[Posted Sat. AM]
When I first started this column, I used to receive notes like the
following, “I like the coverage of the markets, but leave the
politics out of it!” Sorry, the two often go hand in hand, and
throughout history, sometimes with devastating results.
I bring this up because while you all know what side of the
political aisle I”m on, I also didn”t hesitate to blast the current
administration when the president denounced the Kyoto Accords
in such a strident, arrogant fashion. It was awful diplomacy and
Bush has been scrambling ever since. And if you don”t think the
rising anti-Americanism across the globe doesn”t eventually have
an impact on our financial markets, well, you also probably think
the Cubs or Red Sox are going to win the Series this year.
So now we have the case of Senator Jeffords. How could the
president on down not see this coming? And what the heck were
his “brilliant” strategists, like Karl Rove, thinking? Geezuz, it”s
Politics 101 (Kyoto was a failure of Diplomacy 101). Grease his
palms a little. Give in to him on a portion of his education
priorities, and invite him to the event honoring a Vermont
schoolteacher (failure to do so was pure idiocy on the part of the
Bushies).
I won”t belabor the point. In the long run I”ll end up agreeing
with 90% of this administration”s policies, but a few more
mistakes like this and us elephants are staring at disaster in 2002
and 2004.
Also, don”t believe those like conservative William Kristol, who
say this could be a blessing in disguise because now Bush can
run against a Democratic-controlled Senate, nor should you
believe those who say that Wall Street loves gridlock. This isn”t
gridlock. This is a new Senate with powerful committees (where
the real work of government gets done) run by the likes of
Robert “Mr. Pork” Byrd, Ted Kennedy, and Patrick Leahy. And
on issues like healthcare and energy, the new leadership could
have a whopping impact on those market sectors.
I don”t blame Jim Jeffords one bit. After 26 years in Congress,
he”s earned the right to do whatever he damn pleases. No, the
blame is all on the Republican leadership, starting at the top, and
on this issue, I give them a big, fat “F.”
As for the tax bill, without having seen all of the final details, I”ll
leave it to others to dissect it over the coming week. What I
know of it looks pretty lame to me. I admire Bush on this subject
for sticking to his guns as much as he could. But the weak tax
incentives in the early years of the legislation are a result of a
divided Senate (the House had it right…but the two had to
compromise). Divided Senate? But I thought gridlock was
good?
As for the action on Wall Street this week, you got a better
indication of the malaise I have written of. Fed Chairman
Greenspan gave a speech wherein he couldn”t have stated the
long held opinion of StocksandNews with more clarity.
The U.S. economy is “not free of the risk that economic
weakness will be greater than currently anticipated.”
While the chairman still expects activity to pick up later in the
year, worse than expected readings on housing and durable
goods this week certainly pointed to an economy that is going to
continue to have a tough time gaining traction.
Greenspan was encouraging on the inflation front, saying that it
is not a concern with “energy peaking” as well as a “lack of
pricing power…which underscores an absence of inflationary
zest.”
[Fed Governor Lawrence Meyer, on the other hand, earlier
voiced concerns on the subject. The bond market chose to
follow him, more than Greenspan, in placing its bets on the long
end of the yield curve.]
As for equities, the Dow was down (2.6% to 11005), while the
Nasdaq rallied (2.4% to 2251). We now enter 2nd quarter
earnings pre-announcement season and the news can”t possibly
be that good. Earnings aren”t bouncing back anytime soon.
Street Bytes
–U.S. Treasury Yield Curve
1-yr. 3.70% 2-yr. 4.26% 10-yr. 5.51% 30-yr. 5.85%
10 and 30-year yields rose 10 basis points over the prior week on
the market”s less than sanguine inflation outlook. But the short
end is counting on further rate cuts.
–First quarter GDP, as expected, was revised downward to 1.3%.
–The economic news from Europe was not good. Germany and
France reported lower than expected growth figures, while
Germany”s inflation outlook is worrisome, thus precluding the
European Central Bank from further rate cuts of its own.
