“We have met the enemy and he is us.”
–Walt Kelly / “Pogo”
Oil consumption, that is. SUVs…movie stars.
Oh, ye members of “The Greatest Generation,” those who lived
through the Great Depression and won the Big One, you must be
having a laugh or two today. At least I hope you are, for the
current generation of leaders doesn”t get it.
The media would have you believe the situation in the oil patch
today is of crisis proportions. Hah! You want to see a crisis?
Well, actually you don”t because if we had a military conflict of
any kind right about now, you”d be saying, “Remember the good
old days when gasoline was $2?”
I”ve said it before but it bears repeating. We are one spoiled
nation and, regarding the prices at the pump, we have only
ourselves to blame.
Gasoline consumption has risen over 25% since 1990 and, save
the Gulf War, most of that time we gorged ourselves on gas that
was, on an inflation-adjusted basis, lower than it ever had been.
The economy boomed, the E.P.A. relaxed fuel economy
standards to exempt SUVs, and we put all kinds of roadblocks in
front of Big Oil to prevent them from exploring for more crude.
[See any contradictions? We were worried about killing some
smelly seals but we didn”t care if we promoted SUVs that emit
twice the poison of normal vehicles.]
So today, the U.S. continues to export over 50% of our energy
needs and we remain largely at the mercy of OPEC. This week
they announced that they were boosting production by an
additional 708,000 barrels a day. [I requested the extra 8,000 for
myself, in case you were wondering.]
OPEC”s members – a contentious bunch, to say the least – were
divided. Some say there is no supply / demand problem, while
others, like Saudi Arabia, don”t want to see prices rise to the
point where the global economy suddenly slides into recession. In
the latter scenario, prices would once again collapse.
The OPEC “hawks” blame the U.S. for its problems at the pump,
and, in the case of the Midwest, they are right. The E.P.A.-
mandated reformulated gasoline is much more expensive to refine
and its a slower process to bring it to market. At the same time,
crude inventories are at their lowest levels in years. But as I write
this, prices are already coming down as more of the new gas hits
the pumps. And by the way, NBC did a study of a $2.16 gallon
of gas in Chicago. 16 cents is for the new E.P.A. mandate, 64
cents for taxes.
When all is said and done, oil may work its way down to the $25
level. But be forewarned, if the world economy continues to
crank, $30 could easily be the average for some time to come.
And as for next winter and the cost of heating oil, know this.
Refineries are going to be late in building up their winter
inventories so we could be having this discussion many times
down the road.
And what of the politics of oil? Gore is scared. And isn”t it
amazing that months ago, as oil was rising to $30 the first time,
all manner of economists said oil doesn”t matter. They were all
full of it.
While Gore, Clinton and the rest of the administration whine and
moan, the American people should be pointing the finger at them
for a failed national energy policy.
Finally, if you missed a little bit on CNBC this week, you”re
lucky. Any capitalist would have had a conniption. CNBC”s Ron
Insana was interviewing Socialist Congressman David Bonior of
Michigan. Bonior not only claimed that oil companies made gobs
of money when the price was $10 (ask the tens of thousands who
were laid off, Bonior, if the oil companies were really raking it
in), but then he threatened to levy a windfall profits tax on Big Oil
if the current price stays high!
Remember what I said a few months ago. Often in our history,
it”s bad government that finally kills bull markets.
Wall Street
For the 3rd week in-a-row, the major averages were within 2% of
unchanged. Both the Dow (10404) and the Nasdaq (3845) closed
down just 0.4%. All eyes are on the Federal Reserve. While most
don”t see the Fed raising interest rates this week, many are back
into the “uncertain” camp.
Greenspan and Co. can see the evidence that the economy is
beginning to slow, but rising oil prices have to give them pause.
And largely because of oil, the Fed certainly won”t give the “all-
clear” signal on inflation, even if they stand pat. Which means
that this summer everyone will analyze to death each economic
release until the Fed”s August 22 meeting.
With the new round of uncertainty, bonds had a lousy week.
U.S. Treasury Yields
1-yr. 6.18% 2-yr. 6.54% 10-yr. 6.18% 30-yr. 6.04%
Back to stocks, the market continues to be priced for perfection.
