[Posted 7:15 AM]
I was listening to some of Ronald Reagan”s speeches this week
and I realized that the similarity between Reagan”s steadfastness
and George W. Bush”s tone of the past two months is striking. I
came away feeling even more confident that Bush, like Reagan
before him, has the strength of character to see this war through
to its necessary conclusion. Both share a sense of purpose that
few American leaders ever have. And in the case of Bush, he
also has the advantage of having one helluva cabinet.
I promised not to comment on the actual conduct of the war
because it was so out of place for me; a 43-year-old who
graduated from high school post-Vietnam while also not having
to concern myself with service in the Gulf War. I wouldn”t
expect a general to tell me the how”s and why”s of Wall Street,
and I certainly wasn”t going to question the military aspects of
the war in Afghanistan. So, instead, I got ticked off at those
armchair quarterbacks who doubted our military team the past
few months, along with the idiots who don”t understand that a
successful mission also requires a combination of diplomacy as
well as brawn.
Without Secretary of State Powell, for example, the U.S.
wouldn”t have assembled as strong a coalition as we did, nor as
quickly. And then, at the appropriate time, the military took over
the operation and you”re beginning to see the spectacular results.
And so in keeping with my opening of two weeks ago, wherein I
said I”m measuring time these days in weekly increments, it
looks to me like this was a great one, and I imagine most of you
felt the same way.
Oh, don”t worry, I haven”t gone totally soft on you and I still
have major concerns. Hell, when Vice President Cheney appears
on “60 Minutes II” and worries aloud, again, about a nuclear
attack, you are reminded anew of just how precious life is in this
new world. This was Cheney, on the issue of why he and the
president are so often separated.
“You”ve got people able to organize a conspiracy, come into the
country and perhaps smuggle weapons of mass destruction in
with them and threaten, in effect, not just one individual, but
threaten…and conceivably be able to try to decapitate the federal
government.”
Friends, this is coming from one of the most responsible and
experienced leaders ever to step foot in Washington. And while
it”s conceivable that Osama bin Laden could be killed at any
moment (light a candle), no one has a clue what happens after
that. Britain”s Foreign Secretary Jack Straw said 3 weeks ago
that he”s more worried about the situation after bin Laden is gone
than while he”s alive. We don”t know what plans may have been
made years ago or who will fill the power vacuum (especially in
light of Atef”s death). But these are issues for our leaders and we
trust them to do their best to protect us. After all, we really don”t
have much of a choice, do we?
OPEC
It was one crazy week in the world of finance, especially in the
energy market. I asked the question two weeks ago in this space,
“Is OPEC dead?” (once again beating the mainstream press to
the punch I might add). I then went on to explain why Russia,
the #2 producer in the world and a non-OPEC member, wouldn”t
cooperate with the cartel. Then last week, when a Russian
spokesman threw us all a curve and said his country was
prepared to cut its production in concert with OPEC I wrote, “I
would take this move with a grain of salt…because Russian oil
companies don”t have a great history of compliance. Jawboning,
however, can certainly be an effective way to move prices,” and
for a few days it was.
Until Wednesday. Realizing OPEC wasn”t receiving any real
cooperation from non-OPEC giants Russia and Norway, the
cartel decided to launch a game of chicken. We will reduce
production 1.5 million barrels per day (bpd) on January 1st (in an
attempt to boost prices) if you, non-OPEC producers, reduce a
total of 500,000. Russia immediately repudiated its previous
statement and said, instead of reducing 300,000 bpd on its own,
it would cut only 30,000. Well, you talk about your basic insult,
that was it. OPEC”s leadership then said, O.K., you want a price
war, a price war you will get, and in just two days, oil fell over
$4 to $17.45 for light sweet crude, its lowest level in well over
two years.
What brought OPEC to the brink was the fact that while they
have cut production 3 times (3.5 mm barrels) just this year in an
attempt to maintain prices in a $22-$28 band, even in an
environment of slowing demand due to the deteriorating global
economic picture, non-OPEC was actually increasing its own
production and thus cutting into OPEC”s market share. If you
take out Iraq (whose production is regulated by the U.N….at
least it”s supposed to be), OPEC”s market share is now down to
the 30% range. So they are saying, in effect, you want $10 oil,
you”ll get $10 oil, and then see how you like it, all the while
convinced that Russia-Norway and Co. will see the light and
reduce. Time, and price, will tell.
