ZZZZZZ…ZZZZZZ…
–Former day-trader, Rip Van Winkle
My, it”s mighty quiet on Wall Street these days. Volume is drying
up. No conviction. And the market keeps taking one step
forward and two backwards. It”s a deadly grind.
Of course it doesn”t help when the Federal Reserve raises interest
rates 50 basis points on Tuesday and proclaims: “Increases in
demand have remained in excess of…potential supply, exerting
continued pressure on resources…The disparity in the growth of
demand and potential supply (may) continue which could foster
inflationary imbalances.” In other words, the Fed was singing…
“Ain”t No Stoppin” Us Now!”
–McFadden & Whitehead
Greenspan and Co. meet next on June 27-28. They will raise
rates another 50 bps at that time.
Wall Street really is amazing. Tuesday”s rate increase was the 6th
since June 30th of last year and the Nasdaq has risen each day that
the Fed made the announcement. This time reality set in soon
after, however, and the Nasdaq ended up losing 4% on the week
to close at 3390, or just 70 points shy of the April 14 closing low.
[The Dow bucked the trend in finishing up a paltry 17 points,
10626.]
So what has happened in the last 5 weeks since that scary Friday
the 14th? For the high-flyers, nothing. Buying this last dip got
you nowhere. Take a look at some representative hot growth
stocks, large and small, which garnered a ton of attention during
the November-March Nasdaq bubble. I list the all-time high, the
April 14 close, and a representative low set this Friday, 5/19.
Ariba ($183-60-60)
Ask Jeeves ($190-25-21)
Cisco ($82-58-53)
CMGI ($163-52-56)
eBay ($255-110-118)
eToys ($86-6-6)
JDS Uniphase ($153-79-83)
Oracle ($90-67-69)
Palm ($165-25-25)
Qualcomm ($200-97-90)
Rambus ($471-164-174)
Red Hat ($151-20-19)
Sun Microsystems ($106-76-76)
Yahoo ($250-112-120)
Particular attention should be paid to Cisco, Oracle and Sun,
issues I have long warned about. They are cracking. If they
prove to be Humpty-Dumpties, well, since we don”t have a
monarchy in this country, it will be tough to put the Nasdaq back
together again.
So what will change sentiment? Author / Economist Robert
Schiller has gained a lot of attention (well deserved) for his book
“Irrational Exuberance.” He had an op-ed piece last week
wherein he said in part.
“Overconfident individuals, companies and foundations are
heavily invested in this market. Some retirees (who) have sunk all
of their savings into stocks…risk losing not only their investments
but their homes.” And you think I”m gloomy?
Well, so where do we go from here? Yes Virginia, the economy
is going to start to slow. You can”t convince me that the average
investor doesn”t mind the pain he/she is beginning to feel in their
portfolio. Heck, I didn”t even mention Microsoft. Everyone
owns MSFT and it”s gone from $120 to $65. I imagine the
wealth effect is already biting in some households.
But the economy is so hot it will take quite a slide in
confidence…and spending…to satisfy the Fed. And all my
anecdotal evidence tells me that wage pressures will continue to
build before it all ends. Where this leaves corporate profits and
their already sky high forecasts for 2001 is an easy question. The
market is beginning to act on this scenario.
Two other important issues. From time to time I have warned
that the accounting games being played by some corporations are
very dangerous. You want to see a real collapse in confidence?
Wait until we have an accounting scandal on Wall Street. No, not
the relatively small (unless you were a shareholder) mishap that
took Microstrategies stock down from $333 to $20 this spring
when they admitted they were booking revenues where they
shouldn”t. Rather a scandal involving a big, well-known name.
Clearly, the SEC is concerned enough to issue more than one
warning recently to corporate bookkeepers. And then a
Washington Post editorial had the following comment:
“The uncomfortable truth of Wall Street is that the information on
which it runs is suspect.”
