“It is becoming increasingly difficult to explain the usefulness of
my work to grieving Chechens. Every day, I am told that our
work is pointless: The international community doesn”t care
about Chechnya, and won”t do anything anyway, so why record
its suffering?”
–Peter Bouckaert, Human Rights Watch, in documenting at least
100 executions in the “liberation” of Grozny.
Thursday night I saw the German television footage of the
Russians “filtration” camps in Chechnya. A Russian unit, upset
they had to carry out their superior”s orders, allowed this crew to
follow them around. Since John McCain is the only presidential
candidate with the guts to blast Moscow over the handling of this
war, if I were him I”d incorporate the footage into his campaign
ads as a way of reminding Americans that foreign policy matters.
After all, as I mentioned last week, it was President Clinton who
was recently fawning all over Russian President Vladimir Putin.
[Friday, Clinton did say that the charges of war crimes were “very
troubling.” He didn”t say why in the past he has used the term
“liberation” to describe Russia”s actions.]
But back to the footage which evidently is being given wide
exposure now on Russian TV (a good thing) and was shown
Friday on some U.S. networks. It shows the Russians dumping
the Chechen bodies into mass graves. At one point, a vehicle
was seen dragging a dead body. The voice-over said, “There are
further pictures of mutilations we simply can”t show you.”
Last week on “Meet the Press,” McCain labeled the whole
situation in Russia as being “very dangerous.” But when Western
leaders like our President fail to speak up, or even more scary, fail
to grasp the situation, then we are giving Russia a license to move
from Chechnya on to other lands. And on the whole issue of
“Who is Vladimir Putin?” I have obtained permission from Radio
Free Europe to reprint a terrific piece by one of their reporters. I
will post it Thursday, March 2, on “Hott Spotts.” If geopolitics is
your bag, this will be a must read.
Wall Street
Let”s start out by updating some numbers. The Federal Reserve
began its policy of raising interest rates last June 30. The Dow
Jones closed that day at 10970, the Nasdaq, 2680. With the Dow
finishing this week at 9862 (the lowest close since last April) and
the Nasdaq at 4590, that means that since the Fed commenced
their attempt to try and prick the bubble, the Dow is down 10%
while the Nasdaq is up 71%! “Old” vs. “New.”
And the divergence between the two since the start of the year is
just as telling. Dow off 14%, Nasdaq up 13%. Folks, disparities
like this haven”t existed, ever.
But wait, there”s more. Let”s broaden the parameters a bit and go
back to 10/8/98, the last major bottom for all of the broad
indexes. Since then…
Dow Jones +28%, S&P 500 +39%, Russell 2000 +80%,
Nasdaq +223%!!! 223%!!! Geezuz.
The Wall Street Journal had an excellent piece on Thursday
concerning stock market valuations and a comparison between
the levels right before the wicked 1973-4 bear market and the
valuations of today.
In 1973, the median price/earnings ratio on the Top 20% in the
S&P 500 was 33.9, while the median on the rest of the index was
12.3. Today, the median p/e for the Top 20% is 70.8, with the
other 400 issues at 14.7.
Now since the historical average p/e is 14, that means that the
bulk of stocks are not necessarily grossly overvalued (nor can you
yet say they are significantly undervalued). But the leadership is
in the stratosphere and I keep remarking to my market buddies,
when the hell is this going to crack? [HK in Toronto remarked
that at his financial services firm, an analyst came in calling a
particular stock with a p/e in excess of 200, cheap. HK, a veteran
in the business, said he”s now seen it all.]
As many analysts have pointed out, the link between the old and
new economies could be as follows: If the economy ever slows
(and Friday”s revised, emerging market-like 4th quarter GDP of
6.9% certainly isn”t pointing to an imminent slowdown) then
capital spending amongst the old economy issues will slow and,
eventually, that impacts the new economy earnings, i.e., how then
would you justify a p/e of 70 with declining, not rising, earnings?
Of course right about now in this discourse I can just hear some
of my technology advocates saying, actually, the old economy has
no choice. They have to keep spending, regardless of a
slowdown, just to keep up with change or they”ll die. And a clear
example of this would be Friday”s blockbuster deal between the
Big 3 auto makers, Ford, GM and Daimler-Chrysler. The 3
created a new Internet alliance whereby they will do all of their
purchasing of auto parts online through one coordinated site (run
by Commerce One and Oracle). The savings could be in the
$billions as the Big 3 buys about $250 billion in parts each year.
