“If a nation expects to be ignorant and free, it expects what never
was and never will be.”
–Thomas Jefferson
A quickie quiz:
The Battle of the Bulge occurred during:
a. The Vietnam War
b. World War II
c. World War I
d. The Civil War
Are Beavis and Butthead…
a. A radio show
b. Television cartoon characters
c. A musical group
d. Fictional soldiers
The answers to both are, of course, “b.” Some of you may have
heard about a test sponsored by the American Council of
Trustees and Alumni that was administered to 556 seniors at 55
leading colleges and universities, including Harvard and
Princeton. [With the Council”s permission, I reprinted the full 34
questions as part of the 7/7 edition of “Bar Chat.”]
While 99% of the students knew who Beavis and Butthead were,
only 37% knew when the Battle of the Bulge took place.
Times are good right now in America. If you are a regular
reader, then you shouldn”t be surprised that I also feel this is the
quiet before……The Perfect Storm.
It”s possible we may be able to slide by for another few years
before we are faced with a real foreign policy crisis. But, in the
grand scheme of things, what does it matter if we have 2, 4 or
even 6 more years of relative peace and tranquillity? We will
eventually have to pay the piper unless some outstanding
diplomats emerge.
Anti-Americanism is spreading…and rapidly. Whether it”s
manifested in the trial of one Jose Bove in France (more on this
later) or Iran”s initial response to Saudi Arabia”s plan to help bail
the U.S. out by pumping more oil, or America”s plans for a
comprehensive national missile defense, all you hear from
overseas lately concerns American “hegemony.”
Increasingly, foreigners see us as an unchecked, runaway power.
We are no longer just envied, we are often feared. Events like the
war in Kosovo help fuel this image, as our smart bombs blasted
away with seeming impunity. [Kosovo goes down as one of the
great failures of our time. I wrote a year before the war started
(pimcofunds.com) that there were diplomatic solutions. Alas, we
blew it.]
Just think back to other events of the past few years. The
incredibly stupid mistake of bombing the Chinese embassy in
Belgrade. The rushed expansion of NATO before Russia was
ready to accept it. The bombing of a pharmaceutical plant in
Sudan which was not, as we were told, manufacturing chemical
weapons. The endless bombing of Iraq without a real purpose.
And then you have the cases like in Africa, where one aggressive
stance in Rwanda or Sierra Leone may have shown the
developing world we actually give a damn.
And finally, our endless shouting at international forums, “We”re
number one! We”re number one!” Or as one cabinet member
likes to put it, “America, the indispensable nation.” Can the
jingoism. That went out long ago.
When you look at the “Big Picture,” the debate over the national
missile defense (NMD) is critical. Friday night, the 3rd major test
of a prospective system was held. [It failed.] President Clinton
has to make a quick decision whether to proceed with a projected
$60 billion limited program. The hue and cry is picking up. “It
won”t work.” “The supposed threat posed by the likes of North
Korea and Iran doesn”t exist.” “It”s a waste of money…we could
use the funds to build more schools.”
And then there are those who are well-intentioned but misguided.
“It will lead to a new arms race.” “The real threat is from
suitcase bombs.” “Any nation foolish enough to challenge the
U.S. would be wiped off the face of the earth…so why bother
with NMD?”
I think you know where I stand. We need NMD but the concerns
of the international community are totally legitimate and that”s
where we desperately need the best diplomats our great nation
has ever produced.
For starters, Russia”s commander of their Strategic Missile Force,
General Yakovlev, told Defense News that if the U.S. proceeds
with NMD in its current stated form, Russia”s response will be to
abrogate all existing nuclear treaties and reintroduce
intermediate nuclear weapons to the European theater.
China comments, “Even if the U.S. says the system is not aimed
at China, the capability is aimed at China.” [Erik Eckholm, New
York Times] Of course, they”re right.
