Last year, when Lawrence Summers replaced Robert Rubin, I
said something like “Summers certainly seems competent but he”s
not the kind of guy I”d like to go out and have a beer with.” Now
I”m beginning to wonder about the first part as well.
Oh sure, Larry Summers is bright and his defenders would
trumpet some of his behind the scenes successes, but whereas I
had real problems with his predecessor, mostly for strictly
political reasons, at least Rubin was a diplomat. I would submit
the jury is still out on Summers. And in this age of globalization,
where the art of diplomacy is increasingly important, I”m not sure
we want Larry Summers at the helm the next time we have a
worldwide financial crisis.
Summers got in trouble with some remarks about the Treasury
and the bond market. To wit, he said that he “expected the
Treasury to continue to use the entirety of the yield curve” in its
decisions on the reduction of our federal debt as well as debt
issuance and what maturities to issue. In a nutshell,
confusion reigned in the bond pits. Summers statements were
taken by some to be in total contradiction to earlier statements
from the Treasury Department. And uncertainty is normally not a
good thing.
A reporter I find to be a great read, Floyd Norris of the New
York Times, took a different stand from mine when he wrote on
Friday that Summers, in creating the confusion, had been a
“brilliant salesman” and had saved U.S. taxpayers some $1 billion
in interest costs by first talking down the long bond two weeks
ago, when Treasury strongly hinted that they would drastically
reduce the supply of them, right before they auctioned off a new
series this week. [In essence, we went from a 6.75% 30-year
bond to one that was auctioned off at around 6.35%, thus the
interest savings over time.]
I can”t disagree with Norris” thesis except I think back to
October, 1987, and some very caustic statements made by then
Treasury Secretary James Baker. Baker was unhappy over the
German Bundesbank”s interest rate policy. The Saturday before
Black Monday he let them know it in a very public fashion. No,
this wasn”t the sole cause of the crash but Baker”s lack of
diplomacy certainly exacerbated the situation. And I can just see
Lawrence Summers (who has a tendency to be rather bombastic)
as a crisis has our market”s on the brink, saying something really
stupid that pushes us over the edge. Bear markets are normally
caused by war or rising interest rates. Add to that bad legislation,
poor political leadership and ill-advised diplomacy. We already
have rising interest rates and we may not have a diplomat at
Treasury.
[The Treasury yield curve continued to show a severe inversion,
with short rates substantially higher than the long end. At week”s
end…2-year, 6.63%; 5-year, 6.72%; 10-year, 6.62%; 30-year, 6.29%]
Federal Reserve Chairman Alan Greenspan strides before the
House this week to give his semi-annual Humphrey-Hawkins
testimony on the state of the economy. In addition, the CPI and
PPI are released so the markets could rock and roil again.
As for stocks, it was more of the same. On Monday, Dick Jones
and Brigitte Nasdaq started down the same path together, just as
they do each and every week. When they get to the fork in the
road, Dick takes the one marked “Despair,” Brigitte follows that
marked “Prosperity.” And so it was despair for Dick as his
cousin, Dow Jones, tumbled 538 points, all the way to the 10425
level. It was the Dow family”s 2nd worst point drop ever and the
worst weekly percentage decline since last October. But, at the
same time, pretty Brigitte Nasdaq was sprinting to new highs
(except for a 2% decline on Friday…a particular script she
wanted didn”t materialize).
The Dow is now 11% from its all-time high of 11722, an official
correction. But on the economic front there was conflicting data
as a powerful report on 4th quarter productivity, coupled with a
tame wage figure, led experts to insist the good times will
continue but later, a weaker-than-expected report on retail sales
hinted at a possible slowdown. In the middle was the reality of
rising oil prices which have done a number on the transportation
sector (the Dow Transportation Index is already off 19% this
year), among others. Bottom line, we still have a market priced
for perfection, with leading issues like Cisco trading at
price/earnings multiples of 140, or higher. When the slowdown
finally materializes, earnings projections will head south. And so
will our perky Brigitte Nasdaq.
Speaking of Cisco, 4th quarter earnings were released and, once
again, they beat expectations. The stock”s market cap is now
around $450 billion. Analysts spoke of Cisco becoming the
market”s first $1 trillion company. That”s euphoria.
And Microsoft was taken to the cleaners on Friday, to the tune of
$6, as one leading computer expert said that users would have
problems with the as yet to be shipped Windows 2000 software.
Finally, much was made of the cyberattacks on major sites like
Yahoo! and Amazon.com. Since I have written of the
government”s concerns for well over a year, I certainly wasn”t
surprised and I”m not going to make a big deal of what happened
this week. The real issue will be upcoming attacks on our defense
industry and other key national security targets. What we saw
this week is nothing more than a flood or big storm. Just get used
to it and remember the directions to your local mall.
