“Just as the wildebeest protects its young, you need protection
too.”
–Marlin Perkins
Ah yes, Mutual of Omaha”s “Wild Kingdom.” After awhile, all
the animal shows that followed had to post the disclaimer, “These
scenes, whether actual or created, depict authenticated facts.”
And watching Wall Street Monday and Tuesday, it was just like
observing those wildebeest. First one direction, then another.
Sheer panic.
By week”s end, however, if you had spent your time in Little
Havana, waiting for St. Elian to appear (water pistol in hand), and
wondered what all the fuss on Wall Street was about, you”d be
forgiven for being so smug.
After all, the Dow finished up 1.7% to close the week at 11111
(no mistake there) while the Nasdaq fell 2.8% to the 4446 level.
But we all know there”s a lot more to the story and the numbers
tell a powerful one. Following are the all-time highs, the Tuesday
low, and the percentage decline from the respective peaks for
some major indexes.
Dow Jones 11722 10717 -8.6%
S&P 500 1527 1417 -7.2%
Russell 2000 606 464 -23.4%
Nasdaq 5048 3649 -27.7%
On Tuesday, alone, the Nasdaq was down 13.6% at its worst
level for the day, meaning a 20% 2-day decline as a result of
Monday”s all-time point drop. 20% in less than 2 days! We”re
talking 1929 and 1987 stuff. But again, by week”s end who
cared?
Well, a lot of people and for various reasons. Last week in this
space I mentioned that we appeared to be headed towards a more
rational market environment and that this was a good thing. The
wrenching process continues and while the overall averages at
week”s end masked the true carnage, the field is still littered with
bodies and the stench will linger.
So back to the numbers. There are hundreds, if not thousands, of
issues I could point to but here are a few from the technology,
biotech, and e-commerce sectors that tell a good story. First the
52-week high, then Tuesday”s low, and Thursday”s high (all
rounding off).
Abgenix $413 (3/8/00), $103, $192
eToys $86 (10/11/99), $6, $9
Palm $165 (3/2/00), $32, $42
Protein Design Labs $338 (3/7/00), $51, $111
Rambus $471 (3/14/00), $208, $248
You get the picture. For many stocks this historic bubble has
burst. Forget the indexes, they don”t begin to tell the full
story. If you bought some of these issues (and there are even
worse examples) near the peaks, and a lot of folks did, you”re
hurting.
So even as the markets roared back (in the case of the Nasdaq, a
stupendous 22% rally off of the Tuesday afternoon lows), buying
was selective. What is healthy is that people are talking about
valuations and price / earnings multiples again. Companies
without any hope of turning a profit before 2005 are getting
thrown out with the trash (see some Internet companies). But
while this whole cleansing process is cathartic…
WE ARE STILL GROSSLY OVERVALUED!! Geezuz.
Market leader Cisco trades for something like 170 times trailing
earnings and over 130 times 2000”s (I”m being generous). Yahoo
gets beaten up a little in reaction to a good, but not spectacular,
earnings report and folks say it”s about time. Well, the stock is
still at a multiple over 400, and it”s no longer a startup! No, we
still have a long way to go before it”s a truly rational market. And
there are still shills on TV who say valuation does NOT matter.
Wrong.
When you listened to some of the “man on the street” comments
this week, it should have only confirmed what you readers already
know. We are a truly ignorant society. I saw comments like “I
see no point in selling” and “I”ll just keep on buying.” And even
Louis Rukeyser on Friday didn”t put one word of caution into his
“Buy more if you can afford it, hold if you can”t” mantra.
As I”ve said the last few weeks, my bear comments are 90%
directed at the Nasdaq because we have a tale of two markets. The
Dow (and to a lesser extent the S&P) are for the most part fairly
valued (which doesn”t mean they should go up from here). But
for those who just want to keep buying, I say, “Stop.” Sit back,
pour yourself a frosty, listen to the birds sing and ask yourself,
“Do I have a clue as to what I own?”
If you can”t explain in one or two concise sentences what the
company you”ve invested 20% of your life”s savings into does,
then get the hell out and fast…if you haven”t already gotten that
margin call. And the best example of the frenzy has been the
biotech, human genome mania. Celera announced this week they
are the first to map the human genetic code. Great. Spectacular!
Now how do you make money? Obviously, the potential for
commercial applications is enormous. But does that mean 400
smaller operations deserve to be trading at $200 to $400? On a
hope and a prayer? You get the point. Or as Harry from Toronto
wrote me this week, “I always thought that the basic operating
principle behind any market is best described as ”make the stupid
pay.”” And pay they have the last few weeks.