Of course I”m the guy who has written countless pieces on the
importance of $25 oil because of the geopolitical implications in
the Middle East. Arab countries that are totally dependent on oil
for revenue could see major unrest if low prices continue and as
the level of social services is impacted.
Meanwhile, the Bush administration, despite the obvious huge
positives for both the U.S. and world economy, must also be a bit
worried not only about the impact on governments like Saudi
Arabia, but also on our own oil industry and the future level of
investment, as well as employment.
But, alas, fear not, fellow wellheads, for I bring you tidings of
great joy. The decline in oil prices, though it may have a little
further to go, is but a temporary move and I increased my own
position after the two-day crash of Wednesday – Thursday. [My
Russian oil play went from $37 to $54…and then down to $43 in
just those two days, to give you a sense of the carnage.] Why?
If drilling activity dries up for a spell, it will also dry up our
suddenly overflowing inventories and that”s good for future
prices and energy shareholdings. Or, if the economy recovers to
any real extent, say even just a 2% growth rate, existing
inventories and production levels couldn”t meet renewed
demand, so prices of both stocks and crude should rise under that
scenario as well. And lastly, since I”m convinced the battle will
be taken to Iraq, supply disruptions are a real possibility, as they
are at any moment these days, and that”s obviously bullish for oil
and oil stocks.
Wall Street is already beginning to discount a new, low-priced
energy environment. Go ahead and dabble in oil shares. Two
years from now you will be amply rewarded. Personally, I”m
pumped!
[I have far more on this topic in my “Hott Spotts” piece of
11/15.]
The Economy
As for other economic news, the record jump in retail sales for
the month of October, up 7%, certainly was a headline grabber.
Granted, if you take out stupendous auto sales (thanks to 0%
financing), the figure was only up 1%, but that”s still enough to
make many feel the worst is over. But for every positive
indicator these days, you still get a share of negative ones, such
as the fact industrial production has now fallen 13 months in a
row.
And allow me to share a personal experience, which I”m sure
many of you are facing these days. I received my latest premium
notice for my medical insurance and my monthly tab is jumping
from $340 to $440. [After rising from $280-$340 the previous
year.] Now I can afford this, thankfully, but think about the 30-
40 million in America who go without coverage because they
can”t and, even more germane to a discussion of the economy
and the markets, how is Corporate America going to generate
greater than expected profits when, in an environment with zero
pricing power, they can”t pass this kind of increase on to
consumers? [Of course, employees being hit for a portion of
their medical doesn”t help either, especially when their annual
pay increases and bonuses have just been slashed too.]
And the preceding was just for medical insurance. September 11
obviously turned the property / casualty market upside down as
well. For example, in the trucking industry basic liability
coverage is already up 100-300%. Other industries are seeing
even greater increases…overnight. No, despite my bullish
comments on oil, I am not turning bullish on the market as a whole,
as I”ll explain even more fully later. But at least for a week, I”m
out of the Depression camp.
Street Bytes
–U.S. Treasury Yields. So much for the rally of the past few
weeks.
11/9/01
6-mo. 1.81% 2-yr. 2.42% 10-yr. 4.30% 30-yr. 4.88%
11/16/01
6-mo. 2.04% 2-yr. 3.05% 10-yr. 4.89% 30-yr. 5.30%
The huge retail sales figure roiled the bond market and traders
took it as a sign that the Federal Reserve may not find it
necessary to lower interest rates any further. The 2-year note
suffered its worst weekly loss in 24 years and, perversely, bond
traders weren”t enamored with a week of good news on the war
front either. “What if we start to feel good again?” they moaned.
Of course it is Alan Greenspan himself who wants to see low
long-term rates, as a way to prop up the economy by encouraging
one last round of refinancing. Well, that opportunity is perhaps
about to go out the window.
–Spurred on by the retail sales figure, which led many to believe
that improvement in the corporate profit picture may not be far
behind, as well as the news from Afghanistan, the Dow Jones
registered another gain, this time 2.6% to close at 9866. Nasdaq
climbed 3.8% to 1898. Valuations, however, are still a concern
of some (like your editor) and piercing 10000 on the Dow or
2000 for Nasdaq with any authority could be a tall order.
