“The Days…of Wine and Ro-ses…”
–Andy Williams
Early in the week, as the Nasdaq was tumbling, my friend George
kept asking, “Is this it? Has it topped out?” “No,” I said. And
later in the week it was safe to say that we need more than a
bursting of the biotech bubble to set in motion a decline in the
Nasdaq that lasts more than 3 days. A negative earnings surprise
from Cisco would probably do the trick (but that”s not likely).
The big issue is, what the heck is going to shake consumer
confidence? Of course on Thursday, as the Dow Jones was
registering its largest one-day point gain ever (and by more than
100 points at that), one name kept popping up. Alan Greenspan.
And we all said the same thing. “Alan Greenspan must be
pissed.”
Greenspan is known to read the morning papers in his bathtub. If
I were his wife, Andrea Mitchell, I”d be checking frequently these
days to make sure he hasn”t gone under. Every time this market
hiccups and the Federal Reserve chief thinks he has pricked the
bubble, it comes roaring back.
You see, Alan wants you and I to stop shopping. On Thursday,
as the market melted up (and even my energy-laden portfolio
rose), I told George, “Yup, on Saturday I”m going to the mall.”
And if he were listening, Greenspan would knock his head against
the wall.
And hey, look at the government”s economic releases for the
week. A strong retail sales report coupled with low inflation
numbers. Investment nirvana. Surely the first quarter earnings
reports will be strong (with a few high profile disappointments,
per usual) and mutual fund inflows will continue apace.
But we can”t have that, thought the Grinch. No sirree, we”ll have
no glee.
And as he sits in his tub this Tuesday morning,
Fuming to the point where the water”s near boiling,
The Grinch will scowl and think…
I”ll teach those folks a lesson they won”t soon forget,
Another quarter-point rise will force the fools into debt,
Call for my chauffeur, Andrea…for I have work to do,
And let the common folk cry, boo-hoo, boo-hoo.
Or something like that. Actually, the market couldn”t give a
damn what Greenspan and the Fed do this coming Tuesday. And
to me, what”s more important is international affairs and foreign
policy.
What, you ask, is that? Good question. If you were watching
NBC”s Nightly News on Wednesday or Thursday you would have
seen a total of one story that took place outside the U.S., the
murder of the two college kids in Costa Rica which hardly
qualifies as a foreign affairs story.
No, by the time many of you read this the election will have taken
place in Taiwan, Clinton will have started his trip to India and
Pakistan, the Pope will be in the volatile Middle East and, soon
thereafter, we have the Russian election and an important OPEC
meeting. Somewhere herein may lie the seeds for a shock to our
collective system. A wake-up call. A reality check. Maybe that”s
what will finally shake consumer confidence and keep us from the
malls.
Now I have spelled out my end of March scenario in great detail
(and yes, I took liberties with the true definition of the “Ides of
March”) but I just have to add a few thoughts on China / Taiwan.
On my Hott Spotts link I have posted the main points of China”s
white paper on Taiwan. This week Chinese Prime Minister Zhu
Rongji continued the bellicose rhetoric. Regarding the argument
of many in the West (particularly in the U.S.) that China doesn”t
have the military clout to invade Taiwan, Zhu said:
“People making such calculations don”t know about Chinese
history. The Chinese people are ready to shed blood and sacrifice
their lives to defend the sovereignty and territorial integrity of the
mother land.”
The Washington Post spelled out in a lead editorial what has been
my concern. “(President Clinton) should make clear that the U.S.
will defend Taiwan if it is attacked simply for being a democracy.”
I”m convinced we haven”t thought out what we”d do because we
believe the Chinese couldn”t possibly do the unthinkable. Robert
Kagan addressed the issue thusly.
“In its classic form, the psychology of appeasement convinces
peace-loving peoples that any effort to deter a future conflict is
too provocative and therefore too dangerous. The appeasing
nation comes to believe that defenselessness and lack of
preparation for a conflict is not only safer but a sign of maturity.
