“And that”s the way it is, January 7th, nineteen ninety…”
“Err, Walter? It”s 2000.”
“Oh…never mind….”
Wall Street
It was a truly momentous week. But first, let”s review how far
the major indexes had come since the market low of 10/8/98 through
12/31/99.
Dow Jones +49%
S&P 500 +53%
Russell 2000 +63%
Nasdaq +187%
It only made sense,then, that investors would take profits in some
of their holdings early in January and thus delay the tax bite until
April, 2001. And it only seemed natural that the Nasdaq, which
had gone straight up the past few months was cruisin” for a
bruisin”.
So when the Nasdaq fell over 200 points on Tuesday, and the
Dow dropped 360, some of us felt that this was the beginning of
the long-awaited correction. The Dow finished the day at the
10997 level, a 500-point decline for the first two trading sessions
of the new year. I appeared on a Seattle radio station (KIRO) at
5:00 p.m. that evening. The moderator said, “So where do we go
from here, Mr. Tru-bore?” [I knew I was in trouble when he got
my name wrong]. “Well, we”re at 11000 now and we”ll see
10500 before we see 11500.” In case you missed it, we finished
the week with the Dow at 11522, a new all-time high. In the
words of Homer Simpson, “Dohh!”
The next day noted strategist Barton Biggs said something I wish
I had known earlier. In all of his studies he found that not one
bear market had started as a result of a steep decline like the one
we witnessed early in the week. The market always rallies back
and then declines again, in earnest, or if us bruins are wrong, it
goes on to 12500 or higher.
The economy continues to crank on all cylinders (as Friday”s
employment numbers reinforced). And as I did some shopping in
New York on Friday (picking up “The Sopranos” soundtrack, in
case you”re curious), one look at the sales help further confirmed
that yes, anyone who wants a job can find one (and thank God for
that). Whether or not these individuals are qualified is another
matter.
But the week was more than just the fall and rise of the markets
(the Nasdaq registered not only its largest point drop ever but
also its biggest point gain on Friday), it was also a tale of
individual issues.
Qualcomm went from $800 (pre-split) to $560 in a matter of
days. Yahoo! fell below $370 after trading at $500 just two days
earlier. Folks, that”s what you call volatility! And then there was
Lucent. It issued a 4th quarter profits warning and the stock
promptly lost $20. But this was no ordinary $20, it represented
$60 billion plus in market capitalization. And since Lucent is now
the most widely held stock in the land, it only seemed natural that
investors, large and small, collectively said, “Whazzup with that?”
Actually, nothing more than lousy management. That will do it
every time. Finally, there was the case of Amazon.com which
reported great Christmas sales and greater losses to come.
Time”s “Person of the Year,” Amazon chairman Jeff Bezos, was
last seen still giggling.
Internationally, markets swooned but most are expected to
recover on Monday. Tuesday represented the worst one-day
performance in the Dow Jones World Index since October, 1997.
Hong Kong fell 7% that day. London had its worst one-day
point drop ever. But again, a lot of this was simple profit-taking.
In case you missed it, here were some of 1999s big winners,
globally (local currencies).
Brazil +152%
Frankfurt +39%
London +18%
Paris +51%
Tokyo +37%
*Turkey was the best major stock market, overall, up 486%.
Colombia was the worst, down 10%, thereby proving that you
don”t want narco-terrorists running your economy.
And some final notes on 1999 and 2000. Active mutual fund
managers kicked the index funds” butts, to the tune of 5-6%.
You go, girls! And on the strategist side, the real champion of
the 90s, Laszlo Birinyi, predicts another 20% return on the major
market indices.
The consensus among economists in a survey released by the Wall
Street Journal is that the U.S. economy will grow by 3% in 2000
and inflation, as measured by the CPI, will come in at a still tame
2.5%. Well, I don”t believe the latter and interest rates will
continue to rise (the 30-year Treasury closed the week at 6.54%
after touching 6.64% on Thursday).
And finally, Fed Chairman Alan Greenspan was renominated,
which means he”s hiking interest rates early and often so then he
can attempt to stay out of the way during the election. The Fed
meets February 1-2, the first hike of the year.
Russia
It is amazing that some are rejoicing because Boris Yeltsin
stepped down. What”s to rejoice in? Yes, it wasn”t a bloody
coup but Vladimir Putin is now facing a cakewalk in the early
election to be held on March 26th. The only thing that stands in
the way of a Putin victory is bloody Chechnya. And what
surprises me is the continued lack of outrage on the part of the
West.
