Archaic vs. Virgin; Primordial vs. “Fresh as a Daisy”
I”m so sick of “Old Economy” vs. “New Economy” that I went to a
long-lost friend, Mr. Roget Thesaurus, to come up with a different
way to describe the titanic struggle taking place on Wall Street.
Actually, from past writings you know it”s more like “rational vs.
irrational.” And then on Friday, the lead column in the Wall Street
Journal blared, “Conservative Investors Finally Are Saying: Maybe
Tech Isn”t A Fad.”
Of course it”s not a fad. Were the Journal around tens of thousands
of years ago, the headline might have been, “Cro-Magnon Man
Finally Saying: Fire Is Not A Fad.” And later, “Wheel Is For
Real.”
Geezuz. What are we, idiots? [Don”t answer that.] The hula hoop
was a fad. The slinky. Slot cars (sadly). Computers and
wireless communication aren”t. All some of us are saying is, why
should Palm Inc. (the recent spin-off of 3Com that manufactures
hand-held devices) be worth more than the whole U.S. airline
industry put together?
And the big story in the “hoary vs. immature” (thanks again,
Roget) market of this past week was Procter & Gamble. Stock in
the consumer goods giant plummeted 39% on dire earnings news.
Well heck, the stock was trading at a price/earnings multiple of 34
when its shares traded at $87 on Monday. This for a company that,
in a good year, would grow around 10-12% (and there”s nothing
wrong with that). Well, now it”s at $53. It”s not just a matter of
“venerable” companies like P&G suffering from a lack of pricing
power (due to the Internet, over capacity, and other factors), it”s
because the freakin” stocks are, or were, overpriced!
And don”t you forget that what happened to P&G (and before it,
Raytheon, Xerox, and others) can just as easily happen to Cisco
(great company but…) or JDS Uniphase (I must say their CEO
looks like a Viking, again, not that there is anything wrong with
that). It”s just a matter of time.
Which leads me to my next point. As I”ve mentioned before, if you
want to invest in the technology sector and you don”t know what
the Viking at JDS Uniphase does, BUY A TECH MUTUAL
FUND! Don”t try and play the game by picking a name here or
one there. At some point in the not too distant future, it”s going to
get ugly (really and truly) and a diversified fund won”t go down
nearly as much as an individual issue that pulls a P&G.
By the way, in case you didn”t know it, we are currently in a bear
market by some measurements. One study (and I apologize for
forgetting who wrote it) showed that 75% of the stocks in the S&P
500 are down 20% from their recent highs.
As for the U.S. economy, there wasn”t a lot of news this week.
Alan Greenspan tried to talk the market down a few times. The
“primeval” issues largely complied while the “untrodden” told him
to take a hike.
Actually, the Fed”s “beige book,” a survey of the economic activity
across the country, showed that there was still little inflation but
wage pressures were emerging.
And then there was oil. The rest of the world is laughing at how
hot and bothered we”re getting. Nymex Crude Oil hit $34 (highest
since 11/90) before finishing the week at $31.75. Energy Sec. Bill
Richardson (who so desperately wants to be Al Gore”s Veep it”s
almost obscene), was all over the place, largely reassuring us that
OPEC would see the light.
Well, Iran and Saudi Arabia, OPEC”s two largest producers, did
reach an agreement to raise production quotas but we”ll see what
happens after OPEC”s upcoming meeting in Vienna. In the
“politics of oil,” nothing is ever certain. And mark my words, if the
price were to collapse (say, to $18) because of pressure applied by
the U.S., the Sheiks won”t let us forget it. And don”t give me, “But
we protected them against Saddam!” You think these guys care?!
Other Wall Street news:
Congratulations to Advanced Micro Devices (at least for a month
or so). One of my favorite (as well as Wall Street”s) whipping
boys, AMD seems to have gotten its act together and the share price
has zoomed in the past year from $14 into the $50s.
On the downside, have you noticed how sick some of the e-
commerce stocks remain? For starters, while the Nasdaq keeps
hammering out new records, Amazon.com (and its “Man of the
Decade,” Jeff Bezos) has struggled mightily, trading at $67 (40%
off of its high) while eToys has fallen from $86 to $13.
Goldman Sachs analyst Rick Sherlund, an expert on Microsoft,
says the company will settle its anti-trust case with the government
in a matter of weeks.
The bond market was stable without a lot of significant economic
releases (though the Treasury did initiate its first $1 billion
buyback of an expected $30 billion for the year). Current U.S.