–Last week I threw in a rather cryptic sentence, “There is no
”next big thing.”” Of course it begs amplification so allow me to
explain. Before I post on Saturday mornings, I quickly skim
Barron”s to get some figures for this column and I noticed a
headline for an article in the 11/12 edition touting the “Next Big
Thing.” Without reading it, I had to make note in my column.
Well, it turns out the story was about the wirelessly networked
home and the ability to work on your notebook PC anywhere in
your house (or on the road for business travelers), as well as the
ability to listen to your favorite music in every room or control
your cooking with a remote control…things along this line.
Wow, if this is the next big thing, I mused, count me out! Let”s
see, the wheel, electricity, the internal combustion engine, the
PC, the Internet and now, the ability to pull your drapes by
remote control…just like in those Matt Helm movies from back
in the mid-Sixties!
Oh, sure, this will be great for some technology companies, but a
life-changing event? I don”t think so. And, by the way, if this is
one way to avoid the broadband revolution that is still in pre-
Boston Tea Party mode, what does it say for the future of those
involved in that business? That”s just my opinion, I could be
wrong.
–And speaking of broadband, Cisco”s John Chambers said the
U.S. needs to set a policy of installing broadband in every home
by the end of the decade. Why? I thought we were moving to
wireless? [Cisco”s stock, incidentally, is once again trying to
break through $20. If it does, the Nasdaq rally will be extended
for a spell.]
–Trade: After six days of contentious talks between rich and
poor, North America and Europe, Europe and South America and
India against everyone, final agreement was reached at the World
Trade Organization talks, which really only means that a new
round of trade talks has been formally scheduled, one which will
last years. Progress was made on the plight of developing
nations and the ability for them to compete in the two areas vital
to any improvement in the peoples” lives, that being textiles and
agricultures. And while the U.S. will now renegotiate some of
its onerous anti-dumping laws, France has even committed to
ending farm subsidies, perhaps the most consistently nettlesome
issue.
But you want to know the truth? This whole topic makes my
head hurt and the mechanisms for settling trade disputes are so
cumbersome that, in the end, probably little will be
accomplished. And, you all know, if the world economy doesn”t
pick up soon, protectionism, not free markets, will once again
become the order of the day.
Finally, the WTO confab was significant for the simple reason
that China and Taiwan were officially admitted. China now has
to open all manner of markets to competition and how the
government handles the millions who will be displaced could be
one of the top 3 stories of 2002 and beyond.
–U.S. News quoted A.G. Edwards strategist Al Goldman. “The
20-month bear is dead…a new bull market has started.” I have
my doubts, but, more to the point it was shoddy journalism not to
note that this is the same guy who promoted the exact same idea
last spring. Goldman, like 95% of his ilk, are nothing but shills.
–Layoffs continue: VF Corp. (maker of Lee and Wrangler
jeans) is giving pink slips to 13,000 and Agilent is laying off
4,000…to name just a few. And aside from layoffs, Global
Crossing announced it is reducing capital spending 75%.
–Hewlett-Packard”s Carly Fiorina received a bit of a reprieve
when HP beat the Street with its earnings report. But then the
government said it will take a hard look at HP”s proposed
merger with Compaq.
–Microsoft released its Xbox videogame product. I have a
confession to make, I haven”t played a videogame in 15 years,
which probably explains everything.
–Dell issued a solid earnings report (relative to expectations) as
it continues to gobble up market share (much as Cisco and Intel
have). That”s Dell…the official PC of StocksandNews.com.
–Home Depot and Wal-Mart also issued strong earnings
statements, especially given the economic environment, but it
does need to be noted that from a price / earnings standpoint,
both are far from cheap.
–52% of American households now own mutual funds.
–Merrill Lynch”s Internet guru, Henry Blodget, quit the firm and
was immediately brought before the new military tribunal for
feeding false hope to investors. [Bet you didn”t know the
tribunals had such a broad mandate.]
–Philip Morris has decided to change its corporate name to
Altria, a derivative of the Latin word ”altus,” meaning “to reach
higher.” Which I guess means that they will be unveiling a new
cigarette brand…”Pot.”
