Soo-prize…Soo-prize!
–Gomer Pyle
So some of you might be thinking, how is Trumbini going to get
out of this one? Damned if I”m not going to at least try.
I wrote the following on April 15, the day after the dual 600-point
declines in the Dow and Nasdaq. The Dow then stood at 10305,
the Nasdaq 3320.
“And what do I think will really happen…in the markets?…I
prefer to look ahead about 1-2 months. We will see lots of
violent rally attempts but I”d be surprised to see the Nasdaq finish
over 4500 on any given day. Over the same period the Dow
could be in a wild range of 9000-11000. But once the economy
really begins to slow, it will be even tougher for either index to hit
new highs for quite a spell.”
Well, it”s now been 7 weeks and, despite the spectacular
performance of the Nasdaq and just about everything else this
week, I stand by what I wrote, particularly the last line. It”s all
quite simple.
The long anticipated economic slowdown has arrived. Whether it
was manufacturing, housing, retail sales, auto sales, or
employment, the numbers this week bore that out. And the wage
component in Friday”s employment report was tame, to say the
least.
For stocks it was nirvana. The Nasdaq had its best week ever, up
19% in just 4 days, and has now recovered to the 3813 level. The
Russell 2000 also registered its best weekly performance, up
12%. [The Dow rallied almost 5% to 10794] And as I write this
Friday evening, Louis Rukeyser is ripping us bears in his oh so
smug way. [But whenever I mention Uncle Lou, I always have to
add he has been mostly terrific for American investors all these
years.]
If you have been reading my reports for the last year or so, you
know my problem has always been valuations. With the vicious
bear market in the Nasdaq, some rationality was beginning to
return and, despite the rally of this week, there is no doubt that a
large part of the action in the Nasdaq between November and
March of this year was a Ponzi scheme. That bubble in Internet
and biotech stocks has burst and you will not see all-time highs in
the vast majority of those stocks for years. [If we do, I”m moving
to Guam and aiding in the battle against the brown tree snake.]
What we saw this week was a spectacular return to a Nifty 50
type environment, led by the traditional leaders; Cisco, Oracle and
Sun Micro. And folks, after this week we are heading right back
into trouble. At $64, Cisco is once again at a 100 multiple based
on 2001 earnings estimates…plus now you have an economy that
is slowing.
So yes, it”s also back to Value vs. Growth / Momentum investing,
with momentum players having carried the day last week.
However, we will not see the all-time high of 5048 in the Nasdaq
again this year.
The key is earnings and no one knows where this economy is
taking us, except that the direction appears to be down…not
good for already inflated forecasts.
But can Alan Greenspan engineer a soft landing? If he does he
truly deserves his own memorial among the greats on the
Washington Mall. [And I have the perfect idea. Since Greenspan
is alleged to do his best thinking in the bath tub, they could put a
gold-plated one in the middle of the tidal basin.] And heck, I
know enough that slow growth plus low inflation is always the
perfect tonic for the stock market…but not when your market
leader already trades at a 100 multiple!
Finally, how can you respect a market where baseball slugger
Jose Canseco appears on CNBC Friday morning, shows the world
how ignorant he is, and then bubblevision chimes in at the
opening, “China.com is up. You heard Jose Canseco talk about
it!” Oh, maybe Uncle Lou is right. Us bears should go back into
hibernation. I could use the sleep anyway. But one last shot
before I do so. The Dow and the Nasdaq are still down 6% for
the year and cash is up about 2.5%.
My Portfolio
I receive inquiries as to why I never mention specific stocks that I
may favor. Well, for a number of reasons. It”s not the goal of
this site to be a forum for touting issues (but I offer plenty of
other resources that you can avail yourself of) and I don”t want
to accept any of the potential liabilities. That said, any regular
reader knows I have had a large stake in the energy sector for
over 15 months. I am not a trader. I use what”s left of my brain
(the 2 or 3 cells that aren”t thinking about Sierra Leone) to pick a
sector and then I go for it and, frankly, my energy picks have held
me in good stead.
Currently, I am about 40% cash and almost 60% in oil service
issues with a few integrated oils as well.
Why energy? It”s the sector that should continue to generate
positive earnings surprise since analysts are still dubious that oil
can sustain a level around $25, let alone $30.