And then the war starts.”
We should rearm Taiwan, quickly, regardless of the election
results. IF China is going to take Taiwan (again, maybe through a
massive missile strike that forces them to their knees) they will do
so before year end. You and I know Clinton won”t retaliate. If
he can”t shed one life in Kosovo, it would be tough to ask a
couple thousand to give theirs over this island. Just remember,
our economy is at stake here, as well as our guiding principles.
And a quick comment on Clinton”s trip to India and now,
Pakistan. Pakistan is a “nuclear-armed failed state.” Their leader,
General Musharraf, is pitiful and may be losing the support of the
army (already). He could be increasingly desperate and thus,
capable of just about anything regarding India and Kashmir.
And how about the verdict handed down over the child killer in
Pakistan? This man confessed to killing 100 children over the
past few years so the judge sentenced the animal to be strangled,
100 times, with his body cut into 100 pieces and then thrown into
acid. O-kay. Who wants to watch that? Yes, our President felt
compelled to go to this hell on earth. I don”t care how you feel
about Clinton, pray that he comes back from this ill-advised trip.
Market Tidbits:
–The biotech bubble burst this week when the U.S. and Britain
agreed to openly share information on the human genetic pattern.
At word of this agreement, shares in the sector plummeted, many
in the neighborhood of 50% from the highs established just the
previous week. The market was worried that all profit incentive
had been wiped away. So I got a kick out of a statement made by
Todd Dickinson, the U.S. Commissioner of Patents and
Trademarks.
“Nothing has changed on patent law or policy. There is no
reason these stocks should have gone down.”
Well, Todd, maybe the Clinton / Blair communique was really
much ado about nothing. On the other hand, I wouldn”t act like
these stocks deserved to be valued at thousands of times
projected earnings in 2020!
[I, on the other hand, own a biotech stock that actually turns a
profit. However, it fell from $71 to $41 in the blink of an eye. I
obviously had a trigger lock on my trigger finger.]
–The bond market staged a strong rally this week on the belief
that we have nothing to worry about on the inflation front and
that the economy will eventually slow. I don”t agree with the
former and can”t see any evidence of the latter. The PPI and CPI
raw numbers were high due to rising fuel prices, but the market
chooses to focus on the “core” figures, ex- the volatile food and
energy components. On Friday, the 30-year Treasury traded
down below the 6% yield mark for the first time in about six
months.
1-yr. 6.18%, 2-yr. 6.49%, 10-yr. 6.20%, 30-yr. 6.00%
–Last fall, when folks spoke of the huge amount of margin debt,
many would say something like, “It”s not a real problem because
the size is not significant compared to that of the overall market.”
Maybe that was so then. But this is now and margin debt is
absolutely exploding beyond what anyone anticipated. It”s up
87% year-over-year.
In the old days, if you were a financial advisor you sat your client
down and, based on their risk tolerance, might recommend a
portfolio with 60 or 70 percent in equities. I guess you”d tell Mr.
Jones today, “Bob, given your situation, I recommend we put
about 150% of your assets in aggressive growth funds.”
Word to the wise. Do you really know what your true exposure
is? If technology stocks were to tank, in earnest, could you
afford it if your broker calls and says, “Ah, Bob? We need
another $75,000 in your account…pronto.”
–A new expression emerged this week to describe market action,
“Internet time.” It became a clichT in, err, Internet time. I
promise never to use it in this space. Just as you will no longer
see Old vs. New.
–Floyd Norris of the New York Times had a story about all of
the effort the Nasdaq Exchange is expending to promote itself
while, at the same time, it has been delinquent in upgrading their
computer systems to meet future demands, including the coming
decimalization of share prices. To which I would add that I saw a
story concerning Nassau County (Long Island) and the pitiful
state of their finances. On Thursday, New York Governor Pataki
appointed Nasdaq chairman Frank Zarb to head up a committee
that will audit the county”s books. I mean, folks, this is just too
easy. What the heck is Zarb doing getting involved in a time-
consuming venture like this when he clearly has greater
responsibilities at the job he is being paid for?