–New York City lost 79,000 jobs in just the month of October.
It is estimated the eventual loss from the aftereffects of 9/11 will
be in the neighborhood of 125,000, though authorities are
optimistic they can get back to pre-9/11 employment levels by
2003, which leaves 2002 to deal with.
–The IMF now predicts the U.S. economy will grow by only
0.7% in 2002, while Europe may see growth of 1.4% and Japan
will contract by 1.3%. The IMF also announced that emerging
markets are seeing huge negative investment flows for the first
time in a decade as lenders call in more debt than they are
extending in new finance. No surprise here.
–Back to Japan, Prime Minister Koizumi said his nation needs to
go through 2-3 years of sluggish times before reforms can work
their magic. Does this guy have vision or what?
–General Motors announced it was scaling back some of its
once-ballyhooed e-business ventures. Commented a spokesman
on the Net in general, “People are doing a lot less arm-waving
about it.” Ain”t that the truth.
GM also announced it was extending its 0% financing program
through January 2nd, but this time the terms aren”t quite as
attractive and not all models are available. Ford then matched
with a similar extension, and restrictions. [StocksandNews has
been forced to discontinue its 0% program. It”s the banks, you
know.]
–The IPO business is picking up and that”s a positive, but only if
you get some of the initial allocation!
–My portfolio: Well, I did a fair amount of maneuvering this
week and my full-service broker (and good friend) asked, “Are
you really getting more bullish?” No, I explained, but I did
move a big chunk of my cash back into the “high-quality” junk
bond fund I owned until 9/11 (12 cents below where I initially
exited) and on Friday I purchased more of my favorite play in the
natural gas sector (which is more of a bet that we will have a
colder winter than expected, with the price of natural gas
climbing back above $3 and staying there).
So suddenly, I”m around 27% energy, and with the junk play
really being more of a stock than pure bond market exposure, I”d
say I”m effectively about 60/40, cash to equities. But my energy
holdings won”t necessarily move in tandem with overall trends in
the stock market and the junk won”t follow the bond market. Get
it? Unless oil, and energy stocks, collapse further (at which point
I”d buy a bit more), I”m probably set for months to come…which
will also spare both of us endless updates. [Unless, that is, I get
my Turkish Investment Fund at the price I”m willing to pay for
it. I keep waiting for one last pullback in that regard.]
International Affairs / The Coalition
Russia: It was amazing how the summit between Presidents Bush
and Putin was buried beneath the other news of the week. And
then what coverage there was had more than a few reporters
scrambling to label it a disappointment. What?! Sure, there
wasn”t an agreement on what to do with the ABM Treaty, but
both agreed to massive cuts in their respective nuclear arsenals
and already, there is a deep respect between the two leaders.
More importantly, Putin”s seeming pragmatism is for real. As
for ABM and the lack of progress here, don”t worry. Putin
needs to convince a few more hard-liners at home that putting the
Russian people”s faith in the U.S. is the way to go. This is the
start of a new era, with two steps forward for every half-step
backwards. And being an investor in a Russian oil company,
I”m putting my money where my mouth is.
Spain / Italy: We are getting tremendous cooperation on the war
on terrorism from security forces in both of these countries.
Substantial arrests have already been made with more to follow.
Saudi Arabia: Columnist Jim Hoagland, on the state of U.S. /
Saudi relations. “The hands of the clock still point to 5 minutes
to midnight in a region now in thrall to war and change.”
And while most of you were probably watching the Victoria”s
Secret show on Thursday (drat…I forgot to tape it), I dutifully
caught “Frontline” and the program “Saudi Time Bomb?”
Weeks ago I labeled Saudi ambassador to the U.S., Prince
Bandar, a dirtball. Boy, if you saw him on this show you would
have been nodding in total agreement. The Saudi government is
nothing but a pack of treacherous liars. And then you have this
4-page advertisement which was placed in all of the major papers
in America this week, touting “Twenty Years of Change – and
Continuity” during the reign of King Fahd.