But by mid-week, with the Nasdaq back over 4000, something a
little different began to occur. As market bellwethers like Cisco,
Oracle and Sun Micro approached levels not seen in months,
suddenly a few analysts began to act rationally. “Sure Oracle is a
great story but it is awful pricey.” And so the generals backed off
by week”s end. [All, that is, except for Rambus which early on
Friday soared to an all-time high (only to fall back) on the
strength of some licensing agreements for its chips. If you own it,
congratulations. But without knowing too much about the
Rambus story, I was struck by the similarity to another erstwhile
high-flyer, Qualcomm. Qualcomm had soared on word of various
licensing agreements, too. Now some are questioning its true
revenue stream and the stock has plummeted from its $200 high
to the mid-$60s.]
Street Bytes
–Barron”s deserves a ton of credit for being out front, exposing
the illegitimacy of the Amazon.com business model long ago. On
Friday, two leading analysts questioned Amazon”s future
prospects and the stock collapsed, finishing the week at $34, its
lowest close since December 1998 and just a tad off its all-time
high of $112. In sympathy (misery loves company), eBay was
slammed to $54, off of its high of $127. And all manner of other
Internet issues slid.
The Amazon news could not have come at a worse time because
many of the Net issues had begun to rally back, fueling hopes that
they might still be able to go, hat in hand, to the banks and
venture capitalists for a new round of funding. Now, their task
has been made far more difficult.
Incidentally, here is the breakdown of analyst recommendations
on Amazon as of Friday morning. 12 rated it a “Strong Buy,” 10
“Moderate Buy,” 8 “Hold,” and zero “Sell.” For eBay it was 14
“Strong Buy,” 9 “Moderate Buy,” 4 “Hold.” Again, no “Sells.”
[Source: Zacks]. Great advice, eh?
–Microsoft: Hey, I”ve said they shouldn”t be broken up but
what”s the deal with Judge Thomas Penfield Jackson? This week,
in urging the Supreme Court to hear the case (rather than
Microsoft”s preferred choice, the Federal Appeals Court), he also
suspended the severe restrictions on their conduct that he had put
in place just weeks earlier; meaning that, technically, there is no
disruption whatsoever to the way Microsoft conducts its business
while the appeal is being heard. It was as if Jackson admitted he
was out of his league, threw up his arms and said, “That”s it. I”m
outta here.”
Actually, it reminded me of the final words of his namesake,
General Thomas “Stonewall” Jackson, who with his last dying
breath said, “Let us cross over the river and rest under the shade
of the trees.”
Microsoft shares rose a bit after the news, a classic relief rally.
The uncertainty remains and many analysts question the strength
in their core businesses going forward.
–Some disparate market opinions:
Economist Ed Yardeni says the Fed is finished raising rates this
year and that the economy can grow at 4% without inflation. He
also sees no chance of a hard landing.
Morgan Stanley Dean Witter”s Barton Biggs, on the other hand,
says the economic boom has been too long with too many
excesses for there not to be a hard landing.
While one of Biggs”s counterparts at MSDW, Peter Canelo, sees
a Dow of 12000 by summer”s end with the Nasdaq around 4600.
–If you ever wondered what the term “summer rally” is all about,
check out my 6/23 edition of “Wall Street History.” You may be
surprised.
Russia
Well, as feared, Russian President Putin got along just
swimmingly with Germany”s Chancellor Schroeder. Now I”m not
against peace and brotherhood, you know, I just don”t get a warm
and fuzzy feeling when Putin comes off better than the U.S.
Schroeder is taking Putin”s side when it comes to missile defense
(not that I”m surprised by that) and Putin also invited the
Schroeder”s to the Kremlin for Christmas; a thoughtful gesture,
especially for an ex-KGB agent.
As for other European nations, their citizens should watch closely
what happens between these two over the coming year or so. At
least on the issue of debt forgiveness, Schroeder did not
acquiesce. “We have told them we are not going to treat them
like Angola,” said one German official. “Russia is a potentially
rich country.” You got that right, especially with oil at $32!
On the issue of the 4-day imprisonment of Russian media tycoon,
Vladimir Gusinsky, columnist William Safire commented,
“Repressive days are here again.” The KGB is all over the place.
Opposition leader Grigory Yavlinsky said, “We are now face-to-
face with the first signs of a police state.” And the Kremlin
has its eyes set on overturning the privatizations of the Yeltsin
era.
And in an example of Russian ingenuity, and shrewdness, I turn to
the vast U.S.-built radar station that exists in Norway. The
station is run by Norwegians. The U.S. and Norway say it is for
tracking space debris. The Russians laugh and say, “Hah!
You”re going to use the radar as part of the missile defense
system!”
So this week, crafty Russian Foreign Minister Ivanov was in
Norway for a conference when he announced that, hey, Russia
had plenty of space experts who could work alongside the
Norwegians and be of great assistance.