–The trailing 12 months price / earnings ratio on the S&P 500 is
25, way too high in such an unpredictable earnings environment.
–I don”t know if this was covered in the papers back in the
States, but Franklin Templeton”s emerging markets guru, Mark
Mobius, he of the big reputation and awful performance
numbers, nonetheless had some strong statements to make on the
lax corporate governance laws in these markets. Speaking before
an Asian forum, Mobius said, “What it take is us (the money
managers). We have to stand up and be counted and publicly
state where we stand.” He admitted that in some countries,
speaking out was not without risks. “I don”t want to be face
down in a puddle some place in Thailand.”
This gives me an opportunity to once again ask, why the heck
would you invest in emerging markets in the first place, where
there are zero accounting standards, unending political turmoil,
and rigged markets?
–So now Citigroup is dropping the Salomon name from its
investment banking and brokerage divisions, with the latter
simply to be known as Smith Barney. In returning to its roots,
why not bring back the John Houseman commercials? Because
he”s dead, you moron, you”re thinking. Yes, mon frere, but as
far as I know, bringing back John Wayne didn”t hurt Coors”
sales. Houseman”s “they earn it” spot has to be among the top
ten in advertising history.
–Wow, the Firestone / Ford conflict is vicious. Your editor is
looking into whether or not Ford is now stealing tires from Corgi
Toys and Matchbox cars to replace the Firestone brand.
–Lucent…what a disgrace. If this deal goes through with
France”s Alcatel, it will be the culmination of a story that on
12/31/2099, will still be thought of as one of the leading business
failures of the century.
–Newsweek”s 5/28 cover story in Asia (there was a different one
in the U.S.) was titled, “The $300 billion Folly. Fear and Greed
in the race for third generation phones.” Well, we certainly have
covered this ad nauseam. The real problem exists with European
companies like British Telecom, which paid ridiculous franchise
fees for licenses.
And on a different issue, AsiaWeek reported that NTT
DoCoMo”s usage numbers may not be all they are cranked up to
be. When it comes to NTT”s “i-mode,” which allows you to
send messages and play games, an estimated 26-40% don”t use
the service, an important figure if you”re trying to figure out the
real future of this technology that 95% really don”t need (if you
have a life). Or, as the reporter wrote, “Do cellular users
really want their phones to be MP3 players, digital cameras,
game machines, printers or all of the above? The market is out
of control even by Japanese gadget-lover standards.”
[For a look at Asia”s I.T. worker shortage, see the current “Hott
Spotts.”]
–Early in the year I ranted against the use of 52-week hi/lo
figures for the Dow when the majority of those issues hitting
highs then were closed-end municipal or bond funds…not
exactly an indication of relative strength in the “equity” market.
Now commentators foam at the mouth over the Nasdaq figures.
Yoh, fellas, a stock that has a 52-week high of $40, but an all-
time level of $200, is not exactly a new high to me. Especially
when a ton of money went into the issue between $150 and $200.
–Energy: OPEC next meets on June 5-6 and it is not expected to
increase production any further at that time. At least there is
some evidence that gasoline prices in the U.S. are close to
peaking (thanks to the free market…give someone an incentive
to produce and they will).
The following is a rehash of earlier thoughts, but since it comes
from my favorite economist, Robert Samuelson, I include it for
the archives, if nothing else.
“The American idea of an energy debate is to preach
conservation while driving to the mall in an SUV – to buy a
computer – and complain about high gasoline prices.”
–Jupiter Research, one of the original “experts” on the Net, is
revising all of its online sales projections downward. I”m
absolutely shocked!
International Affairs
Hong Kong: In my travels, I try to pick spots that are in the news
and then get some sort of firsthand look. As it so happened,
Hong Kong was making news while I was there this week. The
bottom line is we have a real problem brewing here and I”m not
sure how we”ll handle it.
For starters, understand that as free as Hong Kong is, even after
China took over the true administration of this financial
powerhouse from the British, it is far more fragile than I initially
imagined. I would have said major problems of Chinese
influence in 5 – 10 years, not one or two. Also know that the
people of Hong Kong have little to no say in who runs the place.
