“The biggest question in my mind is whether the market
opportunity in electronic commerce is as large as we all thought.”
–Internet Analyst Henry Blodget
This bombshell was in the July 31 issue of Barron”s and it could
very well be the statement of the year, or decade. Blodget is,
after all, a poster boy for all things Webish. [If you”re not
familiar with him, he made his claim to fame with, at the time, a
very gutty call on Amazon a few years back.]
I am certainly one who has doubted some of the ecommerce
projections we all read about. But I won”t pile on. Suffice it to
say, though, that the choice of Amazon Chairman Jeff Bezos as
Time”s “Person of the Year” for 1999 is looking more foolish by
the day.
Meanwhile, it was a solid…and volatile…week for the Street.
The Dow Jones rose 2.4%, its best performance in 2 months, to
close at 10767. And the Nasdaq staged an impressive turnaround
to tack on 3.4%, with the average now at 3787. The bubble
index (sorry, cheap shot) hit 3530 on Thursday morning as
Motorola hinted that handset sales may not be as robust as
forecast, but rallied back some 230 points by day”s end. Big cap
names like Cisco, Sun Micro and Oracle rose 10-15% from their
Thursday morning lows, just when it looked as if the leaders were
totally breaking down. Cisco, in particular, was dropping because
of rumors that next week”s earnings report would be a little on
the light side. I imagine they”ll once again do just fine, but the
day that Cisco does finally fall short is one no technology investor
ever wants to see.
Lazlo Birinyi has been as good a market forecaster as there has
been during the past 10 years. And, unlike Abby Cohen who just
inches her targets up a little at a time, Birinyi deserves credit for
having set bold ones, and then being right.
So when Lazlo talks, you all should listen. This week, on a
CNBC appearance, he turned decidedly cautious, calling for a
“subdued bull market,” i.e., the easy money has been made for
some time to come. Maybe not earth shattering, but he also brought
up a fascinating statistic.
For those of you who follow the market during the course of the
day, how many times have you seen big early moves, followed by
lethargy for the balance of the trading session? Well, Birinyi has
done a study quantifying this trend which shows that if you took
out the first half hour in the Dow Jones, the index would be 35%
lower!
So the message is, if you”re a trader, buy towards the end of the
day and sell around 10:00 a.m. the following one.
Now there are good reasons for this, the chief one probably being
the influence of foreign investors who place their orders at the
first opportunity, as well, of course, our own institutional money
managers who act based on their cash flows from the preceding
day. And lastly, you have the influence of momentum players.
So a hearty thanks to Mr. Birinyi for adding credence to
something long suspected but never quantified.
On the economic front, the week”s releases certainly helped the
case of those in the soft-landing camp. In a nutshell, figures on
new home sales, manufacturing and the July employment report
make it clear that the Federal Reserve will hold the line on interest
rates August 22.
And Fed President William Poole issued some very bullish
comments on the economy and inflation. With regards to the
former, he restated that productivity gains allow the Fed to accept
a higher rate of growth than would otherwise be the case. In his
words, the Fed can “let it run.”
The bond market took in all of the good news and staged a
sizable rally with most rates falling to their lowest levels in
months.
U.S. Treasury Yields
1-yr. 6.06% 2-yr. 6.12% 10-yr. 5.89% 30-yr. 5.71%
One note of caution, however, as far as the overall economic
landscape. While I might argue that our economy is simply taking
a breather and will soon resume its robust pace of the past few
years, corporate credit downgrades bested upgrades by a 2-1
margin in the first half of 2000, the highest ratio since 1991.
Thus, it could get real ugly, quickly, if the economy were to slow
considerably.
But for now, it”s going to take a lot to severely shake investors
confidence. Which is why I spend so much time on the
international scene…the wild cards.
Oil
Early in the week, the president of OPEC warned his fellow
members against overproduction. The message was clear as the
average price of crude had fallen over $4 in the blink of an eye.
Mr. Rodriguez (of Venezuela) worried that the cheating which is
taking place (a certain level always exists) on the production
quotas would become even more widespread.
But then the cartel caught a big break when a few days later it
was announced that oil inventories in the U.S. unexpectedly
plunged last week. And we”re talking a huge amount. Total
inventories now stand at 285 million barrels, 41 million below the
same time last year. So on this news, oil rallied back from below
$28 (W. Texas crude) to close to $30.
Camp David Aftermath
You have to feel for Israeli Prime Minister Barak. He bravely
sought to engineer a final, comprehensive peace agreement with
the PLO, only to see everything collapse. First, Nobel prize-
winner Shimon Peres was humiliated in the race for the
presidency by some obscure right-winger, Moshe Katzav. [Kind
of like the equivalent of Gary Bauer defeating Al Gore.]
Then, Barak”s foreign minister, David Levy, resigned. The only
thing that is keeping Barak in power right now is the fact that
Parliament has embarked on a 3-month recess.
I continue to give President Clinton the benefit of the doubt
when it comes to the Middle East but increasingly, it really looks
like we”ve hung Barak out to dry.
This week, Clinton strongly hinted that he may move the U.S.
embassy from Tel Aviv to Jerusalem before he leaves office.
There is absolutely no reason to do this now as it would only
inflame tensions…and help out Hillary in New York.
Then again, the transfer of the embassy may seem like a tame
move if Yassir Arafat goes ahead with his threats to unilaterally
declare a Palestinian state on September 13. The U.S., in turn,
would have to pull all support for the PLO.
And then there”s the issue of Egypt. Last week I complained that
Egyptian President Mubarek was doing nothing to promote the
peace process. This week, Thomas Friedman wrote of the $30
billion in aid we have given Egypt since 1978 and asked, “What
exactly are we getting out of our relationship?” And Egypt is not
at the top of our list because of another matter. The government
is currently holding a visiting American professor who had the
temerity to call for democratic change in Egypt. He sits in jail.