Treasury yields:
1-yr. 6.19%, 2-yr. 6.52%, 10-yr. 6.38%, 30-yr. 6.17%
And the American consumer keeps borrowing and borrowing, the
latest fad being 103% mortgages. Of course, a lot of the excess is
finding its way into the stock market.
This Week in Politics
John McCain wasn”t riding on his Straight Talk Express when he
decided to pack it in. No, he chose the beautiful desert rocks of
Sedona, AZ to “suspend” his campaign, an apt setting since the
rocks are known to change color in the setting sun. Republicans
are praying that McCain doesn”t launch a third party run for the
presidency and all indications are that he won”t. He still has a
tremendous amount of leverage and, depending on how involved he
wants to be, he can make or break George W. (and remain viable
for 2004 should he choose).
The Super Tuesday results were fascinating. Bush registered 20%
plus wins in California, Ohio, and Missouri and handily beat
McCain, 51-43%, in New York. On the Democratic side, all you
can say is “Hey, Bill Bradley. What was that all about?” Bradley
was slaughtered, including 30-point defeats in his home state of
Missouri as well as the state where he made a name for himself,
New York.
So now it”s Bush vs. Gore. “No controlling legal authority” vs.
“Bob Jones and the Christian Right.” Gore will pound away at the
economy (praying the stock market hangs in there) while speaking
of Bush”s “risky tax scheme,” while Bush will show videos of Gore
with newly convicted felon Maria Hsia and the Buddhist Temple
fundraising event. It is going to be the dirtiest campaign of modern
times. All the more reason for Bush to adopt some of McCain”s
reform agenda in order to win his full support. There could be no
better henchman than McCain this fall.
As columnist Michael Kelly says, how does Bush beat “the razor-
fanged Gore?” “His only chance is that the relentlessly smarmy
Gore embody the promise of a perpetuation of Clintonian sleaze.”
Both candidates are going after that 30% or so that is traditionally
undecided. And lying in the weeds is Pat Buchanan who, assuming
he gets the Reform Party nod (as now seems likely), will garner 5-
6% in a national election and ruin it for Bush. [Buchanan does
need to get invited to the debates in the fall to have any kind of
impact. The presidential debate commission has ruled that a
candidate needs 15% in the polls to qualify. Buchanan won”t get
that but my guess is the commission, and the networks, will have to
relent.]
And there were some interesting tidbits from a Wall Street Journal
poll, published Thursday, which canvassed the American
electorate. Among the items of note:
–Since 1980, the Republican percentage of the black vote has
fallen between 9 and 12% in each of the last five presidential
elections. The Republican Hispanic vote has been between 21 and
37%. So you can draw two conclusions. First, why am I wasting
my breath giving advice to Republicans on how to attract a non-
existent black voter? Second, with George W”s past success in
courting the Hispanic vote, maybe he can kick that up to 40% or
higher. In what is already going to be an extremely close vote, that
could make a difference.
–Jesse Jackson is deemed by 43% of black voters to be the most
influential black leader. Amazing. And Al Sharpton, Louis
Farrakhan and Charlie Rangel each receive 6%. Colin Powell
garners just 17% (but maybe that”s a sign that the Republicans can
capture more than the aforementioned 9-12%).
–In a surprise item, the percentage of blacks who have seen
progress in race relations from 9/94 to today is about 1%. That”s
all.
–The percentage of all voters who think the country is headed in
the right direction has dropped from 55 to 47% since January,
while the percentage who think we are on the wrong track has risen
from 28 to 35% over the same period of time.
–The most important criteria in selecting a president is one”s
“leadership style and trustworthiness” (44%). Second is “ideas and
policies for the future” (40%).
–61% still approve of Bill Clinton.
International
Well, by the end of this coming week, the confluence of events I
recently labeled as the “Ides of March” will start to come together.
The presidential election in Taiwan, President Clinton”s trip to
India, and now Pakistan, the Pope”s visit to the Holy Land, the
Russian presidential election and the OPEC meeting, all within
about two weeks.
China continues to saber rattle as they attempt to influence the
election in Taiwan. There”s a saying in Taiwan, however, that
goes, “The person China hates, Taiwan voters love.” All three
candidates have expressed an appetite for independence but one,
Chen, is deemed to be the most vociferous on the issue and he
seems to have a shot. Regardless of who wins, however, U.S.
authorities don”t seem too worried that China will do anything
drastic.
