Wall Street
Confused? I”m not surprised. The advice you get on Wall Street
is pretty lousy.
Any market strategist with half a brain knew that as the year 2000
progressed, the market was increasingly priced for perfection.
But many analysts just kept raising their targets, either on the
market averages or individual issues.
The spring debacle, particularly in the Nasdaq, showed investors
that valuation, and feasible business plans, did matter. I felt that
the pricking of the bubble would cause great pain. It did…but
soon after the April 14 drubbing, many had you believe that it was
off to the races again.
And like punch-drunk boxers, investors took this advice, raised
their heads and bought some shares in the very same issues that
caused pain before, only to get smashed right in the face once
more.
But will those who believe valuation doesn”t matter keep
getting back up? Or will the referee hover over their bodies,
urging them to quit?
Yesterday, the GDP for the 2nd quarter was released and the raw
number, up 5.2%, was greater-than-expected. But the pace of
consumer spending in the 2nd quarter slowed considerably, up
only 3% vs. 7.6% in the first quarter.
Oh, you mean consumers may have actually felt the pain a bit
from the slide in the Nasdaq? [Not one analyst mentioned this
after the report was released…but it makes sense to me.] But we
do want the economy to slow, right? So why did the Nasdaq
slide over 4% on Friday, on its way to its 3rd worst week ever,
down 10.5%?
Earnings? Warnings on future earnings? But I was told by the
experts two weeks ago that earnings warnings season was over
and the only thing we had to fear…was fear itself!
Well folks, if you doubted that we need a missile defense before,
think again, because the bombs were flying on Wall Street.
Bamm! Amazon.bomb, now down to $30…and just two weeks
after I mentioned in this space that an analyst had raised his target
to $130. It seems that Amazon”s growth rate for its core
businesses is downright abysmal.
Bamm! Nokia and WorldCom warned that the second half may
not be as rosy as originally thought. Nokia lost 25% of its value
on Thursday alone.
Bamm! Priceline.com issued what it thought was a respectable
report. It”s now at $25 anyway. Not too long ago an analyst set
a target of $190. [Apologies to Emeril.]
Oh, there were countless other horror stories. Suddenly you look
up and the Nasdaq, at 3663, is now back to 27% below its all-
time high. And while the Dow Jones, as I expected, has fared
much better, it is once again 10% from its record level at 10511.
So what”s it going to be from here? Well, ironically, most traders
felt that expectations for earnings had changed going forward as
the slowdown works its way through the balance of the year.
True, earnings will grow at about a 20% clip when all is said and
done for the 2nd quarter, but the early estimate is for 18% growth
in the 3rd and 16% in the 4th. You get the picture. There”s a
trend.
But as I”ve written the past few weeks, I”m not so sure this
slowdown will last and I saw plenty of evidence to back that view up
in strong home sales, huge orders for durable goods and upticks in
consumer confidence. Yes, I think the Federal Reserve is going
to have to raise rates again…but probably not in August because
the recent inflation numbers have been exceedingly tame. I”m just
increasingly convinced that we could be in for a big shock after
the election, which the markets will begin to anticipate well in
advance.
And I have to add a personal anecdote here. I made my 5th
purchase of a computer in the last 3 years this week and the price
was above PC #4 (comparable machines). I saw a gentleman I
respect tremendously say on “Wall Street Week” that PC prices
were continuing to fall. I don”t see it.
In this same vein, it was announced this week that U.S. PC sales
slowed considerably in the second quarter. I think two things are
at work here.
I mentioned way back that there would come a point in time when
corporations wouldn”t automatically upgrade their employees
machines with every new Windows update. And maybe we are
beginning to see that. [I”m really talking from this point forward.]
But on the personal PC front, you can”t convince me that it isn”t
still the best delivery system for today”s technology. As the
telecom industry is learning (and as Deutsche Telekom will learn
shortly), we are nowhere near a world where everyone strains their
eyes to click through the web on a little hand-held device, let alone
at the outrageous prices you have to pay today for an inferior
product and service.