You imagine the Wall Street Journal running that? Whether its
accounting standards or conflicts of interest long documented by
yours truly, the Street had better take heed.
Which leads me to a fascinating little exchange between Raymond
James strategist Ralph Bloch and CNBC”s Ron Insana this past
Thursday. Bloch, whose analysis has been top-grade, said he
thought the market was just going to sit in a narrow trading range
for 3 to 6 months. Insana exclaimed, “But you have to do
something with your money!” No, said Ralph, sometimes sitting
on the sidelines is the best idea.
There you have it, the whole psychosis of the last leg of this great
bull market. Even the savvy Insana got sucked into the vortex.
Why do I have to do anything? What”s wrong with cash
sometimes?! The Dow Jones was 10970 on 6/30/99, the day the
Fed raised interest rates for the first time in this cycle. Today it
stands at 10626, off 3% while your cash would have returned 5%
over the same period of time. [And cash, as measured by money
market funds, is on its way to 6%.]
My good buddy Ed J. keeps asking me, “When are you going to
turn bullish?” Fear not, my friend, I will at the appropriate time,
just not now.
Street Bytes
–Boo.com, a London-based e-tailer, collapsed this week when
executives looked into their wallets and said, “Hey, I don”t have
any cash left, do you?” “Ah, no. Where did it go…where did it
go?” [The preceding was a dramatization and may not be
representative of the actual scene at Boo.com headquarters.]
Boo”s CEO did have the following for the Wall Street Journal.
“(Our) business model has always been very ambitious and very
visionary…(but it required spending) quite a lot of cash to run the
business.” Boo!
–The Justice Department is taking a hard look at the WorldCom /
Sprint merger. Another waste of time. Don”t you guys have any
hobbies?
–Tokyo”s Nikkei index closed at 16858 on Friday, about the
same level as June of 1992. That is not a misprint.
–Western European countries continue to report largely positive
economic news. France added more jobs in the first quarter than
in any previous one. And consumer confidence in Germany hit its
highest level since reunification. Overall, Euro-11 unemployment
is down to 9.4%. [Obviously, still high compared to our 3.9%]
But in non-euro Britain, they are suffering because of their strong
currency relative to the euro, thus making British exports more
expensive.
–Cisco has lost $200 billion in market capitalization ($570 billion
to $370) in a matter of months.
China
It is not an overstatement to say that the trade vote taking place
this week is of extreme importance. Global strategist David
Smith commented.
“China is like a two-headed dragon, galloping at once toward the
low road of internal crackdown and external confrontation, and
the high road of economic development, world trade and
consequent social transformations.”
It”s time for the U.S. to take the high road as well.
Passage now looks likely, though it”s still too close for comfort.
On Friday, China did reach an agreement with the European
Union on WTO admittance which may influence a few fence-
sitters in the U.S. Congress. And Clinton is finally going before
the people on Sunday to press the case.
As much as I want the trade deal to pass, however, it is important
to understand that the next time we have a recession, organized
labor will throw a fit. And, as the New York Times Thomas
Friedman pointed out, future administrations need to be ready to
help those that are disaffected.
Russia
President Vladimir Putin was an active little devil (err, leader) this
week. His main initiative was to place Russia”s 89 provincial
governors, and their fiefdoms, under the control of 7 Kremlin
envoys. The 7 will likely be old KGB cronies of Putin. And
Putin also said that he would have the power to remove even
freely-elected governors at his whim.
On one hand, you can”t blame Vladimir for this move since the
governors pose a threat to Russian unity. On the other, it”s a
little disconcerting. What”s also disconcerting is the story floating
around that Putin may not have authorized the recent raid on
Media-Most, the media conglomerate. If so, who did?
Separately, Washington officials are now tamping down
expectations for the summit between Putin and Clinton, to be held
June 4-5 in Moscow.
