Should We Be Worried?
Following is a story written by New York Times reporter Alison
Smale back in early December of last year. Smale was writing of
the plight of foreigners in Austria.
“The lingering suspicion of foreigners is tangible. A French
reporter, fluent in German but with a French accent, was recently
looking for an apartment. Answering numerous newspaper ads
by telephone, she was frequently told ”it”s already taken” before
she could even ask a question.”
“Finally finding a friendly woman with an available apartment, the
reporter hurried to see it. She was met by a Viennese man who
asked what she did. Upon hearing that she was a foreign
journalist, he said: ”Ah, so you are the people who are writing the
wrong things about Haider.””
Back on October 8th I wrote in this space, “A far-right Austrian
party took 27% of a national parliamentary election this
week…This is a development that bears watching.”
Well, aside from Ms. Smale and myself, not too many others
seemed to care about Jorg Haider”s Freedom Party until this
week. Then all hell broke loose with the realization that the Party
would actually be brought into Austria”s governing coalition (an
act which was formalized Friday).
This is an extremely difficult issue for the European Union as well
as other democracies like Israel and the U.S. And, one can”t
forget that Austria, too, is a democracy. Jorg Haider”s party
received their 27% of the vote last fall, fair and square. What is
little known is the fact that Austria has floundered for years,
suffering under what many see as a corrupt, “old boy” system
where patronage and bureaucracy are the watchwords, not
growth and opportunity.
So on the surface the performance of the Freedom Party is not
unexpected. But the policies espoused by Haider are clearly
inflammatory. Last fall he used the campaign slogan, “Stop the
Uberfremdung,” an appeal against “overforeignization,” that, to a
German speaker, carries connotations of the Third Reich.
And Haider has announced that it would be government policy to
impose a nearly complete ban on immigration. The man who
once praised Hitler”s “orderly employment policy” and lauded the
Waffen SS is helping to turn his country into a pariah.
Portugal”s prime minister, who currently holds the European
Union presidency, said the other 14 members of the union will
isolate Austria.
“We had to send a very clear signal that behavior of a racist
xenophobic character will not be tolerated within the European
Union.”
You can not overestimate the importance of the crisis within the
European community. Many Austrians are dumbstruck at the
reaction around the world. Yet a new poll has Haider”s support
increasing from the 27% he received last fall to 33% today. Israel
recalled its ambassador. Finland suspended diplomatic relations.
Germany called the elevation of the Freedom Party “a historic
mistake.” The U.S. brought its ambassador home for consultations.
What nations like Italy, France and Germany are really worried
about is that they all have their own problem with ultra right-wing
groups. Jean-Marie Le Pen”s Nationalist Front has been creating
a stir in France for years now and just last week, at a soccer game
in Italy, placards with Mussolini”s image as well as that of the
recently assassinated Serb paramilitary leader, Arkan, were
unveiled. [The Italian government immediately banned future
such public displays.]
The European Union has always had an unwritten rule against
interference by the E.U. in the internal affairs of one of its
members. Today they can no longer make that claim. In the end,
however, the direction the Austrians, themselves, take is still up
to them. Let”s hope they understand the error of their ways.
Wall Street
The casino was open again. One week after its worst point loss
in history, the Nasdaq registered its best point gain, finishing the
week up 9.2% (best since 1974) to an all-time high of 4244. So
since the first of the year, the Nasdaq has already had two, 10%
corrections and still kept right on going. Bellwether stocks like
Cisco and Intel led the way while others like Qualcomm and
Yahoo! (ridiculed in this space just last week) tacked on 15% plus
gains.
Even Amazon.com, despite a hefty share loss on Friday, finished
the week up about 30%. All Amazon did was report a record
loss for its 4th quarter, $323 million, but when the company hinted
this might be the “high-water mark” for deficits, Wall Street said
Yahoo!, err, Amazon! Buy buy buy!
The Dow Jones, while not performing nearly as well as the
Nasdaq, still registered a solid 2% gain (to 10963) and the S&P
500 was up nearly 5%.
And on Wednesday, the federal Reserve hiked interest rates a 4th
time since last June 30th, the much anticipated 25 basis points.