And lastly, back to analysts. Their day is largely over. [Oh, don”t
worry if your son or daughter is one. Their day will return…but
not for awhile.] Probably the biggest change we”ve seen in the
past month or so is that when an influential one issues a bullish
statement, investors are increasingly sneering, “Yeah, heard that
before.”
You know what? The market is just plain tired. It was priced for
perfection and perfection is nowhere to be found right now.
Maybe there will be something positive in Friday”s employment
report to get the juices flowing anew. I”m going to be looking at
it for confirmation of my own theses that the economy isn”t ready
to roll over. If I”m right, then, believe it or not, we may have to
rethink the whole earnings side of the equation all over again.
Street Bytes
–Bonds barely budged this week. The bond market liked the
inflation data, but was a little worried over the strong figures on
economic activity. In the end, a draw.
U.S. Treasury Yields:
1-yr. 6.02% 2-yr. 6.28% 10-yr. 6.03% 30-yr. 5.78%
–Michael Lewis wrote the following comment on Deutsche
Telekom”s acquisition of VoiceStream Wireless:
“Was I the only person in the world who had never heard of
VoiceStream? This little pissant cell phone company – apparently
the eighth-largest in the U.S. – has a mere 2.3 million customers.
Attempting to explain himself, Ron Sommer, the CEO of
Deutsche Telekom, sounded very nearly like a man who knew
that he had just made a truly grotesque miscalculation. Yes, he
said, he was paying many multiples of what any cell phone
company has ever paid for 2 million customers…
“…Never mind that with $53 billion (it”s actually a little lower),
Deutsche could have bought a toehold in the U.S. far more secure
than VoiceStream Wireless. Say, for example, the state of Rhode
Island.” [Source: Bloomberg]
–Tokyo”s Nikkei index fell back below 16000 to close the week
at 15838, its lowest level in 2 months. That”s makes it about 15
times in the past year that another strategist has to eat his words.
“Japan is the next great opportunity….”
–Energy: Crude oil has been tumbling, to the extent where a
basket of various grades is now trading around $25.25. This is
important because that is smack dab in the middle of OPEC”s
$22-$28 preferred band. [The price that I list is for West Texas
crude, the most expensive and the one most commonly quoted.]
In other words, Saudi Arabia”s own jawboning may have done the
trick and you shouldn”t look for further talk of production cuts,
unless the ones discussed a few weeks back were not in actuality
initiated.
But the cost of gasoline is now a political issue, even though the
price is coming down. Know the following. Domestic oil
production in this country has fallen from 7.2 million barrels per
day in 1992 to 5.8 million in the first half of this year. Of course,
at the same time we are consuming more. The Clinton
administration has put up all manner of roadblocks to prevent Big
Oil from accessing federal lands.
In a nutshell, the choice at the pump…err, the voting booth, is
clear.
–The Dow Jones remains mired in a trading range of 10300-
10850, one it has held since April 14. And due to the diversity of
businesses the 30 components represent, it may remain in this range
for awhile.
–Since I mentioned him last week, PaineWebber”s Ed Kerschner
issued a new forecast on Monday, calling for 12-15% gains in the
market averages by 12/31/01. This was before this week”s slide.
Regardless, not a spectacular forecast and, as he aptly put it, any
gains will come in just a few individual sessions, meaning that
“the rest of the time you”ll feel stupid.” And yes, among
Kerschner”s stock selections were Cisco, JDS Uniphase, and
Oracle…issues I highlighted last week as well.
–Real estate in Westchester County, NY, an affluent area
populated with Wall Street sorts, soared 16% last year.
–Summer rally? What rally? I wrote the definitive piece on this
topic about 4 weeks ago. Check my Wall Street History archives.
Camp David
You can”t fault President Clinton for the collapse in the peace
talks. And one positive result from the discussions is the fact that
for the first time both sides full positions are on the table and the
issues can be now be tackled head on.
Clearly, Prime Minister Barak made all of the compromises but
his position at home is shaky, at best. Yassir Arafat, on the other
hand, continues to demand full control of E. Jerusalem and could
still give in to pressure from the radical elements in unilaterally
declaring Palestinian statehood on September 13.
But, at least the two sides have agreed to resume talks this
weekend and Barak is meeting with Egyptian President Mubarak,
though Mubarak has been a disappointing figure in the whole
process.