Writing in the Washington Post this week, Henry Kissinger (who
clearly despises the amateur hour that passes for U.S. foreign
policy these days) addressed the current state of our hypocritical
Russian policy.
“(Less than a year ago) the U.S. justified their Kosovo policy as a
new moral dispensation that would no longer ignore domestic
repression as an internal matter. But when, six months later,
Chechnya produced an almost precise replica of Kosovo with
even higher civilian casualties, they changed their tune…The
rapid oscillation in the West”s foreign policy between extremes of
moralism and expediency leaves a vacuum with respect to exactly
what the new Russian leader is to be engaged about…History,
culture and geography have left a legacy that cannot be removed
by ”dialogue” for its own sake.”
Africa
Sierra Leone: I hope you get to read my “Hott Spotts” piece on
Sierra Leone. Events are changing hourly, it seems, in this hell-
hole. The wicked rebel leader, Foday Sankoh, was captured by
the army and paraded, naked, around town before the British
whisked him away to a secure location. The cry went up, “Try
him on war crimes.” No trial necessary, just execute the bastard.
I imagine not too many Americans have seen the pictures of the
brutality Sankoh was responsible for. Just picture all of your
neighbors walking around their yards without hands and arms. In
many part of Sierra Leone, that is what Foday wrought during his
reign of terror.
And what of Jesse Jackson? First, President Clinton was to send
him on a peace mission to the region. But, before he boarded the
plane, Jackson postponed the visit. Then on Wednesday it was
decided Jesse would go after all. So he arrived in Nigeria on
Thursday and the Nigerian government was none too pleased.
Why? Well, ol” Jesse, ever the peacemaker, told reporters before
his trip that Sankoh”s presence could add to the peace process.
Since Nigeria is being called on to enforce any peace in Sierra
Leone, and lost soldiers to Sankoh”s rebels in the past, you can
understand their displeasure at being told the butcher should be a
player at the bargaining tables. And it was Jesse who helped
broker the July 1999 agreement that allowed Sankoh to escape a
death sentence that had been handed down in ”97. At last word,
the equally miffed government of Sierra Leone was slated to
allow Jackson to visit and have a cup of java.
Meanwhile, the British were spoiling for a fight and they blew
away 4 rebels the other day. The Brits are helping to do our
work. God”s speed.
Ethiopia / Eritrea: This is currently the largest full-scale war in the
world and no one knows anything about it, mostly because
reporters aren”t being allowed near the battlefield. Eritrea is
getting their butt kicked; 600,000 soldiers are involved on both
sides and some 500,000 civilians have already been displaced on
the Eritrean side.
South Africa: Authorities are having trouble getting control of a
massive crime wave. Of course it doesn”t help that in the rural
areas 30% of the police are illiterate.
Zimbabwe: Parliamentary elections originally slated for May have
been postponed until June 24-25. Another predictable move by
Mugabe.
Elsewhere on Planet Earth
North / South Korea: It appears the summit between the two is all
set for June 12-14. This does have the potential to be a
significant, positive event. However, what the South fears most
is a massive flood of refugees from the North. This is not a
region where you want change to take place overnight, like when
the Berlin Wall came down.
Taiwan: Thanks to market strategist Harry K in Toronto for
alerting me to the following. There has been a serious run on the
massive Taiwan Development and Trust Corp. recently.
Basically, it boils down to having too much non-performing real
estate on the books, the same problem that continues to plague
the rest of Asia. What this not so little episode tells me is that the
recovery across the region is ever so fragile and it can”t be far
from Alan Greenspan”s mind that keeping the U.S. economy out
of recession is also paramount to ensuring a long-lasting
expansion in Asia. We may not understand it today, but this may
be the most important part of his legacy. Asia would not be able
to weather another crisis similar to 1997-98.
Indonesia: And here is an example of just how shaky things are in
the region. The government reported that the economy grew just
3% in the first quarter, well off original estimates. President
Wahid is trying to instill confidence but the unrest throughout the
archipelago (another 17 were killed in fighting between Christians
and Muslims this week) is not giving potential investors a warm,
fuzzy feeling.
