snipers paradise and the Chechens often pop up out of sewage
tunnels, firing bullets into the backs of the Russians.
And get this. The Chechens are obtaining weapons from….the
Russian soldiers! The price of a top-line grenade launcher is
$800. Some soldiers have sold them to the Chechens for 20
bottles of vodka.
So here”s what”s going to happen. Putin is learning that in
politics 3 months can be a lifetime. When Yeltsin resigned it
looked like clear sailing until March 26th. I thought it would be,
too, but I also cautioned the war was far from over. In the
coming month, the generals will do their best to claim victory to
ensure a Putin landslide at the polls. Saner heads will know the
truth, but the majority of the Russian people may be fooled.
But for all the doom and gloom I throw at you regarding the land
of rogue nukes, there are some real heroic figures in the
independent Russian press. Despite intense pressure from the
Kremlin to tow the party line, some reporters are now getting on
the air and attempting to tell Russian mothers what is really
happening to their young, ill-equipped, ill-trained boys, being sent
to their death. These reporters, who are basically facing death
sentences of their own, are showing more guts than Western
leaders. To be continued…
More International Affairs
How about former German Chancellor Helmut Kohl? Did this
guy turn out to be one of the great a-holes of our time? I get a
kick out of some of the editorials now claiming, “but wait, look at
all the good he did!” He was a crook, dammit. And you know
that the campaign finance scandal he has embroiled the German
nation in is just beginning. Kohl refuses to divulge the sources of
his ill-gotten gains. It”s the only honorable thing to do, he says.
Throw the guy in jail. His Christian Democratic Party finance
chief just committed suicide. What does Kohl want to do,
destroy the whole political system?
I got a kick out of a Journal article this week which spoke of the
17% gain in Malaysia”s stock market for the first two weeks of
this year. All the experts were climbing on the bandwagon. And
not one word in the story about the fact that Malaysia”s leader,
Dr. Mahathir, just jailed two opposition leaders. Is this a great,
greedy, corrupt world we live in or what?!
Speaking of a world that doesn”t have a clue, the war between the
Tutsi”s and Hutu”s in Burundi has now claimed over 200,000 in
the past 6 years. Nelson Mandela (one of the heroic figures of
our time) pleaded for African leaders and the world to find a
solution. Of course, less than two years ago, Bill Clinton was in
Africa himself, hailing an “African renaissance” (after apologizing
that the West and the UN stood by while a million were
slaughtered in Rwanda). Clinton hasn”t said a peep about the
continent since then. So maybe Jesse Jackson, who likes to go to
places like Decatur, IL, to “save” six high school thugs, can find
time in his busy schedule to lend some assistance in Burundi. Or
is this beneath him?
Peace talks between Israel and Syria reached a stalemate this
week as Syria wanted a commitment from Israel to a full
withdrawal from the Golan Heights (settlers included) before
negotiations resumed. Of course, Syrian President Assad, one of
the evil men on the planet, also refuses to negotiate directly with
Israeli Prime Minister Barak. Assad is out of the Dark Ages.
May he die quickly and his son become a new enlightened leader.
Not all was dark in the world this week. Greece and Turkey held
high level talks for the first time in almost 40 years. The shared
experience of the two nation”s respective earthquakes last year
was a starting point in this newfound respect for each other.
Serb paramilitary leader, Arkan, was gunned down last week in a
hit probably orchestrated by Milosevic himself (that”s at least my
reading of the situation). There had been rumors that Arkan was
going to turn himself in to the War Crimes tribunal (and implicate
others) in exchange for a lighter sentence.
I loved this description of the Croatian town of Knin, as written
by columnist Steven Erlanger in the New York Times.
Authorities in Knin won”t let Serb refugees back after booting
them out 5 years ago. “An enormous Croatian flag, brightly lit
through the night, rides high above the medieval fortress that
squats above this ugly town like a heavy helmet.”
South Korea announced it was going to pursue a space shuttle
program which we all know really is a cover for their ongoing
missile efforts. The administration is concerned this would lead
to an arms race in Asia. Of course it would.
Chile elected its first Socialist leader since Salvador Allende was
overthrown in 1973. While I believe that in much of Latin
America a return to authoritarian rule will be the norm over the
coming decade (and as I write this there is a coup going down in
Ecuador), this does not appear to be the case in Chile. In an
amazing touch of class, the opposition leader sought out the new
president, Lagos, on election night and publicly embraced him as
a sign of cooperation for the good of the nation. Let”s all show
our support by buying a bottle of Chilean wine this week!