Well, having given you both sides I still say, as for the Nasdaq,
CRASH!! And after all, give me a little credit now for my
consistent bearishness (except for 7 correctly bullish weeks last
fall). You see where the Dow has gone since June 30, or last
April for that matter. Nowhere fast. But I, like every single other
analyst, failed to see the extent of the explosive rally in the
Nasdaq. Where”s my Lawrence Welk bubble machine anyway?
And it was an interesting week for Alan Greenspan watchers.
Boy, some big Wall Street names are abandoning him in droves.
4 weeks ago, Greenspan told us the gains in productivity that we
have witnessed were real and a positive, then this week he said
that this productivity was a bad thing, specifically because it
creates a situation where demand outruns supply. But, more
importantly, he continued to make it abundantly clear that the
Federal Reserve would keep on raising interest rates. At week”s
end the yield curve looked like this…
1-yr. 6.15%, 5-yr. 6.49%, 10-yr. 6.35%, 30-yr. 6.16%
Other notes:
–U.S. gasoline consumption is up 25% in the last 10 years with
half of that increase coming from our love affair with SUVs.
Nonetheless, OPEC oil ministers, many of whom also drive
SUVs, must feel the owners pain because clearly a reduction in
the production cuts is on the way. But with the huge drop-off in
inventories that we have seen over the past year, it”s apparently
going to take awhile before we see a significant decline in prices.
–When I was entering Wall Street, I always heard that Monday
was the worst day for trading stocks and Friday was the best.
Well, it”s been a long time since I had reason to think otherwise
until I glanced at Yale Hirsch”s “Stock Market Almanac” after we
had our 5th straight Friday decline (4 of which exceeded 200
points on the Dow). Between 1952 and 1989, yes, Monday was
the worst trading day of the week, up only 44.5% of the time
while the others were up an average of 54.3%, with Friday the
best at 57.6%. But beginning in 1990, Monday became the best,
up 58.7% while Thursday is now the worst, up just 48.5% of the
days (the latter data is for the period, 1990-1998). As for Friday,
start taking it off and do your homework on Sunday.
International Affairs
China / Taiwan: In March of 1996, China fired some missiles into
the water near Taiwan as a way of sending a message to the
people before they went to the voting booth to elect a president.
And this week, right before another presidential election in
Taiwan (March 18th), the Chinese threatened the Taiwanese
again, warning that China wouldn”t wait indefinitely for Taiwan
to come to the bargaining table. If Taiwan continued to delay
reunification talks, “then the Chinese government will be forced
to adopt all drastic measures possible, including the use of force,
to fulfill the great cause of reunification.” Now even I believe it”s
just a bunch of rhetoric but whoever represents the Chinese on
the public relations front should be fired.
First off, they aren”t going to influence the election in a manner
acceptable to them. The Taiwanese don”t look kindly on threats.
But also, with China in a dogfight to gain WTO membership, how
can this bellicose talk win votes in our Congress or with the
European Union, both of whom must approve before China can
be granted full membership. And then the Chinese compound
things by announcing a new delay in granting cell phone licenses
to foreign companies.
And back to the March, 1996 missile episode. It turns out the
Taiwanese really bungled things themselves. After the display of
force, the Taiwan government announced that the missiles were
unarmed (which was the case). But in their effort to allay the
fears of their populace, they tipped off the Chinese that there was
a mole in their ranks because only a high level military or political
authority could have passed on such information to Taiwan.
What has just come out is the fact that the Taiwanese statement
led to the execution of a Chinese general, his mistress and a senior
colonel. And the whole issue has drastically affected Taiwan”s
espionage efforts. Ergo, if China ever attacks, Taiwan won”t get
the warning it may have otherwise received.
Iran: Well, the “We want Baywatch” crowd handily defeated the
“Death to America” adherents in last week”s parliamentary
elections. The win by the reformers could have a profound effect
on the region. But now cooler heads must prevail. The hard-line
clerics who still largely run the country are none too pleased. The
reformers better proceed cautiously and there are those who
question whether the reform-minded President Khatami is up to
the challenge.
The problem is that the election has generated runaway
expectations and leaders are worried that the reformers, tired of
20 years of puritanical rule, will grab for freedoms before they are
enacted into law.