Under the terms of its new open policy, the Fed tried to explain
its actions in plain English. “The risks are weighted mainly
toward conditions that may generate heightened inflation
pressures in the foreseeable future.” And every economic
indicator for the week confirmed that the U.S. economy is the
envy of the world; 30-year low unemployment, huge job creation,
factory orders humming, increased construction spending,
personal income rising, personal spending rising more than
personal income (oops!).
And this was the week that officially marked the longest
economic boom in our nation”s, nay, make that the universe”s
history…since that Big Bang of billions of years ago ended
whatever party was going on then.
When will it end? You talkin” to me? Maybe the chaotic action
in the bond pits was a warning shot of some sort. Certainly,
Treasury Secretary Lawrence Summers was the proverbial bull in
a china shop as he trampled on all proper decorum in announcing
the government”s financing schedule the same day the Fed was
increasing rates. Market pros said that Robert Rubin would have
been a little more savvy.
I explained last week, as much as possible, what was going on in
bond land. The past few days have witnessed even more
volatility. The 30-year Treasury which not so long ago was at
6.75%, actually traded around 6.00% on Thursday. Folks, you
just don”t see moves like that, ever. And the yields on 2, 5 and
10-year securities were all over the place…and, most importantly,
in all cases remain substantially higher than the 30-year. [The 30-
year finished the week at 6.27%, the 10-year at 6.54%].
There were endless rumors of damage among the hedge fund
community as well as the big investment houses. None could be
substantiated. Meanwhile, pension and insurance company
portfolio managers, who need long paper to meet future
obligations, kept buying the 30-year. What does seem clear is
that the days of a “benchmark” 30-year bond are over. Not
having ever personally owned one myself, I really don”t give a
damn. On to the 10-year, until the government sops all of those
up as well.
Just a few notes on the great boom of the 1990s:
Average median family income rose 3.9% on an inflation adjusted
basis during the decade, vs. a 4.3% increase for the 80s and a
39.7% increase in the 60s.
The percentage of people living below the poverty line was
12.7% in 1998 (last available figure) vs. 11.7% in 1979.
GDP rose 36.6% in the 90s vs. 52.8% in the 60s.
Other financial tidbits:
Since the Fed raised rates for the first time in this current cycle
last June 30th, the Dow Jones is flat (off 7 points) while the
Nasdaq is up 58%!
The European Central Bank raised interest rates as well this
week. While I said last week that the weakness in the Euro
wasn”t a problem, yet, the ECB begs to differ. As rates continue
to rise in the U.S., this presents competition for European capital.
The ECB also has a stated maximum inflation target of 2%, a
figure it is rapidly approaching for the whole union (and already
surpassed in individual community nations). Exporters are
worried, however, that they will be hit hard. It”s a tough spot for
the ECB. Rate increases could easily choke off the recovery in
Euro Land. Not acting, however, is inflationary.
The completion of the hostile merger between the two European
mobile phone giants, Vodafone and Mannesmann (the largest
ever), was an important step in the restructuring of the European
economy. Getting this deal done, the first hostile takeover of a
German company, sends a signal to the rest that everyone is fair
game. Needless to say, most European telecom stocks soared
this week.
If you are an employee of Delta or Ford, you”re loving life as you
receive free computers, printers and $5 per month Internet
service. The only catch is the deals are through that new
company, People”s PC…and that obnoxious little spokesperson
of theirs.
International Affairs
Russia: Reading an account of the Chechen rebels partially
bungled attempt to break out of Grozny, I had the idea for a
blockbuster movie starring…
Liam Neeson…as the “Good” Russian general who, caring for his
pitifully prepared conscripts, tries not to put them in harm”s way
while…Anthony Hopkins…as the “Brutal” Russian general
overseeing all forces, is determined to wipe out the Chechens at
any cost while winning favor in Moscow with the Russian
President Vladimir Putin, played by…Ed Harris…the soft-
spoken, yet steely former KGB operative who has suddenly been
thrown into the spotlight.