But, I have to admit, as my stocks hit more new highs earlier in
the week, what worries me in the short-term is this slowing
economy and, sure enough, Friday”s news that was music to tech
ears was like squeaky chalk against a blackboard for my holdings.
However, while I may experience some more short-term pain, all
indications are that 2nd quarter earnings will be well above
expectations. I am, though, focused on the world economic
scene, as well, because a global slump (certainly not likely
anytime soon) would probably spell the end for the energy
group”s run.
There you have it and, as always, kids don”t try this at home.
Bonds
Yes, I have given bonds short shrift these past few weeks and I”m
going to again. The market rallied in a big way as the yield on
longer maturities fell to their lowest levels in months because of
the growing belief that, with an economic slowdown virtually a
certainty, the Federal Reserve will not be forced to continue
raising rates. The brief inflation scare of the past few months may
be a thing of the past. This is where I could have been way off. I
can”t deny the positive evidence, however, and so yes, maybe the
Fed will sit back on June 27-28. But one bad PPI or CPI before
then could still upset the apple cart and certainly the July and
August data prior to the August 22 FOMC meeting may contain a
pipe-bomb or two. And one troublesome factor. It”s awfully
tough to square the awesome May consumer confidence figure
with all of the down data this past week. Is our economy just
taking a breather? We need more info.
U.S. Treasury Yields
1-yr. 6.21% 2-yr. 6.51% 10-yr. 6.15% 30-yr. 5.93%
*Obviously, if mortgage rates were to fall anew, that could fuel
new home sales once again. And we could find ourselves right
back into Fed Watch.
Russia
By the time many of you read this, President Clinton”s summit
with his Russian counterpart, Vladimir Putin, may be over.
Hopefully, you don”t hear of an arms control agreement.
[Though as Jesse Helms said, any such proposal is dead on arrival
in the Senate.] Fear not, I won”t attempt to detail the issue in this
space more than I already have. Instead, I commenced a series on
this topic in my “Hott Spotts” link this week.
Nonetheless, here are the latest developments that you should be
aware of. Clinton and Putin will be discussing U.S. attempts to
amend the 1972 ABM Treaty, allowing us to build a limited
national missile defense against an attack from a “rogue” nation
(specifically, Iran, Iraq, Libya, or North Korea). Some experts
label the whole idea a “sham” and “risky.” We would lock
ourselves out from ever deploying a more extensive system in the
future, an incredibly short-sighted move since we have little idea
what the threats will be 50 years from now, let alone 10 or 20.
In addition, Clinton, ever the reckless leader, made a statement at
his European Union meeting this week wherein he said the U.S.
would be glad to share our missile technology with our allies.
Now forget for a moment he has already been doing that with
China. When questioned on this new policy Clinton said sharing
such technology has “always been my position.” Sent scrambling,
White House aides said they could find no record of his making
such comments.
Meanwhile, for his part, Putin proposed that the U.S. and Russia
jointly develop a nuclear defense against the rogue states. What
does he think we are, chumps? [Don”t answer that.] It”s
laughable. After all, our great “partner” in the development of
the international space station has fallen years behind their
assignments.
Elsewhere in “This Week in Russia,” Putin re-appointed Boris
Yeltsin”s chief-of-staff, the corrupt Alexander Voloshin, which
means that there are officially 3 factions vying for his attention.
David Hoffman best lays it out thusly.
1) The security staff which has been responsible for the conduct
of the war in Chechnya, and which also favors a crackdown
on dissent in Russia.
2) The liberal economists who seek to reform the economy.
3) The Kremlin “family” who protected Yeltsin and handpicked
Putin to be his successor.
But, interestingly enough, one of the oligarchs, who still really
have the power, Boris Berezovsky, broke with Putin this week,
proclaiming that the President”s efforts to rein in Russia”s 89
governors will “demolish democratic institutions.” Nonetheless,
Putin”s reforms in this regard were approved by the Duma.
And one follow-up. Last week I mentioned that supporters of
Stalin-era secret police chief, Lavrenti Beria, had petitioned the
Russian Supreme Court to pardon Beria. The Court rejected the
plea.