International Affairs
Russia: As the New York Times stated in an editorial, “The
Russian tricolor flag that now flies over Grozny seems a symbol
of shame.” And this week, as the Russians pursued the Chechen
rebels into the mountains, they blasted away at one village after
another. Scores of civilians were killed. Human Rights Watch
documented cases where Russian units executed civilians for
being…Chechen.
And then there is the case of Andrei Babitsky, a Russian citizen
and reporter for Radio Free Europe/Radio Liberty. Babitsky was
not a friend of the Kremlin since he tried to report the truth on
what was happening in Chechnya. So the Russians did what
Russians/Soviets did years ago. They arrested him. Then
Babitsky disappeared. Some say he was killed. Russia, suddenly
worried over the international uproar, then claimed they had
exchanged Babitsky, again, their own citizen, for some Russian
prisoners. The Chechens denied they did this. No one knows
where he really is as of this writing. Russian President Putin was
mum on the subject. Think about this situation and what would
happen in any “civilized, democratic” society were something like
this to occur. President Clinton or Prime Minister Blair would
certainly have to speak up.
The Washington Post had the following to add in an editorial.
“(The Russian government) has behaved, in the matter of Andrei
Babitsky, with a level of deceit and contempt for civilized norms
that have embarrassed even the Soviets. Anyone tempted to give
Acting President Putin the benefit of the doubt will surely think
twice, or three times, henceforth.”
China: Russia”s new best buddy acquired a guided-missile
destroyer from them that will pose a real threat to our aircraft
carriers should we have to come to the aid of Taiwan. Coupled
with the acquisition of 4 Russian submarines, this gives China a
military capacity they didn”t have before. Also this week, China
reportedly arrested another 2,000 Falun Gong members.
Japan: Their economy is supposed to be in recovery mode but this
week the government strongly hinted that the economy suffered
through a negative 4th quarter. If true, that”s two down quarters
in-a-row, ergo, a recession by most definitions. The stock
market, meanwhile, continues near multi-year highs. I said it last
week and I”ll say it again. I”m missing something.
Indonesia: In the past year the death toll from sectarian violence
is 2,000 and counting. In most parts of the country, Muslims and
Christians live in separate neighborhoods and don”t dare to visit
the “other side.” This is one “emerging market” that continues to
submerge. And it”s really a shame. The new president, Wahid,
continues to act heroically. This week he allowed former
President Suharto to become a target of the ongoing corruption
investigation into the government”s finances as well as it”s
relationship to big business in Indonesia (crony capitalism). This
effort needs to succeed for the country to embark on a true path
of reform. But the question is, with all of the violence, will it
even make a difference?
Iran: Key parliamentary elections are being held this week.
Here”s your viewer guide. Politicians shouting “Death to
America” are generally not our friends. Those who proclaim “We
Want Baywatch” should be supported to the hilt.
Israel: Back in 1978, Israel invaded southern Lebanon in order to
create a security zone for its own civilians on the northern border.
Meanwhile, Syria has essentially their own army in Lebanon and
in the middle are the Hezbollah guerrillas (implicitly backed by
Syria) who have constantly battled the Israelis. A cease-fire was
signed in 1996 but this week fighting escalated between
Hezbollah and Israel. Israeli Defense Minister David Levy said
“The soil of Lebanon will burn.” Bottom line, peace between
Israel and Syria is unlikely to break out anytime soon.
Kosovo: Democratic Senator Joseph Biden made this telling
remark to an international security conference in Europe this
week. “I think the lesson of Kosovo is that we didn”t learn from
Bosnia.” Our long-term commitment is courting disaster. “If we
tell our publics (NATO nations) that we can intervene (in
conflicts) without loss of life, we are creating a horrible standard
for the conditions on which we will act.” A big-time swipe at
President Clinton. Separately, Human Rights Watch (they were
busy this week) documented that NATO bombing killed 500
civilians. This seems to be a real number. Yugoslavia said 1200-
3000. NATO had estimated about 130. Yes, civilians are a
casualty of war but this whole episode makes it easier for the
Russians to say, “Why are you giving us grief?” as they blast one
Chechen village after another.
Serbia: Milosevic”s loyal defense minister was assassinated.
Austria: No rioting in Vienna this week over the controversial
Freedom Party. Heide Schmidt, former close associate of Party
leader Joerg Haider, who ran for President under the Freedom
Party banner, said Haider was a “wolf in sheep”s clothing” who
will do anything to satisfy his lust for power. “He would be a
very dangerous man if he ever became chancellor.”