Meanwhile, back in Southeast Asia, where “class” is often
lacking, Muslims have forced out Christians from the island of
Lombok. The Christians then fled to the tourist haven of Bali.
The tourists then fled back to their respective homelands. Cross
off another great tourist destination from the old list.
The CIA now thinks Iran might be able to make a nuclear
weapon. How? And why so soon? Iran has probably been
receiving materials from Russia (which the CIA can”t effectively
track) and they simply don”t know if they may have actually
acquired them. Some say the CIA is now coming forward to save
their butts after recent intelligence failures like in India, where
they missed signs that India was about to test a nuke, as well as
Iraq, where after the Gulf War we were startled to learn how
advanced Iraq”s own nuclear program was. [Put this all together
and you can see why we need our anti-missile defense program,
even if this week”s test did fail.]
And speaking of Iraq, Russia turned down the UN”s pick to lead
the new arms inspection team, former head, Rolf Ekeus. That”s
because Ekeus is a good, honorable man. And we can”t have that
if we are Russia or Iraq, can we?
*There is an unfolding story of immense proportions concerning a
reported $10 billion smuggling scheme in China. The perpetrators
allegedly include some of China”s top officials. I will have much
more on this next week.
The WTO
The World Trade Organization”s Director General, Mike Moore,
wants to resurrect a package that was on the plate in Seattle
before talks collapsed last December. It would let products from
the world”s least developed countries into industrialized nations
duty-free. The U.S. doesn”t like the proposal because it wants to
protect the textile industry. Europeans and the Japanese are
concerned about farm products.
If you”re a regular you know that this has become one of my hot
buttons. The world”s 48 poorest economies account for a measly
0.5% of global trade. Again, how the hell can they compete if we
keep beating them down? Let them in.
And then there is the issue of the environment. Heck, I”m as
concerned as the next guy. But how hypocritical is it of the U.S.,
by far the world”s leading consumer of fossil fuels, to demand that
the developing world adopt pollution standards on par with us?
And we keep crying about child labor. Boy has my position
changed on this topic over the years. I bet 90% of these kids
would go hungry if they didn”t work. Reform has to come from
within the nation itself, not mandated by the greedy do-gooders of
the West.
And finally, what is Al Gore going to do regarding China and the
WTO? After all, he”s already won the endorsement of the AFL-
CIO and they don”t want China to gain admittance. But a defeat
on China”s application would be a huge political defeat for both
Clinton and Gore. Just how does Gore pander to both sides at
the same time?
This Week in Politics
Monday is the big day in Iowa. Bush and Gore will clean up.
Then it”s on to New Hampshire where I say it”s McCain and
Gore.
The latest polls in New Hampshire nonetheless show dead heats
in both parties. The significance on the Democratic side for
Bradley is that there is no other Democratic contest until March
7th after this primary. That”s why he has to win to try and build
momentum. And the latest revelations regarding his heart
problem aren”t going to help. [The Republicans have primaries in
Delaware, South Carolina, Michigan and Arizona between New
Hampshire and March”s Super Tuesday.]
In some other polls of note, Bush leads Gore 51-38, nationwide,
among Hispanics. This is significant since 40% identify
themselves as Democrats while 31% call themselves Republicans.
And, according to a CBS News poll, 88% of blacks approve of
the job Clinton is doing vs. 51% of whites.
Meanwhile, in the New York Senate race, the Daily News
released a poll showing Rudy Giuliani leading Hillary by only 46-
44 (a statistical dead heat). A different poll had it 46-42. On the
fundraising front, Giuliani has already raised $12 million (more
than Al D”Amato and Chuck Schumer spent in their last Senate
race, combined…thanks LR). Hillary has raised $8 million.
Columnist Richard Cohen had a compelling take on an issue of
interest in the Giuliani-Clinton race, that being Jivin” Al Sharpton.
While Bush and McCain took heat for wimping out on a position
regarding the confederate flag and South Carolina (I think it
should come down, if I”m forced to give a position…and my
dining room is decorated with all Civil War paintings and
photo”s), Gore, Bradley and Hillary couldn”t wait to salute
Sharpton. Yes, Bush and McCain look at the flag and see votes
but no one seems to criticize the 3 Democrats for looking at
Sharpton the same way. Unfortunately, unless you”re from the
New York area it”s hard to get the full story on Reverend Al and
his past. Suffice it to say, Sharpton has never apologized for his
absolutely vicious assault on justice in the infamous Tawana
Brawley case. Back in those dark days, Assistant District
Attorney Steven Pagones was actually accused by Sharpton and
his cronies of raping Ms. Brawley, a charge later proved to be
totally without merit. Pagones life (as well as that of his family)
was ruined. Sharpton, however, earned the right to become
champion of all causes deemed racial.