“It could (also) help build confidence (between East and West),”
Ivanov smirked. When he turned away, I”m sure the Norwegians
all went, “Dohh!!”
North / South Korea
Only a few days after South Korea”s Kim Dae Jung returned to
Seoul to trumpet the successes of the summit, the North”s
propaganda machine was back in full swing. The leading
newspaper in Pyongyang had this editorial:
“The U.S. imperialists pretend to be interested in peace and
dTtente on the Korean peninsula, but their actions only result in
increasing the danger of war and escalating tensions.” The U.S.,
of course, said, “Why thank you very much! And where do we
ship your food?”
A South Korean military report says that the North has stockpiled
between 2,500 and 5,000 tons of biological and chemical
weapons. [Source: Calvin Sims / New York Times] The South
also decided to drastically scale down its ceremonies
commemorating the 50th anniversary of the start of the Korean
War. Said one veteran, “It”s as if the government were telling the
people to forget the war without even getting an apology from
North Korea for starting it.”
And, perhaps most importantly for the short term, there was a
”run” on one of the South”s leading merchant banks this week due
to an overwhelming amount of bad debts on the books. Recently,
Taiwan had a similar experience.
We are supposed to be trained to look at these events as warning
signals. I”m officially sounding the alarm. Generally speaking,
the banking system throughout Asia remains precarious. There is
just a ton of bad paper for projects that will never be
economically feasible (whether it”s ill-conceived manufacturing
facilities or commercial real estate projects in areas with existing
50% vacancy rates).
China / Taiwan
If you have children who are asking you questions about the
Korean War, you may want to point them to my 6/21 and 6/23
editions of “Bar Chat” where I have a simple explanation to the
origins of the “police action.” Frankly, however, as I was
preparing the pieces, I was struck by the similarities between the
situation 50 years ago and that of today.
In 1950, Joseph Stalin didn”t think the U.S. would retaliate if
North Korea invaded the South so he approved the attack.
Today, China must debate daily what our response would be to
an attack on Taiwan. This week China was conducting live-fire
artillery exercises of the very weapons that can easily reach their
neighbor.
Taiwan”s new president, Chen Shui-bian, has almost been
pleading with China”s leadership to hold talks similar to those
held between North and South Korea. China says no way, not
until Taiwan admits it”s part of China.
But back to the first point. Author Stanley Weintraub has written
a book, “MacArthur”s War: Korea and the Undoing of an
American Hero,” in which he discusses how lack of readiness,
both before WW II and Korea, hurt us immensely.
Weintraub relates the story of George Patton who, during
maneuvers in Louisiana before WW II, had to go to a Sears
Roebuck store and pay from his own pocket for bolts to keep his
tanks operating. Today, there are many who feel our military, in
relative terms, is not much better off.
More International
Japan: By the time most of you read this, parliamentary elections
will have taken place. But as one political analyst over there said,
“Even if the opposition wins and takes power, the Japanese
people know it”s the same drama and same theater, just with
different actors.”
A stifling bureaucracy isn”t Japan”s only problem. They depend
entirely on foreign oil. Said one minister, “It”s time for Japan to
get serious about its energy security.” Given their history, I don”t
know how serious we want them to get!
Indonesia: One January day in 1999, on the island of Ambon, a
Muslim bus driver got into an argument with a Christian
passenger. [“Your religion sucks!” “No, yours does!”]
Within an hour, buildings were ablaze. Since then, 2,500 have
died, a vast majority of the victims being Christians, as Muslim
fighters arrive from other islands. The provincial parliament
doesn”t meet anymore because its offices have been taken over by
the Muslim militia.
It”s easy to forget that Indonesia is the largest Muslim nation in
the world, with 90% practicing the faith. And now there are
reports that President Wahid will be swept up in a new round of
political scandals.
Colombia: The Senate approved $1.3 billion in aid in an attempt
to put a dent in the drug war in this embattled nation. [The
House earlier approved a larger amount.] I have written before
that it”s a risk worth taking. But you may want to check out
Monday”s “Bar Chat” for a story you”ll find enlightening…and
truly frightening.
Sudan: After a 17-year civil war between Muslims and Christians
which has claimed up to 2 million lives (what”s a million among
enemies?), the leadership in Khartoum is making waves about
negotiating an end to the fighting.
Serbia: There are increasing rumors that a deal is being set to
remove Milosevic from power in return for his avoiding a war
crimes trial. Such a plan would have to include Russian President
Putin who, if successful, would come off looking like a statesman.