Balkans: A General Accounting Office report said little progress
had been made toward creating peaceful, democratic governments
(in both Kosovo and Bosnia), committed to political and ethnic
reconciliation. It also warned that the region could see an
escalation of violence over the next 5 years.
Separately, the House attempted to set a deadline for
withdrawing troops in Kosovo but the Senate backed the
president in defeating a similar measure. And in Serbia, president
Milosevic”s crackdown on the opposition media has led to large-
scale demonstrations in Belgrade.
Iran: Hard-liners have acquiesced and will not block the
installation of a new parliament controlled by reformers.
Fiji: Yes, Fiji makes the Week in Review! A grand total of 7
Fijians pulled off a coup on Thursday, proclaiming that it was
time to have an all-native government. Fiji had been under the
control of an ethnic-Indian administration. I only bring this up
because whether it is Indonesia, Malaysia, the Philippines or Fiji,
ethnic strife is all too prevalent…and this discourages much
needed investment.
Peru: This nation should be in the news a fair amount the next
few weeks. A second round of voting for president was slated for
May 28 but opposition candidate, Alejandro Toledo, suddenly
pulled out, calling for a 3 week delay in the vote. Toledo said
there wasn”t enough time to guarantee a fair election. Outside
election observers agree. Current President Fujimori is seeking a
3rd term which many claim is illegal under the constitution.
Israel: Violence flared anew as Palestinians and, for a time,
Palestinian police, battled Israeli soldiers. The Palestinian
frustration is not just directed at the pace of the peace process but
also at Yassir Arafat who seems to have no control over his
corrupt Palestinian regime. Bottom line, the PLO receives
massive funds for development from the West and the Arab
world. Where the hell does it go?
Pakistan: More ethnic strife…this time battles between Sunnis
(the majority) and Shiites shut down businesses across the
country. This could delay fall soccer ball shipments.
This Week in Politics
Regardless of the poll, it seems that George Bush has an 8-point
lead over Al Gore, the latest being a New York Times / CBS
News entry. Among all men Bush led 50-36, while he had a 44-
42 advantage among women. Mark Steyn, a Canadian columnist,
had the following, “Those commentators who attributed Al
Gore”s low poll numbers to ”Clinton fatigue” overlooked the
obvious: it”s Gore fatigue.”
Steyn also commented on the Hillary-Rudy race (before he knew
that Rudy would officially drop out). “(He”s) just another scalp
on the bedpost.”
So Rudy is out of the race. Just an incredible waste of talent.
And even after all of the revelations, a poll earlier in the week
had Hillary with just a 44-43 lead.
I watched Rudy”s press conference announcing his withdrawal. It
was an impressive performance and I just know that every op-ed
piece this coming week will address the “human” side he
displayed. Hopefully he fulfills his new wish to finish off his last
18 months as mayor with style and gusto.
But now it would appear that New York Republicans have to
turn to Congressman Rick Lazio, an energetic sort without the
baggage (as far as we know). Rudy can”t turn his campaign war
chest over to Rick but it could be used for issue ads. Personally, I
would just run spots of the Prez wagging his finger at us. And
maybe this whole process will prove to everyone that 5-6 months
is all you need to run a successful campaign in this country.
Random Musings
–Million Mom March organizer, Donna Dees-Thomases (sister-
in-law of Susan Thomases, Hillary”s close confidant) told NBC”s
Tim Russert that she had had zero contact with the White House
or the Gore campaign. Sorry, sports fans, I can”t believe that. It
also didn”t help that she said those words from the White House
lawn. Russert was at fault for not at least bringing up the
Thomases connection. And when given the final word, Donna
said that the moms should go home and continue the debate,
“starting in Newark, NJ where I live.” Ah, not quite Donna. For
those of you not familiar with New Jersey, Donna lives in Short
Hills, one of the wealthier communities in America. But if she
wants to go to Newark, I have some great friends I can introduce
her to there.