And speaking of racists, Al Gore”s campaign chief, Donna
Brazile, told NBC News that she likes to show “her spiritual
side.” Brazile, you”ll recall, blasted Colin Powell and J.C. Watts
for being Republican. I wonder what church she goes to?
On a lighter note, Hillary Clinton told a Buffalo television
reporter that “I certainly intend to spend the rest of my life with
(Bill).” The Prez wasn”t asked the same question.
And the President gets his own moment in the spotlight on
Thursday with his last State of the Union address. In a preview,
Clinton has been rolling out all kinds of health and tax plans. I
can”t wait to hear his foreign policy agenda and the recitation of
all his “successes.” Haiti (hah!), Bosnia (hah!), Kosovo (hah!),
Africa (disaster), Russia (disaster), China (who cares about
human rights!). I”ll give him Northern Ireland and the Middle
East, thus far.
Random Musings
–On Friday night, Jan. 14, there was a rap concert in Oakland,
California that turned ugly. As the action started in the wee hours
(Sat. a.m.) I wasn”t able to write about it last week. Anyway,
there was a massive “rumble” for lack of a better word. One
person was thrown from a balcony (and lived) and, in one of the
more brutal acts I have ever heard of, a woman had her pony tail
ripped out of her head!
The problems started because the concert was sold-out and those
left without a ticket decided to storm the gates. From the
account I read in the Oakland Tribune, gangs were calling out
“Oakland” and “San Francisco” and trouble ensued. Said one
local radio personality, “When people have ”funk” (problems)
with others, a rap concert is where they can cross paths.”
Beautiful. Calling on Jesse Jackson, again. Why don”t you
condemn this behavior and the “gangsta rap” that is the root
cause? [Too bad I”m not Jesse”s appointments secretary. My
man would have a full plate.]
–All kinds of data was released this week concerning the financial
health of the American family and wage earner. Over the past
decade, family income grew only 1% or $100 for the poorest
20%, 2% for the middle 20%, and 15% for the richest 20%.
Meanwhile, the median household net worth was $71,600 in 1998
vs. $60,000 in 1995.
48.8% of families own stock directly or indirectly through mutual
funds and 401(k) plans, an all-time high. The median value of
those holdings rose to $25,000 in ”98 from $15,400 in ”95. And
debt ratios continue to rise (though there is new evidence that
bankruptcy filings are down). Conclusion? The gains are not as
high as one would expect given the huge bull market and the
figures hand the Democrats a “class-warfare” issue to exploit.
And don”t you know they will.
–The White House has been advancing its anti-drug messages
through deals with the major networks wherein the Office of
National Drug Policy would review scripts in exchange for
financial credits. Thus, the networks were able to sell commercial
time that they otherwise were obligated to give to the
government. Clearly, this is government interference in the
creative process. The networks loved the windfall profits. By
week”s end, the administration said the practice would be
curtailed. And speaking of government interference, have you
noticed all of the “Executive Orders” that Clinton is signing the
past few months, like the land giveaway in the West? Get ready
for a lot more of this. Since the President will have a tough time
getting his way in Congress this year, he will increasingly
circumvent the system.
–Did you see the “60 Minutes” piece on the gasoline additive,
MTBE, which is beginning to leak into some water supplies and is
potentially carcinogenic? It sure scared the hell out of me. [In
case you didn”t see it, MTBE is a result of the 1980s “Clean Air
Act” when oil companies were forced to find additives that would
reduce harmful emissions. At the time, MTBE was viewed to be
O.K.] Forgetting the health risks, if your community has a
problem, so much for real estate values!
–“Defense News,” a publication I subscribe to, had the following
Q&A with Claude Bolton, head of Air Force Fighter & Bomber
programs.
Q: What are the biggest challenges that you face?
Bolton: The budget. You have a military to do one thing, that”s
to kill and destroy stuff. When the need for that goes away, as it
did when the Berlin Wall went down, democracies do one thing
exceedingly well: They take their treasury and put it someplace
else – into roads, schools, whatever. Defense will go down to
about 2 percent of GDP, which is what it is in nonwar years.
Q: Is there a problem with that?
