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
