For the week, 11/15-11/19

For the week, 11/15-11/19

WARNING: The following drama contains a shameless plug. In

addition, the action portrayed, whether actual or created, depicts

authenticated facts.

The scene: Beijing, World Trade Organization talks.

Date: Monday, November 15, 1999.

The players: U.S. Trade Representative Charlene Barshefsky and

China Trade Minister Shi (a he) Guangsheng.

Charlene: I think we can wrap this baby up. I just have one

request.

Shi: What might that be?

Charlene: The StocksandNews coffee mug. It”s made here in

China. Discontinue it.

Shi: Madame Barshefsky, the plant that makes the

StocksandNews coffee mug employs 1500 laborers. If we stop

making them, these people are out of work and it will take awhile

to find new positions for them. What do you have against

StocksandNews anyway?

Charlene: The editor. He”s a right wing lunatic by the name of

Brian Trumbore.

Shi: Ohhh…Trumbore. I”ve read some of his writings. He”s for

China”s admittance to the WTO but he”s always getting on our

case about the Falun Gong religious sect.

Charlene: You mean Falun Dafa.

Shi: Whatever. So what do you propose?

Charlene: Break the contract you have with him. Just like you”ll

break the WTO agreement in the future. [Shared laughter].

Shi: Good idea. We”ll limit production to 2500. Hell, that will

make them more valuable anyway.

Charlene: Good. The President will be pleased. So we have a

deal?

Shi: A deal.

Clink…the two toast and the world celebrates China”s admittance

to the WTO [pending the approval, of course, of the U.S.

Congress, the European Union, the NBA, NASCAR, Ted Turner,

Mao Tse-tung”s heirs, Celine Dion and Larry King].

Afterwards, away from the flashbulbs and the press corps,

Charlene and Shi go off to a side room where they proceed to get

hammered. Their lips get looser.

Shi: So Madame Barshefsky, why would the American people

approve of this deal?

Charlene: Well, your country has to cut tariffs on many products

an average of 23%. Your nation will now be obligated, in

writing, to comply with a set of international standards. You can

try cheating but you risk the wrath of the world. Many of our key

firms in the U.S., particularly in the fields of agriculture and

telecommunications, will benefit. In some industries U.S.

corporations will be able to take a 49 or 50% ownership stake.

And in areas like our steel industry, we will be formally protected

from import surges.

[Shi chugs his beer…nodding approvingly. Barshefsky

continues].

Charlene: As President Clinton will undoubtedly say soon, “This

agreement will strengthen the rule of law.” And it will strengthen

the position of the reformers in your government, like yourself,

right Shi?

Shi: They are all good points, Madame B. But the reformers will

have a difficult time with the people on this one. Yes, it will

create millions of jobs in some sectors, like textiles. But the

millions who are displaced will be difficult to handle. We already

have a problem with a restive rural population. If it spreads to

the cities, Communism is doomed.

Charlene: But Shi, isn”t it already doomed?

Shi: Don”t say that too loudly. I fear a social volcano with all of

the changes that are about to take place in our society. Our

government will need to set up a new social safety net or they will

be storming the palace. Then what would we do?

Charlene: Hold elections?

Shi: Perish the thought. Let”s drink some more.

[And so Charlene and Shi drink a few more rounds, having just

read about the new scientific study which offers further proof that

light to moderate drinking actually reduces your risk of stroke, as

well as heart disease].

Charlene: There is a new report in the Washington Post that

Chinese spying in our arms and weapons plants goes far beyond

Los Alamos. What do you know about this?

Shi: Why Madame B, of course we have stolen all of your secrets.

You make. We copy. It”s that simple.

Charlene: Just like you did with our CDs and software?

Shi: Just like we did with your CDs and software.

Charlene: Shi, I think I”m going to puke.

[The End]

Personally, I really am for China”s admittance to the WTO. But

don”t expect miracles. It”s still China and it could take 10 years

or more for both sides to be truly happy but bottom line, we had

to start somewhere. But we also have to be very wary. As the

Washington Post put it in an editorial on Tuesday:

“China will work to reshape the WTO away from the kind of

open, rules based organization whose influence the administration

hopes will be so large. The WTO is in its infancy…and China,

with its 1.3 billion people, will now have a large say; and with its

corrupt system of Party rule, its interests and America”s will not

be the same.”