Cuba: Congress is inching towards easing economic sanctions.
Just do it. Meanwhile, Elian still hasn”t signed a contract with
QuePasa.com.
Mexico: July 2nd is election day and the cash is flowing. In one
state, flood aid (delayed since last October) was doled out at the
rate of $600 to those who favored the ruling PRI, $200 to those
who didn”t. [“Who do you want to win?” “Ah, PAN?…Dohh!”]
Welfare mothers have been told they will be cut off unless they
vote for PRI. In other instances, the PRI is giving away washing
machines.
Folks, when I railed against the money that New Jersey Senate
candidate Jon Corzine was spending, the criticism wasn”t directed
against his media buys, rather, I was questioning the massive free
dinners that he was holding and the extensive funds that are
flowing to county party coffers. Is there really that much of a
difference between the campaign waged in New Jersey and the
one in Mexico? Where do you draw the distinction?
This Week in Politics
–The latest Wall Street Journal / NBC News poll shows George
Bush with a 49-41 lead over Al Gore. [If you throw in Nader and
Buchanan, it”s 43-38-7 (Nader)-4 (Buchanan)] But when the
issue is who can supply the best leadership, Bush leads Gore 46-
25.
Separately, a Los Angeles Times poll elicited the following
responses:
Among all voters; Bush leads Gore, 50-40
Among independents; Bush, 53-32
Among men; Bush, 53-37
Among women; Bush, 46-43
–The Hillary / Lazio race is heating up anew. The polls continue
to show the race is a dead heat. Per my discussion of last week,
the SEC has now launched a formal investigation into Lazio”s
profits on his Quick & Reilly stock. Lazio is also getting grief for
not marching in this weekend”s “Gay Pride Parade.”
As for Hillary, Whitewater Independent Counsel Robert Ray
announced he won”t indict the First Lady (does she still have that
title?) over the Travelgate affair. [The final report, when issued,
will nonetheless rip her.] Meanwhile, Newsweek columnist
Eleanor Clift has written a book on ten women who have the
potential to be the nation”s first female president. According to
Ms. Clift, Elizabeth Dole”s presidential campaign launch deeply
affected Hillary. “That killed her,” said one associate. “You
could track her interest (in running for president someday) after
that.”
Seeing Dole get this attention accelerated Hillary”s timetable for
getting herself into the public eye in a bigger way. And the latest
Wall Street Journal / NBC poll that shows more American
women admiring Dole than Hillary has to be killing her as well.
–As for Al Gore, I realize many of my comments turn people off
and send them scurrying to other means of entertainment. But
when a story hits that a 3rd Justice Department official is calling
for a special counsel to look into Gore”s 1996 Buddhist temple
fund-raiser (as well as other matters) well then, folks, that”s news.
For now, though, I”ll wait to see what Attorney General Reno
decides to do. Also, on Thursday Gore traveled with his new best
buddy, Jesse Ventura. [Running mate? It would be a way to go
after the McCain vote.]
–In New Jersey, a recent poll reveals that by a 52-31 margin,
voters are not bothered by the amount of money Jon Corzine is
spending. So, for now, I guess I”m on the wrong side of this one.
–Social Security: I have a simple solution. Raise the retirement
age and expand the regular IRA accounts, thus alleviating all of
this other stuff and the bureaucracies that would inevitably result.
Random Musings
Tiger Woods: Every day this week I thought about Tiger at least
once and one number stuck in my mind…15. Winning a major
golf tournament by 15 strokes. Goodness gracious.
Well, the above is the best I can do. Let”s hear from some real
experts.
“He is the Microsoft of golf. If the other pros could find a judge
who would split him in two they would.” –Dave Anderson /
New York Times
“(What he did) is sort of like winning a presidential election with
90% of the popular vote.” –John Feinstein
“Tiger dominates sport…as completely as anybody we have seen
in a long, long time.” –George Vecsey / New York Times
“At the 100th U.S. Open, in the millennium year, on one of the
planet Earth”s most famous, and famously beautiful, golf courses
– to end a week in which the greatest player of the 20th century,
Jack Nicklaus, said an emotional goodbye to the national
championship of his country – The Golden Bear might as well
have been standing on the 18th green of Pebble Beach yesterday
afternoon bearing a torch with Tiger Woods”s name on it.”
–Cam Cole / National Post
Actually, the best statement was made by a reporter I heard on
the Golf Channel. Tiger”s 15-shot margin will stand for a couple
hundred years.
