*Update: 9/11…Please understand that I will wait until the
regularly scheduled time, Saturday AM, to update this link.
It would be irresponsible to make snap judgments at this time.
My thoughts and prayers are with all of you personally impacted
by this tragedy.
God bless America. Lord, help and guide us.
Brian Trumbore
—
[Posted 7:15 AM, 9/8]
Nowhere to run…nowhere to hide, part deux
Ah, the trials of a weekly column. How to keep it fresh and
enlightening, when all the editor sees is the same old doom,
gloom, and despair. Forgive me for injecting a bit of religion
here, but I was in New York this week and when I stopped in St.
Patrick”s I lit a candle for President Bush and prayed he would
be granted some wisdom to help lead us out of this mess.
Sure, on one hand we are simply paying the price for what will
go down as the biggest bubble, ever, and it”s only natural that it
would take years to work off the excesses. But while I”m as
guilty as the next guy in spending as much time as I do on
technology and Nasdaq (because that”s where all the money
flows were), we need to be reminded from time to time that tech
represents less than 10% of the overall U.S. economy. There is
another world out there, non-tech, that could use a little shot of
confidence. President Bush should come up with a real stimulus
program (not the tinker toy tax cut we”re receiving in the early
years of his first plan), demand national air time, get out the Ross
Perot charts (which were darn effective), and appeal directly to
all of us for our support. But, alas, he”s not the greatest
messenger (as Friday afternoon”s hastily called ”state of the
economy” proved)…and then my votive candle died out.
No, I certainly didn”t see us retesting the spring lows in our
equity markets, but now, forget the spring, the S&P 500 is at its
lowest level since the Russian / Long-Term Capital crisis of
October 1998. And it”s not just here in the U.S., all of Europe”s
major markets are at lows going back to the same period, too,
while Tokyo”s Nikkei index is chasing down the Dow like a
kamikaze pilot at the end of the Big One. As Archie might have
said, “Geezuz, Tojo, kill yourself in your own country, don”t take
the rest of us with you.”
On the economic front, early in the week the equity markets got a
boost when the leading gauge of manufacturing activity rose far
more than expected, signaling that inventories were successfully
being worked down and the pace of new orders was picking up.
Good. Maybe we”re near a bottom, we all thought.
But then the reading on non-manufacturing activity (i.e., the
service sector, which has a far greater real-life weighting than
the manufacturing figures) unexpectedly plunged. That set the
tone for the rest of the week.
The Dow closed at its lowest level since the spring, 9605, while
the Nasdaq lost another 6.5% to the 1687 level, just 50 points
from its April low. Even a blockbuster merger between
Hewlett-Packard and Compaq failed to generate excitement, in
fact, both stocks tanked.
And anyone seeking a glimmer of hope on the earnings front saw
that dashed, with comments from the likes of Ericsson (no
recovery for the mobile phone maker in 2002), Motorola (revised
revenue estimates down, again), and non-techs like Marriott
(which said its own business was plummeting).
Intel, however, basically reaffirmed guidance for the current
quarter, but when you”re now looking at $6.5 billion in revenue,
after you did $8.7 billion for the year ago period, and your stock
trades at a 50+ p/e multiple based on future earnings
expectations (which may still be way too high), how much of a
positive can it really be? And it wasn”t, as the stock went
nowhere after the news.
But on Friday it was the employment report that really shook
things up. The unemployment rate shot from 4.5 to 4.9%, the
highest level in 4 years. This headline grabbing event will do a
number on consumer confidence, just in time for the holiday
season. [Psst…I”ve decided I”m going to take some arts and
crafts classes and make my family and friends little boxes out of
popsicle sticks this year. I”ll make it up to them when the
economy recovers. Just don”t tell them I”m doing this.]
Lastly, there is this ever-present issue of debt. Individuals and
corporations are swimming in it. Forget the figures for space
junk you heard about this week, that doesn”t include all the paper
that is floating around. For example, Europe”s telecoms and the
$100 billion-plus they spent on wireless licenses for a new
generation of product that is years away, by most sane estimates.