–On Thursday, Greg Hymowitz was the guest analyst on
CNBC”s “Squawk Box” morning program. Hymowitz has
previously received some grief for touting his favorite issues and
this day was no exception. He mentioned a stock, Aspeon, and it
promptly went from $22 to $28 in a matter of minutes (in pre-
opening trading). It turns out that some poor sap actually rushed
in to buy 1,000 shares at $35 (thanks, George, for this tidbit).
10,000 more shares traded at $31. Then the stock started to slide
and by the end of the day, as both the Dow and Nasdaq were
rocketing higher, Aspeon closed at $21. What was it W.C. Fields
said?
–According to a Wharton School survey, the average outlay for
those who shop online rose 117% from 1997 to 1998 but
increased only 25% in ”99. Which raises the issue, from a retail
standpoint, is the Net just another channel or a leviathan?
Author Michael Lewis weighs in with his own thoughts on the
perception among many that, over time, Internet retailers will be
more profitable than bricks and mortar outfits.
“There is a paradox at the heart of the Internet. It builds better
mousetraps that don”t pay very well. It increases efficiency at the
same time it eliminates the possibility of profit. It has created a
social and economic revolution on the scale of the Industrial
Revolution, with no real economic justification.”
–And now for “Equal Time.” A childhood friend, Jimbo, took
issue with my comments about the Palm Pilot last week and the
fact that Palm Inc. is currently worth more than the whole airline
industry (at least before the Dow Transports took off). Jim
works for Netvendor Inc. (he gave me permission to say this), a
new B2B outfit.
“Palm Inc. should exceed the value of the airline sector! Today,
you can determine the maximum revenue potential in the universe
that all airlines would achieve if they loaded every flight, with
passengers and cargo. Their capacity is finite, and (worse yet) the
potential for growth in the demand for their service is also finite.”
“Yet, there is no limit to the extrapolation of content, community,
and commerce the universe can achieve with a hand held device.
The sky”s the limit.”
Palm Inc. closed the week at $55. Jim may be right but those
fools who bought Palm at $165 (where it traded shortly after its
initial offering) won”t see that price for years. Jim, if I”m wrong I
owe you dinner. You buy the beer.
International Affairs
Russia: The election is just one week away and the supposedly
defeated Chechen rebels continue to wreak havoc on the Russian
army. In one instance 84 of 90 elite paratroopers were killed in a
massacre by some 600 rebels (see my 3/13 Bar Chat). The
funerals were given a very public airing on national TV but did
not harm Vladimir Putin”s presidential bid as he doesn”t face any
real opposition.
In his new book of “interviews,” Putin muses about a return to
monarchy in Russia.
“The sovereign does not have to think whether he will be re-
elected. He can think about the destiny of his people without
being distracted by trifles.”
Kosovo: NATO is increasingly worried the region will explode
again this summer. Albanian fighters have stepped up their
attempts to drive the remaining Serbs out of Kosovo. The Serbs
on the border between Serbia and Kosovo are doing the same to
the Albanians. NATO was forced to launch a very public sweep
of the border area, Thursday, and they have called for more
troops. Kosovo and Iraq will be campaign issues.
Venezuela: The credit rating agencies keep asking the
government, what happened to the oil revenue windfall? This
basket case will never get its act together, especially with an
incompetent leader like Chavez.
Chile: Columnist Donald Kaul had the following observation on
the recent return of former dictator, Gen. Augusto Pinochet.
Pinochet avoided trial in Spain for his past misdeeds when
doctors in Britain claimed he was too ill to stand trial. He had
boarded the plane in London in a wheelchair.
“Then he got to Chile, where he was greeted with a government-
sponsored rally at the airport. He stepped off the plane looking
like Gene Kelly in ”Singing in the Rain.” He refused a wheelchair
and used his cane only to wave to the crowds as he smiled and
greeted supporters. He did everything but drop down on one
knee and sing ”Mammy.””