China is also clearly continuing its plans to aid Pakistan”s missile
efforts (despite their denials). Pakistan is worried about India”s
nuclear force.
India has sought Russian help in building up their own missile
force. Hard-liners want 400-1,000 nukes!
[On these last two points, you can see why I also don”t believe
that the suddenly chummy relationship between Russia and China
will always be that way. Right now, it”s simply a relationship of
convenience designed to split the U.S. and its allies.]
Meanwhile, Iran and Iraq will obviously continue with their own
missile programs and only time will tell where North Korea”s
head is at.
And this week Taiwan”s president said it was increasingly
evident China sought conflict. China doesn”t want to see NMD
used to shield Taiwan. China could easily reason, then, that the
time to act is now before the shield is finished (and that may not
be for 5 years if we proceed quickly).
I think you get the picture. First and foremost, we have to
protect our own interests. Yes, a suitcase bomb could probably
do the trick but how could we not attempt to block the
intercontinental variety if we have the technology? Second,
Russia is trying to pull Europe over to their way of thinking. We
must prevent this. Third, China may exert their influence when
we are least prepared. We can only hope, until we are, that our
intelligence gives us fair warning.
The debate over NMD is the most important one we will face this
century. Learn as much as you can so you can at least try to
influence your representative”s thinking. Or vote for those who
seem to give a damn.
Wall Street
So my friend Todd (friend and critic) always tells me, “You need
to write more about Wall Street.” Heck, if it”s warranted, you
know I give you tons of information. It”s just that the last few
weeks have been, how should I put it, BOR-RING!
The Dow Jones has been stuck in a narrow trading range of
10300 to 10700, while the Nasdaq really hasn”t moved much
since that big 19% move 6 weeks ago.
For the 5th straight week the Dow finished up or down less than
2%, this time up 1.8%, to close at 10635. The Nasdaq finished
up 1.4% and now sits back atop the 4000 level, at 4023. And as
for the bond market, from listening to the chatter on Friday you”d
have thought a huge rally was taking place. Geezuz, guys. Calm
down. Except for a decent move in the 2-year, interest rates are
virtually identical to where they were a week ago.
U.S. Treasury Yields
1-yr. 6.05% 2-yr. 6.27% 10-yr. 6.00% 30-yr. 5.87%
But lest I get too cynical, we are clearly getting closer to a final
resolution of the tug-of-war between those who think a soft
landing is a done deal and those who don”t. And for the life of
me, I don”t understand how either side can be so sure of their
opinion.
Yes, no ands, ifs or buts, the economy is slowing. This week
auto sales fell, the measurement of leading indicators fell, retail
sales at the big chain stores were sleepy, one key manufacturing
survey exhibited more signs of a slowdown and Friday”s June
employment report showed that fewer jobs were created than
expected.
But while the wage component of the employment report was as
anticipated, it was still at a healthy 0.4% increase for the
month.
This coming week, however, we do receive more important data
on retail sales, as well as producer prices and industrial
production, with the following week giving us the consumer price
information. If all are tame then I will be convinced that the
Federal Reserve will hold off on raising interest rates in August.
And if they don”t move then, they will obviously wait until after
the election before doing anything further.
Which leaves us with the issue of corporate profits. If you owned
Computer Associates this week, or any number of other issues
which pre-announced that their respective earnings will not be up
to snuff, then you know how ugly it can get. This week the
official earnings start to trickle in, with the big action
commencing the week of July 17.
So what”s it going to be? A beautiful soft landing on a picture
perfect day, a hard landing with casualties, stagflation (stubborn
inflation with little to no growth), or do we resume the heady
growth mode of days gone by? Give me two weeks and I”ll
finally make a more educated guess. In the meantime, watch
those earnings reports and, mark my words, unless a company
beats estimates, its stock will go nowhere but down.
Energy
This week Saudi Arabia announced they will pump an extra
500,000 barrels in an effort to bring oil prices down to a more
sustainable level. As of this writing it is still just talk but expect
them to follow through on this pledge. In response, oil fell $2 on
the week.