Or bringing it closer to home, mortgage delinquencies, which are
rising at an alarming rate.
It”s getting bleak. Lord knows we could all use a rally. But the
media now has its hands around this story. It”s like throwing
chum to the sharks. We need leadership, in Washington, Europe
and Japan. Someone has to step forward. I”m waiting.
Street Bytes
–U.S. Treasury Yields
1-yr. 3.34% 2-yr. 3.49% 10-yr. 4.79% 30-yr. 5.37%
The two-year, in particular, rallied strongly this week and now
trades below the formal fed funds rate of 3.50%. Ergo,
something has to give, and obviously it will be the Fed given this
week”s awful economic news. The question is, does the Fed
move before its October 2nd scheduled meeting? Only if the
markets continue in freefall, is the guess here. But, more
importantly, as we”ve raised the issue in this space before, does it
really matter? If you say no, then you are likely brushing up
on your Japanese market history, reading it by flashlight under
the covers, lest you scare the neighbors.
–Microsoft: The Justice Department announced it would not
seek to break Gates and Co. up (though no one could have felt
they would with the entry of the Bush administration and prior
rulings from the appeals court), but Justice will still aggressively
pursue remedies, or sanctions, on Microsoft”s behavior. The big
question of the day then is how this process will impact the
rollout of Windows XP, currently slated for October 25. XP, it is
hoped, will help juice the whole PC sector, so any delay likely
pushes out the possibility for an authentic tech rebound.
–E-commerce sales are now well under 1% of all retail sales.
–Follow-up to last week: The silver-haired lady, Ellen Hancock
of Exodus, resigned this week.
–Jack Welch…legend, great man. Normally I couldn”t care less
about a book on a corporate leader, but I will scarf up his tome,
even though I”ll probably have nightmares over the mistakes I may
have made in my own business career, as he points them out to me.
–Energy: There were a few more mergers in the oil & gas patch.
But as the chairman of Global Marine pointed out (GLM having
been acquired by Santa Fe), while there are a record number of
rigs in operation, they are barely meeting demand. In other
words, when the economy does recover, this sector should rock
once more (my opinion). So I”m sticking with my 20% position
here (which held up nicely this week), recognizing further
downside risk certainly exists, but 12-18 months from now I still
think I”ll be pleased. If not, however, I”m eating gruel.
–Two key strategists weighed in this week: Lazlo Birinyi said
today”s stock market is for “professionals” and that the rest
should “stay out.” [Are you sulking?] And Morgan Stanley”s
Byron Wien predicted that a good entry point for us non-
professionals is end of October. Of course that”s what history
tells you as well.
–As Gretchen Morgenson of the Times noted, the fake or
“embellished” earnings from many of today”s corporations are
finally beginning to weigh on investors” psyches.
–You cannot underestimate the impact of collapsing markets
overseas. In Germany, for example, their Dow equivalent, the
DAX, was at 3973 on 10/8/98. It then doubled to 7975 on
3/10/00, the very same day Nasdaq peaked. The DAX closed
this Friday at 4730. You have a whole slew of investors who no
longer have the stomach, or wherewithal, for investing, let alone
sending their D-Marks to the U.S.
–It”s taken awhile, but the fund liquidations are now starting in
earnest. There is almost always about a 12- to 18-month lag in
fund flows, both ways, all obviously keyed to past performance.
International
China / Taiwan: As a policy issue this region is heating up
quickly. For starters the Bush administration appears to be
adopting the position that since we already know China will
modernize its existing nuclear force, we shouldn”t beat them up
on the issue if they will then leave us alone on NMD. Of course
this means that we have to convince China that NMD wasn”t
designed with them in mind, rather it”s intended for the true
“rogues” of the world like North Korea. This is a slippery slope,
but one which may be unavoidable if you believe (as I do) in the
whole NMD concept. The theory being that if China ramps up,
India will surely follow to counter China”s moves, and down the
road other Asian nations may follow (let alone Pakistan).
Democratic Senator Joe Biden said, “This is taking 50 years of
trying to control nuclear weapons and standing it on its head.”