Also starring…Robert DeNiro…as the Chechen rebel leader,
Shamil Basayev, who loses a leg during the retreat from Grozny
but survives to fight another day. And…Meryl Streep…as the
Chechen mother of 15 who helps the survivors of Grozny cope
with the ravages of war. And finally…Carmen Electra…as
Marina Slutski, who sleeps with the Russian generals while her
allegiances are really with the rebels. Plus a special guest
appearance by Foster Brooks…as Boris Yeltsin.
So, in real life, as the Chechens stumbled into the mountains (and
yes, some battalions were cut up in a minefield where Basayev
apparently lost a leg and Grozny”s mayor was killed), thousands
still made it into the mountains and a rendezvous with their
comrades already planning the next step in the war…the guerrilla
phase they are so good at. But don”t expect to hear much about
retaliatory efforts. Putin and the generals, by achieving the
inevitable expulsion from the capital, will claim victory and Putin
can now rest easier that his March 26th election campaign will be
a successful one.
Meanwhile, all of Chechnya is a disaster area. Virtually every
town has been bombed to kingdom come. Putin assured visiting
Sec. of State Madeleine Albright that he was committed to
rebuilding Chechnya. Personally, I”d hold off for a couple of
decades before I invested in some distressed property over there.
Russia lost the first phase of this war. They failed to wipe the
Chechens out, they destroyed the land, killed thousands of
civilians, displaced hundreds of thousands, and certainly didn”t
win any friends among the native population. An unmitigated
disaster.
And in a different matter, Russia was caught red-handed trying to
smuggle oil from Iraq (which is illegal under the current UN
sanctions). Hopefully, this is handled without turning it into a
major international incident. As Ronald Reagan said back in the
arms control days, when dealing with the Russians on any matter,
“Trust, but verify.”
China / Taiwan: PBS had a terrific show on President Nixon”s
opening of relations with China in 1971 and his visit there in ”72.
[You can read more by going through my “Hott Spotts”
archives]. There was never a clearer example of how important
diplomacy can be and the need for diplomats like Henry
Kissinger. It was also fascinating to review Pakistan”s positive
role.
But back to the here and now. This week the U.S. House voted
to increase military ties to Taiwan, legislation which faces a
certain veto by Clinton. China is miffed, big time. With the WTO
vote coming up, it”s getting complicated.
Not for nothing, but hidden away in CIA Director George Tenet”s
testimony to a Senate Committee concerning John Deutch (more
on this later) was Tenet”s response to a question on current China
/ Taiwan relations. Tenet said there is a “high potential” for a
military flare-up across the Taiwan Straits within the next 12
months.
And I saw a piece that by 2010, Taiwan could be responsible for
50% of the semiconductors worldwide. [These figures are
admittedly all over the board, both higher and lower, due to the
confusion in defining various chip segments.] Am I the only one
who is concerned by this? Whether it”s through peaceful
unification or through force, China will have the ability to really
stick it to our economy someday.
Indonesia: There is growing concern of a coup attempt while
President Wahid is touring Europe. Hurry back, my man.
Pakistan: General Musharraf announced this week that it would
be 2 years before a national government is democratically elected.
At the same time Musharraf desperately wants Clinton to visit his
country during Clinton”s March excursion to India and
Bangladesh. Clinton is waiting to see more evidence that
Pakistan is serious about fighting terrorism. They aren”t. I think
he”ll meet Musharraf anyway if he”s already over there.
Haiti: The last U.S. troops left this pitiful nation this week (we
will still have some national guard forces there to help with
various projects). $3 billion was spent in Haiti with absolutely
nothing to show for it. I”m all for helping the developing world
but this place has been given more than enough chances.
Northern Ireland: What a mess. The IRA refuses to disarm and
the 2-month old power sharing agreement is about to go up in
flames. What a tremendous setback it would be. Sad, sad, sad.
[And just six months ago, Clinton spoke of Haiti and Northern
Ireland as his two big successes.]