There is a “chief executive” who is approved by Beijing, and the
current CEO, Tung, is a big time toady. Case in point, Falun
Gong.
On my first day in this spectacular city, I walked a few blocks
from my hotel to check out the ferry that I was going to use
extensively during my stay. Under a walkway were some Falun
Gong adherents, doing nothing more than passing out brochures
(including an English version, which I read and had absolutely
nothing inflammatory in it). There wasn”t anything unusual
about their manner or appearance. But just a few days earlier,
the Hong Kong immigration authorities had booted 90-some
members who attempted to enter through the airport.
This was a striking blow against the policy of tolerance Hong
Kong has long been known for and at the time, the U.S. and the
West protested vigorously.
Remember, of course, that China formally banned Falun Gong
two years ago. Now it appears that “free” Hong Kong may be
following suit. Tung later declared the group to be a “cult,” and
the official banning of Falun Gong seems imminent. This has
huge ramifications, particularly in light of the fact that the U.S. is
already at odds with China over Taiwan and the Dalai Lama.
Authorities in Beijing and Hong Kong say that Falun Gong has a
political edge to it. It undoubtedly does, but, in my eyes, no
more so than Catholics with their pro-life stand, or the Christian
Right and some of its beliefs. The point being, where do you
draw the line? When does tolerance become persecution? China
is already harassing and arresting Catholics, will Hong Kong do
the same?
Last Sunday, I decided to check out the racetrack in Sha Tin,
about a 30-minute ride outside the city. It was easily a highlight
of the trip, me with about 40,000 screaming locals. The rugged
mountain scenery in the background was also breathtaking.
But as I”m standing there taking it all in, I thought how the hell
am I going to talk to anyone here? It didn”t appear that any of
them spoke English (the security guards didn”t, I quickly
learned). But it was then that I spotted two British ex-pats, who
took me under their wing. They were both in the shipping
business, obviously doing well, had lived in Hong Kong for
years and were more than content.
Well, I pumped them for information (after allowing them 5
minutes to bone up on each race…I took about 30 seconds, as I
picked my horses by name only), and I decided afterwards,
wow, these guys were pretty ugly!
The Brits saw no change since China essentially took over,
they loved the fact the police were in control, that you could
walk the streets at night, but they hated Falun Gong. “Why are
these bloody —-s coming into our territory to stir things up?”
“I didn”t see them stirring things up,” I said. They vehemently
disagreed and I didn”t pursue the point any further. I didn”t need
to. I”ll now observe from afar what transpires over the next year
or two, but there are other troubling developments in this crucial
territory.
Hong Kong scholars are canceling all trips to the mainland,
because they are scared they”ll be arrested (like the 5 Chinese
born / U.S. citizens now currently incarcerated).
Tensions are also rising because the business tycoons are
expanding rapidly onto the mainland to take advantage of far
cheaper labor, obviously at the expense of local employment.
And, of course, Beijing loves these guys because by offering jobs
in the hinterlands, it reduces the chances for unrest there.
[Interestingly, on this week”s trade junket to western China, the
top 100 business leaders, as well as 3 of the top 5 government
officials, all flew in one plane. Only one local politician chose to
state the obvious. An accident or a bomb wipes out the whole
leadership in one fell swoop.]
And lastly, the excellent South China Post had a story on how
mainland police have crossed over into Hong Kong in huge
numbers to investigate various corruption cases. Hong Kong”s
own authorities easily grant access. It”s all part of the plan, it
would seem to this editor. Hong Kong is close to becoming an
authentic “hot spot.”
Israel: Thankfully, the Arab nations aren”t in the mood for war
right now…or we”d have an all-out conflagration. The leaders
recognize that it would set back their nations decades, as far as
economic development. [Which means it will stay at its
current 1950s-type level.] And the Palestinians are frustrated at
the lack of real support they have received from their Arab
brethren.