“He could at least have waited until he got away from the airport
before he showed us what suckers he”d made of us. At least that.
There”d better be justice in the next world because there”s not
much of it in this one.”
Sudan: I have written of our failed and inconsistent foreign
policy, as well as our lack of humanitarian gestures to the African
continent (see Mozambique). Believe me, I”m not saying we
should get involved everywhere but let”s face it, our current
administration is carrying out a racist policy as it pertains to
Africa. Don”t try arguing. Just look at the facts. Case in point,
Sudan.
Almost 2 million people have been killed in Sudan”s civil war.
The slaughter of Christians, in particular, is beyond
comprehension. Franklin Graham, a minister and an aid worker,
wrote a powerful op-ed piece in the Wall Street Journal this
week. No one is asking the West to get involved militarily, but
geezuz, we don”t even have trade sanctions against the murderers
who run the government in Khartoum! So President Clinton,
don”t give me this BS about caring about Africa or the less-
developed world (where the trade policies are just the opposite,
too restrictive). We have thousands of our troops bogged down
trying to referee a blood-feud in the Balkans but you won”t even
lead a charge in the U.N. to get the World Court to condemn
Sudan”s president. Graham wrote the following which I hope
doesn”t offend any of you.
“The murder of a father in a dusty village in southern Sudan
grieves a holy God as much as the murder of a young man in an
isolated field in southern Kosovo…If we (the U.S. and the West)
turn a blind eye to the plight of people being mistreated in Africa
or any other part of the world, I believe God will judge this
nation. His hand of blessing could easily and quickly be
removed.”
Iran: On Friday, the U.S. lifted some economic sanctions on Iran,
nothing more than repealing the ban on luxury items (like
overpriced rugs). This is a good olive branch to the moderates
who recently won the parliamentary elections. But we shouldn”t
get our hopes up too much. Last week the moderate President
Khatami”s top aide was shot in the face in broad daylight in front
of hundreds. A message from the hard-liners. But the man
survived.
North Korea: A New York Times report claims that there have
been some positive developments on the diplomatic front between
the North and some of its traditional enemies. I just wanted to
prove I could write something positive…if it”s true, that is.
This Week in Politics
Al Gore and George W. Bush wrapped up their nominations with
the primaries this past Tuesday. All of the early polls show a
contest between the two as being dead even. Speculation now
turns to potential running mates. I say Gore will choose Energy
Secretary Bill Richardson (assuming that oil prices trend down
from current levels by convention time), while Bush will choose
either Nebraska Senator Chuck Hagel or Maine Senator Olympia
Snowe. These latter two are simply my personal favorites and the
odds are probably nil for either.
Bush correctly blasted the NRA”s Wayne LaPierre for his
intemperate remarks this week. And I had just praised LaPierre
for his reasoned approach the week before. But don”t get too
fired up over Friday”s decision by Smith & Wesson to voluntarily
adopt new controls. They had previously agreed to much of this
before. However, the S&W offer does give Clinton a political
victory.
Political historian Michael Barone had an interesting item this
week which should give Republicans some hope. When asked
who they”d vote for in the House come November, 43% said
Democrat, 42% Republican (averaged from 8 different polls). In
1998 (when the Republicans lost seats but still retained the
House), 21 polls showed the Dems with a 42-37% advantage.
Al Gore was schmoozing with Jesse Ventura. Great. Meanwhile,
remember the name Betty Lambuth. She is the White House
contractor who claims that back in 1997 the White House
attempted to destroy e-mails dealing with campaign finance issues
and Gore”s alleged phone calls soliciting funds from his office (if
true, illegal).
Finally, Independent Counsel Robert Ray (the man who
succeeded Ken Starr) is set to issue his first report which will
absolve the Clintons of any wrongdoing in the FBI files case. His
reports on the Travel Office firings, Whitewater, and Paula /
Monica will be released later. It would appear that Ray may be
angling to indict Clinton after he leaves office.