The danger of renewed violence exists and what happens on 9/13
is crucial. One country that bears watching is Jordan, which has a
large Palestinian population and has been caught in the crossfire
before.
Finally, it seems that the Vatican has put forward the best
proposal for the contentious issue of who controls Jerusalem and
the religious sites. They should be under international control.
But I will explore this more fully in my 8/3 edition of “Hott
Spotts.”
Russia
It was a great week for President Vladimir Putin. Not only did he
steal the show at the G-8, but he also won a large victory in the
parliament as the Upper House approved his sweeping tax reform
and, by a 119-18 margin, the very members of this body elected
to give up their seats.
The Upper House of the Duma is filled largely with the regional
governors who Putin has been trying to reign in as he
consolidates power. So it came as a big surprise that the
governors saw the light, realizing cooperation, not confrontation,
is the way to go for now.
In addition, the government dropped its case against media mogul
and opposition figure Vladimir Gusinsky; a move which won
applause in the West (though the Kremlin also said charges could
be brought up again later).
And regarding the other oligarchs, there are signs that Putin may
be trying to reach an accommodation with them, whereby they
would agree to pay up on their taxes and invest in capital projects
to promote a better image.
North Korea
But then Putin tells the North Koreans that the U.S. should
financially support the North”s space exploration program. Oh
well, this week also marked the continuing “coming out” party for
the renegades.
At a meeting of ASEAN (Association of SE Asian nations),
foreign ministers welcomed North Korea with open arms. So far,
Kim Jong-Il”s strategy is working brilliantly. He has virtually
everyone bamboozled. True, we have to give them some benefit
of the doubt to see if their overtures are in the least bit sincere,
but I liked what the foreign minister from Australia said regarding
the #1 issue these days, the U.S. plans for a missile defense
system.
“It isn”t an offensive system and it simply reflects concerns about
the development of a ballistic capability in certain countries – and
not China and not Russia.”
Ah, the Aussies. Great friends and we never thank them enough.
So while everyone rushes to shake North Korea”s hand,
remember this. The government has no cash, other than that
which comes from their heroin operation. They are hardly about
to forego their missile program yet many in the West will fall for
the charm offensive as they blackmail everyone for food aid, all
the while dividing the U.S. and its allies.
And one other issue that bears watching is the future status of our
37,000 troops in South Korea, where there were massive
demonstrations against their presence this past week. That is the
North”s first real goal, create a climate where suddenly the U.S. is
the bad guy. So far, it”s working.
G-8
Why the heck they hold these meetings anymore is beyond me.
Sure it”s great that the leaders get together and snap a few photos
for their grandchildren. But this past gathering on Okinawa was a
total waste. Zero news came out of it.
Well, actually, they did agree that the “digital divide” between
rich and poor must be bridged. So, instead of providing debt
relief, which they had promised last year but didn”t follow up on,
the world”s poor are going to get Internet service! Forget for a
moment that most of these folks don”t yet have electricity, we”re
going to make sure they have access to porn, 24-hours a day! Ya
gotta love it.
Actually, G-8 was good for one thing. It gave the original G-7
leaders a chance to fawn all over Putin who, legitimately, received
the highest marks of all the participants. German Chancellor
Schroeder, totally taken in by the former KGB spy, called some
of Vladimir”s presentations “brilliant.”
More International
–Fiji: 2 weeks ago, I hoped that someone would get rebel leader
George Speight. Well, this week the military decided it had had
enough as they reasserted control and arrested Speight and many
of his followers. He should now be tried for treason.
–Indonesia: This poor place deserves some credit from time to
time. The government continues to show flashes of true grit as it
charged former President Suharto with stealing over $150 million
from the nation”s coffers. President Wahid is trying to send a
message that the old corrupt ways are a thing of the past, but his
own corrupt underlings may yet take him down too.
–Venezuela: President Chavez is up for reelection again as the
nation goes to the polls on Sunday. If you”re thinking, didn”t we
just play this song? you”re right. But Chavez pushed through a
new constitution last spring so he gets another opportunity to
reaffirm his emerging dictatorship.