The Saudi move was interesting in that it followed by just two
weeks OPEC”s pledge to add 700,000 barrels a day to the
pipeline. It certainly doesn”t seem like the cartel is as unified as
many had believed. Iran was particularly upset (though had
softened by week”s end) as it said the Saudi”s were caving in to
the demands of the West.
But Iran and other OPEC hawks certainly recognize that
stubbornly high prices could help bring about a global economic
slowdown which only impacts their coffers in the long run.
I recognize that the past few weeks I may have been a little
insensitive to those who drive cabs for a living or the truckers of
America. Clearly, the recent price hike has hurt. And eventually
it begins to impact the whole economy. I”m just upset at the
misdirected invective and I”m still struck by the endless, media-
fueled complaints. And this week many retailers blamed slowing
sales on the high cost at the pump.
Now granted, I drive a whopping 2 miles to work every day
(compared to the 150-mile daily round-trip that I used to have)
but are you all really not going to the mall as much because of gas
prices? Remember, a 20-mile trip in a vehicle which gets 20 mpg
is costing you only 55 cents more than last year.
No, I just think the economy is slowing, many Americans are
beginning to realize they have way too much debt and, yes, the
media can do a number on our lives when it sets out to do so.
And three final thoughts. Steve B passed along his research
which shows the average total taxes on a gallon of gas,
nationwide, are 75 cents. Second, as I warned a few weeks ago,
watch out this winter. There were more reports this week that
heating oil could cost 35% more, higher if we have a cold winter.
And the price of natural gas has already been skyrocketing. 90%
of new homes in America are now outfitted to use gas. It”s just
another supply / demand issue.
Third, the Energy Department is warning of big problems this
summer, particularly in California and the Northeast. Silicon
Valley, in particular, is gobbling up power like there”s no
tomorrow. And the Internet is a huge culprit. A few years ago,
the Net consumed 1% of the total power in America. Today, it”s
8%…and climbing. Of course what the Energy Department failed
to say is that the lack of a national energy policy – after all, they
should have foreseen this huge surge in demand – is threatening to
curtail this economic boom. Exaggeration? No way. Wait until
the next massive power failure and the economic losses you hear
of will be staggering.
Street Bytes
–Jeff Bezos, Time”s “Person of the Year,” continues to defend
Amazon.com”s business model. The following is from a Q&A he
had in the past issue of Newsweek.
Q: Let”s talk Harry Potter for a moment. You”ve got more than
282,000 Harry Potter books on preorder: You”re offering a 40
percent discount and a shipping upgrade to some customers. Are
you taking a loss on each book, and isn”t that just the kind of
transaction that Wall Street is frowning on?
Bezos: So we are taking a loss. Our price is completely
sustainable – but it doesn”t have to be on an item-by-item basis.
You never have to have the either-or mentality, that if you are
doing something good for customers, it”s bad for shareholders.
[What am I missing?]
–Shares in Oracle were battered to the tune of 15% on Monday
and Wednesday, before recovering some by week”s end, on news
that long-time CEO Ray Lane was leaving. If you thought I was
tough on Larry Ellison last week, here are some quotes on the
general attitude in Silicon Valley these days, as seen in the July 17
issue of Business Week.
“…the New Economy has produced a win-at-all-cost mentality
with increasingly dark implications…”
A backlash has been developing. “There should be a backlash,”
said tech-guru Geoffrey Moore. “Even most people involved in it
have to throw up at some point.”
–Original (useless) Research: Years ago, when I was in the
brokerage industry, I used to try to convince my friend Jim Z that
the weather in New York on a given day had something to do
with market action. He was, to say the least, highly skeptical.
Well, for the past 3 and a half year period (1/1/97-6/30/00) I have
been tracking the number of 1% down days in the S&P 500, but,
unfortunately, not tracking the corresponding weather. Anyway,
it”s time to share this exciting data.