But to assume that abandoning, or severely limiting NMD,
makes the world a safer place is exhibiting a faith in humanity
that is far from rational.
Meanwhile, on the business front, Beijing caused a stink when it
barred Credit Suisse First Boston from transacting business on
the mainland because of CSFB”s dealings with Taiwan.
Goldman, Sachs and Merrill Lynch then turned tail and
immediately dropped promotional tours to promote commerce on
the island. As Clay Chandler points out in the Washington Post,
clearly Beijing is attempting to weaken Taiwan”s economy even
further, forcing Taipei”s business leaders to continue to
pressure the government to make further accommodations.
Beijing is tightening the screws and the missile batteries are
cocked. But the trend tells you that it may not be necessary to
fire a single shot for China”s communists to accomplish their
goal.
Japan: The government reported that 2nd quarter GDP was down
0.8%, Moody”s may downgrade the debt, and a Gallup poll
reveals that 79% of Japanese workers are apathetic about their
jobs. [And then when they try to escape into an adult
entertainment center, 44 die in a fire.]
If there is any good news here it is the fact that Japan”s major
corporations finally are biting the bullet and, in some cases,
aggressively restructuring (i.e., massive layoffs). But is it too
little, too late? And when is Prime Koizumi going to spell out a
specific game plan? So far it”s been, well, we need a stimulus
package, first, and then we”ll tackle the systemic issues (foremost
being the bad bank debt problem). But even the International
Monetary Fund is demanding to get a look under the hood at the
banks” balance sheets, before they all explode.
And on the international relations front, Koizumi has few friends.
Certainly China and South Korea (both vital to any recovery)
aren”t ready to sign any new friendship treaties after the prime
minister”s ill-conceived war shrine visit.
North / South Korea: Chinese President Jiang Zemin visited
North Korea this week, reaffirming the two nations” close ties.
But Jiang can play a crucial, positive role in the North”s relations
with South Korea. The last thing he wants is some kind of
conflict between North and South while China is dealing with the
problems inherent in its own economic modernization program.
So Jiang is pushing the North”s Kim Jong-Il back into
reunification talks with Seoul. And Jiang told Kim to resume
talks with the U.S. as well.
But South Korea”s President Kim Dae-Jung has huge problems
of his own. Kim was forced to accept the resignation of his
“sunshine” policy chief (the man in charge of reunification
efforts) because a majority in Parliament feel Kim has gone too
far in the concessions he is offering North Korea, while receiving
zero in return. So aside from Minister Sunshine, Kim had to
reshuffle other members of his cabinet, the last thing he needed
as he wrestles with South Korea”s economic issues.
Israel: Nothing more to say than that Arafat and Shimon Peres
may hold the first in a probable series of talks on establishing a
workable truce.
Russia: The positions on missile defense and the ABM Treaty
were all over the board this week. The Kremlin announced there
would be no deal with the White House on NMD for a year.
Since the U.S. must give 6 months notice of formal abandonment
of the ABM Treaty before proceeding with certain stages of its
NMD program, this would be a potential problem. But then the
AP reported just a few hours later that Russia was on the verge of
accepting limited anti-missile defenses. In other words, there is
negotiating room and the upcoming November summit between
Bush and Putin could still see some real progress.
Belarus: In the run up to Sunday”s election, courageous citizens
were stepping forward to proclaim what those of us outside this
decrepit country already knew, President Lukashenko (he of the
Hitler mustache) has been running a death squad. The U.S. and
the West are appropriately applying as much pressure as possible
to ensure a free and fair election, which of course it won”t be.
But maybe the people will rise up afterwards?
Colombia: There were unconfirmed reports that the main rebel
group here had used poison gas in an attack this week, a
possibility because of the manner in which the four victims died.
If this is true, and if the IRA has been working with the rebels,
start connecting the dots.
Northern Ireland: Peace? The Good Friday Accords? Those
scenes from Belfast with the young girls being taunted on their
way to school were both heartbreaking and sickening. Just
another scary reminder of how much we really hate each other.