Finally, an aside on the new debate involving the term “rogue”
states and the threats these nations are perceived to pose. Steve
Mufson, writing in the Post, said nations like North Korea and
Iraq wouldn”t possibly attack the U.S. when they know they”d in
turn be annihilated. Thus, he posits we don”t need any kind of
missile defense.
Wrong. It would be incredibly irresponsible for our leadership to
take the risk. Without a defense we set ourselves up for nuclear
blackmail. But Mufson”s point did make me think about the
following. We may be on the verge of a new era of “peace
movements” and the future participants don”t even know it yet.
I guarantee that the whole missile shield debate will grow to this
level, especially when talking points, like the costs involved, are
exaggerated by opponents of a shield.
China
Oh well, your editor tries like heck to piece everything together
each week but I missed one. Last week I reported on the
Pentagon”s summer war games which will involve a “large East
Asian nation,” obviously China, as the aggressor. But The
Weekly Standard had an interesting theory on this story, which
originated in the Washington Post, as well as a negative Wall
Street Journal piece detailing the American business community”s
plans for China now that it appears normalized trade relations will
be implemented (assuming Senate approval). The two were
published AFTER the trade vote.
“Forgive us for wondering if this is a coincidence. Both stories
were long and painstakingly researched: Clearly, both had been in
the works for weeks…We hear a lot about corporate influence on
the editorial decisions of news organizations.” And that seems to
be the case here. Except, unlike The Standard, I still agree with
the ”yes” vote.
Meanwhile, within the Chinese communist leadership, a purge of
sorts is taking place as party loyalty is being tested. Commented
one local editor, “It”s like in ancient times, when the emperor
would test his ministers by bringing out a donkey and calling it a
horse. If you maintained that it was a donkey you lost your head.
If you called it a horse, then you got a promotion.”
And two other notes. President Jiang Zemin called Clinton to
thank him for the trade vote…cheap shot alert…as well as to
confirm that what”s left of China”s 1996 campaign contributions
are still being put to good use. And, I kid you not, a priest
received a 6-year prison sentence for printing bibles.
North Korea: Whassup with them? Or, more specifically,
whassup with leader Kim Jong-il? There has been a flurry of
activity in the world”s most isolated nation and, ironically, it”s all
taking place weeks away from the 50th anniversary of the
beginning of the Korean War.
North and South Korea are holding an historic summit meeting
June 12-14 and this week the reclusive Kim took his first foreign
trip since taking over for his father in 1994, a 3-day secret jaunt
to China where he conferred with their leadership on who knows
what.
Now, to try and look on the bright side, the upcoming summit has
to be viewed as a positive and our administration assured us this
week that construction on North Korea”s tunnel project (where
nuclear weapons research was alleged to be taking place) has
been halted.
But there is even more going on behind the scenes that the
American people need to be made aware of…so I”ll step up to the
plate.
North Korea desperately needs money for development as well as
massive food aid. Given their past, however, one needs to have a
healthy skepticism. One can also wonder if the Clinton foreign
policy team has it.
To make a long story short, we are helping the North with some
nuclear power plant projects; plants which can obviously be used
to make weapons-grade material, not just light some streets and
homes. At the same time, the U.S. corporations that are involved
want the U.S. government to pick up the costs in the event of any
nuclear accidents. Congressmen Christopher Cox (R-CA)
commented:
“Giving foreign aid to the Stalinist government of North Korea is
a horrible idea. Using it to build nuclear power plants that
produce plutonium for weapons is even worse. But asking U.S.
taxpayers to guarantee against the multibillion dollar costs of a
North Korean nuclear accident takes the cake.” [Source: Defense
News]
Elsewhere in the World
Japan: Support for Prime Minister Mori has plummeted to 19%
(from 41% a month earlier). Parliamentary elections are still
slated for later this month. Ol” Mori is going to need a new line
of work, eh?
Indonesia: What a mess. But President Wahid continues to show
amazing guts, this time in placing former dictator Suharto under
house arrest as well as charging him with embezzling millions.
Then on Thursday, the rebel leader of Aceh province, where a
cease-fire was to go into effect after ethnic-strife has claimed
1,100 lives over the past few years, was assassinated while in
exile in Malaysia. And the nation”s currency continues to
plummet.
