[Posted 7:15 AM]
“What”s at stake here is our freedom to exist as an American
people.”
–General Richard Myers, Joint Chiefs Chairman
Just in case anyone forgot what this is all about.
Was the mini-panic of the past week that was created by the
anthrax scare overblown? Perhaps. After all, we know that far
more people may die from the flu this winter than from
bioterrorism. But we do have good reason to be on edge, as
anyone with even a smattering of intelligence knows that it may
not be anthrax that is the real future threat, it could be something
far worse. It”s that fear of the unknown that is so unsettling.
At the same time, there needs to be some balance. Am I
personally worried about anthrax? No. Has the past few week”s
events changed the way I go about my business? No. Is the
media handling this in its usual tabloidized (new word alert)
manner? Well, yes and no. Yes, I”m sick of Dan Rather, but the
story still has to be told, if for no other reason than to remind us
that there is more to come. And the more we know, the better we
will be able to handle the inevitable.
Last March 10 in this space, I wrote of the Taliban blowing up
the Buddhas. This week columnist Charles Krauthammer
weighed in.
“The statues represented two things: an alternative faith and a
great work of civilization. To the Taliban, the presence of both
was intolerable.” Krauthammer then went on to discuss our
current mental state.
“We tremble because for the first time, nihilism will soon be
armed with the ultimate weapons of annihilation. For the first
time in history, the nihilist will have the means to match his
ends, which is why the war declared upon us on September 11 is
the most urgent not only of our lives, but in the life of
civilization.” [Weekly Standard]
Some analysts and commentators, particularly on Wall Street,
continue to act like this climactic time in our history is about
nothing more than a garden-variety economic downturn. Whenever
you see one of these folks you just want to reach through the
television and shake them. “Earth to talking head. Get with it.”
At least an increasing number do seem to be catching on. It”s
really all about Iraq. It”s about no arms inspectors in the nation
for years. It”s about the weapons that Saddam already has, let
alone the ones he is cooking up. It”s about saving America.
Others in the punditry argue that if there is no hard evidence
linking Saddam to 9/11, we wouldn”t be justified in going after
him. That”s garbage…and dangerous thinking. Or as
commentator Max Boot puts it, “Who cares if Saddam was
involved in this particular barbarity? It is not a matter of justice
to depose Saddam. It is a matter of self-defense.”
But it has come to light that U.S. military planners have been
getting together with Hollywood”s most creative minds in order
to come up with ”what if,” or, ”what could possibly be worse”
scenarios; an attempt to “think outside the box.” So while they
are working on disaster scripts, something I”ve given you more
than enough of already over the past few years, I thought I”d turn
it around and try and come up with something positive.
I have been writing the past few weeks of the exciting
possibilities on the U.S. / Russian front. Later Saturday (Sunday
in Shanghai) we should start to begin to see a manifestation of a
new framework in relations, with President Bush proposing
large-scale cuts in each side”s nuclear arsenals, while President
Putin accepts missile defense and our abandoning the ABM
Treaty. Eventually, we may also compromise on NATO
expansion, as well as to begin to aggressively purchase Russian
oil (at least that was part of my thinking in buying that Russian
oil stock a few weeks ago). True, there are still major issues to
hash out, and it”s not just about Chechnya in this regard. Russia
also has a major problem on its hands involving the nation of
Georgia and separatists within its border, but, most importantly,
we have to get not only a handle on Russia”s weapons and
technology transfers to nations like Iran, but also how best to
protect existing nuclear and biological stockpiles. That said,
these should be exciting times between our two nations.
And speaking of Iran, if one really thinks outside the box, you
can envision a day when relations are normalized between
Tehran and Washington. Iran actually has some semblance of
democracy already in place, unlike its brethren in the region, as
the parliament is freely elected and President Khatami is a
moderate. The problem here is that the clerics still call all the
shots, including the blocking of any reformist legislation passed
by parliament, as well as wielding ultimate control over the
military and security apparatus. But is it really impossible to
topple the clerics when the majority (70%+) of the people have
already voted for more democracy? Perhaps not, with a little
help from Russia and the U.S.
Before I go overboard, however, with the latter foreign policy
fantasy, remember that time is of the essence with regards to
Iran. They will shortly have nukes (thanks to Russia”s help) and
we shouldn”t be surprised if Israel, acting alone, takes out the
capability once it is sure it exists, as they”ve done before. [And
you just know there are also Israeli authorities with their fingers
on the button of the nation”s own nuke force waiting to unload
on Saddam as well.]
