For the week, 12/13-12/17

For the week, 12/13-12/17

“The terrorist bombings in Moscow that unleashed this military

action now appear to have been staged by the Russian security

services to justify intervention. Certainly, there were no further

bombings once the excuse for the attack had been provided and

the Russian people”s worst prejudices were aroused.”

–Strategist Ralph Peters, Wall Street Journal 12/13

So, I wasn”t the only one to have the thought that the Kremlin set

off the apartment bombs and not Chechen terrorists (see Week in

Review comments written 12/9). And the 12/20 issue of

Newsweek echoed something I wrote weeks ago as well.

Reporter Bill Powell said, “Espionage scandals, angry outbursts,

nuclear threats. The Cold War is supposed to be over, but it”s

getting chilly out there.”

Sunday, Russians go to the polls to elect the 450 members of the

Duma. The last polls showed the Communists with about 25%,

the Yeltsin / Putin backed Unity Party with 15% and the

Primakov / Luzhkov Fatherland-All Russia Party with around

12%. More importantly, Prime Minister Putin, who is not

seeking a seat himself, continues to gain in popularity for the

presidential election to be held next July, even as recent reports

from the Chechen battlefield detail startling Russian defeats.

As of this morning, the capital of Grozny is being blitzed with

constant bombing. Estimates are that up to 40,000 citizens

remain hunkered down in their basements. [Not to be overly

dramatic, but this week just spend one moment thinking about

this situation as we celebrate Christmas].

Putin blasted the West at the occasion of the testing of a new

intercontinental missile. “(Russia) will use all diplomatic and

military-political levers at its disposal to confront Western

opposition. Some nations are interfering into affairs of

independent states. We are not used to such language, since

Russia has a nuclear shield.” Just like Yeltsin the week before,

Putin now feels compelled to remind everyone that Russia has

nukes. A pitiful display from a third rate power but it”s all this

imploding nation has. There is no doubt that the new parliament

will have a decidedly anti-Western bent to it.

Check out these polls taken of Russian voters as reported by The

Economist magazine.

–How would you describe politics in Russia today? “Rise of

anarchy,” 63%; “Democracy building,” 9%.

–What best describes the political situation in Russia today?

“Tense,” 60%, “Critical, explosive,” 29%, “Quiet,” 3%.

–It would have been better if the country had stayed as it was

before 1985 (the advent of Perestroika). Yes, 58%, No, 27%.

And if this isn”t enough, there is growing evidence of military

cooperation between Russia and China. Russia is selling China

technology enabling the Chinese to pose a nuclear threat to Japan.

Also, Strategist Edward Timperlake writes in Defense News (a

publication of the U.S. military) that “our intelligence community

says China has 23 missiles targeted at the U.S. What if the

number is 230? Or 2,300?” Remember, this 23 figure is a

commonly used one and it was our CIA that was surprised in the

past year by missile launches from North Korea as well as India”s

atomic bomb tests. So why believe it”s just 23?

Wall Street

On Friday the Dow Jones hit a new intra-day high of about 11380

before giving most of the gain away. The average closed the

week at 11257, a pick up of 33 points. The Nasdaq, on the other

hand, rose another 3.7%, the 9th consecutive weekly gain, and is

now up some 71% on the year. [My personal Nasdaq gains are in

the neighborhood of 2.23%]. Trading volume on both exchanges

continued at stupendous levels. It”s getting so frothy that

Guinness drinkers are no longer waiting for their stout to settle

before imbibing.

And the current speculation in tech issues is all in the face of

rapidly rising interest rates, which, of course, makes absolutely no

sense. The bond market was roiled by more strong economic

data (except for housing starts) and the yield on the 30-year

Treasury climbed back to 6.38% (hitting 6.41% at one point on

Friday), the highest levels since October, 1997. It was the worst

single week for bonds in 10 months.

The latest report on retail sales was much stronger than expected

and initial jobless claims reached their lowest level since 1973.

Tack on the fact that the U.S. trade deficit continued to explode

as we once again hit record levels with China and Japan and you

have the makings of a nasty credit market. With regards to

China, clearly a heated election year battle looms over their

admittance to the WTO.

The Federal Reserve meets on Tuesday. No one expects them to

raise interest rates so close to Y2K Day. But if they were to

adopt a “tightening” bias, that would not bode well for the future

and the bond market would absolutely swoon. There is little

doubt in the eyes of this humble scribe that they will be raising

rates in February. And in March, and in….

The world economy, generally, continues to recover and then

some. Germans are feeling bullish. Consumer sentiment there is

at its highest level in years, continuing a recent streak of strong

economic news from the home of Katarina Witt. The major

European bourses; Frankfurt, London, and Paris are all at or near

record highs, just as in the U.S. The European Central Bank also

chose to leave interest rates unchanged.