U.N. Conference on Racism: I was going to ignore this fiasco
but the conference that was intended to promote tolerance and
combat racism did the opposite. First you had the ugly actions of
Yassir Arafat, and then there is the issue of reparations. I said
my piece last November on this subject and for reasons I hope
you”ll respect, I will limit comments in the future.
But I do have to note some observations made by Simon Jenkins,
writing in the London Times. Jenkins said that “(Reparations
claims) are being led by American lawyers whose mouths are
salivating at the biggest class action in history. By forcing
such Maoist apologies, lawyers hope to prise (sic) open huge
claims for compensation, though no one seems clear about who
would benefit. It is hard to imagine more fertile soil for racial
disharmony.”
Zimbabwe: And on another related issue, President Mugabe
suddenly agreed to end his 18-month campaign against white
farmers, thanks to pressure from African nations such as Nigeria
(which the U.S. desperately wants to become a leader on the
continent) as well as Britain (which has 20,000 passport holders
in Zimbabwe). But Mugabe faces a very tough election next
March and the campaign against the farmers was always
designed to appeal to the masses” worst tendencies, so I suspect
he will backtrack on this agreement after a few months.
Immigration: Around the world this is becoming a hot button
issue. And what have I been saying for over two years now?
Watch out when the world”s economies begin to weaken. Well,
that day is here faster than even I thought. Issues like that in
Australia (where the government didn”t want anything to do with
stranded refugees from primarily Afghanistan) and in Britain
(which is dealing with asylum seekers trying to walk through the
chunnel from France) are just the tip of the iceberg.
This week Mexican President Fox, a good man, stated his case
forcefully for immigration reform in the U.S. I hope he”s
successful. But if the unemployment rolls continue to rise, both
here and abroad, I also imagine tensions will begin to flare. And,
unfortunately, the world will bear witness to some very ugly
behavior.
Random Musings
–Reporter Dan Balz summed up President Bush”s challenge; he
has to shift the debate from “Who lost the surplus?” to “Who”s
saving the economy?” Neither side has presented any real plan
of action, unless you include distortion of the facts.
The big news of the week was Republican Senator Pete
Domenici breaking with his party, and the overall consensus, by
forcefully saying that we should have no qualms in using the
Social Security surplus to help get the economy going again. But
the way the issue has been framed the past few years makes this
stance a political land mine. One more poor employment report,
however, and that attitude will finally change, if not sooner.
–H. Sterling Burnett had a piece in the Washington Post
detailing the cause and effect between our prison population and
the crime rate. Today, there are more people in prison and there
is less crime. Makes sense to me.
–Dr. Christiaan Barnard was one of the greats of the 20th
century. As an impressionable 9-year-old back in 1967, I was
captivated by the heart transplant story and I used to be able to
remember all the patients” names right up there alongside baseball
statistics. Louis Washkansky and Phillip Blaiberg (the first two)
deserve recognition as well. Heroes all.
–I”m going to miss Senator Phil Gramm, a great American.
–This week”s New York City mayoral primary is interesting
from the standpoint that it is a gauge of Al Sharpton”s clout,
since he has endorsed Fernando Ferrer. There will undoubtedly
be a runoff and then it could be lots of fun.
–Follow-up: There have now been over 36,000 cases of Dengue
Fever in Venezuela, with 6 deaths thus far. And in Britain,
instances of the human form of “mad cow” continue to grow in
more rural parts of the country.
–Some of the refugees on that Norwegian tanker seeking asylum
in Australia are instead being transported to Papua New Guinea.
That”s right, Johnny Jacobs, Papua New Guinea…where you and
your guest can be terrorized by headhunters. And these poor
folks thought the Taliban was bad.
–Remember what your editor said long ago, bad government can
lead to Depression.
–We had an absolutely crazy incident this week in the New
York area, specifically, a teenage party in Chappaqua, home of
Bill and Hillary. And this was no normal party. Instead it
consisted of the high school football team, lots of beer, lots of
pot, and a stripper, all while the host”s parents looked on. The
father, Robert Wien, is a managing director at a New York based
brokerage firm.