A front page headline on the issue in the New York Times this
week said “Likelihood of Attack Deemed Low.” But, admittedly,
the option that experts take most seriously would be a short,
Kosovo-like missile campaign, “intended to devastate Taiwan”s
economy.” But absolutely nothing on how the same attack would
devastate our economy! It”s kind of incredible that people seem to
have trouble connecting the dots. [I”m doing this week”s review on
my Dell laptop, made in Taiwan.]
And this week President Clinton decided to submit the China /
WTO issue to Congress. Both the Senate and the House must first
approve “permanent normal trading status” for China before the
way is clear for China to be admitted to the WTO. And lo and
behold, Clinton suddenly needs Republican support to overcome
the growing Democratic opposition in the House. While passage
seems certain in the Senate, the House is a different matter as the
Democrats have to kowtow to organized labor in an election year.
And, of course, Republicans are not in a magnanimous mood.
Personally, I think we should admit China, warts and all. The
President said the right thing in a speech this week.
“Congress will not be voting on whether China will join the WTO.
Congress can only decide whether the U.S. will share in the
economic benefits of China joining the WTO.”
But now Clinton is paying the price for both his ethical lapses and
the extreme partisanship which he had helped foster. One minute
he is blasting Republicans on the minimum wage, the next minute
he desperately needs their support. For a man who is consumed
with his legacy, he does some pretty dumb things. If the China vote
doesn”t take place soon, it will likely be shelved until after the
election.
And as for the Chinese government, they proved once again just
how tough they can be. A provincial governor was executed for
corruption.
In Russia, President Putin is garnering between 46-60% in the polls
(he needs 50% to avoid a run-off). The Chechen rebels, supposedly
defeated, humiliated the Russian army in a series of ambushes this
week. Russian casualties ran as high as 500. A new group of
refugees was also created in the ongoing fighting.
Russian reporter Andrei Babitsky, he of the recent kidnapping
episode, has been barred from leaving the country. Babitsky said,
“The situation with the press, with free speech, is very bad and it is
growing worse.” He says the West sees only a relatively free press
in Moscow but that outside the city an independent press is
virtually non-existent.
Speaking of the press, independent reporter Artyom Borovik, a
fellow familiar to viewers of “60 Minutes,” was killed in a
mysterious plane crash in Moscow, Wednesday, along with a
leading oil executive who happened to also be Chechen. It”s not
going out on a limb to say that the crash is highly suspicious.
—
President Clinton decided to add Pakistan to his Asian trip. While
the focus remains on India, after all, the world”s largest democracy,
Clinton, as expected, has aroused the ire of the Indian government.
You”ll recall that there was a military coup in Pakistan last fall and
the leader, General Musharraf, was thrilled that Clinton accepted
his invitation to spend a few lovely hours in Islamabad. Musharraf
said, “(The Clinton visit) vindicates the legitimacy of my
government”s stand and gives credence to our aim to put things
right in our country.”
Of course the fact that the general hasn”t set a timetable for
restoring democracy, coupled with his government”s ties to
terrorism (including Osama bin Laden), doesn”t seem to matter to
Clinton. And, for its part, India doesn”t want U.S. interference over
the tough issue of Kashmir. Oh, and did I tell you this trip is a
security nightmare? A pretty good indication of this was the
assassination on Friday of former premier Shariff”s lead attorney
and two others in their office, just days before closing arguments in
Shariff”s trial.
Elsewhere, the headline in Mozambique”s national paper blared,
“West Closes Its Eyes to Tragedy in Mozambique.” U.S.
helicopters didn”t get involved until Thursday, almost two weeks
since the disastrous flooding began. On Monday, the Air Force
general in charge said that the Clinton administration did not give
the Pentagon the go ahead to participate in the aid effort until two
Friday”s ago, some six days after the fact.
Nelson Mandela”s new bride (after he belatedly ditched the wicked
Winnie), Grace Machel, is the former first lady of Mozambique.
She said of the situation in her homeland, “It seems the world has
no conscience when it comes to human life.”
Another editorial in the ravaged country said, “When the West
wants to intervene militarily anywhere in the world, they get there
in record time.” For once I want to see someone hold Clinton”s feet
to the fire on this one. I”m not holding my breath.
In a related matter, I have railed extensively about U.S. and WTO
trade policies towards the Third World. Currently, there is a bill
before Congress called the African Growth and Opportunity Act
which would reduce tariffs on textiles from 17% to zero. As the
New York Times Thomas Friedman wrote this week, U.S. labor
unions oppose it even though low-cost goods are no longer
manufactured here. We”ve moved on to high-tech, higher value
items.