On the other hand was a statement by foreign policy expert
Walter Lacquer, addressing the European Union”s panicked
reaction to the Freedom Party and Haider. “The European
ministers, above all France, united in their hostility to Haider and
everything he stands for, have been competing to establish closer
links with Iran, even though Iran has made no secret of its
acquiring arms of mass destruction, nor of its desire to destroy
the enemies of Islam.” This could be the new definition of
“hypocrite.” As I said last week, the rise of Haider is a problem,
but what”s required is balanced reporting.
Colombia: The U.S. military is worried about the Clinton
administration”s proposal to send massive new military arms aid
to help the government”s anti-drug plan. They fear another
Vietnam-type involvement on the part of our armed forces.
Northern Ireland: The peace process broke down and Britain has
retaken control of the government. However, there are signs the
IRA is finally waking up to disarmament.
This Week in Politics
The Republicans largely stole the show, in particular John
McCain. McCain achieved the “hat trick” by appearing on the
cover of Time, Newsweek, and U.S. News. Yes, the press has a
love affair with McCain but, while I”m a fan as well, we have an
awful long way to go. The latest polls in South Carolina show
that the Bush slide may be over. Bush leads McCain 46-39
percent (Alan Keyes is at 7%), this after McCain had evened the
score right after New Hampshire. Nationally, in a Newsweek
poll, Bush still led 57-26.
In some other crucial states with upcoming March 7th primaries,
Bush leads McCain 44-37 in New York and 46-27 in California.
On the Democratic front, nationally, Al Gore leads Bill Bradley,
55-22. And, what must be particularly distressing for Bradley,
Gore has vaulted back into a 56-32 lead in New York. Just last
month this race was close to being tied. Since Bradley”s
basketball career took place in New York, #24 is in big trouble.
Even Michael Jordan was recruited to cut a campaign spot for his
friend.
Of course the big news in my own New York metropolitan area
was Hillary”s formal announcement to run for the U.S. Senate.
And in a touching video for party regulars, Hillary confides that
she “makes a mean tossed salad and a great omelette.” Gosh, I
really admire that. In her campaign statement she added, “I will
fight against divisive politics of revenge and retribution.” I”m
sorry, folks, but in light of her record, her husband”s and the
attacks launched by cronies such as James Carville, this is
laughable.
And did you hear about the flap over the selection of a song that
helped to introduce her at the campaign launch? It was none
other than Billy Joel”s “Captain Jack.” Now even I blanche at a
line or two from this song and I wouldn”t dream of posting one in
particular on my web site. Yet for some reason her campaign
found it appropriate. [I”m sorry if you don”t know this song…
just trust me when I say it is certainly offensive to many]. In the
race itself, Rudy Giulliani leads Hillary 45-42, a statistical dead
heat.
And then there is Al Gore. I realize that some of you don”t like
my take on the political scene. Sorry, it”s Stocks and News,
politics is news, the political process can affect your financial
well-being and I have an opinion. But I”ll leave it to columnist
Arianna Huffington to discuss Gore”s penchant to lie.
“You have to wonder what this compulsive need to embellish
what is already an impressive resume says about Gore. It”s not
enough that he served in Vietnam; he has to have come under
enemy fire. It”s not enough that he worked as an investigative
reporter in the 1970s; his reporting has to have sent a bunch of
people to jail. It”s not enough that he”s strong on the
environment; he has to have written the superfund law.” And it
should be added that Gore also claimed to be a sponsor of the
McCain/Feingold campaign reform bill even though when Gore
was in the Senate, Feingold wasn”t.
In other events of a political stripe, Steve Forbes finally decided
to take his hand out of the family cookie jar. Actually, I imagine
his wife snuck up from behind and when Steve least expected it…
Wham! She crushed his fingers. To which Steve said, “Ouch!
What was that for darling?” And Mrs. Forbes replied, icily, “If
you don”t drop out tomorrow, the girls and I will kill you.” To
which Steve slunk away and gave up.
And in my home state of New Jersey, Forbes isn”t the only mega-
millionaire who has entertained dreams of higher office. In fact,
in my home town, former Goldman Sachs CEO Jon Corzine has
launched his attempt for the Democratic nomination to the U.S.,
Senate. Corzine has already spent some $3.2 million of his own
money. My new friend, DS, who works with Newark”s city
council, told me this week that he met Corzine and “wasn”t
impressed.” As DS is at the opposite end of the political
spectrum from me, I smiled.
And then there is the Reform Party. As I previously mentioned,
this Party is a mess. So Friday, Governor Jesse Ventura, Reform”s
big star, left because of all the internal turmoil. Ventura
suggests Donald Trump as the standard bearer for President. The
Dallas “Establishment,” i.e., Ross Perot, evidently wants Pat
Buchanan. Perot has been strangely silent, really since the ”96
election. Actually, has anyone seen him? Is he still alive?