On the China front, I don”t expect a lot of positive surprises, but
a continual lowering of tensions is good enough for now. China
isn”t likely to halt their weapons sales to the likes of Pakistan and
North Korea, but the U.S. is apt to look the other way on human
rights if Beijing lowers the rhetoric on the issue of Taiwan, and if
Washington is assured that war is not imminent in the Straits.
There…see, I can be positive.
Wall Street / The Economy
Fed Chairman Alan Greenspan gave some testimony to Congress
and everyone was looking for soothing words. Instead,
Greenspan simply told the truth. While the underpinnings of the
U.S. economy may be solid, in this new world in which we live,
consumer confidence and behavior is almost impossible to
predict, especially when the next act of terrorism could send it
spiraling down once again.
This week the major equity averages reflected this thinking and
fell for the first time since the lows of 9/21, despite the fact that
there was some respectable news on the earnings front. [For the
week the Dow lost 1.5% to close at 9204. Nasdaq slipped 1.9%
to finish at 1671.] IBM beat by a penny and Microsoft issued a
solid report, normally more than enough to propel the markets
forward, but you also still had plenty of reminders of just how
extended we once were on the averages, and how far we have
since fallen. Sun Micro saw revenues plummet 43% from year
earlier levels, EMC”s sales were off 47% and Nortel”s were
down 45%. That”s just a small sampling, yet it”s hard to believe
that just one year ago these same companies were calling for 20-
30% growth rates.
Globally, the news continues to worsen as Intel”s CFO voiced a
typical opinion. “Global growth prospects (are) his biggest
concern.” And regarding technology and telecom, specifically,
perhaps the single most significant statement of the week came
from Telmex, which said it was going to reduce capital spending
by 15% in 2002. For those who are still calling for 5% growth
next year in this regard, it”s a pretty good sign it may be time to
readjust forecasts once again.
I”ll spare you for one week the same litany of broader economic
concerns. I should add, though, that when it comes to the federal
budget and spending, when I see Pakistan getting $500 million
and begin to extrapolate that for many of our other deserving
partners in the war, it is pretty clear that the much talked about
economic stimulus package (which I also won”t comment on
since we”re still lacking final details), is but one cost. Throw in
federal spending on security (the aviation industry being the most
visible example), defense expenditures and foreign aid and I
think by year-end we will be shocked at the revised budget
figures for fiscal 2002 and 2003. The bond market, while kept in
check currently by moribund economic activity, will eventually
have to address the issue, and it”s why your editor is frantically
trying to wrap up the refinancing of his mortgage.
Street Bytes
–U.S. Treasury Yields
6-mo. 2.16% 2-yr. 2.74% 10-yr. 4.62% 30-yr. 5.36%
A horrible number on industrial production helped lead to further
gains in bondland. In a related topic, the U.S. dollar has staged a
very nice rebound, so those awaiting the “rollover” effect will
just have to be more patient.
–Assorted layoffs: Sprint – 6,000 (7,500 including contractors);
BellSouth – 3,000; Dana Corp., the auto parts maker – 11,000
(on top of a previous 10,000); Merrill Lynch may be announcing
cuts of up to 10,000 additional employees down the road, but at
least they are first offering what appears to be a respectable
severance package.
–EBay had another solid earnings report but hinted at slower
growth ahead. Add in the fact that the price / earnings multiple
is outrageous and this Net winner finally took a header at week”s
end.
–Dutch electronics giant Philips attempted to provide a ray of
sunshine in proclaiming that its semiconductor orders were
improving. But AMD and Texas Instruments both forecast
continuing difficulties (as well as the aforementioned Intel).
Commented TI, while they see “increased signs of stabilization,
the bottom for the semiconductor industry has been moved out.”
We seem to hear this every quarter.
–Shares in AOL Time Warner had a rough week as the company
reported disappointing #”s for its Net operation.
–With about half of the S&P 500 companies having reported for
the quarter, earnings are off 16%.
–Energy: Crude oil hit a 2-year low as traders continue to
receive mixed messages from OPEC. There is no doubt that
global demand for all things energy has fallen, but whereas
further production cuts would seem warranted, OPEC is worried
that 1) a price spike may further hinder the global economy, 2)
they don”t want to lose anymore market share to non-OPEC
giants like Norway and Russia, and 3) some members don”t want
to upset the U.S. right now. [Generally speaking, OPEC oil
ministers are more pragmatic than their respective governments.]
–It”s been a while since I”ve seen anyone mention the fact that
with all of the current uncertainty in Europe, it also has a euro
conversion to deal with come January.