Kosovo: The violence in the city of Mitrovica threatens to derail
the whole peace mission. NATO certainly understands this and it
just takes one grenade killing 2 or 3 peace-keepers to screw
everything up. And you know that Al Gore is praying the Serbs
and Albanians cool their jets until after November 7. [If you
missed the excellent PBS “Frontline” program on Kosovo last
week, you can still catch part II on Tuesday.]
Africa: As the continent implodes, Nelson Mandela (I like this
man more and more, it”s just too bad he has little time left) blasted
the leadership of Burundi, where a minority tribe in essence holds
all of the power over the majority one and thus, violence
continues unabated. Mandela told the government to get its act
together. “We are here in this world only once. An opportunity
missed will never happen again.”
And in Nigeria, fighting raged in one city between the Muslims
and Christians. The Muslims want to impose Sharia, or Islamic
law. The Christians, of course, are scared by this potential
infringement of their own rights so a battle erupted. Like most
battles in Africa, it started with fists, then graduated to machetes,
then fire and guns. Voila! 200-plus dead.
[To my good friend, Father Bill, I know Nigeria is your adopted
country, but please think twice about heading back anytime
soon.]
This Week in Politics
The complaint has always been that our political campaigns are
way too long. I, for one, am glad they are because the process
allows you to fully vet the candidates. And while Americans
seem energized by the current choice (at least in those states
who”ve held primaries), I”m a little disconcerted by what I”m
seeing. But first, for the record, here are the results of the last 3
Republican votes.
South Carolina: Bush 53% McCain 42%
Michigan: McCain 50% Bush 43%
Arizona: McCain 60% Bush 36%
And it”s also clear this year that endorsements carry zero weight,
though in the case of Michigan Governor John Engler, he carries
a lot of weight, just not at the voting booth. In fact an exit poll in
Michigan found that 57% felt endorsements meant nothing. And
therein lies a big reason for McCain”s success. It”s partly a
rebellion against the party establishment.
But I”m wrestling with what McCain stands for. So far, nothing.
And that”s why we have long campaigns. Today, I”d still
probably vote for him. November 7th? I”ll keep watching the
debates.
As for Bush, his campaign war chest is now down to just $10
million (McCain supposedly has $8 million, with more on the
way). The Bush folks stupidly spent $2 million in McCain”s home
state of Arizona while McCain, himself, spent just $27,000. And
Bush has been continually adjusting tactics.
Columnist Michael Kelly had some good comments on the
Republican primaries that allow crossover voting, as well as the
hand-wringing that is taking place among party regulars who
can”t stomach McCain even though the polls continue to show he,
not Bush, could whip Gore in November.
“Thus as McCain and Bush enter a series of primaries where
crossover voting is not allowed, Bush is nicely poised to win the
Republican nomination and lose the election, while McCain is
well situated to win the election with his plurality – built ”McCain
majority,” but will not get a chance to do so – unless the
Republicans fight against their natural perversity and choose to be
popular.”
This Tuesday, the Republican primaries in Virginia, Washington
and North Dakota are all open to Democrats and Independents,
while on March 7, the New York and California ones are closed
to Republicans only. It seems clear that Bush has to win one of
the 3 this week or McCain may have enough momentum to carry
one of the two big enchiladas on Super Tuesday.
On the Democratic side, I must say that the debate at the Apollo
Theatre was terrific television. Yes, first class entertainment. I
could watch that every week. What did they say? Little that
made sense, and that”s what was funny.
For example, Bill Bradley (who my friend Johnny Mac observed
didn”t gain one ounce of “cool” even though he was a teammate
of Walt “Clyde” Frazier) mentioned that on the way to the debate
he was driving up Frederick Douglass Boulevard and couldn”t
help but notice all of the empty and rundown buildings. Then, in
Gore”s response, the Veep pointed out a beaming Harlem
Congressman Charlie Rangel. Not one commentator picked up
on the irony of this exchange. Hello!! Rangel has been the
congressman in this district for 30 years! So who”s responsible
for all the empty buildings and the despair? Why is Rangel
smiling? I”ll tell you why, but not here.
And how about the Democrats choosing to have Al Sharpton ask
the first question? And then there was Gore, in another moment,
pointing out an absolutely pitiful politician, Newark Mayor
Sharpe James. Ah yes, the debate at the Apollo was all about
pandering. And hey, Gore and Bradley pulled it off.