But, as I hint with none too subtle allusions to assassination, at
what point do the governments have to answer to the unwashed,
ignorant, and hate-filled masses? After all, Jordan, with its own
large Palestinian population has witnessed large-scale rioting in
recent weeks, and, coupled with its moderate partner Egypt, both
governments increasingly have to save face after failed attempts
to moderate a solution.
Meanwhile, the consensus in the West now is that the U.S. must
play a leading role in the quest for stability. Yes, it”s the
“moment of truth.” Palestinians have viewed U.S. inaction to be
a green light for Sharon and his aggressive policies.
Lastly, you have the Mitchell Report, which offers a clear cut
starting point. Both sides have to renounce violence, initiate a
ceasefire that will stick, and Israel has to halt any further action
on settlements. In other words, not likely.
[Regarding the wedding disaster, did you ever stop to think how
corrupt construction bosses, circumventing local building codes,
have probably killed ten times more people in the history of
mankind, i.e., like in earthquakes in Turkey and India, than
terrorists have?]
Turkey: Just a quick note. One of the Hong Kong papers had an
extensive piece reiterating Turkey”s vital role in the Middle East.
Next to the U.S., they are Israel”s most vital ally. It bears
repeating that because of Turkey”s presence in the region, Syria,
Iran, and Iraq have to think twice about any attack on Israel.
China / Taiwan: Not a great week for Beijing. The U.S. played
host to Taiwan”s President Chen Shui-bian (albeit, unofficially)
and then Bush met with the Dalai Lama and very publicly
declared his support for Tibet.
So now China will hold its own very public demonstration…
massive war games, sometime soon in the South China Sea. And
we still have the little issue of the spy plane and how it is
returned to us.
Meanwhile, Taiwan”s economy is in the dumps, owing to the
global tech crunch, and many on the island are now publicly
questioning whether the government can even afford the
weapons we are offering them.
Japan: The people are having a love affair with new Prime
Minister Koizumi (though, curiously, the stock market isn”t).
The heavy metal fan is seen to be “cool,” and ratings of normally
staid parliamentary proceedings are soaring. Of course it also
helps that he has a crackpot foreign minister, Madame Tanaka,
who is fully capable of saying just about anything…thus, she”s
highly entertaining, if not necessarily diplomatic.
But what of the substance? As a follow-up to last week”s
commentary, Koizumi does seem determined to heighten the
image of the Japanese military. And his desire is to have a more
active alliance with the U.S., including an explicit commitment
to come to America”s aid in the event of an attack on its forces in
the region. This does mean that Japan”s war-renouncing
constitution would have to be revised or reinterpreted. And
along the military front, there was a surprising poll out this week
that for the first time since the survey was instituted 16 years
ago, shows more Okinawans favor the U.S. presence on the
island than oppose it.
Finally, back to the middle school textbook fracas that won”t go
away. Many in Japan seem genuinely surprised at the hostility
exhibited by South Korea and China, which, in the eyes of this
editor, points to a certain level of naivety…similar to that which
thought the U.S. would somehow crumble after Pearl Harbor.
And it”s also interesting to note that right-wingers in Japan are
protesting against South Korea”s “interference” in Tokyo”s
domestic affairs.
Russia: The Washington Post”s Sharon LaFraniere had a scary
article this week on the Russian military. Officials
acknowledged that roughly “500 servicemen are killed each year
by senior officers or comrades.” The army is in such decay
that the Russian military budget of $4,000 per serviceman is the
lowest in the world among major nations. By comparison, the
U.S. spends $180,000 per soldier (and we still can”t house them
properly!) The average pay for a Russian is $1, yes, $1, a month.
These poorly disciplined and egregiously underpaid Russian
troops still operate the subs, warplanes and rockets carrying its
nuclear arsenal. Forget the supposed “fail-safe” measures on
Russia”s weapons, it only takes one “crazy” to really screw
things up for the rest of us.