Wall Street

The market just continues to rock. The Dow closed at 11003, up

234 points, 2.2%, on the week while the Nasdaq closed at

another all-time record as its 4.6% weekly gain brought the total

for the year to a staggering 54%, up 23% in just the past 5 weeks.

I think I have participated to the tune of about 1.58% in the

Nasdaq”s run.

And if you owned shares in a company that had anything to do

with China, you”re eating more than dogmeat tonight. [The

preceding got by our censors]. Before Monday no one had heard

of any of the China stocks, some of which climbed over 1000%!

You read that right. One issue, China Prosperity, went from $1

one day to $80 the next (before closing at $12 on Friday). I was

half expecting “La Choy” and “My Best China” to rush IPOs to

the market.

The latest cause for the euphoria was the Federal Reserve”s

decision to raise interest rates a 3rd time this year on Tuesday.

Yes, I didn”t think they would but I”m not beating myself up over

it like some Iranian (hey, where are those censors?). The Fed

adopted a neutral bias which led the market to believe that they

are finished hiking rates until next summer. Now this was one of

the more irrational statements I heard. The neutral bias means

simply that. The Fed could just as easily raise rates again as they

could eventually lower them if the economy slowed considerably.

The Fed also said that although cost pressures appear generally to

be contained, risks to sustainable growth persist. And they

harped on the fact that the labor pool continues to shrink. Since

labor costs tend to make up 2/3s of the costs of a product in many

industries, wage price pressures bear watching.

So, I”ll give you a preview of my year end confessions, to be

published after Christmas and Hanukhah so as not to spoil

everyone”s holidays. Where I screwed up the last 2 years is I

spent way too many sleepless nights thinking of things like large

North Korean bottle rockets slamming into my neighborhood. I,

the person who focuses on the Big Picture, lost sight of…the Big

Picture. 3 weeks ago, when the government released those two

powerful reports on GDP and the Employment Costs Index, it hit

me like a two-by-four across the face. I, the market historian,

had lost sight of…market history. I kept looking for something

that would change consumer sentiment, thus the focus on the

outside when I should have known better that this great bull market

will end when domestic interest rates keep rising to the point where

in the game between stocks and bonds, bonds look better.

Inflation will continue to tick up going forward and the Fed will

have to raise rates again by April 1st. As much as possible they

want to stay out of election year politics, which means for them

to act aggressively, the sooner the better.

Yes, many stocks are incredibly overvalued by any historical

measurement, but we all don”t wake up one day and say “Egads,

look at those multiples.” Profit-taking and corrections, yes. Bear

markets, no.

But the jitteriness of the bond market since the Fed action on

Tuesday is probably not a good sign. The yield on the 30-year

Treasury had touched 5.99% before rising to end the week at

6.16%. What the bond ghouls told you the past few days is, “If

you think you can take it easy until summer, you”re crazy.”

Every CPI, PPI, ECI, and employment report will be cause for

concern and if the trends are up, look out below. I hope to turn

tail before the rest of the crowd.

Two other quick notes. Late Friday Judge Jackson, the

Microsoft man, appointed a mediator to push for a settlement.

The mediator, Judge Posner, is highly respected and deemed to be

impartial. I still say they settle by March.

And the SEC is beginning to look into the way some Internet

companies use the accounting rules to mislead investors. For

instance, booking barter arrangements as revenue.

Russia

Early in the week Russian Defense Minister Igor Sergeyev

accused the U.S. of trying to weaken Russia with its

condemnation of Russia”s actions in Chechnya. Sergeyev said the

U.S. was trying to commandeer the oil-rich Caspian region. “The

national interests of the U.S.A. would best be served by an armed,

controllable conflict that perpetually smoldered on the territory of

the Northern Caucusus,” he declared. Of course, he”s partially

right. We signed the agreement this week to begin production of

a new oil pipeline that would run between Azerbaijan, Georgia

and Turkey, purposefully avoiding Russia and Iran.

The situation in Chechnya continued to deteriorate. The pictures

on the networks Thursday night were horrible. Some aid workers

say the now 220,000 refugees will run out of food in about 4 days

without a massive relief effect. Through it all Boris Yeltsin, at the

meeting of the Organization for Security and Cooperation,

rejected the international community”s “interference” in Russia”s

internal affairs. “You have no right to criticize Russia for

Chechnya.” President Clinton, for his part, said, “If the attacks

on civilians continue, the extremism Russia is trying to combat

will only intensify.” Before Yeltsin left early he did acquiesce to a

demand which allows for an OSC leader to inspect the situation

and try to jump start negotiations between Moscow and the

Chechen leadership. This is doomed to fail because Russia is now

controlled by the generals, not Yeltsin. The generals are tired of

being humiliated like they were the first time in Chechnya (”94-

”96). It”s pay back time and so Prime Minister Vladimir Putin

acts as their puppet.