Bottom line, the party is about to end. I was a bull for 7 weeks.

[And it was a good 7 weeks to be one]. But, I”m more

comfortable being a bear. Yes, there are lots of positive

developments out there, foremost being the global economic

recovery, but I keep going back to interest rates. If they keep

risin”, I see a Bad Moon A-Risin”! [Big time apologies to

Creedence Clearwater].

Two brief corporate notes from the world”s two largest

corporations (as measured by market capitalization). Shares in

Microsoft soared as the company announced it had completed

work on Windows 2000 (for business use…retail to follow),

while General Electric announced a 3-for-1 stock split and issued

a very bullish outlook for 2000. Of course the fact that these 2

issues have price/earnings multiples in the stratosphere doesn”t

seem to matter.

And market guru Abby Cohen issued her year 2000 forecast.

She”s calling for a Dow of 12300 by year end, very modest

compared to the past few years (though to be fair, Cohen always

has been conservative in her forecasts). What is interesting is that

she lists her 2 main risks as inflation (standard) and Y2K-related

problems.

Which brings me to e-commerce. I always view myself as pretty

typical of the average consumer. But, I haven”t purchased

anything online all year. Last year I did. No real reason for my

behavior. It”s just pretty easy for me to hit the malls or the local

stores. And from the news stories that are beginning to filter out,

I suspect a lot of folks will join me in 2000. The online shopping

experience has not been a great one for many Americans this

crucial Christmas season. The reason? Service is lousy. Why?

Full employment and some very poor business models. Bricks

and mortar will make a comeback, not that they ever left, because

we quickly forget that with all of the hype, e-commerce is still

minuscule compared to traditional retailing. Note, I”m not

touting the shares of traditional retailers, only that I expect many

Internet stocks to crater, soon.

And I can”t believe the complacency regarding Y2K. Or are we

really that complacent? I went to my ATM twice this week when

it was out of cash. Don”t wait until December 28th to load up the

wallet. Now, of course, government isn”t going to come out and

say “Watch out, folks!” But there will be problems and they will

take time to develop. I have more on this later.

International Affairs

The State Department warned Americans to be extremely

cautious in their travel over the holidays. They are particularly

worried about terrorist actions in South Asia and the Middle East.

This week, Jordanian authorities arrested 13 adherents of Osama

bin Laden. The terrorists were plotting New Year”s fireworks in

Jordan which happens to be the only Arab nation that celebrates

New Year”s. At the same time, we should be prepared for a

report one day that the U.S. has launched an attack on

Afghanistan. The reason being that the ruling Taliban

government is harboring bin Laden and we have told the Taliban

that we hold them personally responsible if U.S. citizens are

targeted. The Pentagon already has contingency plans in place.

Separately, U.S. officials are very concerned about domestic

groups, and then Friday, customs agents uncovered a serious plot

of some kind when a man of Algerian background was found to

have explosives and timing devices in his car as he attempted to

enter the U.S. from Canada. Seattle seems to have been his

target. Just another reason to stay home on New Year”s and

watch a good flick like “Jason and the Argonauts.”

A.M. Rosenthal is a fellow who used to write opinion pieces for

the New York Times before the Times fired him a few months

ago (an incredibly stupid move for a newspaper that already has

the weakest op-ed page in the business). I thought of A.M. this

week because no one wrote more about Iraq and Saddam

Hussein”s program of weapons of mass destruction than he did.

On Friday the UN Security Council finally passed a resolution

that will create a new arms inspection agency to monitor

Saddam”s activities. The move was approved by an 11-0 vote

with 4 abstentions. [The 4 abstaining were France, Russia, China

and Malaysia. Those friggin” Frogs. They can truly be a bunch of

assholes.] This new resolution lifts the ceiling on the amount of

oil Iraq can sell for its oil-for-food program. Sanctions, in place

since 1990, will be lifted if Iraq cooperates with the inspectors.

Iraq has yet to say whether they will allow inspectors in.

The Panama Canal was officially turned over to the Panamanians

this week, ending about 95 years of U.S. control. I honestly

don”t feel this is as big a deal as some conservatives are making it

out to be. The Chinese won”t take it over as some fear. And as

for Colombians fomenting violence on the border (which they did

last week), we just need to insure that the Panamanian armed

forces receive some aid and we need to promote democracy

there. But it”s the last point which was totally mishandled as

Jimmy Carter, not President Clinton or Secretary of State

Albright, presided over the turnover. That, my friends, is an

abomination. At this historic moment, Clinton turned tail. Why?

He knows that by elevating the canal issue he risked the ire of

conservatives and it would hurt Al Gore”s chances of winning the

election. Charles Krauthammer put it best.

“Clinton”s legacy is taking shape. He”ll be remembered as the

president who, whenever faced with the choice of the grand or

the small, the deep or the shallow, instinctively chose the path of

expedience. To the very end, it was always politics over history.”