Bolton: If you look at every time we”ve stabilized at 2 percent of
GDP in the past 100 years, a number of things occurred: World
War I, World War II, Korea. Each generation has fought a major
war: World War I, World War II, Korea, the Cold War. If the
pattern holds, we will be at war again sometime around 2010 or
2020 – a major war. Maybe a cold war, but it will consume a
heck of a lot more than 2 percent of our GDP. My challenge is
how to maintain the world”s No. 1 air and space force with our
portion of that 2 percent.
*I read this and I think, we have one hell of a budget shock that”s
going to hit us in the future.
–The National Council of Churches spent ”X” amount of money
to charter a plane to fly Elian Gonzalez” grandmothers and bring
them to Miami…hey, they”re in New York! What are they doing
there?………I don”t know what the cost is but we”re talking a jet
so, for arguments sake, call it at least $20,000. Wouldn”t this
money be better spent vaccinating thousands of 3rd world kids and
helping a la “Save the Children?”
–I gave Danny Ainge grief for quitting as head coach of the
NBA”s Phoenix Suns because he used the tired excuse of
“wanting to spend more time with his family.” Others said he was
sincere. So now Ainge is working with TBS/TNT as a color
commentator, meaning he”s traveling more than he would as a
coach because he doesn”t have “home” games. Score one for me.
–Senator Bob Kerrey (D-Neb.) is a good man who probably
would have made for an excellent President. This week Kerrey
announced he was leaving the Senate after two terms because his
“spiritual side needs to be built back up.” Republicans may want
to remind their Democratic brethren of this when certain social
issues come up for discussion.
–Orrin Hatch, in a campaign ad running in Iowa, commenting on
the Clinton legacy:
“We also have to acknowledge the bold, steady, instinctive use of
all the modern means of communication to dissemble, mislead and
fool the people as well as to cover up official corruption. Such
actions really are something new and something terribly
dangerous. This routine practice of political deception to hide an
inner falsity – this institutionalization of the cynical deceit that
you”ve not done anything wrong if you can talk your way out of it
is the real cultural legacy of this administration. And is at the
heart of what disturbs us about the corrosion in our political
system.”
–Alan Keyes, on Bill Clinton: “He has all the makings of
someone who could pull off a great crime.”
–This week I started a series on Michael Milken for my “Wall
Street History” link. In doing the research one can”t help but
compare excesses of the ”80s to what Apple Computer”s board
did the other day for Chairman Steve Jobs. For a job well done
(and no one denies that Jobs deserves a ton of credit for Apple”s
turnaround) he was rewarded with a $40 million corporate jet.
Just a tad excessive, eh?
–It has been determined that Charlotte Hornets player Bobby
Phills was driving 107 mph (just slightly over the posted 45 mph)
when he crashed the other day. Teammate David Wesley was
doing 110 mph (and with a suspended sentence to boot). Fellow
Hornets players say Wesley is devastated. Phills is dead. The
NBA should kick Wesley out of the league for good. And
“Speed Racer” should immediately be put on trial.
–And speaking of dirtballs, how about Michael Skakel, nephew
of Ethel Kennedy, who was just arrested for a murder that took
place 24 years ago in affluent Greenwich, CT? When are we
going to stop making excuses for this incredibly dysfunctional
family? And yes, Jackie Kennedy does deserve credit for
somehow raising two normal, good citizens while many of their
cousins led less than exemplary lives.
–Finally, after 53 years a doorman at the famous Plaza Hotel in
New York retired this week (at age 78). When asked who his
best tipper was he replied Jackie Gleason, always one of my own
favorites. Gleason gave the man $50 each time, whether he was
going in or out. How Sweeet It Is!!
Gold closed at $289.
Nymex Crude Oil, $28.20 [New contract, different pricing]
Returns for the week, 1/17-1/21
Dow Jones -4.0%
S&P 500 -1.6%
S&P Midcap +1.0%
Russell 2000 +5.2%
Nasdaq +4.2%
Returns for the period, 1/1/00-1/21/00
Dow Jones -2.1%
S&P 500 -1.9%
S&P Midcap +1.8%
Russell 2000 +5.8%
Nasdaq +4.1%
Bulls 54.0%
Bears 26.5% [Source: Investors Intelligence]
**Coffee Mugs: Once again, if you receive a mug and it”s
damaged, please let us know. Click on “Contact Us” on the
home page. If you haven”t ordered our “Free” mug, what are you
waiting for? And guys, the StocksandNews coffee mug makes
for the perfect Valentine”s Day gift.
As always, I appreciate the support some of you are giving me in
spreading the word on this site.
Brian Trumbore