Afghanistan / Pakistan: Believe it or not, the big developing story
is not the Taliban”s proposal to demand identity labels for its
Hindu citizens (obviously sick and wicked), but rather the fact
that 180,000 Afghan refugees have fled into Pakistan to escape
the horrific drought in their homeland. When it comes to
refugees, Pakistan is actually fairly beneficent. But not any
longer. They”ve had it. As a bankrupt nation, they can no longer
handle the crush and they”ve officially shut their border, but the
Afghans keep coming across anyway. There is a growing
potential for civil war here…the last thing this nuke-tipped
country needs.
India / Pakistan: The news is better on this front. India agreed to
hold talks with Pakistan over Kashmir for the first time since
1999.
Indonesia: May 30 is the deadline for the legislature to decide
whether to proceed with impeachment hearings against President
Wahid. You talk about a powder keg, one more round of
violence in Jakarta, like that of two years ago, and the citizens
can kiss foreign investment goodbye for another 10 years, at
least. Half the population will be back to eating insects.
Philippines: The government announced they won”t guarantee
the U.S. military access for a staging area in the event of an
Asian conflict. So I guess we can just color the Philippines
red…as in Red China.
Malaysia: If you think Asia has recovered from the crisis of 3-4
years ago, think again. You may want to take a quick glance at
my current “Hott Spotts” piece, to get a sense of just how much
they can be impacted by the slowdown in the U.S. And in
Malaysia, you have the case where the banks bad loan ratios are
soaring anew, because of shrinking exports to the U.S., thereby
making it harder for corporations to earn enough money to repay
their debts.
Vietnam: This week they joined China in arresting religious
dissidents, including a Catholic priest and a Buddhist. The priest
could be jailed for 12 years for speaking out against the
government.
And the Vietnamese leaders are such idiots that they made the
arrests on the eve of a visit by a high-ranking Bush
administration official who was visiting to discuss a trade deal.
Britain: With the June 7 general election rapidly approaching,
opinion polls show Tony Blair”s Labour Party with a huge lead,
16 to 26%, depending on the source. But this week we saw the
reemergence of one of history”s great figures, Margaret Thatcher.
Thatcher blasted Blair, correctly calling him a “socialist.” What
really ticks Lady T. off is that he co-opted her ideas to get
elected and then veered far left. Thatcher also reiterated that
Britain would make a fatal mistake in adopting the euro, thus
losing any remaining sovereignty.
Random Musings
–Secretary of Defense Donald Rumsfeld said reshaping the
military “will be very difficult to accomplish” and may take a
decade. The past 8 years left it a shambles. I mean to tell you,
forget the fact the nation isn”t prepared to lose men over Taiwan,
we are in no position right now to come to its aid if we wanted
to. [This is me, not Rumsfeld.] And the only thing that would
save us in the Middle East, should we have to get involved
militarily there, is all the pre-positioning we did after the Gulf
War (thanks to Bush Sr.).
Rumsfeld, though very careful in his wording, is also clearly
rethinking the whole idea of the aircraft carrier (per previous
discussions here), due to its vulnerability to a missile strike.
[The Russians have one, for example, that skims 50 feet above
the water and travels at 300 mph over the speed of sound, ergo,
big time problem. And you know the Russians will sell it to
anyone.]
–I noted with interest President Bush”s speech on faith-based
charity at Notre Dame, after my piece on Yap last weekend. I”m
not sure government needs to be involved. This is where the
simple use of the bully pulpit can be effective, but fat chance the
networks would ever allow a president to go on prime time to
discuss the topic.
–British Airways commissioned a top-designer to create “sexy”
new uniforms for its flight attendants. Ah, guys, something tells
me you can”t quite do that these days. The unions immediately
protested.
–Robert Redford weighed in on the Bush energy plan in an op-
ed piece in the New York Times. “Why not tighten fuel
economy standards instead (of drilling)?” the rapidly aging
superstar opined. Why didn”t your buddy Bill Clinton hold the
auto industry”s feet to the fire for 8 years, Sundance? Actually, I
liked Redford best in “Jeremiah Johnson.”