But starting this coming week, it”s earnings season and yes, the
news is going to be very good on this front. To a large extent, of
course, it is already discounted. The best news is that the number
of companies pre-announcing disappointments was light.
So when are you going to bring up Microsoft, Mr. Editor? Well,
by now you”ve heard the argument that they don”t deserve this
treatment. I agree. It is a case of bad government and bad
government has a way of killing bull markets, pure and simple.
90% of this audience probably has the same opinion. Microsoft
makes a decent product at a fair price. What”s the big deal? And
the tech revolution isn”t being encumbered by Bill Gates and Co.
Many of you have probably already seen the start of the PR
campaign that Gates launched yesterday on the airwaves. Looks
good to me. The backlash has already started. Judge Jackson
said he”ll move quickly because he did not want to disrupt the
economy. Check out my Wall Street History piece of 4/7 on the
Sherman Antitrust Act. It”s the start of what should be an
enlightening series.
On the bond front, the economic news was good this week,
particularly the employment report and, as you”d expect, the bond
market benefited from a flight-to-quality. Treasury rates at
week”s end:
1-yr. 6.12%, 2-yr. 6.36%, 10-yr. 5.85%, 30-yr. 5.70%
The 30-year stands at an eleven-month low. Alan Greenspan said
in a speech this week that he wasn”t trying to control stock prices.
You believe him? This coming week we have retail sales as well
as the producer and consumer price indexes, all Thurs. and Fri.
Other Market Bits
–Dresdner and Deutsche Bank called off their mammoth merger.
My friend George tells me that a lot of folks at Dresdner had
already quit, expecting the merger to go through. Never mind….
–The 4/3 issue of Barron”s had an interesting bit in Alan
Abelson”s column. Charlie Mitchell, a bank analyst of some
repute, is particularly concerned about the Federal Home Loan
Bank System (FHLB). They are employing massive amounts of
leverage on their $530 billion in assets, to the tune of 21 to 1, and
Mitchell believes their derivatives position is highly suspect. A
problem here could impact our whole economy.
–A Miami jury awarded $13 million to two smokers and the
family of a third. The key is the punitive damages that could be
awarded in the class-action award to follow against Philip Morris
et al.
–Due to the anticipated length of this review, a lot has been left
on the cutting room floor. Once again, my “moral hazard” issue
didn”t make it.
–Strategist Michael Belkin has a good acronym for “companies
without revenues and profits”…C.R.A.P.
–Monday”s market action witnessed the largest divergence
between the Dow and Nasdaq since 10/20/87 (the day after the
crash). 4/3 the Dow finished up 2.8% while the Nasdaq declined
7.6%.
International
I was giving a presentation to a group in Media, PA this week (a
delightful group…thanks, 707 Club) and in my attempt to doom
and gloom them I addressed the topic of China and Taiwan. My
theory is IF China is going to do anything, they will attack before
Clinton leaves office because the U.S. is clearly not prepared to
go to Taiwan”s defense. I discussed the implications for our
economy since 50-80% of U.S. chip-making capacity is in
Taiwan.
So a gentlemen then asked, “Well, why would China do that?”
To which I replied, it”s the best way for the Communists in
Beijing to get the people to focus on nationalism, and not their
own problems at home. The next day, the newspapers were
loaded with stories about a huge display of civil disobedience that
took place weeks ago in the city of Yangjiazhangzi (you wouldn”t
know if I spelled this correctly now, would you?) 20,000 miners
and their families battled police over the massive corruption in
their town as well as the loss of jobs.
What makes this significant is that “Y” is just one of countless
examples in China”s hinterlands of civil unrest. CNN and NBC
can only post reporters in so many places. This is the untold
story. It is the government”s worst nightmare that, in the race to
modernize while maintaining a rigid, Communist touch, the
displaced are revolting and increasingly demanding change. It can
all spin out of control quickly and repression is the only antidote
for China”s rulers. An attack on Taiwan may create a sense
of nationalism which would take laborers minds off of their
hideous existence.
Congress is slated to vote on China”s WTO status the week of
May 22nd. I still say we have to move forward and approve it.
Would they cheat? Of course, they already are. But we need
some kind of mechanism to truly bring them into the world of
nations. The debate on China and WTO will be one of the
fiercest in the history of Congress.
It wasn”t a good week for Russia. The Council of Europe, a
parliamentary organization established after WW II to protect
individual and state rights, suspended Russia”s voting privileges,
the first time the council has sanctioned a member in this manner,
for its actions in Chechnya. And Ireland”s former president, Mary
Robinson, now U.N. Human Rights chief, was barred from
visiting parts of Chechnya. When she arrived in Moscow,
President Putin refused to meet with her, not exactly a good thing
considering that the whole world is looking for signs as to what
kind of leader Putin will be.