Colombia: Anti-drug efforts have been halted because our
Congress has not acted on further funding which only helps the
guerrilla groups strengthen their defenses (instead of constantly
keeping them on the run).
Peru: As expected, the U.S. declared last weekend”s vote invalid
and condemned it as a “serious threat” to democracy in Latin
America. President Fujimori, who admittedly has done some
good things (like squash a dangerous guerrilla movement)
nonetheless gained his constitutionally-suspect 3rd term at the
expense of a fair election.
Sierra Leone: The British announced they are leaving soon…uh
oh. That also means the media coverage largely ceases as well.
So back to the killing fields we go. And the fate of the monster
rebel leader, Foday Sankoh, is up in the air. His supporter,
Liberia”s wicked Charles Taylor, has warned that putting Sankoh
on trial for lopping off arms and legs would be “foolish.”
Zimbabwe: Ok, in the above paragraph I used “monster” and
“wicked.” How do I describe President Robert Mugabe?
Thesaurus says?…evil! This week Mugabe announced that at least
800 white-owned farms should immediately be taken over and
without compensation for the owners. Zimbabwe is still
scheduled to hold parliamentary elections in three weeks and the
U.S. has so much confidence it has decided to pull out its Peace
Corps volunteers.
Ethiopia / Eritrea War: Ethiopia keeps saying it”s over and that
their army accomplished its goals. Then in the next breath they
bomb another village. I saw one report where a soldier pointed to
a distant valley where war had been raging and said, “Thousands
are being eaten by eagles.” Kind of makes you want to avoid the
place, doesn”t it?
Canada: Awright! 4.9% GDP growth in the first quarter!
This Week in Politics
Gather round and hear the tale of former Goldman Sachs CEO
Jon Corzine. Recognizing that when you have a site such as this
it is truly international (I was blasted by a Brazilian resident four
weeks ago, for example…and correctly, I might add), I try to
steer clear of parochial issues. But the Democratic Senate
primary that takes place in my home state of New Jersey on June
6 has national ramifications for one obvious reason…money.
Corzine lives in the town where I grew up (and where this site
originates from) and New Jerseyans have been unable to avoid his
presence on television. As I mentioned last week, he is smashing
all national Senatorial campaign records by spending up to $34
million for the primary, most of it his own money. [The old
record was $8 million, set by New York Senator Charles Schumer
who, coincidentally, endorsed Corzine on Friday.] And it”s
beginning to upset some influential folks. For example, the Wall
Street Journal”s Al Hunt had the following take this week.
“Mr. Corzine has refused to release his tax returns because he
says it would violate a confidentiality agreement he had at
Goldman Sachs. Give us a break, Jon. Violate this indefensible
pact and take the consequences (a fine); the Senate is more
important than the privileged perquisites of your former mates in
the executive suites.”
Right on. And I wish Al had known of a free dinner that Corzine
held this past Wednesday in the city of Elizabeth. Now it”s an
accepted fact that barbecues and the like are part of any
campaign. But Corzine sent out thousands of invitations and 800
showed up for a lavish meal. The Star-Ledger”s Jeff Whelan
wrote a terrific piece on the event and the following comment
from an attendee sums up the Corzine money train.
“I had no idea who Jon Corzine was before yesterday but, free
dinner, all this for senior citizens. Count on me. I”m going to
vote for him.”
And then there is the fact that Corzine spent $200,000 to hire
private investigators to check on his primary opponent, former
governor Jim Florio.
What does Corzine stand for? “Universal access to education,
universal access to healthcare”…universal everything. The New
York Times, in endorsing Florio, said of Corzine, “(We) hope
that he will become a more articulate student of public policy.”
No, I don”t expect an invite to any Corzine dinner parties. But
you ought to see how folks in this normally 70% Republican town
are scrambling for theirs.
Campaign Spending Part II: Columnist Richard Reeves wrote the
following concerning the Democrats recent $26.5 million D.C.
fund-raiser.
“In his second term, the President has done at least 350
announced Democratic fund-raisers – those are the ones we know
about – which works out to one every three days. And that figure
does not include his fund-raising for the William Jefferson Clinton
Presidential Library – or the fund-raising to pay his legal fees. He
may, before he is finished, have raised more than $1 billion.” It
has been an endless shakedown.
