“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