Israel snubbed their nose at the U.S., rejecting our pleas not to
sell China a high-tech surveillance plane (which obviously can be
used against Taiwan). Secretary of Defense William Cohen was
basically told to shove it when he appealed directly to Prime
Minister Barak. Next week, Chinese President Jiang Zemin pays
Israel a visit to personally lobby for more planes. So, you should
be asking yourself, what the hell is going on here? Don”t expect
Clinton to do anything about it. Rather, Israel will probably tell
China they can”t have anymore, just right now. [“Wait until
things calm down, Jiang.”]
Africa / Zimbabwe: Recently, I have been a major defender of the
continent, particularly when it comes to the slaughter of
Christians in Sudan. But we are now witnessing another example
of why most folks just throw up their arms when the topic of
Africa arises. I”m talking about Zimbabwe.
Robert Mugabe is the leader in this former British colony
(Rhodesia) and he has decided that the remaining white farmers
should give up their land to the peasants in a redistribution
program. Last February, a referendum on making a change
effecting this was defeated. So this week Mugabe just issued an
order for the whites to hand the land over, and, incredibly, he said
Britain had to compensate the farmers. So squatters are now
occupying the farms and Mugabe”s police do nothing. The whites
are being brutalized (yet showing amazing restraint). It”s only a
matter of time before the farmers fight back and a war of sorts
erupts. Britain and the U.S. have suspended foreign aid but
where is Clinton”s outrage? Even Bishop Desmond Tutu has
blasted Mugabe. The Wall Street Journal Friday said the
dictator”s actions harken back to the worst of Idi Amin. We can”t
(nor should) send troops there but c”mon, speak up!
Japan”s Prime Minister Obuchi is on life support and the
government hid his condition for 24 hours (of course we”ve done
the same). But they prevented a “Weekend at Bernie”s” scenario
by quickly selecting an acting prime minister and new elections
are to be held in May or June.
And if you”re thinking of disregarding my advice and investing in
emerging markets, the World Bank issued a statement this week
outlining that the next decade “may well see another boom in
capital flows to emerging markets accompanied again by high
volatility and the potential for crises.”
This Week in Politics
–The news is not good if you”re a supporter of Rudy Giuliani.
The Woman Formerly Known as First Lady has opened up a 49-
41 percent lead (according to a CBS / NY Times poll) and Rudy
trails 3 to 1 in New York City. Al Sharpton is threatening civil
disobedience in New York, Easter Week, as a way of shining the
spotlight on alleged police brutality. And the stage is set for a big
display this summer. The Haitian community is talking about a
“race war.”
So leave it to the President to add fuel to the fire. “The only way
they can win is to convince people we”re space aliens” and he also
spoke of the “right-wing venom machine.” Very responsible, Mr.
President.
–I realize nothing seems to stick on Clinton or Gore. We”ll just
have to wait for the history books I guess. But it was still
amazing to hear Charles Labella, the former prosecutor, tell Tim
Russert on “Meet the Press” that he had absolutely no
conversations with Janet Reno, or anyone on her staff, about his
memo recommending a special prosecutor for the 1996 campaign
finance probe. Labella said he “had sufficient information from
credible sources to warrant a full-scale investigation into the
allegations.” Again, not one peep from Justice. Yet this same
Justice Department has now expended thousands of man hours
over a 6-year old Cuban boy. It should really make you sick.
–John McCain, commenting on President Clinton”s Asian
adventure, echoed my feelings. “Never in our history has there
been a foreign trip which came up totally empty-handed.” On a
different subject, there is some talk of selecting McCain to be
Secretary of Defense and Colin Powell, Secretary of State, right
after the Republican convention so that they can campaign as
such. A super idea.
–Last week, I noted the sloppy campaign being run by former
Goldman Sachs CEO and Democratic candidate for the Senate in
New Jersey, Jon Corzine. In the interest of fair play, I have to
note that evidence has been produced that a disgruntled would be
politico, who was turned down for a position in the Corzine
campaign, is attempting to blackmail him. No one should have to
put up with that garbage. Now as for China and Clinton….
Random Musings
–Elian Gonzalez: Frankly, I don”t care if I offend a few folks out
there but would someone tell these Cubans in Miami that they are
“Cuban-Americans!” I know it”s not popular for conservatives to
say this, but send the kid back already. Or, let Little Havana
secede from the Union…and then we can invade them.