The Panamanians were duly insulted by Clinton”s absence and this

attitude can impact our relations from Mexico to Argentina.

And one final note, if Panama can not run the canal in a way that

benefits the U.S., we do have the right to blast our way back and

take control.

Speaking of Latin America, by a 70/30 margin, Venezuelans

approved the new constitution that soon-to-be dictator President

Chavez insisted on. Chavez, a self-professed lover of that great

leader, Fidel Castro, will now potentially be making noise for at

least the next decade. Venezuela is an absolutely pitiful nation

that happens to have a lot of oil (which accounts for about 80%

of its revenues). Yes, the previous governments have been

corrupt but Chavez is not the answer. You”re a nut if you want

to invest there. And, as if on cue, the day of the vote saw the

beginning of the worst floods in the last 50 years. At least 200

have been killed so far. A few months ago I mentioned that this

region could rapidly become a real hot spot. Watch the border

region between Colombia and Venezuela for clues.

The European Union finally said it will bring Turkey into the fold

if Turkey meets some conditions, particularly on human rights and

territorial disputes.

Former German Chancellor Helmut Kohl is now admitting that,

yes, he knew of secret campaign donations but he still insists he

was not influenced or took special privileges. “I was never

corrupt, I never took money for myself.” Shades of Nixon, “I am

not a crook.”

According to reports, North Korea is going to sell its new long-

range weapon to Iran. Just another reason for a missile shield.

But, guess who is against the shield? Canada. The whole idea is

bound to be a pretty big campaign issue by the fall.

I don”t have much to say about the Israeli-Syrian peace talks. I”m

glad they are talking but the U.S. is pressuring Israel to sell out.

As I said last week, no way would I give up the Golan Heights.

WTO

I just have to add this comment I saw in an article in the New

York Times written by Celia Duggan. Last week I commented

on the issue of labor standards and the developing world. These

nations are now furious at Clinton for wanting new ones. As

Duggan writes:

“In the eyes of India, Egypt and other third world nations, Mr.

Clinton”s call to link trade accounts to labor standards for

workers around the world was protectionism in the guise of

idealism, motivated by his desire to woo labor union support for

the presidential campaign of his vice president, Al Gore.”

I say that we have no right to dictate to another country what

their labor standards should be. Eventually, as is the case in

India, unions spring up and the country changes the standard at its

own pace. But how else can these nations compete and thus get

out of the grasps of poverty if we ram regulations down their

throats? And you know, what is the difference between the daily

routines we now put some of our kids through, with their sports

practices, music practices, drama classes and assorted other stuff,

and a kid sitting in a factory stitching soccer balls? Far-fetched?

Maybe not. It”s easy for us to sit back in our glorious homes and

criticize the way of life of those struggling to earn enough money

for a piece of bread. It”s far tougher to work with a country in an

understanding way to try and convince them that other methods

may work. Private industry (like in the case of Nike) is doing

that. Keep the government out of this discussion.

Y2K Update

More and more reports are coming out expressing concerns that

Soviet-era nuclear plants, like Chernobyl, could have problems

but no one expects actual meltdowns. Large parts of the power

grid could definitely be affected, however.

The Indonesian government doesn”t have a clue if they are

prepared for Y2K and, since it refuses to talk about it, the people

really have no clue.

And then there is strategist Ed Yardeni. Appearing on CNBC

Thursday, he was definitely back in the pessimist camp, after a

brief sojourn to the brighter side. As to what will happen in

January (and remember, January 1st isn”t the issue, it”s really the

first few weeks and months), Yardeni said he”s “not that

optimistic (and he”s) skeptical at the complacency” being

exhibited by everyone. He said, yes, we have made tremendous

progress but a lot of organizations did get a late start and he

remains very concerned globally, citing Russia, China and

Indonesia as being in particularly bad shape.

Finally, Yardeni said we need to watch the number of pre-

announcements in January and February concerning first quarter

earnings and whether or not companies begin reporting glitches in

the supply chain. You may hear a company spokesman say “We

think we have it solved but…” That”s trouble. And, of course, if

problems do emerge, it will have a depressing effect on consumer

sentiment and spending.

This Week in Politics

I watched the Iowa Republican debate and, on the whole, the

candidates were alright. Bush was combative, McCain was the

only one to bring up the importance of Chechnya and Bauer and

Keyes are fun to listen to. But I was also thinking of the

following. It”s a lock that it”s Bush vs. Gore (even though I think

McCain and Bradley will both pull off upsets in New Hampshire).

What I can envision, however, is McCain running as the Reform

Party candidate. He is acting more and more like a renegade

(witness his joint appearance with Bradley on campaign finance

reform).

And note to Alan Keyes, you have tremendous talent and ability.