The ad contains a history of the House of Saud and openly
discusses the role of Wahhabism in the formation of the modern
Saudi kingdom. Well, readers of this column (as well as my
“Hott Spotts” link) had a head start on this topic. The Wahhabis
are the fanatics that threaten the whole region. Bin Laden and
Co. are Wahhabis, for example. Yet here is the government of
Saudi Arabia bragging about the faith in a spread designed to
promote U.S.- Saudi investment and friendship. Hel-lo? How
freakin” stupid are we? Let”s cast our lot with Russia on the oil
front, develop ANWR, and build a ton of windmills.
[Speaking of windmills, this week I saw the new wind farm in
Somerset, PA. Seriously, it was awe-inspiring.]
Iran: President Khatami (the timid but “moderate” one) hinted
that Iran may be prepared to recognize Israel. But a New York
Times editorial said the U.S. should be cautious in how it
proceeds with relations between Tehran and Washington. Again,
though, no word on the vital role Russia can, and must, play in
this sphere.
Israel / Palestinians: Secretary of State Powell will give his long-
delayed speech on a new Middle East peace initiative this
Monday. The U.S. proposal will be built around two central
themes; Israel must stop construction of new settlements and
Arafat must arrest all terrorists. I would expect Powell to take a
more hands on approach going forward. Meanwhile, King
Abdullah of Jordan has stated that a deal is in the works, wherein
Arab states guarantee the security of Israel, though we”ll see
what the reaction to this proposal is from the likes of Syria and
Iraq. And, lastly, President Bush pointedly used the term
“Palestine” in comments describing his vision for an independent
state. It was the first time an American president had gone that
far. So maybe there is hope for at least a true ceasefire, though I
feel obligated to add that, aside from the destruction of Israel,
part of the fundamentalists” agenda is the overthrow of the
Egyptian and Jordanian governments (as well as Saudi Arabia”s).
One or two bullets can spell an end to any peace plans.
Pakistan: It”s still all about Pakistan, until we move on to Iraq.
Having committed to giving them $1 billion in aid for its
cooperation in the war effort, I ask again, just how much does
Turkey deserve?
Turkey: The Wall Street Journal opined this week, “In the war
against terrorism, the U.S. has allies of convenience and then it
has real friends. One of the latter is Turkey.” Of course we”ve
been saying that for over a year here, but better late than never.
Turkey is slated to lead the Muslim peacekeeping force in
Afghanistan (along with Bangladesh, Indonesia and Malaysia…
which means that it”s really all Turkey, if you catch my drift) and
Ankara”s cooperation to date has been unstinting. Every day a
U.S. government spokesperson should be heaping praise on the
nation to reinforce how much we appreciate its contribution.
This, my friends, is the example the rest of the Islamic world
needs to see, a country that is 98% Muslim but which has a
secular government, as well as a highly capable military that
should be arm-in-arm with the U.S. on the way to Baghdad next
year.
Iraq: Ah, yes, the land of weapons of mass destruction. I
couldn”t have agreed with former British Foreign Secretary Lord
Owen more (as spelled out in an op-ed piece this week), who laid
out the scenario the West needs to adopt. Set deadlines, get
inspectors back in, and then when Saddam”s cooperation is
inevitably found wanting, roll. But Owen, like all the other
pundits, still doesn”t mention the crucial role that…yes, you
guessed it…Turkey”s armed forces can play.
[Do you think my ploy to become U.S. ambassador to Turkey is
working? The food over there is awesome.]
Australia: Prime Minister Howard won a 3rd term as his hard-line
policies on refugees and support for the war on terrorism
resonated with the people. This is a good thing, folks. We
shouldn”t have to worry about keeping our good friend on
board.
Germany: Chancellor Schroeder gambled that by calling for a
vote of confidence in parliament on Friday concerning his
commitment of German troops to the war effort, he would win.
He did. The pacifists were once again exposed for the losers
they truly are…in all countries for that matter.
Britain: Speaking of pacifists, even the Church of England issued
a statement backing the military. Britain and France will be
supplying the bulk of the troops on the ground in Afghanistan for
the purpose of protecting key strategic points such as airports.
Yes, the French are stepping up, thus far.