Japan: The government has begun to borrow money from banks
to fulfill debt obligations to local governments and to cover
recurring expenses. Think about what they are doing. Normally
a government would issue bonds, since that is the cheapest way to
raise cash or fulfill obligations. They haven”t attempted this latest
maneuver since, literally, the day after WW II ended. Japan”s
government debts now match the country”s GDP and could grow
to 150% of GDP in 2 years. They are paying the piper for all of
the mammoth spending programs that the government has
instituted in a still failed attempt to jump start their economy. Yet
the Nikkei stock average hit 20,000 this week, a level not attained
since 7/97 (it closed the week below this level). Obviously, I”m
missing something.
WTO
As the elite of the world gathered in Davos, Switzerland (I wasn”t
invited), President Clinton gave a speech wherein he said, “We
are growing ever more interdependent. We can not build our
own futures without helping others to build theirs. It seems that
protectionist sentiment is greater now than it was 7 years ago.”
As I”ve railed about for months, Clinton and other Western
leaders keep talking out of both sides of their mouth as, at the
same time they profess liberalization, they insist on labor and
environmental standards that the developing nations simply can
not meet.
President Zedillo of Mexico echoed my position. “Labor
standards will converge with trade-induced development and
increasing wealth leads to better environmental standards.”
And I read this teeny, tiny blurb about Switzerland banning some
U.S. beef this week because it contained an illegal hormone. This
should have been a big, fat headline! European farmers (heavily
subsidized…much more so than even our own) have mounted a
campaign against genetically altered food products from the U.S.
For America, it represents a huge portion of our exports. While
discussion continues within the WTO as to the issue of granting
the U.S. concessions in this area, our producers can”t afford to
screw up by putting banned elements, however innocuous, into
the food chain. The headlines in Europe won”t be pretty.
New Hampshire
This state never fails to surprise. While I picked the winners of
the primary neither I, nor anyone else for that matter, could have
foreseen the drubbing that George Bush would take at the hands
of McCain. For the archives, the final results were, McCain 49%,
Bush 31%, Forbes 13% and Keyes 6% (as to the latter two, it”s
time to pack it in…I thought Keyes would have done much
better).
And on the Democratic side, despite losing 53-47 percent to
Gore, Bill Bradley really pulled off a stunning performance of his
own. Think about it. Bradley did better than Eugene McCarthy
did against LBJ in 1968 when the nation was in the throes of
Vietnam, and he did better than Ted Kennedy”s challenge against
Jimmy Carter in 1980 when America was dealing with stagflation
and the Iranian hostage crisis. Bill Clinton said it himself 10 days
ago. “The state of the union is the strongest it has ever been.”
So how does the charismatically-challenged Bradley get this far?
Democratic Party leaders keep denying the fact that it”s the
character issue and with 5 weeks to go before the next
Democratic primary, the game has been joined, particularly if
Bradley can keep his mouth shut about his fluttering heart.
As for McCain, no lack of charisma there and the Republican
race, thus far at least, is helping to destroy the myth that
endorsements matter. Bush has them all, McCain has Senator
Fred Thompson (but a damn good man to have on your side).
Commentator Robert Novak perhaps summed it up best when he
said that the New Hampshire vote was a “protest vote, protesting
politicians.” Gore and Bush represent the old school party
establishment. McCain and Bradley, while products of
Washington, have positioned themselves as outsiders. A neat
trick.
Well, this is one reporter who wishes them both the best. And
McCain is off to a flying start in South Carolina, home to more
veterans per capita than anywhere in the country. One week ago
the polls showed him 20% behind Bush in the race for the Feb.
19th primary. Thursday, a poll had McCain 5 percent ahead of
Bush. The sense of inevitability that cloaked George Bush”s
candidacy has been wiped away.
Some other thoughts:
The treatment of Vietnam war hero, Senator Bob Kerrey (now
supporting Bradley), by Gore supporters in New Hampshire was
disgraceful. Kerrey was pelted with mud and called a “cripple.”
I”ll refrain from getting too vicious towards Gore this time.
Suffice it to say that when confronted with the allegation
concerning his supporters, Gore denied it ever happened. Kerrey,
once again showing the class that would make him a hell of a
President in his own right, said “No big deal.”