And around where I live in New Jersey, this summer there was a
huge pickup in malicious vandalism in another very wealthy
community, including in one instance where kids turned on an
outdoor hose and flooded the basement of some folks who were
on vacation. [That”s your homeowner tip, folks.]
Yeah, this kind of stuff has gone on forever, but I venture to say
a majority of you that are reading this are equally disturbed by
the increasingly vicious actions and attitudes of a few of the
“echoes,” the children of the Baby Boomers. But do we just
blame many of the kids for their spoiled, bigoted ways? Or
should we blast someone else?
The New York Post”s Rod Dreher wrote this week that
everybody wonders why today”s promiscuous, sometimes
obnoxious youth (my opinion) act the way they do. “It”s
Hollywood”s fault!” yell some. Blame the public schools!”
scream others.”
“And then you hear about dirtbag parents like Robert and
Rochelle Wien, and you think: With adults like that setting the
standards, kids don”t have a chance…
“Not long ago, parents behaving this way would have been
unthinkable, as other adults didn”t hesitate to discipline children
not their own, because these grownups could safely assume that a
misbehaving child”s parents would want them to keep their kid
on the straight and narrow.”
Not any more. And equally upsetting to yours truly were the
stories I read locally about all the anti-police remarks that are
being spray-painted around town. These aren”t ghettos, folks.
They are some of the wealthiest communities in the nation.
Heck, growing up in this same area, me and my little buddies had
the ultimate respect for cops and all authority, for that matter.
Today”s offenders need a good, swift kick in the butt.
–And speaking of a-holes, you have the folks at the Industry
Standard, that mammoth Internet magazine that recently declared
bankruptcy. On top of the normal list of creditors, like for the
office rent, I focused on the gall of these guys to walk out on a
$240,000 bill for a ritzy conference they held at The Four
Seasons. Throw them in jail.
–Lastly, in this “angry man” segment of random musings, how
the heck are you parents controlling what your teenage daughter
is wearing these days? The peer pressure these kids must face is
unreal. An educator commented in U.S. News that teachers are
now forced to “focus on this social issue of dress rather than kids
coming to school to learn.” I bet a presidential candidate could
garner over 10% of the vote using one single issue. Put all
schoolchildren in uniforms immediately.
–Summer”s over, and talk about boring. No hurricanes to follow
on the Weather Channel, wild fire footage from 1966, no black
bear revolt in my native New Jersey (oh, but wait till next
spring), still way too many home runs in baseball which helps
to cheapen the mystery of the sport”s past, no verified land
shark maulings, no Anna Kournikova in the U.S. Open, and no
summer rally on Wall Street. It was a total bust.
–I never saw one episode of Mr. Rogers, which is funny since
my relatives always said my father reminded them of him, and I
most resemble my father, which means that, oh no! I”m Fred
Rogers! I wonder what beer he drinks?
–Astronomers are now convinced that a massive black hole is
lurking in the heart of our own Milky Way galaxy, in case you
were wondering where all the bulls were disappearing to.
–And speaking of space, Charles Krauthammer had a piece on
Friday addressing one of my favorite topics, Mars.
Krauthammer spent some time with NASA Director Dan Goldin,
whose enthusiasm for a manned Mars mission knows no bounds.
I couldn”t agree more.
Folks, the whole world is in a funk now. One way to get out of it
would be to commit to a series of Mars missions…today. We
need to reenergize the human race because, otherwise, we have
nowhere to run to, baby, nowhere to hide.
Gold closed at $275
Oil, $28.03…stubbornly high
Returns for the week, 9/3-9/7
Dow Jones -3.5%
S&P 500 -4.2%
S&P MidCap -4.7%
Russell 2000 -5.0%
Nasdaq -6.5%
Returns for the period, 1/1/01-9/7/01
Dow Jones -11.0%
S&P 500 -17.8%
S&P MidCap -8.9%
Russell 2000 -7.9%
Nasdaq -31.7%
Bulls 44.3%
Bears 30.9% [Source: Investors Intelligence, or lack thereof]
Have a great week. Pet the dog.
Brian Trumbore