Putin”s own poll numbers for next July”s presidential election

continue to rise. He is at 29% with Communist Zhyuganov and

former prime minister Primakov both around 20%. The Russian

people are being force fed a steady diet of anti-West propaganda

and pictures of their glorious army in action, not of the staggering

refugee crisis. Putin spelled out the party line in last week”s New

York Times op-ed piece.

“Our commanders have clear instructions to avoid casualties

among the general population…the Chechen civilians, after all,

are our citizens, too.”

Sounds like the kind of statement Stalin made years ago. And if

you”re wondering, like I have, how a bankrupt Russia is paying

for all of its bombs, the soaring price of oil is playing no small

part. The windfall, which should be used to help shore up their

economy, goes straight to the military. Finally, is the U.S.

complicit in the Chechen tragedy? After all, we know that IMF

aid is being diverted to the military effort and the IMF receives

about + of its budget from the U.S. I haven”t made up my mind

on this last point. I”m beginning to suffer from Chechen fatigue.

It”s a malady where you have a sudden desire to fall asleep in an

abandoned rail car with 50 other people, fighting over a loaf of

bread and 2 blankets.

Other International Affairs

From time to time I have written of the dictator in Belarus,

Alexander Lukashenko. For awhile it was felt Yeltsin and

Lukashenko would merge their two nations as part of a process

to reconstruct the old Soviet Union. Lukashendo is one

dangerous dude. Last May 7, three political opponents just

disappeared. They haven”t been seen since.

And in Ukraine, whose leadership also admires Luca Brasi,

President Leonid Kuchma, beat back a challenge from a

Communist to win reelection. However, international monitors

say the vote was rife with fraud. And this week it was announced

that Ukraine”s former prime minister, Pavlo Lazarenko, may have

stolen as much as $700 million from the state coffers!

Speaking of corruption, Pakistan”s new military leadership

launched a massive crackdown on businessmen who have been

bilking the nation out of hundreds of millions in their own right.

The West hopes that the newly arrested receive fair trials, before

their heads are lopped off.

Former Senator George Mitchell appears to have helped the

peace process in Northern Ireland after talks had fallen apart last

summer. The two sides seem closer than ever to an agreement

whereby both sides militias would disarm.

South Korea”s government denied a story this week that had them

building long-range ballistic missiles which, if true, violates

agreements they have with the U.S. Of course the South is

building them. They don”t want to have to rely on the U.S. to

protect their nation.. Can you blame them?

I did a lengthy piece on the Japanese economy for my “Hott

Spotts” link this week. One thing that I omitted in the discussion

is the growing feeling in Japan that they should have their own

nukes to, once again, free themselves from reliance on the U.S.

Whaddya mean we aren”t reliable!

The UN initiated sanctions against the nation of Afghanistan

because of the intransigence of the ruling Taliban and their refusal

to give up terrorist Osama bin Laden. Afghanistan is now

effectively isolated from the rest of the world. I know some of

you are thinking, “Drat! My travel agent was just telling me

about some great New Year”s deals.” Sorry.

This Week in Politics

–As the budget process wound down this week, Republican

Congressional leaders grew increasingly worried about the party”s

prospects next November. Even corporate leaders who

traditionally give far more to Republican than Democrats are

beginning to hedge their bets. Of course this new ”defeatism” can

become self-fulfilling and more Republicans may retire than

normal because they fear they won”t be in the majority. Only a 5-

seat shift to the Democrats gives them control of the House.

–The Republicans broadly accommodated Clinton”s spending

requests, the feeling being that Americans have decided they

don”t want a scaled down government of the sort Republicans

promised five years ago. At the same time, Clinton has had to eat

some of his hoped for social programs. The bottom line is that

the elephants have done a miserable job of getting the truth out.

Without the fiscal responsibility they touted, the current surpluses

simply would not have been possible. And, as I mentioned last

week, it allows folks like Abby Cohen to stand up and give the

Democrats all of the credit.