–Equity funds saw record outflows of $32 billion in the month
of September, but this was less than 1% of total stock fund
assets, not a big deal. It would become one, however, if we were
to see this kind of activity for 3 or 4 months in a row.
–Three weeks ago I poked fun at Peter Lynch and his new
Fidelity ads, as I stated that he seemed to be avoiding two key
periods of time in market history, 1929-54 and 1964-82. Just to
add some meat to my claim:
Sept. 1929 Dow Jones 381
Nov. 1954 Dow Jones 381
Feb. 1964 Dow Jones 790
Aug. 1982 Dow Jones 792 [The great Bull Market commenced
from this level on August 17.]
True, I am ignoring dividends, which back in those days were
normally fairly hefty, but these days dividends are virtually
nonexistent. It was 1/14/00 that the Dow closed at 11722. You
can draw your own conclusions on the future.
–For those who want to be bullish, last December and this past
March I mentioned a test of a market bottom that Barron”s Gene
Epstein has used with some success. IF a recession hits, looking
at past downturns the damage is done for the stock market when
the S&P 500 rallies 10% off its lows. The tough part is normally
predicting when the recession started (which may not be too
difficult this time around). With the S&P 500 having bottomed
at 965 on 9/21, and with the index having risen above the 10%
line (which would be 1061…and it is currently 1073), I present
this to you as a public service.
–From the strategists at Morgan Stanley (who have been the
most balanced, in my opinion, over the past few years).
Barton Biggs: “The new euphoria is overdone…we will retest the
September lows.”
Byron Wien: “Earnings expectations are too high…too many
people are expecting a sharp V-shaped recovery.”
Stephen Roach (economist): Expects a “steeper-than-expected
decline in aggregate activity.” [Roach has confused me a bit the
past few weeks, so I”ll stick with his gloomier side.]
–International: China reported GDP growth of 7.0% for Q3, but
while this may seem great, it”s actually lower-than-expected.
Said one finance ministry official, “The export slowdown is
rather large.” China is the new linchpin of the Asian economy.
A continuing decline in output here would certainly send a signal
that the regional picture will remain murky.
Germany: Early in the week the government reduced its forecast
for GDP growth in 2001 from 2% to just 0.75%, and then added
that they see 2002 now at 1-1.5%. But, in light of the dreadful
release on Friday of business sentiment in the country, which
was the worst reading in 8 years, even the drastically reduced
growth figures may be too optimistic.
Argentina: President De la Rua suffered a sweeping defeat in
congressional elections. The debt crisis worsens and with 16%
unemployment, the people have lost all patience with their
leaders.
–General Motors: “(There is) considerable uncertainty”
regarding the strength of the auto market through 2002.
–On the banking / credit front, Bank of America reported on a
weakening credit picture across the financial sector and is
significantly paring back its loans. And then there is Providian, a
large issuer of credit cards, which saw its shares collapse on
word of rapidly increasing delinquencies among cardholders.
–My Portfolio: I remain about 85% cash and 15% energy stocks,
though I am about to start dabbling in a real speculative play,
which I”ll tell you more about next week if the trade goes
through.
Israel
Prime Minister Sharon: “Arafat has seven days to impose
absolute quiet in the (occupied) territories. If not, we will go to
war against him. As far as I am concerned, the era of Arafat is
over.”
Arafat has good reason to fear assassination. The taking out of
Israeli tourism minister Rehavam Zeevi was a watershed event
and a far wider war seems imminent. Arafat lost control long
ago and is incapable of facing up to Hamas, PFLP, and all the
rest.
It also doesn”t help to have Egyptian President Mubarak say
during a meeting with Arab journalists, “The true dictatorship is
in Israel (not here at home).” Mubarak has now been in power
20 years…my, how time flies.
Of course whatever happens in this region has everything to do
with the U.S. war on terrorism and obviously would make it all
the more difficult to achieve our goals. It could also turn out to
be a total catastrophe.
The Coalition
In one of his press briefings, Secretary of Defense Rumsfeld put
it best; we are not dealing with one grand coalition, but rather a
“shifting” one. We will look to each nation to give us
something, but in some phases of the war that may be nothing.
Or as Charles Krauthammer (StocksandNews commentator of
the week) put it, “You take friends where you find them and
when you need them. But in the end, we decide.”