It was back on December 12th that I wrote, before anyone else as
far as I can ascertain, that it was possible the Russian security
services blew up those apartment buildings. On Thursday,
London”s “Independent” newspaper claimed that they had a
videotape on which a Russian officer, captured by the Chechens,
“confesses” that Russian agents carried out the bombings. The
video was shot by a Turkish journalist last month before Grozny
was cut off by Russian forces. The Russian agent (a member of
the GRU) names GRU officers who were involved.
It should be fairly easy, with names, to begin to prove the veracity
of the charges. What major U.S. news organization has the guts
to follow up? It is the story of this coming century if it”s true.
And if it is, what will the world then think of Vladimir Putin?
And what kind of president will Putin be? He has pledged
cooperation with the West but he has also pledged to significantly
increase defense spending and he”s a proponent of a greater
intelligence apparatus. So will he suppress political expression?
Will he exploit anti-Western sentiment? And, most importantly,
will he tackle corruption? On this last issue he certainly has the
power and authority to do it (because of his KGB background).
But as Putin began to unfold a rudimentary plan to deal with
Russia”s economic ills (he is calling for increasing state
intervention, not good) he still keeps harking back to his “top
goal.” The obliteration of Chechnya. We have no other choice
but to watch the Russian electoral process unfold. I don”t think
we are going to like what we see.
Y2K
Thanks for the notes of concern this week. And thanks for taking
it easy on me. First off, I can be a real sentimental slob and I was
mesmerized by some of the television coverage during the course
of New Year”s Eve. It was the world”s shining moment. I got
choked up when it hit 12:00 in Tokyo and my eyes misted up at
the scene from Warsaw”s Castle Square, a place where this past
May I enjoyed a beer, or six, watching the world go by. And then
with the singing of “Danny Boy” in Derry, Northern Ireland, I
almost lost it. Then on to New York and I sure was proud of the
terrific job that Rudy Giuliani did. [And kudos to ABC and Peter
Jennings].
But was the threat from Y2K overstated? The U.S. spent at least
$100 billion confronting the problem, and the rest of the world,
conservatively, another $100-$150 billion.
What we learned is that the world, collectively, can tackle difficult
technology issues. And there is no doubt that if legitimate folks
like Ed Yardeni (who I relied on heavily for my own guidance)
had not sounded the alarm, we could have had big problems. And
the costs that corporations incurred have now created highly
streamlined and efficient networks which is a good thing. But, as
with many things in life, to the question of whether or not the
spending was excessive, the truth lies somewhere in between.
So are we really out of the woods on Y2K? Not quite. Even this
morning, credit card companies are warning of double-billing (so
be careful!)
David Faber, one of the Internet”s elder statesmen and a professor
at Penn had this to say as to the future of computer problems.
“You don”t want to have a Y2K (equivalent) every time some
idiot runs around and snips a cable or hacks into a network. If
we”re not careful now, you”ll be having Y2Ks every six months.”
[A few days after Faber wrote this in the Wall Street Journal, the
FCC selected him to be their new chief technologist].
Another expert said, “As we connect more and more of these
things, the susceptibility of the whole thing increases because
there are more entry points.”
And it”s not as if we didn”t have any problems at all. 7 of our
nuclear plants DID have a problem. The question becomes, what
would we have been comfortable with? In most cases, the
consequences of failure are simply not acceptable.
As for my own supplies, the beer and water will be drunk, the
Chex Mix eaten, and the toilet paper….you get the picture. It”s
just these friggin” flashlights that I”m ticked about.
International Affairs
Some of you may have thought my comment of last week that the
Indian and Pakistani people are capable of some “incredible feats
of stupidity” was a little harsh. Today, I feel more strongly about
it than ever. The rhetoric over the recent hijacking has escalated
to a rather terrifying level. Our State Department is very
concerned. India and Pakistan have gone to war in the past over
the disputed territory of Kashmir. Hundreds of thousands have
died.
So the Indian government, attempting to do the right thing and
not give in to the hijackers demands, finally acquiesced when the
pressure from the passengers families became too much to bear.
India then released 3 Kashmiri militants who side with Pakistan
on the issue. The Taliban, the dirtballs ruling Afghanistan where
the hijacked plane ended up, then gave the hijackers 10 hours to
leave the country. They most likely fled to Pakistan where the
government claimed they would be arrested. They haven”t been
seen since.