McCain is raising something like $18,000 an hour on his web site
and Friday he received more great news when he got on the New
York State ballot.
Russ Verney, Ross Perot”s key aide and Reform Party kingpin,
was downright exuberant concerning John McCain”s performance
in New Hampshire. Months ago I mused that McCain would be a
hell of a candidate for the Reform Party. Of course, back then I
thought that would be McCain”s only choice. Friday, the Wall
Street Journal hinted that there is a slight chance that McCain
could garner their nomination (and the $12 million that goes with
it). Far-fetched? Not really. The Reform Party is floundering
and campaign reform is at the top of their agenda, as it is with
McCain. [The fact that the American people really don”t give a
damn about the issue hasn”t hurt McCain one bit.] So under my
scenario, if McCain becomes the nominee, the Reform Party can
endorse him as well before the Republican convention.
It could be a tough week for Al Gore as his 1996 Buddhist temple
fundraiser comes back to haunt him. One of those involved,
Maria Hsia, goes on trial. Word is that two of the nuns have already
fled the country. Hey, get back here, sisters!
In the New York Senate race, look for Hillary Clinton to take full
advantage of the extensive coverage being granted the Amadou
Diallo trial that commenced this week. For those of you not
familiar with the case, Diallo is the unarmed black man who was
gunned down by 4 white New York City police officers who
mistakenly thought he had a gun and had actually fired on one of
them. [It”s complicated.] It was a tragic, tragic accident. And,
of course, it”s all Rudy Giulliani”s fault.
Fatal police shootings in New York City have declined from 25 to
30 a year in the mid 90s to 11 in ”99. But try telling that to those
adopting the “get Giulliani” stance. And as an observer in these
parts, you can tell Mrs. Diallo would really like to move on with
her life. Instead, she is played as a pawn.
John Deutch…super sleuth
Deutch is the former head of the CIA whose acts with his home
personal computers I first discussed last November 6th in this
space. We all learned this week that Deutch was using the 3 PCs
at home for his most sensitive documents, including covert action
programs. As a CIA chief, Deutch was entitled to a secure
system at home but he said he didn”t want anyone snooping on his
work, thus the private PC use.
So it turns out that Deutch was surfing the Net on his Macs (and
yes, looking up porn sites), thereby leaving his system open to
every 2-bit hacker out there. In other words, Deutch was
potentially party to the greatest fear of government computer
experts, that being Russian operatives installing a “Trojan horse”
into a system whereby they can see everything but we can”t see
them. While current CIA Director George Tenet says our
security (let alone the security of the individuals involved in
covert acts…like trying to topple Saddam, I imagine) wasn”t
breached, he also admitted he couldn”t be sure.
Both Tenet and the CIA”s chief counsel held up an investigation
of Deutch for over a year, conveniently avoiding the independent
counsel statute. In conclusion, any rational person can also
surmise that John Deutch, through the possible compromise of
our security and that of operatives worldwide, may have blood on
his hands.
Random Musings:
–The current #1 best-seller on the New York Times list is “The
Rock Says” by the World Wrestling Federation”s ”The Rock.”
Heaven help us. And speaking of the WWF, this week CEO
Vince McMahon announced that he is starting a new pro football
league, the XFL, that will run from about February-April
(beginning in 2001). McMahon wants a new brand of “smash-
mouth football” and one that has more “attitude.” Geezuz, that”s
all America needs right now. McMahon will undoubtedly be
recruiting from some of the lesser elements of society to
accomplish his goal of making the throat slashing gesture part of
our national culture.
–Dirtball of the Week: Who else but NFL All-Pro Ray Lewis,
who is now charged with murder. While Lewis and his cohorts allegedly
plied their trade with a knife, and very skillfully according to the
coroner, I saw a comment from a New York Jets player that he
estimates 70-80% of NFL players have guns (though luckily most
don”t bring them into the locker room). And in commenting on
Lewis an anonymous NFL player said the following:
“Look at our society, the culture we live in. The hip-hop gangsta
is glamorized. It”s cool if you have money and still act like a
hoodlum. It”s cool to wear your gold chain and baggy pants and
hang out with the boys. One of the biggest groups being hurt by
that are NFL players.”