India / Pakistan: Secretary of State Colin Powell performed his
best Karl Wallenda impersonation as he shuttled between the
two. Pakistan”s President Musharraf was handed a Publishers
Clearinghouse envelope, which read, “You may have won $500
million!” “Really?” he asked Powell. “Yes, yes, it”s real,”
Powell guffawed. “All you have to do is order Field & Stream
for one year.” Then Powell went to India and received a stern
lecture. “How dare you cozy up to the terrorists,” India”s
leadership shouted in unison. India also shelled Pakistan across
the cease-fire line in Kashmir for the first time in 10 months. All
in all, however, Powell did what he could, given the
circumstances, but in the end the only thing you can hope for is
that these two bitter enemies somehow keep their cool.
Saudi Arabia: While the royal family protests the “excessive”
treatment of its citizens in the U.S., behind the scenes they have
been rounding up extremists.
Australia: The Aussies have committed to supplying troops for
the effort, thus joining the Canadians; meaning that there is
also going to be one helluva beer festival coming soon. God bless
them, they”re always there for us.
France: Zut alors! The French may be committing troops. That
means they are responsible for the wine. [Seriously, we”ll see
what happens when it comes to Iraq. That”s going to be the
true test.]
Philippines: So far it”s been a good friend. President Gloria
“Kick Ass” Arroyo”s military has been aggressively pursuing bin
Laden supporters. Now if she could only get through to her dim-
witted sister in Indonesia, President Megawati, we might get
somewhere in the region. Unfortunately, Indonesia is just
another place capable of blowing at any moment.
Jordan: Police here have evidently foiled more plots, this time
against embassies in Lebanon. These guys are good. Let”s hope
they can keep King Abdullah alive.
Nigeria: Another basket case that does matter, as 200 more have
died in renewed religious violence, this time specifically directed
against the U.S.
Random Musings…semi-serious version
–Gee, how did you all know I didn”t like Bill Clinton? Is it that
obvious? Well, Mike H. gets the award for sending me the latest,
first. And it is pretty good. Hillary gets $8 million for her
forthcoming memoir and Bill gets $12 million, not bad for two
people who spent the past 8 years being unable to recall anything
about past events while under oath.
–I feel obligated to explain why I, a Republican, would endorse
Democrat Mark Green for mayor of New York. As I noted
months ago, however, all the candidates were miserable, but I
can”t wimp out so I go with Green because he has been preparing
for the job all his life, he has a real sense of history, and…
omigod, I”m describing Bill Clinton. Aagh! Oh well, the city is
doomed regardless of who wins. Unfortunately, the real estate
situation downtown is looking bleak as many of the Wall Street
firms are seeking to sublet the space they had around the Twin
Towers. I feel for those of you who have to work down there. I
know it isn”t a lot of fun from what some of you have told me.
–File this under “I told you so.” Royal Caribbean Cruise Lines
has become the first to shift itineraries, rerouting Athens-to-
Dubai, Dubai-to-Singapore, and another trip that was to make
calls in Greece and Turkey, all due to terrorism concerns.
–File this under “StocksandNews Heroin Update,” similar to
NBC”s “terrorism taskforce.” At first I felt bad that I hadn”t
mentioned last week that the military was bombing the Taliban”s
opium stash. But, alas, Secretary Rumsfeld said during a
briefing this week that they were too hard to locate. Thus, I
don”t know what advice to give those of you who may be
strapping a belt around your arm as you read this. I guess I”d
have to go with Rumsfeld (who always looks like he”s about to
use a belt on someone himself…not that there is anything wrong
with that) and say, given the laws of supply and demand, the
supply may yet hold out, ergo, the feared price spike I previously
wrote about may not come to pass.
–Well, I received some comments regarding my lack of proper
respect for the Nobel Prize for Literature winner, V.S. Naipaul.
While I was aware of him, no, I haven”t read any of his work
until this week. I”m still trying to hack my way through “The
Tom Seaver Story.” I did like the Naipaul quote from a Journal
editorial, “Those who are nothing, who allow themselves to
become nothing, have no place in (the world).” Which is really
the premise of StocksandNews after all. We have no patience for
those who take zero interest in the world around them,
admittedly a hard thing to get away with these days.
–Which leads me to Al-Jazeera, the CNN of the Arab world. I
am not bothered by its coverage of events and I have long known
they were an irreverent voice for about 30 million in the Middle
East. It was wrong for our government (see Colin Powell) to
initially criticize the network. After all, anyone with half a brain
should get all the facts (even from commie rags like the New
York Times, which I force myself to read each day) and form
their own opinion. The legitimate problem in the Middle East,
however, is that the teeming masses have zero education and are
thus too ignorant to look at both sides of a story. Nonetheless,
the U.S. still has to work with Al-Jazeera, as the Bush
administration began to do this week, even if the initial foray is
fraught with frustration.