–Did you know that 5 million more people in the country are

without health insurance now than when Clinton came to office?

–Bill Bradley had this huge fundraiser Sunday at New York”s

Madison Square Garden where he pulled in a whopping $1.5

million as many of his former teammates and NBA stars turned

out to fete him. Memo to Bill: Keep former Celtics star Bill

Russell away from your campaign. The man with the world”s

worst laugh could kill your presidential aspirations.

–So Bill Clinton and Al Gore suddenly aren”t getting along. Well

whaddya know! Don”t look for Clinton at more than a handful of

Gore campaign stops. And if I hear one more time that “Al Gore

is the greatest veep this country has ever had,” I think I”ll puke.

–The latest poll in New Hampshire shows Gore leading Bradley

44-41 percent, a statistical dead heat.

–In New York, Hillary Clinton”s unfavorable rating has risen

from 22 to 38 percent while her favorable rating has plunged from

52 to 37 percent. And as my friend Griff recently pointed out,

whatever happened to all that talk that the Clinton”s were

thinking of adopting a child?

–George Bush looked much better this week for a “Today Show”

interview with Matt Lauer. I also like a statement he gave for

Newsweek, “America needs to be humble in its leadership…and

respectful of others,” a theme he echoed in his foreign policy

speech on Friday. So after blasting him the past two weeks, if

you”re wondering who I”d vote for today, it would probably be

McCain. But like many of you, I”m still just sitting back

observing and listening. [“Meet the Press” alert. George Dubya

is on Sunday].

Robert Rubin

And then there is this guy. Why was he praised so much when he

was Treasury Secretary? What did he really do? You kept

hearing things like, “Bob Rubin exudes confidence.” While he

wasn”t known for sweeping public pronouncements, he was

supposed to be good at “working behind the scenes.” Yup, that”s

our Bob. Working the phones with his old Wall Street chums, the

power elite who really run this country. It would sicken us to

know what these $10 million salary plus bonus power mavens do

behind those closed doors as they toy with the rest of us.

So why get on Rubin now? Well, I”ve been meaning to write

about his role in the recent overhaul of Glass-Steagall, the

sweeping legislation that is supposed to make lives better by

creating these financial services behemoths that one day will

collude to jack up fees on us all. Some of my friends and I were

rather curious at the timing of Rubin”s appointment to Citigroup”s

new office of the chairman. After all, it was Citigroup co-chair

Sandy Weill who lobbied as much as any Wall Street leader for

the legislation that would benefit Citigroup as much as anyone

else. This started when Rubin (himself, former chairman of

Goldman Sachs) was still running Treasury. Then conveniently,

Rubin quits and within weeks ends up at Citigroup. So this week

Rubin denied charges that he was lobbying illegally for the new

Financial Services Reform Act. It”s not clear whether or not

Rubin broke any laws but memos exist showing his involvement.

Regardless, it smacks of abuse of power.

And this week the SEC settled with a group of Wall Street firms

to the tune of $150 million for abusive practices in the municipal

bond market, the result of an investigation that has been going on

for years. Some major firms were involved and as Mark R. said

to me, “The question is what did Rubin know and when did he

know it?”

Finally, I was just glancing through Edward Chancellor”s book,

“Devil Take the Hindmost,” a history of financial speculation, and

a piece he had on the 1998 bailout of the hedge fund Long-Term

Capital Management. Shortly after the rescue, former Federal

Reserve Chairman Paul Volcker asked the question, “Why should

the weight of the federal government be brought to bear to help

out a private investor?” LTCM was bailed out mainly due to the

efforts of Alan Greenspan and Robert Rubin. [They would claim

this was no “bailout” since federal money had not been used]. As

Chancellor writes, “A few years earlier, the Federal Reserve had

passively stood by while Drexel Burnham, an investment bank

with some 5,000 employees and a history stretching back into the

19th century, was deserted by its envious Wall Street competitors

and collapsed because of liquidity problems. LTCM on the other

hand, a mere four-year-old upstart with only 200 employees but

partners and investors drawn from a cabal of finance professors,

central bankers, and the cream of Wall Street, was considered

more important than Drexel and simply ”too big to fail.””

Chancellor”s last point has not been lost on some of us. I wrote a

few weeks back (WIR, 10/30) of a comment by noted author Ron

Chernow which is worth repeating again.

“The biggest problem here is that we are going to see a landscape

filled with financial conglomerates of such gigantic size that the

failure of any single one could have catastrophic consequences.”