Otherwise, the story has never warranted more than a random
musing.
–So I”m staring at my world map. What genius set the borders
for Chile?
–The “60 Minutes” story (4/2) about the government”s
mismanagement of the Indian trust funds was remarkable. $2.4
billion has been “lost.” No one knows whether their royalty
checks are for the proper amounts as there is no backup. Well, as
follow-up, this week federal district judge Royce Lamberth (who
has become a real pain for the administration on other matters)
once again held the Interior Department in contempt for failing to
produce records.
–Canadian intelligence experts are warning that computer
consultants hired to address the Y2K issue were seldom put
through security checks and may have created “backdoors” to
gain unauthorized access. For example, one hydroelectric plant
hired 50 consultants, none of whom were screened. And these
plants supply a large part of the northeast U.S. with power. It”s
so refreshing to be able to report on Y2K again! [Source:
Defense News]
–Jonathan Alter is a normally liberal columnist for Newsweek but
this week he actually wrote a piece in favor of school vouchers
and school choice. One telling example of the failure of our inner
city schools is from Camden, NJ. In 10 of the 22 elementary
schools, not one of the 4th graders passed the state”s reading
proficiency test. Not one student. Alter gives the education
debate thus far to Bush over Gore.
–No one has been killed by a black bear since at least 1900 along
the entire East coast.
–The World Health Organization issued a depressing report.
Two-thirds of the nations in the world are failing to supply safe
blood (like for transfusions). It”s too costly for them to check the
blood donors.
–The Wall Street Journal”s John Bussey (who also does bits for
CNBC) wrote a report Friday on the lax security at last week”s
OPEC conference in Vienna. Well, I was lax, myself, in not
giving you my angle on this story as well. I was in Vienna,
walking the streets, when I just glanced across the Danube canal
and saw OPEC”s headquarters. It was Monday, the first day of
the meeting, so I thought I”d check it out. I sought out a CNBC
truck and, just as Bussey describes it, it was parked about 40 feet
from the entrance. Mr. Bussey was there with two technicians
and little old me. I watched them put together a live piece for the
New York audience and then I chatted with Bussey for a spell.
There were a few guards with automatic weapons near the
entrance but no one stopped me from walking the grounds and, I
learned in Bussey”s report, that the guards never inquired about
the CNBC truck until the 4th day it was parked there. Now
understand why this is all so controversial. Back in 1975,
gunmen killed 3 at a conference at this very spot and tensions
were sky high for this year”s meeting. Yes, it was ripe for a major
terrorist attack.
–Lockheed is in trouble with the Justice Department for
supplying China with satellite performance assessments, illegal
under existing law. So Lockheed joins Loral and Hughes in the
China game. I have long argued that the latter two are guilty of
major transgressions but I”m not hopeful this weak Justice
Department will do anything, especially before the presidential
election.
–Two British soccer fans were stabbed to death in Turkey in a
clash between supporters from Leeds and a Turkish club. Wars
have started over less.
–I found very little that was even remotely humorous this week,
except the fact that I hurt my back getting out of my La-Z-Boy
chair. But what do you expect from a guy who eats a big bowl of
black bean soup the night before running a marathon?
Gold closed at $282
Nymex Crude Oil, $24.85 ($1 less than last December. The
hoopla over the cost a few weeks ago really is embarrassing when
you think about it. Some of OPEC”s hard-liners will find a way
to get us back for applying so much pressure on a non-issue.)
Returns for the week, 4/3-4/7
Dow Jones +1.7%
S&P 500 +1.2%
S&P Midcap -1.6%
Russell 2000 +0.7%
Nasdaq -2.8%
Returns for the period, 1/1/00-4/7/00
Dow Jones -3.4%
S&P 500 +3.2%
S&P Midcap +10.6%
Russel 2000 +7.6%
Nasdaq +9.3%
Bulls 54.9%
Bears 29.2% [Source: Investors Intelligence]
*Note to my loyal readers: This site is undergoing a rather
extensive makeover by 4/17. I have always been under the
impression that one of the problems some early web sites had was
they couldn”t stop tinkering with the design. Viewers would get
used to one format and then they”d have to deal with another.
I, on the other hand, operate under the principle that if it ain”t
broke, don”t fix it. But I felt that our site could be cleaner (and
faster) and that we could come up with a more efficient way to
add other news and finance links in the future.
Also, you will begin to see some different logos along the
borders. These represent new partnerships I have entered into
and I”ll explain some of them when the redesign takes effect.
Otherwise, nothing else has changed. As always I welcome your
comments and appreciate your support.
Brian Trumbore