Why don”t you head up a new Conservative Party? Don”t be

surprised if he does this in 2004. And also, don”t look for a Bush

administration to find a place in the cabinet for him. It would raise

his visibility too much for their comfort.

Poll numbers: Nationwide – Wall Street Journal, Bush 50% /

Gore 39%. Washington Post, Bush 72% / McCain 13%.

Gore 64% / Bradley 31%. CNN, Bush 64% / McCain 18%.

In New Hampshire both races are statistical dead heats.

Nationally, George Bush would pick up about 52% of the

Hispanic vote today in a race against Gore. Normally this figure

is around 30% for a Republican candidate. Amongst Republican

women, Bush receives 54% to McCain”s 8%.

Finally, if you and your spouse are looking for something to

discuss at the dinner table, I have a suggestion. Here”s a game I

just thought up. Look at the Republican presidential candidates

(or Gore and Bradley for that matter) and choose just one for

each question.

1) Who would you most like to have a beer with?

2) Who would you like to have as your boss?

3) Which one would make for the best neighbor (i.e., watch your

house while you”re away)?

4) If charged with a serious crime, who would you want to

represent you?

5) Who would you like to run the country?

My answers would be 1) Bush 2) Forbes 3) Forbes 4) Keyes 5)

McCain. Now that”s two for Forbes….aghhh!

More Random Musings

–The average life expectancy for an American male has climbed

from 46 to 74 during this century. Female, 48 to 79. Total

population for the U.S. now stands at 270 million.

StocksandNews coffee mugs, about 150.

–Sports Illustrated chose the U.S. Women”s Soccer team as their

Sportswomen of the Year. I am reserving further comment for

Monday”s Bar Chat.

–Phoenix Suns coach Danny Ainge abruptly resigned to spend

more time with his family. Evidently, one of his teenagers told

him he “was becoming too distant.” It always cracks me up when

a professional at any level uses this as an excuse. I have this

image of Ainge, who always seemed to be a real pain in the butt

personality-wise, walking around, following his kids everywhere

they go. That same teenager in one month will be saying, “Dad,

don”t you have something else to do?”

–And then there”s Columbine. Two comments. I continue to

believe that Principle Frank DeAngelis is worthless and second,

the county cops who released the killers” video to the press before

showing it to victim”s families should be fired immediately. That

was disgraceful.

–Bill Clinton thinks Pete Rose should be given a second chance

and placed in Baseball”s Hall of Fame. You know where I stand.

Said my friend Mark R., “With Clinton”s comment, now I”m on

your side.”

–The information that Los Alamos scientist Wen Ho Lee

downloaded could shift the nuclear balance, enabling a foreign

power to make quantum leaps in the sophistication of its nuclear

weapons (according to a law enforcement official familiar with

the case).

–Yes, I was totally depressed at the news that Peanuts creator

Charles Schulz was retiring in order to focus on his battle with

colon cancer. Schulz once said that he wanted Peanuts to be

“regarded as one of the greatest comic strips that ever existed and

that he contributed to the profession.” It was and he did. His

work ethic, which was legendary, is something I”ll always admire

as well. And one final note, get your Sunday paper on February

13th early because I”m buying them all up. I have a great

collection of comic strips in my home and this will hang up there

with the rest of them.

–President Clinton suffered from a bit of the flu this week. Jay

Leno commented that with some of the women Clinton has been

associated with it had to be the “swine flu.”

–Speaking of swine, Monica and Linda Tripp were back in the

news this week. Now Tripp is the one in big trouble. And the

great John Huang appeared again before Congress, testifying that

even though he admits raising illegal campaign contributions for

the Democrats, he was not aware of any wrongdoing by the

President or Vice Presdient, nor was he part of an overall Chinese

government effort to influence our election. Yes, I”ve resigned

myself to the fact that no one will pin anything on Bubba or

Prince Albert.

Gold closed at $283

Nymex Crude Oil, $26.74 [Big cold wave coming! Get out the

mittens!]

Returns for the week, 12/13-12/17

Dow Jones +0.3%

S&P 500 +0.3%

S&P Midcap -0.6%

Russell 2000 -0.1%

Nasdaq +3.7%

Returns for the period, 1/1/99-12/17/99*

Dow Jones +22.6%

S&P 500 +15.6%

S&P Midcap +6.3%

Russell 2000 +10.5%

Nasdaq +71.2%

Bulls 52.7%

Bears 29.1% [Source: Investors Intelligence]

*Not including dividends.

–If you have had trouble with the delivery of your coffee mug,

please send me a note (“Contact Us” on the Home Page) or

resubmit your order. Please include a business name if you are

using an office address.

–My series on Islam is now concluded. Read “Hott Spotts” for

Part IV.

–The Week in Review for this coming week will be posted by

noon on Christmas Eve.

Brian Trumbore