And Bob Rubin will have played no small part in the shaping of

those crises.

Random Musings

–Have you seen the ads for the Black & Decker “Scumbuster?”

Now that”s a neat product. I”d like to use it on the New York

Knicks Latrell Sprewell. On the eve of his first return to Oakland

since the choking incident with Golden State”s P.J. Carlesimo,

Sprewell said, “I want to go in there and kill ”em…Bitterness,

hatred – whatever you want to call it, it”s there.” And you

wouldn”t believe how in the New York area people stick up for

him.

–Y2K update: A new government survey shows that only 39%

of Americans plan on withdrawing extra cash come New Year”s.

This is down from 62% just a few months ago. In fact, there is a

new sense of complacency across the land. But in Japan, nuclear

safety experts are worried and companies like Sony and NEC

have not completed their own Y2K preparations.

–Warning: The following is not politically correct. I didn”t know

until this week that one of the results of NAFTA is the fact that

on New Year”s Day, Mexican trucks have unfettered access to

U.S. roads. The teamsters are ticked at Gore, whom they

recently endorsed. They claim the trucks are unsafe. For the first

time in my life I agree with them. If you see a truck weaving in

and out of traffic with a bunch of guys singing, “Aie…Aie…Aie,

Aie…I am the Frito Bandito,” I”d give it plenty of space.

–Scumbuster II: San Francisco 49ers running back Lawrence

Phillips was recently suspended by the team for laughing in a team

meeting when a coach criticized the offense for failing to prevent

a sack. This is the same Phillips who failed to pick up a blitz, a

play on which quarterback Steve Young was obliterated. Young

hasn”t played since.

–I saw a clip of the new Pokemon movie. I”ve seen better

animation in “Speed Racer.” Meanwhile, a movie based on the

great children”s classic, “Stuart Little,” is coming out December

10th. Will someone please take me to that?

–From the New York Times comes this bit on the ongoing food

fight between the British and the French. As you may know, the

British tabloids can be rather brutal on their subjects, as in the

following recent headline, “Why oui hate ”em.”

–There was some potentially awesome news on the Alzheimer”s

front. Scientists from the University of California – San Diego

and the Salk Institute feel that they are closing in on a treatment

that reverses the effects of the dreaded disease. The two main

doctors that are involved are Tuszynski and Gage. We can only

hope that in a few years it will be embarrassing not to know their

names.

–I was going to comment on EgyptAir 990, but there is too much

conjecture at this point. I”ll wait. Let”s just hope the people of

the Middle East see the facts for what they are.

–Eleanor Randolph had a funny op-ed piece in The New York

Times this week concerning famous gaffes by presidential

candidates. She wrote of Thomas Dewey who, during a 1948

whistle-stop tour, was giving a speech when his train suddenly

started pulling away before he was finished speaking. He could

be heard shouting, “What”s the matter with that lunatic engineer?

The man should be shot.” His audience was a railroad union.

–Charles Schulz, beloved creator of Peanuts, had emergency

heart surgery this week. Get well soon. You”re the best!!

–ABC is raking it in with the show “Who Wants to be a

Millionaire?” For the most recent week, the 7 episodes were all

among the top 15 TV shows for that period. Even I have seen

about 20 minutes of it. Each episode of the program costs ABC

about $500,000 to produce, compared to an episode of ER which

runs $13 million. You think they”re happy at ABC?! So I got to

thinking of potential spin-offs. What about, “Who Wants to be a

Hare Krishna?” Final comment? Final comment.

Gold closed at $296

Nymex Crude Oil, $26.56 [This week the price hit levels not seen

since the Gulf War]

Returns for the week, 11/15-11/19

Dow Jones +2.2%

S&P 500 +1.9%

S&P Midcap 3.0%

Russell 2000 +2.6%

Nasdaq +4.6%

Returns for the period, 1/1/99-11/19/99*

Dow Jones +19.9%

S&P 500 +15.7%

S&P Midcap +10.1%

Russell 2000 +9.3%

Nasdaq +53.7%

Bulls 50.4% [Big jump…not good if it continues to climb]

Bears 30.1% [Source: Investors Intelligence]

*Not including dividends.

**I am going to launch a series on Islam this week in “Hott

Spotts,” (unless new developments on the world scene preempt

it). This will not be politically correct.

Brian Trumbore