India then accused Pakistan of being behind the actual hijacking.
They then demanded that the U.S. brand Pakistan a terrorist state.
Then, during the week, one of the Kashmiri militants / clerics who
was released surfaced in Karachi, Pakistan. Giving a speech to
tens of thousands of supporter he said, “I have come here because
this is my duty to tell you that Muslims should not rest in peace
until we have destroyed America and India.” The crowd shouted
in response. “God is great!” “Death to India! Death to the
U.S.!” To say these people are idiots is the understatement of the
century. But if you see one in your neighborhood (the
Fundamentalists, that is) give them space.
In the old days, a Henry Kissinger would stealthily criss-cross the
globe, attempting to find a solution. The press wouldn”t know
what was transpiring but, in the end, disaster would be averted.
Again, these two countries need real leaders, not the loose cannon
that India has and Pakistan might have. [We don”t know enough
yet about the latter]. As I told a friend on Wall Street this week,
the next time you hear of one side massing troops on the other”s
border, it may be a good time to short the market because there is
no doubt in my mind that the next time India and Pakistan fight, it
goes nuclear. And somehow I just don”t think even free-spending
Americans will shop quite as much when they are glued to their
tubes, watching what will truly be a rather depressing event.
—
Elsewhere, Christians and Muslims are killing each other with
alarming speed in Indonesia. Over 350 have died in the last week
in sectarian violence in the territory known as the Spice Islands.
“Fresh ground pepper, sir?” “Get that shaker out of my face!”
Thwack. [“Thwack” represents the sound of a machete making
contact].
Did you see that the Pentagon fessed up as to some of their bomb
footage from the war in Kosovo? The civilian train we bombed
may not have been “the accident” we initially made it out to be.
As a matter of fact, it is now very apparent that the “ethnic
cleansing” we went in to stop was hardly what NATO made it out
to be. Only 2,100 bodies have been recovered thus far and many
of these are not “war-crimes” victims. As one analyst put it,
“Rwanda was a true genocide. Kosovo was ethnic-cleansing
lite.”
I wonder what Saddam Hussein is up to this weekend? 13
months, and counting, without any weapons inspectors in Iraq.
There are rumblings in Latin America. A national state of
emergency was declared in Ecuador as the natives grow
increasingly restless over the collapsing economy. Meanwhile, in
Peru, President Fujimori pulled a FDR as he announced he”s
seeking a 3rd term, not exactly what their constitution dictates.
As I said before, the shift back to authoritarian rule in Latin
America is occurring. It may be an issue the Republicans can
exploit. But that”s asking them to be smart…a tall order indeed.
This Week in Politics
I have been waiting for years for the Democrats to screw up.
They have been masterfully playing the game over the past few
years. But not this week. Geezuz, did they ever screw up….and
I”m giddy as a schoolboy!
Issue one. Elian Gonzalez. I”m sorry but on my global scale,
Elian is a one, Russia is a ten. Yet there was one easy way to
handle this. Start the case off in Florida family court. Instead the
Clinton administration misread the reaction to the INS decision to
send Elian back home, thus handing Florida to the GOP come
November. Bing! [Even Dan Burton is now a hero in Miami.
Amazing.]
Issue two. What were Al Gore and Bill Bradley thinking when
they said that they would use approval of gays in the military as
an official litmus test for selecting the members of the Joint Chiefs
of Staff, the professionals who run our military.
The Joint Chiefs are absolutely livid. Colin Powell wrote a
scathing letter to Gore. [Gore is now backing off…the worm].
And to compound matters, Gore campaign chief, Donna Brazile,
then made the unbelievable statement that Republicans were using
Oklahoma congressman J.C. Watts and Powell to hide their
inattention to black youth. Both Powell and Watts are furious.
[Colin is double pissed. And I wouldn”t want to be around a
double pissed Colin Powell]. Watts put it best when confronted
with the issue of race and politics in general. It all goes back to
one thing. Do you think Clarence Thomas would have gotten the
treatment he did if he were a Democrat?
Gore, Bradley and Brazille have touched more than one nerve.
The Republicans won”t screw this up. And as more and more
black Americans reach middle class and parity with white
America, they are going to begin to realize that the old-line racist
politics practiced by the likes of Jesse Jackson and Charlie Rangel
do them no favors.