–Peru: President Fujimori was inaugurated for a third time as
unrest swept the capital. You”ll recall he stole the election last
spring.
–Europe: As noted before, immigrants are flooding the land.
And according to a European Union poll, 48% of Europeans feel
they would be better off without them, thus fueling the ambitions
of the “Rightists” on the continent.
–Echelon: What? A new country? A new tire? No, just a
humongous super computer / radar system in Britain which the
U.S. once employed to eavesdrop on the Soviet Union. Now,
Europe is convinced that Echelon, which is so sophisticated it can
pick out individual phone lines, is being used to snoop on
European businesses for the purposes of stealing trade secrets.
The U.S. claims that Echelon is being used to combat terrorism as
well as corporate corruption and money laundering.
This is one of those pain-in-the-butt issues that, if not handled
properly, can have severe consequences…like a trade war.
Sudan: The owner of the El Shifa pharmaceutical plant in
Khartoum has sued the U.S. for $50 million as a result of the
bombing of his factory in August 1998, when the U.S. claimed
the plant was manufacturing chemical weapons. Government
sources now admit we were in error. The man should receive the
$50 million in cash, yesterday.
From time to time I think back to the end of the Gulf War when
we had a real opportunity to make progress with some of the
Muslim nations and their fringe elements. Our prestige in the
Muslim world was at an all-time high. And, of course, we blew
it. A troubleshooter like Henry Kissinger should have been
unleashed in the area. But nooo…we stupidly bomb a plant in a
nation that is already a hotbed for terrorism and then we wonder
why we are a target. And it”s also why every time I pass through
the World Trade Center I”m looking for briefcases propped up
against the wall.
This Week in Politics
In the words of the New York Times” Richard Berke, the
selection of Dick Cheney to be George W. Bush”s running mate
“practically shouts: grown-up.”
The Washington Post commented on the selection, “Bush has
strengthened his presidential candidacy.”
Now granted, anyone under 30 has no clue who Cheney is, but
it”s also amazing to me how many of those who should know
better think Dick Cheney is an old man. Geezuz, he”s just 59. I
met a 70+ year-old on the golf course this week and he
commented, “Cheney is 70, isn”t he?” I shot him a look of
disdain.
Frankly, regular readers shouldn”t be too surprised that I think the
pick is tremendous. Some of my Republican brethren are
worried; they needn”t be.
I get a kick out of those who say, why would we want to “go
back to the future?” I”m sorry, but I thought Gerald Ford (under
whom Cheney was chief-of-staff) and George Bush (for whom
Cheney served as Defense Secretary) were men of integrity and
character. If that”s the future, bring it on.
Sure, Cheney has a record from his days in Congress and the
Democrats are already blasting away. He needs to be able to
address these issues head on.
But there is a bigger reason why I like the selection of Dick
Cheney. I love his wife! [Don”t worry, Mr. Cheney.] For years I
have followed Lynne Cheney”s efforts to combat the political
correctness that permeates our institutes of higher learning. [In
fact, the idea behind this whole web site follows along similar
lines.] And it is Lynne Cheney who has often said, we are
producing a generation of American “ignoramuses.”
Liberals will point to Lynne”s 7 years as head of the National
Endowment for the Humanities as an example of her hard-right
ways. Well, I was all for her attempts to block funding of
projects that taught “students more about Joe McCarthy than
George Washington, more about the Indian Chief Speckled Snake
than Thomas Edison.”
And to those who say she had her priorities all wrong, I have 3
words for them… “The Civil War”…for it was Lynne Cheney
who approved the funding of Ken Burns”s masterful
documentary.
Lynne Cheney will be a huge plus for the Republicans on the
campaign trail. And we all need someone like her to help shake
up this pitiful educational system of ours that now has less than
40% of our college students knowing when the Battle of the
Bulge took place.
Ms. Cheney, you go, girl!!
–Zell Miller, the former Democratic governor of Georgia, was
named to replace the late Paul Coverdell in the Senate, thereby
decreasing the Republican”s advantage to 54-46. Miller will now
run in a special election to fill the remaining 4 years on
Coverdell”s term.