Monday 15, 1% down days
Tuesday 28
Wednesday 24
Thursday 39
Friday 25
Now I could use the same info to find out the number of
”positive” days of the week but I”m not going to do it…it”s
against my nature.
–According to Bloomberg and Vickers Research, insider selling
has picked up, specifically, an increase of 68% in the first half of
this year vs. the year-earlier period. Microsoft executives account
for 12% of the sales.
Russia
Not a lot of news this week, if you throw out the fact that their
army suffered 5 separate, simultaneous suicide attacks on Sunday.
At least 35 Russian soldiers were killed (plus another 20
civilians). President Putin went to Chechnya himself to blast his
generals. I read one account where a Chechen civilian caught in
the crossfire said, “When we called the military commandant, we
were told that the military were scared and drunk and began to
shoot in fear.” [AP]
Putin also found time to boost military ties with Iran as both
expressed concern over U.S. involvement in their backyard. And
Vladimir also wants the old Soviet anthem back, a stirring piece
of martial music, if I may say so myself.
Mexico
The election of Vicente Fox was a monumental event. Imagine
the Democrats or Republicans in this country occupying the
White House for 71 years, only to finally suffer defeat, and you
get the picture. Current President Ernesto Zedillo deserves a ton
of credit for allowing democracy to flower.
But Fox only won 43% of the vote (the ruling PRI received 36%
and a third party captured 17%…similar to our own 1992
election…Clinton 43, Bush 37, Perot 19) and will not control a
natural legislative majority. Mexico”s problems with crime,
corruption and the narco-traffickers (all interchangeable) are not
liable to go away. And I was struck by a news story this week
detailing the problems ranchers face on the Mexico – Arizona
border, where hundreds, if not thousands, of illegal immigrants
stream across daily. One rancher has to deal with 60-70 strangers
a day traipsing through his property. It”s a wonder he hasn”t
started blowing them away.
The immigrants are, however, helping to fuel our economy as
they take the jobs most ordinary Americans don”t want. Attitudes
have changed in this country with the increasing realization of this
fact. But during the next economic contraction, you can be sure
that the old backlash will return.
Fox and Clinton need to find common ground, immediately, on a
program where the U.S. increases the allowable number of visas
while, at the same time, Mexico makes an effort to control the
border traffic. [I”m suddenly feeling dreamy…wake me up.]
France
Oui Oui! They receive their own heading this week, thanks in
part to one Jose Bove and what he represents. Jose is the farmer
who tore up a McDonald”s a few years ago to protest U.S. trade
policies and our growing influence over French culture. Bove
and his cohorts inflicted $110,000 worth of damage. This week,
a French judge handed down a suspended sentence. Bove is
now a national hero.
More importantly, France is quickly becoming the leader of the
opposition to globalization and since trade wars hit us all in the
pocketbook, you have to care about this issue. And almost
comically, the anti-American feeling has grown to the extent that
French civil servants are now prohibited from using the words
“e-mail” and “start-up.”
Columnist Michael Kelly had some great observations on those
daffy French this week.
“Ironic nations are formerly great nations; irony on a national
scale is an expression of fatigue with the expensive, exhausting
business of being great. The ironic nation is the nation as self-
willed has-been, formerly earnest and formerly consequential,
now marking time in the twilight state that is halfway between
mattering and not, in permanent danger of being annexed by
Disney. France is the exemplary ironic nation. France has been
ironic for nearly the entire modern age, which is why it has been
impotent for nearly the entire modern age. No nation provides so
clear an illustration of the dangers of irony as France: You sit in a
cafT long enough, wearing black and muttering ironic
observations on the passing scene, and one day the passing scene
is the German army, again. Isn”t that ironic?”
Hey, France has nukes! Maybe we need NMD to protect
ourselves from them! Now, now…just being ironic.