So what are we worried about? The percentage of our textile
market that is imported from Africa is a whopping 0.8. This means
that Honduras exports 7 times more textiles and apparel to the U.S.
than all 48 nations of sub-Saharan Africa combined.
Friedman also points out that by 2005, all quotas on textile imports
to the country will be reduced to zero anyway. The congressional
bill is important, today, because U.S. manufacturers are already
making decisions for 2005 – whether to stick with plants in China
or branch out to Africa.
And then there”s Kosovo. The day-to-day operations of the
protectorate that NATO established are broke. The director of the
U.N. government in Kosovo (which pays the salaries of workers
and teachers, runs the utilities, makes sure the traffic lights work,
supplies the police force and hires prosecutors) said of the situation,
“This is an absurd, humiliating and self-defeating way to run
anything, let alone a project that embodies the prestige of NATO
and the West.” The NATO governments simply aren”t ponying up.
Judges hired by the U.N. are paid $165 / month while translators
(hired by the Organization for Security and Cooperation in Europe)
receive $555 / month.
In other matters, as a person with Czech roots (though with the
breakup of the country, this half of me is mostly Slovak), I couldn”t
help but laugh at Czech President Vaclav Havel”s suggestion that
U.S. Secretary of State Madeleine Albright (who was born in
Czechoslovakia) replace him when his term expires. Needless to
say, this doesn”t say much about the perceived talent pool in the
Czech Republic. Havel wants Albright because he wants his
countrymen to take a more worldly view. Albright said she is
flattered but, no thanks.
Austria”s Jorg Haider was supposed to have stepped away from the
national stage for a spell but he”s already in trouble again for
calling French President Jacques Chirac a “pocket Napoleon.”
And on a positive note, Moody”s gave Mexico”s government debt
an investment grade rating. They received a “F” for their inability
to fight the drug trade.
Random Musings:
–I am down in Charlotte, NC for the ACC basketball tournament,
which means two things. Right now I”m not at the evening session
and second, please forgive me if there is some editing that yours
truly missed. My alma mater, Wake Forest, did come through and
beat North Carolina this afternoon, making the writing of this
review a little easier. [Plus the fact that they don”t serve beer in the
arena.]
–The U.S. government says Russia, China, Iran, Iraq and Cuba are
developing significant information-warfare capabilities. It really is
amazing our own stock market hasn”t been taken down yet. Must
be waiting for Nasdaq 10000.
–Awhile ago I wrote about the epidemic in this country concerning
the drug “ecstasy.” New information was released this week
showing that in 1997 U.S. customs agents seized about 300,000
pills. In 1999 the total was 3.5 million. For the first two months of
2000, customs had already seized the same amount as last year.
Then, this week at Newark Airport, agents seized 87,000 pills from
a single flight originating in the Netherlands.
–Former Treasury Secretary Robert Rubin is being paid $15
million in each of 2000 and 2001 to be co-chief executive of
Citigroup. His total package is actually about $50 million. But
I”m sure there weren”t any conflicts of interest while he was in the
Clinton administration.
–Some census data: 70% of Cubans in America go on to get a high
school diploma. Only 50% of Mexicans do. So it should come as
no surprise that only 14% of Cubans live below the poverty line
versus 31% of Mexicans.
–President Clinton, deciding that he didn”t already have enough to
do, injected himself into the Amadou Diallo verdict in New York.
Proclaiming “race was a factor,” he went on to say that clearly a
white man in a white neighborhood would still be alive. And as I
mentioned recently, The Politician Formerly Known As The First
Lady, was making hay of the verdict as well. I guess they don”t
believe in our judicial system.
–Forest fires are spreading in Indonesia and the smoke is beginning
to envelope surrounding nations like Singapore. I only bring this
up because it was in 1997 that a similar situation arose, right
before the Asian collapse. Coincidence? You expect me to be
positive?
Gold closed at $290
Nymex Crude Oil, $31.75
Returns for the week, 3/6-3/10
Dow Jones -4.2% [9928, off 438 points]
S&P 500 -1.0%
S&P Midcap +1.0%
Russell 2000 +0.9%
Nasdaq +2.7% [5048, up 133 points]
Returns for the period, 1/1/00-3/10/00
Dow Jones -13.6%
S&P 500 -5.1%
S&P Midcap +8.8%
Russell 2000 +19.6%
Nasdaq +24.1%
Bulls 53.4%
Bears 27.6% [Source: Investors Intelligence]
Note: I didn”t make a big deal of Nasdaq 5000. No particular
reason, except that I”m jealous.
Brian Trumbore