Increasingly, a new name has emerged in the George Bush veep
sweepstakes, former Missouri Senator John Danforth, a great
man who will always have his place in the StocksandNews Hall of
Fame for his staunch defense of Clarence Thomas. Danforth
would definitely bring the “gravitas” to the ticket that Bush sorely
needs.
The Death Penalty: Well, I told you last week that this would
become a big campaign issue and it really exploded on the scene
this week with George Bush”s announcement that the Texas
rapist-killer McGinn should receive a 30-day reprieve to see if
DNA testing can exonerate him on the capital charge. I certainly
can”t argue with this approach on any case where there is the least
bit of doubt.
But I also continue to believe that when you have a case like the
Wendy”s massacre in New York, where the evidence is irrefutable
(complete with videotaped confessions) the killers should get the
chair. And I was struck by what I heard from a black DJ on my
favorite R&B station this week concerning the Wendy”s case.
This man also happens to be a cousin of Al Sharpton who came
out in favor of life sentences for the suspects.
“I have to disagree with my cousin. These guys should fry like
french fries. No 3 hots and a cot.” And the debate will only
grow.
Random Musings
–More than 60% of SUV fatalities occur in rollovers, compared
to 22% of deaths in cars. [The other 78% of deaths in cars occur
when the SUVs ride up over them.]
–You know what I”m really upset about these days? The fact
that I should have saved my 5th-grade flared pants (circa 1969)
which I then could have sold as Capri slacks today.
–So we are in an unprecedented era of prosperity and the amount
of U.S. development aid is 0.12% of GDP, down from an average
0.2% in the 1980s. And current plans for 2000 and 2001 would
reduce this further to a 50-year low. We contribute about $29
per year per American compared with an average industrialized
nation”s contribution of $70. Some say the money just goes
down a rathole. I say, with sensible management, that doesn”t
have to be so. I also say, too many Americans don”t have a moral
conscience.
–Sir Richard Branson, a cool dude, uses an old-fashioned address
book. My hero.
–Harvard”s retiring president, Neil Rudenstine, never had a PC
and has never sent an e-mail.
–La-Z-Boy beat consensus earnings by a penny in its recent
quarter. Without a doubt, the makers of the best product in
America.
–Online retailing rose slightly in the first quarter over Q4 1999.
Here”s the bottom line; enough of us still like to go to malls and
interact with real people. Online spending is just 0.7% of total
retail sales.
–Climatologists are comparing the current drought situation in
parts of the U.S. to 1988 when farmers suffered through a
devastating one. Once again, the corn crop, crucial in so many
ways, could be decimated. Commerce Secretary William Daley
said, “Our data indicate drought conditions are probably going to
get worse before they get better.” Market strategist Harry Koza
writes, “(The drought) could have far reaching implications for
capital markets, inflationary pressures and slow growth. Could
that turn Greenspan”s ”soft landing” into dreaded stagflation?
What happens to the stock market when the stalk market
collapses?”
–Gary Player shot his age, 64, in the first round of this week”s
Senior PGA event!
–Former Columbia professor Jacques Barzum, now 92, has
written a book, “From Dawn to Decadence: 500 years of Western
Cultural Life.” It”s premise is that our current culture has become
“particularly restless, for it sees no clear lines of advance.”
Gold closed at $281
Nymex Crude Oil, $30.35
Returns for the week 5/29-6/2
Dow Jones +4.8%
S&P 500 +7.2%
S&P MidCap +9.7%
Russell 2000 +12.2%
Nasdaq +19.0%
Returns for the period, 1/100-6/2/00
Dow Jones -6.1%
S&P 500 +0.6%
S&P MidCap +12.9% [New high!]
Russell 2000 +1.6%
Nasdaq -6.3%
Bulls 46.3%
Bears 34.3% [Source: Investors Intelligence]
Note: Reminder, the archives for each link can be accessed at the
bottom of the page for the current story. We had a lot of
requests for the 5/31 issue of Bar Chat and my article on hockey
great Maurice Richard. Conversely, I probably won”t get as
many requests on my 6/2 story detailing the mauling of a
hiker in the Smoky Mountains by black bears.
Spread the word! I appreciate your support.
Brian Trumbore