But back to Donna Brazille. I have been very careful not to go
after her because, shall we say, she”s a little different. Well
Donna, baby, the gloves are coming off. For now, though, all I”ll
say is when the American people learn more about her they will
scratch their heads and say, “What was Gore thinking when he
chose her? Is this the kind of judgment we want in the White
House?” [To be continued].
In a different vein, clearly Gore and Bradley are beginning to truly
despise each other…and it makes for great theatre! Keep it up,
boys. In the latest polls, Gore leads in Iowa, 48-27, while
Bradley is ahead in New Hampshire, 42-39.
On the Republican side, John McCain must win in New
Hampshire or it”s over. But even with a victory, the “machine”
will propel Bush to the nomination.
On the endorsement front, Libby Dole dosey-doed with George
W., while Ted Kennedy crooned with Gore. And in a debate,
Bush vowed, nay pledged, to push for a tax cut, shades of his
father (uh oh).
One very dire note for Republicans is the performance of their
candidates in the last two elections that were held in California.
In 1996, Bob Dole captured only 38.2% of the vote. In the 1998
gubernatorial race, the Rep. Candidate garnered only 38.4%.
California, whose primary is March 7th, controls 54 of the 270
electoral votes needed to become President.
President Clinton will give a real stem-winder on January 27th, his
last State of the Union address. Predicted time, 81 minutes. And
don”t you know, Hillary will be resplendent! I say she”s wearing
light blue. What do you think, girls?
Random Musings
–“Biological science”s knowledge is doubling every 180 days.”
–Dr. Michael Crow, Columbia University
–John Podhoretz on “Peanuts.” It was successful because “it
managed to capture a central human conflict day after day in an
endearing and amazing way: Should you struggle with the
difficulties of being alive, or try to glide over them in order to
achieve happiness?”
–William Shatner”s new Priceline.com commercials are hilarious.
“Convoy” will become the new catch-phrase in America within
two months.
–“Like any new homeowners, they”re excited.” White House
spokesman Joe Lockhart on the Clinton”s moving in to their new
digs. And did you see Bill rubbing Hillary”s shoulders out there in
the driveway? I almost lost my Chex Mix.
–From time to time I have written of the AIDS crisis ravaging
sub-Saharan Africa. George Will wrote an interesting piece this
week. In it he discusses such scary topics as the fact that in 10
years, 3.5 million South Africans may die from the disease (and
this is out of a total population of just 40 million). The numbers
infected are approaching 12 million across the continent and it is
climbing exponentially.
So how do we begin to address this pandemic? There is only one
way and since it isn”t politically correct it”s controversial. Tell the
people that unless they stop their promiscuous behavior and these
idiotic tribal customs that place one”s manhood ahead of the
rights of the woman, they”re dead. More and more babies
without parents. More and more tribal conflicts because these
kids will then grow up with no future and with their only role
model being some warlord.
You may have noticed in my year-end review, I didn”t include the
sub-continent as one of my “hot spots.” Simply put, right now
the U.S. has absolutely no security interests here. But we can do
some things to help in this rapidly unfolding disaster.
First, obviously we need to find a cure for AIDS. Second, in the
meantime, Jesse Jackson, as perhaps the most visible black leader
in the world next to Nelson Mandela, should criss-cross the
continent for the next two years, spreading the message of safe
sex. And third, the U.S. and the WTO should adopt trade
policies that are flexible with regards to the products that the
African nations export. Instead, the Western world plays God
with the developing world”s future and we keep beating them
down. What are we afraid of? Reduce the tariffs and give these
people a future.
–And finally, months ago I ranted about the real problem in this
world, ex-nuclear weapons, that being global corruption. This
week columnist David Ignatius picked up on this theme. “The
war against global corruption may be the most important battle of
the 21st century. This is a struggle that really takes place in the
shadows, and it involves some of the world”s scariest people (i.e.,
Russia). The global criminals are far stronger than most people
realize, and honest governments need all the help they can get.”
Gold closed at $281 [Year end prices: ”97-$288; ”98-$288;
”99-$289]
Nymex Crude Oil, $24.22 [Check out my “Hott Spotts” piece
on the future for oil prices]
Returns for the week, 1/3-1/7
Dow Jones +0.2%
S&P 500 -1.9%
S&P Midcap -1.8%
Russell 2000 -3.3%
Nasdaq -4.6%
Bulls 52.2%
Bears 28.3% [Source: Investors Intelligence]
*Happiness is a warm puppy…so long, Charlie Brown.
Brian Trumbore