–Meanwhile, someone wake up the Reuters News Agency and
remind them that this war on terrorism is about good vs. evil…
and the evil bastards are the Arab terrorists, not the U.S. Every
report this blathering, commie-infested outfit puts out starts
with, “U.S. bombs fell on innocent…”
–“Moderate” clerics are so two-faced. “We condemn the attacks
on the U.S…,” yet minutes later in every interview I have seen,
they are struggling with excuses for September 11.
–Remember the Kuwaiti ambassador to the U.S. during the Gulf
War, Sheikh Saud al-Sabah? For once there is a voice of reason.
He blasted his government for being “hijacked by groups that
call themselves Islamic.”
–There has been much talk of just where all the attack related
charity dollars are going. And I have to be honest; it is for this
reason that I have held off contributing myself to any of these
funds. I will probably end up bestowing my largesse on some
local cause. And as an example of how the other charities are
suffering, the Make-A-Wish foundation raised $11,500 in the 2nd
and 3rd weeks of September compared with $326,000 for the
same weeks last year. I am also incredibly offended by those
retailers who throw in a line or two in their advertising,
something to the effect, “And on all sales this week, X-Co will
donate 5% to the 911 Fund.” Do it on your own because you
want to, guys. Don”t tie it into a tacky sales campaign.
–I forgot to praise the National Parks Service last week after my
trip out West. I”ve said it before but it bears repeating. Park
rangers, in particular, are some of the best people on this planet,
as well as some of the most grossly underpaid. If it was up to
me, the non-entitlement portion of the federal budget would be
divided as follows: 80% Defense, 20% National Parks and, oops,
sorry, nothing”s left for the rest of you.
–Especially for the National Weather Service, which issued its
winter forecast and said there will be “a little of this and a little
of that.” Great job, guys. At least give me some sense that Santa
isn”t going to be fogged in or something, because we sure all
need a little Christmas this year.
–Did Lesley Stahl embarrass herself on “60 Minutes” in her
interview of Condoleezza Rice last week or what?! And as my
friend Mrs. Williams added, “Nice hair!”
–Heard on the Yankees-Mariners game, Thursday night.
“Mariners” pitcher Arthur Rhodes wears earrings to remember
his kids.”
[Scene: The Rhodes house. Breakfast.]
“Hi, Daddy. Where were you all night?”
“Good morning, Debbie. Oh, I was just out with the guys.”
“I”m not Debbie, I”m Yvonne.”
[Rhodes feels for his earrings. They”re not there.]
–Finally, if you haven”t been watching HBO”s “Band of
Brothers” you are missing one of the great television productions
of all time. [For those of you who don”t know, the 10-part series
follows the true story of a company of soldiers from D-Day to
the end of WWII.]
I have a confession to make. As I was driving home from the
Boston area on September 11, after learning about the attacks,
one of my first thoughts was, well, now future generations won”t
appreciate our history as much. They”ll be swept up in this new
conflict and our later history will be filled with details of
“heroism” that discredit the term. [I”m sick of every anthrax
victim being given the label by the media outlets affected,
“Heroic” and “Courageous.” Sorry if that seems insensitive, but
save the appellation for the fire and rescue workers, as well as for
our soldiers.]
Steven Spielberg, Tom Hanks, and Stephen Ambrose are to be
congratulated once again for producing a spectacle that reminds
you of the true glory of the American spirit, and the values that
so many fought and died for. We panic these days over a few
cases of anthrax when far worse may be yet to come, which
doesn”t give me a great deal of comfort in our ability to cope.
Meanwhile, the reality of it all is that we simply can”t forget
events like Antietam or Spotsylvania, D-Day or Bastogne,
Saipan or Iwo Jima. These are examples we should be feeding
off of.
God bless our president and the men and women of our armed
forces.
God bless America.
—
Gold closed at $280
Oil, $21.83
Returns for the week, 10/15-10/19
Dow Jones -1.5% [9204]
S&P 500 -1.7%
S&P MidCap -1.5%
Russell 2000 -0.7%
Nasdaq -1.9% [1671]
Returns for the period, 1/1/01-10/19/01
Dow Jones -14.7%
S&P 500 -18.7%
S&P MidCap -13.1%
Russell 2000 -12.0%
Nasdaq -32.4%
Bulls 40.2%
Bears 34.3% [Source: Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