Random Musings
–Murders in the Bronx are up 75% in the past year. Clearly, the
police (especially the controversial street crimes unit) are
intimidated by all the negative publicity surrounding cases like
Amadou Diallo”s. But I don”t hear Al Sharpton complaining
about the rising rate. That wouldn”t be good for his agenda.
–Much has been made of the Pope”s apology for the past sins of
the Catholic Church. It just needs to be noted that I covered all
of this in the February 9 edition of Bar Chat.
–The San Antonio Spurs Sean Elliott played in his first game this
week after receiving a kidney transplant just 7 months earlier.
–But elsewhere in Texas, there is the case of the little boy in
Houston who lost his arm to his uncle”s pet tiger. The arm was
reattached but what the heck is the deal with the tiger? It is
perfectly legal to keep tigers as pets in Texas, sick to begin with,
but also to keep them in cages that look like they are 8 X 10.
Unbelievable. And one look at this kid”s extended family and I
knew they weren”t my target audience.
–Expect a devastating drought this year in the Midwest and parts
of the South. At least that”s what the weather folks are telling us.
–Last Sunday”s “60 Minutes” segment with Timothy McVeigh
was a bit unsettling. I”ll leave it at that.
–The U.K. company that cloned Dolly the sheep, cloned a pig for
the first time and this pig then gave birth to 5 identical piglets,
one of whom was named “Dotcom.” Poor guy. I would never do
that to a piglet.
–Once again, the sheriff in Columbine proved to be an insensitive
ass by releasing his office”s final report on the Columbine tragedy
without first discussing it with the victims” parents.
–7.1 million families in America now have a net worth in excess
of $1 million vs. 3.5 million in 1994.
–Am I the only one who is increasingly offended by all of these
radio advertisements for Viramax and other solutions for an
improved sex life? I mean, geezuz, what the heck do we allow
this trash on the air for? Can”t a kid just grow up and play wiffle
ball without trying to figure this stuff out before it”s time?
–You know what ticks me off (#433)? It”s when there is an
incident like the murder of the two American college students in
Costa Rica and someone stands up (like the dean of Antioch
College where one of the girls attended) and says, “The girls
would not want their legacy to be the death of foreign studies.”
Yeah, right. More likely, they”re upstairs thinking, “I wish we
had stayed home.”
–U.S. News had a horrifying cover story this week on turning 40.
As one who is about to turn 42, I took note of some of the
following:
-The percentage that complex reasoning ability slows between
age 30 and 50 is 7.2%.
-The amount the typical 40-year old has shrunk since 30 is five-
eighths of an inch. Aagh!
-The remaining life expectancy for a 40-year old is 38.4 years.
That means I better get cracking if I”m going to write that
Broadway musical based on the songs of Petula Clark.
-At age 42, Shakespeare wrote Macbeth. I write Bar Chat.
-But since I”m not quite 42, I took solace in the fact that at age
41, Mao started the Red Army”s Long March (1934). Well now
I”m fired up. O.K. men, line up. We”re marching to the Short
Hills Mall!!
Gold closed at $285. The Bank of England will perform its last
of five gold sales on March 21.
Nymex Crude Oil, $30.91. Clinton is announcing some steps
today, Saturday, that I guarantee will be ineffective.
Returns for the week, 3/13-3/17
Dow Jones +6.7%
S&P 500 +5.0%
S&P Midcap +0.6%
Russell 2000 -4.8%
Nasdaq -5.0%
Returns for the period, 1/1/00-3/17/00
Dow Jones -7.8%
S&P 500 -0.3%
S&P Midcap +9.5%
Russell 2000 +13.9%
Nasdaq +17.9%
Bulls 52.3%
Bears 29.0%
*Dr. Bortrum has been writing some scary stuff on bacteria lately.
If you want to have nightmares of tainted shellfish and other
disasters, check it out.
Brian Trumbore