Finally, the Amadou Diallo verdict will resonate throughout the
U.S. Senate race in New York. The whole case was a terrible
tragedy. There will be much more to add as to everyone”s
reaction next week. Suffice it to say that on Friday night I saw
Jesse Jackson saying “I don”t know what planet the jury was on.”
Well, at least I now know where Jesse is these days. I was
wondering why he was so mum on the disasters in the Congo,
Burundi, Nigeria…or the awful tragedy that is the flooding in
Mozambique. He could use his influence to rally support in
Congress for U.S. involvement and leadership. Clearly we can
afford to send $millions to Mozambique where 80% of their food
source has been wiped out. But that would be leadership and true
compassion for a suffering people. That”s not what Jesse is all
about, I guess.
Random Musings
–So I watched David Letterman”s first show back and I must say
it was touching when he brought his doctors and nurses out for a
bow. That little bit created more goodwill for the medical
profession than any ad campaign would have generated.
–A survey found that 62% of Fortune 100 companies didn”t
answer an email asking “Who is your CEO and how do I contact
him or her?” I think someone is forgetting what “service” is all
about. Look for 62 companies to soon drop out of the Fortune
100.
–Sammy “the Bull” Gravano, the mobster who ratted out John
Gotti, was arrested this week in Arizona for his involvement in a
large drug ring. The ring was mostly distributing amphetamines.
What was most disturbing was the revelation that the undercover
agents working the case found that 90% of the 14 to 20-year-olds
attending “rave” parties (gatherings of up to 2,000) were buying
and taking the drug Ecstasy.
–Speaking of drugs, former HEW Secretary, Joseph Califano,
wrote a piece that said rural 8th graders are now 83% more likely
to use crack cocaine than their urban counterparts. They are also
twice as likely to use amphetamines (like Ecstasy). This flies in
the face of conventional wisdom, of course, but makes sense
when you realize that successful big city efforts, like in New York
City, are forcing the dirtball dealers out into the suburbs and rural
areas.
–But back to Gravano. On the same day he was being arrested,
former Olympic figure skater, Tonya Harding, was in court again,
this time to answer to questions about her assault on her live-in
boyfriend. Tonya used a hubcap this time, in lieu of the crowbar
she deployed against Nancy Kerrigan. So guys, let that be a
lesson to you. If you go into a woman”s home and see a hubcap
lying around, it”s probably best to simply say, “Ahh…I just
remembered I left my stove on.”
–900,000 Americans had laser eye surgery in 1999 and that total
is expected to rise to 1.7 million in 2000.
–I admitted last week that the disparity between rich and poor in
this country is a bit troubling. A New York Times piece detailed
a plight that only those living in Silicon Valley can truly
appreciate. 34% of the estimated 20,000 homeless in Santa Clara
county have full-time jobs. Teachers, policemen and firemen are
seeking homeless shelters because they are “scraping by” on
$53,000 salaries. The reason is real estate. For many of the
working poor, 80% of their income goes to housing. Recently, a one-
bedroom “cottage” listed at $495,000 and sold for $750,000! Folks,
if that”s not a sign of a bubble I don”t know what is.
–If you saw the Grammys, you need to know that Jennifer Lopez
held her dress in place by using tape which she strategically
placed on her…(nope, ain”t gonna go there). As for her beau, the
lovely Sean “Puffy” Combs, he is one stupid hood. Already in
trouble over the shooting incident last December in New York,
Puffy tried to bribe a witness, his driver, into reporting that
Combs” gun was actually the driver”s. Puffy offered the guy
$50,000 and a diamond ring. Guarantee ya. Puffy will smash
Jennifer”s face in one of these days…and then try to collect on her
insurance policy.
–Finally, the question America wanted answered. “Did Rick and
Darva sleep together?” No. Final time we hear of these jerks?
Probably not.
Gold closed at $293
Nymex Crude Oil, $30.35
Returns for the week, 2/21-2/25
Dow Jones -3.5%
S&P 500 -1.0%
S&P Midcap +1.8%
Russell 2000 +2.0%
Nasdaq +4.1%
Returns for the period, 1/1/00-2/25/00
Dow Jones -14.2%
S&P 500 -9.3%
S&P Midcap +0.5%
Russell 2000 +10.3%
Nasdaq +12.8%
Bulls 51.8%
Bears 28.6% [Source: Investors Intelligence. To my new
viewers, the Bull / Bear readings are a contrarian indicator.]
*Thanks for helping to make February the best month ever for
this site.
Brian Trumbore