More International
Japan: Business Week”s Brian Bremner said, “Japan is closer to a
tipping point, where it could slide into financial crisis, than anyone
wants to admit. If that happened, the global turmoil would be
huge.” A collapsing yen would kill other Asian currencies.
Japan”s total debt load is now projected to hit 180% of GDP by
2005. So the Japanese Parliament did what it does best, stick
with the status quo, as it re-elected Prime Minister Mori.
There was some good news, however. The latest survey of
business confidence showed some improvement. And, in the
annual Nathan”s hot dog eating contest on New York”s Coney
Island, Japanese contestants took the top 3 spots! [The winner,
or is it weiner, ate 25 in 12 minutes, in case you want to try this at
home.]
Iran: 10 of 13 Jews, on trial for espionage, were convicted in
proceedings that violated all international standards of justice.
The trial was closed and those convicted received prison
sentences of 4-13 years. Going to jail in Iran isn”t like going to
prison here in the U.S. Think Turkey and “Midnight Express.”
This isn”t likely to have a happy ending.
Iraq: As columnist Jim Hoagland pointed out, President Clinton
has never gone before the American people to explain why the
U.S. and Britain have been bombing Iraq for the past 18 months.
We are masking the fact that it has now been almost 20 months
since we had inspectors on the ground there. So we participate in
this shell game, thinking we can keep Saddam on the run.
Sometimes it works. But you”d think we”d have learned our
lesson by now. There is no substitute for Humint (human
intelligence) on the ground.
By the way, I have done some reading on Uday, one of Saddam”s
two sons, who may inherit the presidency some day. Now, some
of you may have known that Uday is nuts. But did you know he
once “caned” a bodyguard to death and, on another occasion,
shot his uncle in the leg during a “booze-soaked” party? Saddam
must be scared of him too. The other son, Qusay, seems to be
almost normal. So look for a further story involving the Family
Hussein over the coming months.
Sierra Leone: The U.N. banned diamond sales from this nation for
18 months in an effort to choke off the source of funds for the
rebels. So guys, if you”re thinking of getting a ring for that
special someone…hurry up!! The old laws of supply and demand
are about to kick into gear.
Middle East: President Clinton is giving it one last try and, on this
issue, I can”t blame him, despite what seems to be an inevitable
collapse in the talks between Israel and the PLO. The divisions
within Israel are daunting and, for his part, Arafat secured his
place in the Dirtball Hall of Fame long ago.
Northern Ireland: It”s once again “marching season,” the time
when Protestants feel compelled to walk through Catholic
neighborhoods, commemorating their victory back in 1690. But,
despite the press coverage, the level of violence this week has
been minimal. Change doesn”t happen overnight. Maybe in 2250
they”ll stop this ridiculous practice.
Colombia: Check out the 7/6 edition of “Hott Spotts” for a
complete update on the horrific situation in this country.
This Week in Politics
A bipartisan nationwide poll by Voter.com and Battleground
revealed the following:
–Women choose Bush over Gore, 46-45
–Men choose Bush, 58-35
–Voters 65+ choose Bush, 57-36
–Whites choose Bush, 58-34
–Blacks choose Gore, 81-15
–Hispanics choose Gore, 53-41
Gore seems intent on making partial-birth abortion an issue.
Bush gave the start to the NASCAR race at Daytona last
Saturday night. Even his rendition of “Gentlemen, start your
engines” was fractured. Geezuz. Your editor is going to be on
pins and needles during his convention speech and the debates.
It”s too late. Janet Reno should not appoint an independent
counsel to investigate Al Gore at this stage. Not that she was
ever contemplating it.
So here is the real reason why Democrats don”t want Ralph
Nader in the debates. Liberal Nader said the following on
CNN”s “Crossfire.” “Do you know of another president who has
so morally disgraced the presidency?”