–Which brings me to John Rocker and baseball commissioner
Bud Selig”s decision to suspend him until May 1st, fine him
$20,000 and mandate that Rocker continue his sensitivity training.
Selig said in part, “Major League baseball takes seriously its role
as an American institution and the important social responsibility
that goes with it…The terrible example set by Mr. Rocker is not
what our great game is about, and, in fact, is a profound breach of
the social compact we hold in such high regard.”
You can go on and on about this case. So since I have to give an
opinion, I say baseball has every right to suspend him for as long
as they want to but baseball can not attempt to “cure” Rocker.
Or, in other words, you can”t legislate hate out of baseball but an
employer still has the right to say, “there are consequences for
your actions.” Rocker and Jorg Haider…perfect together.
–So thank God for St. Louis Rams quarterback Kurt Warner. By
now you all know this fairy tale come true. Long-time scribe
Jerry Izenberg wrote, “Kurt Warner, the MVP of Super Bowl
XXXIV, stood in a hotel ballroom and presented himself as
living, breathing testimony to the American Dream – the same one
that stokes everybody”s fire whether it is earning enough to pay
off the mortgage or send the kids to college or get the promotion
that will make both possible.”
–Governor George Ryan of Illinois did the right thing in issuing a
“stay” on future executions in his state. During a period of time
when 12 were put to death, 13 death row inmates were
exonerated. Clearly, there is something wrong with the system in
Illinois. [On the other hand, in my state of New Jersey, we have
loads on death row and haven”t flipped the switch in something
like 30 years. Ridiculous.]
–During his State of the Union speech, President Clinton warned
that miniaturized nuclear, chemical or biological weapons are the
“likeliest threat” the U.S. faces. The CIA knows of no such
threat. “Poetic license,” said a national-security official. [Source:
Newsweek]. *As to attacks with full-scale weaponry, that”s a
different matter.
–The other night I watched some of the New York Knicks-
Orlando Magic game wherein the Knicks got their butts kicked by
an inferior and undermanned team. [Due to a trade, Orlando
dressed just 9 players.] Except for one player, there was zero
effort on the part of the Knicks. At the end of the game the usual
players got together for their now familiar post-game prayer,
though this time there had to have been a twist. “Dear Lord,
forgive us for putting out zero effort and ripping off every paying
attendee.”
–Attention “Simpsons” fans. Rumor has it that Maude Flanders
will die on the February 13th episode (seriously), thereby opening
up all sorts of story possibilities with Ned.
Gold closed at $314 [A huge rally late Friday on an
announcement that a major producer was pulling their hedging
program. Basically, a bullish, albeit possibly just temporary,
development.]
Nymex Crude Oil, $28.70 [The U.S. won”t pressure OPEC to
increase their production though the latest rumors are that
OPEC will lighten up, anyway, at their March meeting.]
Returns for the week, 1/31-2/4
Dow Jones +2.1% [-4.8% for January]
S&P 500 +4.7% [-5.1%]
S&P Midcap +3.5% [-2.9%]
Russell 2000 +4.1% [-1.7%]
Nasdaq +9.2% [-3.2%]
Returns for the period, 1/1/00-2/4/00
Dow Jones -4.6%
S&P 500 -3.1%
S&P Midcap +0.1%
Russell 2000 +4.1%
Nasdaq +4.3%
Bulls 52.3%
Bears 29.7% [Source: Investors Intelligence]
Coffee Mug: Reminder, if your coffee mug is damaged, please
contact me, at the aptly named link, “Contact Us,” which you will
find throughout this site. **Update 2/9: WE ARE NOW OUT
OF MUGS. IF YOU RECEIVE ONE THAT IS DAMAGED, PLEASE
STILL CONTACT ME AND I WILL DO MY BEST TO GET YOU
ANOTHER ONE.
I have an interesting piece on Alexander Solzhenitsyn this week,
posted on “Hott Spotts.” Heck, I wrote it myself and I only pick
what are interesting topics…to at least me, of course.
Brian Trumbore