–Next week, Philadelphia.
Random Musings
–The people of Taiwan went through one of those cathartic
experiences this week when camera crews caught the plight of 4
construction workers trapped in a raging river. For 4 hours no
one attempted to rescue them as the police and army fought over
who was responsible. All 4 drowned and the Vice Premier was
forced to resign.
–Newsweek reported that Big Tobacco may be facing another
massive series of lawsuits, only this time over the international
smuggling of cigarettes. Believe it or not, this could be even
more serious than the domestic lawsuits and I, for one, will
abandon them for good if indictments start flying.
–I don”t like to dwell on tragedies like the Concorde. They are
accidents and I can”t add much to the discussion. But I must say
I have always had tremendous respect for airline pilots. Not only
are they likable, but you trust them. And when accidents like this
past week”s occur, we also learn what incredible heroes they can
be. Somehow, the pilots always seem to find a way to avoid even
greater catastrophe, as was the case with Concorde pilot Christian
Marty, who steered the plane clear of the Gonesse town center.
–Napster…to download, or not to download…one judge says
no, another says “carry on.” We need some guidelines for this
stuff. To the Supreme Court, pronto!
–Meanwhile, France is trying to censor its citizens from Internet
sites which auction off Nazi memorabilia. I know that the hue
and cry is, “If you censor those sites, who”s to prevent the
government from censoring X, Y and Z.” Well, yeah.
Oh, the problems of the Internet. And you can”t just say, well,
the plusses outweigh the minuses. Not necessarily.
–Disease / Death / Longevity: The Centers for Disease Control
released their latest data on the top causes of death in America
and, for the first time since 1987, HIV is not in the Top 15. The
top 5 are: heart disease, cancer, stroke, chronic obstructive
pulmonary diseases, and accidents (motor vehicle, etc.)
Homicide, incidentally, is #13.
Life expectancy for a newborn is now up to 76.7 from 76.5,
meaning about another 7 or 8 episodes of “Survivor.”
Whites live 6 years longer than blacks…partly because blacks are
6 Xs as likely to be murdered.
–So Dick Cheney gets grief because, like George W., he has
roots in Big Oil. As Robert Novak says, “What”s he supposed to
do, work for the Salvation Army?”
–A Business Week / Harris survey found that 76% had no clue
who GE”s Jack Welch was. 99% knew Bill Gates.
–On a serious note, new research shows that one-third of heart
attacks contain no chest pain and, thus, the victims often don”t
realize they have experienced one. The advise of experts is to err
on the side of caution when you have abnormal pain in the jaw or
arms, or persistent indigestion. Don”t be a hero, seek help if you
have any doubt.
But as to the last point with indigestion, it hit me this week that
some of the antacid commercials we view could really be harmful.
I don”t know how you address the issue but there must be 1,000s
each year who, when they suffer from the pain, convince
themselves that a couple pills will do the trick, when the problem
is far more serious.
–Exercise the brain…something we try to do here at
StocksandNews. More and more research shows that bad
memory is linked to heart disease and diabetes. Those less
mentally and physically active in middle age were 3 Xs more
likely to get Alzheimers. The most important thing you can do
for yourself is read, read, read…and cut back on TV. Even the
elderly can grow some new neurons.
–Tiger: John Eisenberg, writing in the Baltimore Sun, had the
following comments.
“He”s rewriting history with every shot now…But if you”re
waiting for Woods to get all misty and weak-kneed about what he
hath wrought, you”d better pull up a chair and grab a book.
You”re in a for a long wait.”
But you”ll be exercising your brain.
Gold closed at $278
Nymex Crude Oil, $28.18
Returns for the week, 7/24-7/28
Dow Jones -2.1%
S&P 500 -4.1%
S&P MidCap -4.3%
Russell 2000 -6.2%
Nasdaq -10.5%
Returns for the period, 1/1/00-7/28/00
Dow Jones -8.6%
S&P 500 -3.4%
S&P MidCap +8.6%
Russell 2000 -2.9%
Nasdaq -10.0%
Bulls 54.2%
Bears 30.8% [Source: Investors Intelligence.]
Thanks for the support!
Brian Trumbore