–Seeing the well-organized crosswalks of Hong Kong, I
immediately thought of Rudy Giuliani and his similar move of
two years ago that earned him so much criticism. Those of us
who enjoy New York (let alone the majority of those living
there) are cringing at the thought of a post-Giuliani era. And you
should see the candidates lined up for this fall”s election.
Geezuz, they are absolutely awful!
–I have to admit, folks, I treated myself royally in Hong Kong,
staying at one of the great hotels in the world, The Peninsula.
My goodness, it”s almost depressing knowing I will never exceed
that experience (so I”ll have to go back). For example, my first
morning there I noticed a little smudge on my 27th floor window.
“Huh, missed one,” I mused. Not but 5 minutes later, I hear a
sound and it”s a window washer dangling from the roof, cleaning
that very spot!
–I see where Al Sharpton is contemplating a run for the
presidency. I have two words…Tawana Brawley.
–Singer Peggy Lee turns 81 this weekend. Stay away from her.
Don”t you know she”s walking around mumbling, “Is that all
there is?”
–On the U.S. Customs declaration form, a yes or no question
reads:
“I am bringing fruits, plants, meats, food, soil, birds, snails, other
live animals, wildlife products, farm products; or, have been on a
farm or ranch outside the U.S.”
Most of this language attempts to address issues like foot-and-
mouth. But I am respectfully recommending the following
revised wording which appropriately identifies the real
problems facing society today.
“I am bringing clowns, mimes, gypsies, bad manners, Zamfir
CDs, bubonic plague, wolverines, Nessie, or soil from a nuclear
waste dump.”
–Uh oh, “Pearl Harbor” is getting panned even worse than I first
thought. Maybe I won”t need any Kleenex after all. I was in
Honolulu the last few days and the stories were decidedly mixed.
And if the film is that bad, maybe, as one local paper had it,
Japanese-Americans really need not worry about any “backlash.”
Having been to Pearl Harbor just 4 years ago, I wasn”t planning
on returning, particularly since I was short on time. But after a
little walk on the beach, I step into my hotel room and there on
my balcony, staring in through the glass door, were two white
doves. I took it as a sign. Go back to Pearl Harbor and at least
see the documentary there. So I immediately hopped in a cab.
If you haven”t been to the Arizona Memorial and viewed the 20-
minute movie, it”s one of the most moving pieces of film-making
ever. [And maybe this is what should be in theatres across the
country, instead of the Disney version.] But I was even more
amazed at the powerful 2-minute introductory speech given by
the park ranger prior to the presentation. I mean to tell you, Eric
was awesome and I went up to him afterwards to tell him so.
So in the cab going back, I kept thinking about how we have so
many of our priorities in this country totally screwed up. We
have to preserve our national parks and historic monuments
(particularly Civil War battlefields), and it”s a travesty that we
can”t come up with some real money to pay the rangers. All of
you have dealt with them in your life. These are the most
dedicated, salt of the earth folks you”ll ever meet and they
basically live in poverty. We have documented cases, such as in
the Education Department, where tens of millions of dollars is
wasted, or worse, embezzled, and yet we can”t come up with a
few million for them.
Lastly, as long as I”m alive, I will remember and honor the
Veterans of our Armed Forces. And I will always look on those
who died for America with awe and inspiration. That”s the
charge for all of us.
“Think not only upon their passing…remember the glory of their
spirit.”
—
Gold closed at $278…clearly a rush to sell class rings.
Oil, $28.38
Returns for the week 5/21-5/25/01
Dow Jones -2.6% [11005]
S&P 500 -1.1%
S&P MidCap +0.2%
Russell 2000 +0.5%
Nasdaq +2.4% [2251]
Returns for the period, 1/1/01-5/25/01
Dow Jones +2.0%
S&P 500 -3.2%
S&P MidCap +3.1%
Russell 2000 +5.2%
Nasdaq -8.9%
Bulls 47.9%
Bears 35.4% [Source: Investors Intelligence]
Note: I hope you don”t mind if I stay home for a while. After the
last five weeks, my body clock is screaming, tell me what time
I”m supposed to act like it is!
Brian Trumbore