But back to Ventura. The mere fact that he thinks Donald Trump
would make for a good candidate should forever preclude
Ventura from attempting a run at higher office himself.
Finally, columnist Charles Krauthammer had perhaps the best idea
of the week, pairing up McCain and Bush, with McCain at the top
of the ticket. This would fuse the Party”s base to McCain”s
independents.
Random Musings
–AIDS is now killing Africa”s teachers at an incredible rate.
According to a report by Kevin Whitelaw of U.S. News, 1/3 of
the teachers in South Africa are now infected with the virus.
Without the teachers, how can the poor kids learn and somehow
bring a generation up from poverty?
–And speaking of South Africa, flooding there and in neighboring
Mozambique is of staggering proportions. The pictures are
incredibly depressing but U.S. newscasts are still full of Elian
Gonzalez garbage so I guarantee that 99% of Americans are
unaware of this huge disaster. And I haven”t heard a word from
Clinton offering U.S. aid. Note to Republicans: Say something to
show you care and pick up some votes come November.
–I normally don”t comment on accidents like the Alaska Airlines
disaster but I think we all now want to know if our plane has a
faulty “jackscrew” when we board.
–The Charlotte Hornets retired their first uniform number, the
#43 worn by Bobby Phills. This got me thinking. If you play
basketball, drive over 100 mph and die in a car crash (while
endangering innocents around you), it”s a sure way to achieving
some form of immortality. The New Jersey Nets did the same
with Drazen Petrovic, who played a whopping 3 seasons before
deciding to take a spin at 120 mph on Germany”s autobahn.
“Daddy, who was Bobby Phills and why is his jersey hanging up
there?” “Well, Jimmy, Phills was a very mediocre ballplayer who
decided to drag race with another teammate and he hit an
innocent person head-on!” “Gee, Daddy, can we go drag
racing?”
–Then there is the case of Kansas City Chief”s linebacker Derrick
Thomas who died of an aneurysm after his own car crash left him
paralyzed a few weeks ago. By all accounts, Thomas was a good
person. But he didn”t wear his seat belt. That”s his legacy.
–Author Thomas Stanley just published a new book “The
Millionaire Mind” (the follow-up to his #1 best-selling “The
Millionaire Next Door”). Here”s what Stanley has found in his
latest study. The average millionaire made Bs and Cs in college
and had a SAT of 1190. He”s a 54-year old man, married to the
same woman for 28 years and has 3 children. Stanley also writes
that the keys to success seem to be honesty and discipline, getting
along with people, having a supportive spouse and working hard.
Nothing on the impact of beer.
–So did you see the latest problem with “Who Wants to be a
Millionaire?” Turns out the insurance company, Goshawk (a
U.K. outfit), is upset that the questions aren”t harder and that the
show doesn”t have dumber contestants. It turns out that
Goshawk has to pay out prize money to contestants who win
$500,000 or more. There is a $1.5 million deductible and a
ceiling of $5 million (or five, $1 million winners). Thus far there
have been two, $1 million winners and three, $500,000 ones.
Now with the British version, there has yet to be a grand prize
winner.
–I”m sorry, I can”t get myself to like Ken Griffey Jr. He owes
Seattle big time for letting him accumulate about 100 extra home
runs through his playing in that old launching pad.
–The Mayo Clinic has come out with a study that purports to
show optimists live longer than pessimists. Ergo, your editor is in
deep trouble.
Gold closed at $313
Nymex Crude Oil, $29.35 [International Energy Agency said
worldwide inventories may continue to fall sharply. At the same
time, Saudi Arabia supposedly told its customers it was keeping
production curbs in place].
Returns for the week, 2/7-2/11
Dow Jones -4.9%
S&P 500 -2.6%
S&P Midcap -0.4%
Russell 2000 +2.2%
Nasdaq -3.6%
Returns for the period, 1/1/00-2/11/00
Dow Jones -9.3%
S&P 500 -5.6%
S&P Midcap -0.3%
Russell 2000 +6.4%
Nasdaq +8.0%
Bulls 53.2%
Bears 27.9% [Source: Investors Intelligence]
Note: You may have noticed I took down the free coffee mug
offer on the home page. But look! In the upper right hand
corner of this Week in Review, you can still see the mug icon.
Yes, you can order one. Act fast. My friends at
“Mycoupons.com” caused a run on my stock this week. But I”m
very pleased to have them aboard. Drink up!
And no, re our own “Lamb in Command,” I don”t know who”s
going to win the race at Daytona. You”re welcome to bet on the
outcome.
Brian Trumbore