On the issue of gun control there were a couple of interesting
surveys. Among mothers, a New York Times / CBS poll said
that 33% agreed with George Bush”s position, while only 24%
sided with Gore. I guess the other 43% said, “Do I have to pick
between these two?”
A Washington Post / ABC News poll found that 45% of U.S.
households have a firearm in their home while 1 in 4 have been
personally threatened by gun violence. [I have trouble believing
this but another survey still said 1 in 5.]
The gun debate is full of incredible exaggerations and distortions
of positions. Personally, technology will take care of some of the
issues in short order, like a national computer system for instant
background checks. But true compromise will only be reached
next year, after the election.
–The Department of Agriculture released a study that shows the
current average cost of raising a middle-class child through age
17 is $160,000. 33% is housing, 18% food, 10% child care, 7%
healthcare, 7% clothing, the balance – Pokemon and Game Boy.
–I am hearing increasing stories of the moral turpitude (always
wanted to use this word) in our middle schools (grades 6-8), at
least in the suburbs where I live. Sex, drug and alcohol use are
rampant. It doesn”t take a rocket scientist to understand that the
culture we surround our kids with is abhorrent and the next time
someone tells you that the quality of TV and some of our films
have nothing to do with the behavior, tell ”em it to stick it. And
then there”s the guy in the White House…
–A Keyport Life survey found that 26% of current workers said
$100,000 was all they needed to lead a comfortable retirement. I
pray that as a reader you don”t feel this way.
–AIDS will wipe out 25% of the population of sub-Saharan
Africa in 20 years.
–The 6 cast members of “Friends” will each earn $750,000 per
episode next season. [24 episodes — $18 million]
–Don”t the above two statements define the classic conflict of our
time? The haves and the have nots.
–Fox TV will introduce a new program next fall, “The $treet,” a
tale of “randy” Wall Street types. First off, I”ll watch it because
my life is missing some good mindless television right now (and
I”m beyond middle school age). Second, I bet the very day that
Fox executives approved this show was close to the peak in the
Nasdaq. If anyone can track this down I”d love to know.
–My friend HK and I have had a running dialogue on the state of
the Canadian military. It all started when I saw an article about
the government”s proposal to slash appropriations for defense.
What caught my attention more recently is the fact that Canada
has an authorized “reserve” force of 18,000 and it currently has
only 12,000 reservists. Now you may say what does Canada need
even a 1,000 for? Trust me…and HK. Canada is ill-prepared to
handle any kind of national emergency. And, thinking out loud,
let”s say a computer hacker gets into Canada”s power grid (which
the U.S. relies on heavily, as well) and shuts the power down for
a few days. Without a national guard, how would you handle the
ensuing chaos?
–Prince has promised us he will never change his name again.
You can now resume your regularly scheduled chores.
Gold closed at $274
Nymex Crude Oil, $29.89. [Next OPEC meeting is late June.
Existing supplies are not large enough to properly meet
demand this summer. But OPEC doesn”t seem to want to
up production any further.]
U.S. Treasury Yields:
1-yr. 6.19% 2-yr. 6.83% 10-yr. 6.49% 30-yr. 6.21%
Returns for the week, 5/15-5/19
Dow Jones +0.2%
S&P 500 -1.0%
S&P Midcap -1.7%
Russell 2000 -2.3%
Nasdaq -3.9%
Returns for the period, 1/1/00-5/19/00
Dow Jones -7.6%
S&P 500 -4.2%
S&P Midcap +5.6%
Russell 2000 -5.0%
Nasdaq -16.7%
Bulls 49.1%
Bears 33.6% [Source: Investors Intelligence…or lack thereof]
Spread the word!! And thanks for your support.
Brian Trumbore