Zimbabwe: Under the cover of the war on terrorism, President
Robert Mugabe continues his own reign of terror against white
farmers, with up to another 1,000 being evicted. Winner of
2000”s StocksandNews “Dirtball of the Year” award, Mugabe
will have to relinquish the title this year to Osama, but, in the
event we should plug bin Laden, the first runner up…
North Korea: Secretary Rumsfeld, who chaired the original
missile commission which led to Bush”s NMD policy (in other
words, he ought to know), stated again this week that the North”s
missile program was a direct threat to the U.S.
Random Musings
–Columnist William Safire, along with countless others, blasted
the establishment of the military tribunals or kangaroo courts,
which will have the authority to try terrorists without normal
American jurisprudence. I say, tough. If the suspects are truly
innocent, they”ll get off, otherwise, dispose of them promptly.
–And I”m for as much ”profiling” as is necessary. But you know
what really gets me steamed? It”s the fact that because of the
problems we are now having, immigrants who deserve a chance
for a better living in America may be excluded due to our
inevitable, newly restrictive policies. Those of you who haven”t
witnessed firsthand the rebirth of New York City the past 8 years
may not understand that it was immigration that fueled a large
part of the growth. [Wall Streeters, don”t take too much credit.]
Look around at countries like Japan and many in Europe where
immigration is limited. These economies have little chance to
expand to their full potential without growth in the population. I,
for example, feel we should let the Mexicans in (after going
through proper legal channels, of course), but the Middle Eastern
“students” and their actions have spoiled it for everyone else, and
we all will suffer as a result. [Paid for by the Vicente Fox Fan
Club…Brian Trumbore, president.]
–I told you so…the Journal reported that the Taliban is dumping
its opium stockpiles on the world market. Now”s the time to
stock up for the holidays. [Actually, I can”t remember what my
last actual advice was. Bottom line, ”short” Heroin Supply
Corp.]
–First I was sick of Bill Clinton”s exposure post-9/11, now it”s
Madeleine Albright, 24/7. She just whines and whines and
whines. “We did all we could…” No you didn”t.
–Reverend Jesse Jackson went to Houston to tell energy
executives that minorities have a place in the oil industry. Of
course, Jackson pulls this stunt all the time, whether it”s Wall
Street or Burger King. It”s called a “shakedown.”
–We have 103 nuclear plants in this country and there is a 12-
mile no-fly zone around each one, which means that if Ayub ibn-
Wahid is piloting a plane at 500 mph and he is 20 miles from
nuke plant A, while U.S. fighter jet #3 is 100 miles away, and in
the opposite direction, is there any chance that the fighter jet can
intercept Ayub ibn-Wahid in time to prevent a regional disaster?
[This is an open book test.]
–Hey, did you catch Al Sharpton in the New York Times Style
Section last Sunday? We”re movin” on up! …to the East Side…
–I didn”t know this…slot machines without a stool take in $100
per day, while those with stools do $300. [Business Week /
Trump]
–There”s really nothing to say about Flight 587. It was an
accident, though I had my early doubts just like the rest of you.
–How incredibly stupid was that whole episode at Atlanta”s
airport yesterday?
–Condoleezza Rice…StocksandNews Woman of the Year. We
can announce it now since there is no need for debate.
–I just want to thank the parents of the two American aid
workers who failed to take the media”s bait and, instead,
consistently voiced support for the Bush administration”s efforts
during their daughters” ordeal. God bless these great Americans.
–Liberated Afghans rejoiced, as they were able to play music
that had been banned by the Taliban. Yes, in case you wondered,
this is where all the Slim Whitman and Zamfir CDs were sold.
Gold closed at $274
Oil, $18.03
Returns for the week, 11/12-11/16
Dow Jones +2.7%
S&P 500 +1.6%
S&P MidCap +1.7%
Russell 2000 +3.0%
Nasdaq +3.8%
Returns for the period, 1/1/01-11/16/01
Dow Jones -8.5%
S&P 500 -13.8%
S&P MidCap -7.6%
Russell 2000 -6.7%
Nasdaq -23.2%
Bulls 44.0% [Both, right back to pre-9/11 levels.]
Bears 30.3% [Source Investors Intelligence]
God bless our president and the men and women of our armed
forces.
God bless America…and have a blessed Thanksgiving. I
appreciate your support.
Brian Trumbore