–Columnist Dorrance Smith had an interesting idea. He said
Bush should pick McCain to be Vice President / Secretary of
Defense. The constitution allows it.
Random Musings
–British Prime Minister Tony Blair”s 16-year-old son was found
walking the streets of London, “drunk and incapable.” Sounds
more like a child of Boris Yeltsin.
–The number 2 and 3 grocery store chains in my home state of
New Jersey have serious financial troubles. Yup, time to turn to
farming.
–The average Silicon Valley house price has increased 25% in
one year………………….screeeech……CRASH!!
–If you are a Civil War buff, you had to be pleased to see the
Gettysburg observation tower come down this week. What an
eyesore. But if Bobby Lee had been able to place just one scout
up there….
–You had to love Walter Matthau, “Elevating grouchiness to an
art form.”
–From Scudder Kemper and Business Week. Americans who say
it”s important to follow the economy: 49%. Who have never
heard of the New Economy: 82%.
–The Pocono region of Pennsylvania is a leading vacation spot
for the New York area crowd. Normally, however, the region”s
economy struggles. But today, even the Poconos are having
trouble filling jobs. My friend Johnny Mac hails from there and
he passed along the following anecdote that has absolutely
nothing to do with my preamble. But anyway…it seems the
county decided to hire a full-time person to clean up “road kill.”
They advertised in the Pocono Record, offering a salary of
between $18,000 and $25,000…depending on experience
(hmmm). 51 applied in two days. Be careful, Johnny. You
clearly have some interesting neighbors.
–Please, please…don”t anyone get me a “Boogie Bass” for
Christmas.
–I promise to only do about 15 more stories on missile defense.
–In Cicero, IL, 2 youths sitting on a stoop, minding their own
business, were shot to death by a Hispanic gang. The gang had
the wrong kids. Now who”s still against the death penalty?
–The U.S. annual defense budget equals 80% of the combined
GDPs of all 48 sub-Saharan countries. [Foreign Affairs]
–A new study reveals that babies who use sign language (like
flailing away with their arms) before they can talk become much
smarter children later on. So here”s what I see as a new trend.
Parents will hire third base coaches in their off-season to work
with the kids.
–It was too obvious…Serena Williams tanked her match to sister
Venus. Just another reason to watch golf.
–So word has it that GE Chairman Jack Welch was super pissed
at NBC execs for failing to pick up on the æreality show” trend.
As for CBS”s ”Big Brother,” I have my own opinions after
watching the first episode. Check out the 7/7 Bar Chat.
–This warrants more than a “random musing” but South Africa
got royally screwed by the racists who govern soccer,
internationally, when they selected Germany to host the 2006
World Cup instead of South Africa. The West had a chance to
step up and pat the South Africans on the back for being just
about the only true democracy on the continent. Yes, they have
incredible problems but the world needs this nation to be the
guiding light for the rest of Africa. And there was something
awfully wrong with the final vote, 12-11 for Germany, as one
official mysteriously abstained.
–But we can”t end on that controversial note so it needs to be
celebrated that pub hours in Ireland have been extended until
12:30 a.m. on Thursday through Saturday nights. Of course, the
previous 11:00 p.m. deadline was never a problem. “Time to pull
the shades, Seamus!”
Gold closed at $284
Nymex Crude Oil, $30.28
Returns for the week, 7/3-7/7
Dow Jones +1.8%
S&P 500 +1.7%
S&P MidCap +3.3%
Russell 2000 +2.1%
Nasdaq +1.4%
Returns for the period, 1/1/00-7/7/00
Dow Jones -7.5%
S&P 500 +0.7%
S&P MidCap +11.9%
Russell 2000 +4.7%
Nasdaq -1.1%
Bulls 51.4%
Bears 32.7% [Source: Investors Intelligence]
Note: If you want the real story behind the Human Genome
Project, check out Dr. Bortrum. The good doctor sets us all
straight.
Brian Trumbore