–When customs officials, performing a routine check, opened the
door to a refrigerated truck in the port of Dover, England, they
found 58 bodies, mostly Chinese immigrants. That, alas, has
become part of the routine as organized crime has moved full
force into the human cargo game.
–I saw my first commercial with medical disclaimers for a pet
product, Sentinel pills, which fight fleas and heartworm. “Some
dogs may experience neurological disorders.” [“Honey, Rusty is
playing with the chain saw again.”]
–Germany”s most prestigious literary prize recently went to a
Nazi apologist. This particular writer has claimed that Hitler may
have had “rational” reasons for attacking Jews. The award has
predictably caused an uproar in Germany. To me it is another
example of the growing clash between the rise of the Right in
Europe (a la Joerg Haider in Austria) vs. the multiculturalism of
the Left. I need to repeat the following every few months: The
next time Europe goes through a recession, this still mostly verbal
battle will explode into something far uglier.
–Los Alamos: Energy Secretary Bill Richardson has been pitiful
in his explanations for this latest breach of security. And if you
think I”ve been too partisan, all you need to have done this week
is listen to Senator Robert Byrd (D-WV). During a hearing he
told Richardson, “You exhibit a contempt for Congress that
borders on supreme arrogance (and) you will never again receive
the approval of the Senate for any office you may be appointed to
in the future.” [Reminder: Becoming a high-powered lobbyist
does not require Congressional approval.]
–So who has the best sports fans? Los Angeles? Uh, I don”t
think so. New York? Well, New York fans don”t riot after
championships like they do in L.A., Detroit, Chicago and
Montreal. But no, I go with Indianapolis. Hell, these guys were
even supporting minor league baseball in a big way when minor
league baseball wasn”t cool!
–If you ever wanted another example of the shallowness of
Hollywood, all you had to do was watch Jack Nicholson at the
end of the last Lakers game. Said Jack, “I was proud that Larry
(Bird) shook my hand first.” Just give me the needle now.
–After 28 years, “Hanoi Jane” Fonda decided to apologize for
her anti-American statements during the Vietnam War. Why
bother, Jane. No one will ever forgive you.
–Matt Richtel of the New York Times had a piece on the turmoil
in the dot.com world as layoffs begin to cascade. He interviewed
a human resources consultant who said she has trouble sleeping
because “Business ethics have gone down the toilet” in terms of
the way many Internet employers are treating their employees.
–Gary Graham: It”s easy to just say, “Good riddance.” After all,
this is one man we should shed no tears for as he pled guilty to
ten armed robberies, shooting two people and raping at least one,
in the days following his shooting of Bobby Lambert, the crime
for which he was put to death.
I watched a lot of the coverage on CNN Thursday night and I
was struck by the Reverend Robert Muhammed, Graham”s
spiritual advisor. The Reverend was giving a damn good
presentation on why there should be a moratorium on the death
penalty, after the execution had been completed, when he lost me.
“Moral decay is killing our nation.” Sorry, Rev. The moral
decay is occurring in the streets where this totally idiotic rap
culture of ours is affecting the minds of our youth, particularly in
the inner cities. Muhammad was blaming us, the victims. Many
opponents tend to do that (though not all of them). And Graham,
himself, proved the value of an education. [He only had a 7th-
grade one.] He praised Winnie Mandela in his rambling final
statement. Well, it takes a murderer to know one.
–The Supreme Court ruled 6-3 against school prayer at athletic
functions, a case originating from pre-game prayers at a Texas
high school. I”m staying out of this one.
–NASA scientists have announced that there is solid evidence of
flowing water under the surface of Mars. Shares in Mars Water
Inc. soared on the news, rising from $3 to $389 in very heavy
volume.
–50,000 couples will each spend $500,000 or more on their
weddings this year. [Source: NBC News…not “in depth,”
however.]
–According to the Pew Research Council, 56% of Americans
don”t know who Alan Greenspan is.
–Shares in Mars Water Inc. plummeted from $389 to $2 when it
was revealed that the Mars water may sustain intelligent
life…with one problem…it could resemble man.
Gold closed at $283
Nymex Crude Oil, $32.25
Returns for the week, 6/19-6/23
Dow Jones -0.4%
S&P 500 -1.6%
S&P MidCap -1.6%
Russell 2000 -0.7%
Nasdaq -0.4%
Returns for the period, 1/1/00-6/23/00
Dow Jones -9.5%
S&P 500 -1.9%
S&P MidCap +9.9%
Russell 2000 +1.1%
Nasdaq -5.5%
Bulls 50.0%
Bears 33.0% [Source: Investors Intelligence]
Brian Trumbore