[I attempt to cover the whole issue of the fate of Jerusalem in my
8/3 “Hott Spotts” piece.]
India / Pakistan
Last week I was ready to write about the peace efforts concerning
the disputed province of Kashmir. Then, I thought, knowing the
history I better wait a week.
On Tuesday, the main guerrilla group, which is backed by
Pakistan, formalized a ceasefire with the Indian government. By
Wednesday, the worst violence in months flared up as over 100
were killed in rebel attacks launched by rival Islamic militants who
don”t want to see peace.
At week”s end, India”s Prime Minister Vajpayee said he would
continue to pursue talks with the lead group, but would not talk
directly to Pakistan who, in turn, has been pleading for face-to-
face discussions since General Musharraf took power.
Actually, the Indian people are far more concerned these days
with the kidnapping of one of their leading movie stars at the
hands of the “bandit” Veerappan (his only name).
Now I can”t say I had ever heard of this character but he”s one
mean dude. Somewhere around 55-years of age, Veerappan is
reputedly responsible for the deaths of 120 policemen over the
years. The forests of southern India are his home and, aside from
the human toll, he has also killed some 2,000 elephants for their
ivory.
The Indian government has had a dedicated police force of 200
trying to bring this animal to justice. Experts believe that this
latest action is Veerappan”s final crime and that he will try and
negotiate his freedom.
Russia
Heck, everyone is on vacation so the news is light. President
Putin tried to assure business leaders this week that he would not
reverse the privatizations which made them all so rich.
Separately, Putin fired six of his generals who disagreed over his
plan to downsize the missile forces in favor of increased funding
for the conventional ones. [The rocketmen are treated as a
separate branch of the armed forces, along with the army, navy
and air force.]
And help for the conventional forces is certainly needed. Two
senior officers were beheaded by rebels in Chechnya this week.
At least they left the heads by the road so Russian troops didn”t
have to search for long.
But, assuming you”re not eating while reading this, military
doctors are worried about the spread of disease in Chechnya.
The reason? It seems that a few hundred unidentified soldiers
from the ”94-”96 Chechen war have been sitting in refrigerated
box cars outside Grozny. Well, now the cars refrigeration
systems have broken down. You get the picture. It”s barbaric.
China
Not for nothing but I pick up the paper Friday to learn of China”s
latest war games involving 110,000 troops. Of course they are
simulating an invasion of Taiwan. Just a little disconcerting.
China also sentenced to death its highest ranking official since
1949 as a result of corruption charges. In case you were
wondering, in China executions are accomplished by putting a
bullet to the back of the head.
Chinese officials are trying to set an example, but it”s tough to be
credible when the average citizen knows it all starts at the top.
And in Taiwan, the bungled rescue effort I wrote of last week has
cost President Chen Shui-bian dearly in the polls, to the tune of
10-20%.
North / South Korea
Evidently, Kim Jong-Il exchanged formal letters with Putin this
week, outlining the North”s proposal for dropping their ballistic
missile program. Western nations would have to launch 2 or 3 of
their satellites, for free, each year. Now is that a great deal or
what?
At least South Korea”s President Kim Dae Jung seems to get it.
He blasted demonstrators this week who continue to protest the
presence of 37,000 American troops. Kim lectured his people
that the U.S. remains their nation”s “biggest supporter.” As I”ve
written before, Kim is not a young man. Whoever follows may
not be as good an ally.
Iraq
This week marked the 10th anniversary of the invasion of
Kuwait. And, incredibly, former UN weapons inspector Scott
Ritter is in the country filming a documentary on how UN
sanctions are hurting the Iraqi people.
I was a big supporter of Ritter in those days after he was booted
out of Iraq in 1998. Back then he blasted the Clinton
administration and the UN for being too weak in their handling of
Saddam.
So what are we to make of this sudden reversal? And why is
Saddam supposedly granting Ritter full access to the very
weapons sites he was denied entry to before?
Saddam, of course, will sanitize everything beforehand. Congress
should grill Ritter upon his return.
Elsewhere…
Venezuela: President Hugo Chavez won reelection by 21 points
but he didn”t receive the two-thirds in the legislature needed to
rubber stamp his proposals. Despite soaring crime and a horrid
economy (even with its oil wealth), the poor support Chavez to
the tune of over 80%.
Colombia: 22 more policemen were killed in a rural town as rebel
attacks escalate. U.S. helicopters were used to pick up the
bodies. Our involvement is beginning to grow.
Zimbabwe: A nationwide general strike was called as President
Mugabe stepped up his plan to place 500,000 homeless into 3,000
white-owned farms. The nation”s economy is in a freefall. 70%
inflation doesn”t help matters.
Sierra Leone: The U.S. is accusing Liberia of helping the rebels in
Sierra Leone sell diamonds to finance their war efforts. The UN
recently outlawed the movement of these “conflict” gems. But
the simple fact is they are powerless to stop the trade.
I heard a local radio interview where a jewelry store owner in
New York was asked if any of his customers question him on the
source of his diamonds. “Of course not.” “Do you care?” “Of
course not.” What the UN and U.S. need to do is plaster
billboards featuring little children with their arms and legs
chopped off. Then we”ll get the picture. Or, as my friend Harry
K and I discuss, consumers should switch to cubic zirconium.
Canada: U.S. News reports that the government is increasingly
concerned that the nation is becoming home to various terrorist
groups, thanks in no small part to their laissez-faire immigration
policy.
Separately, Canadian troops were forced to board a U.S.-based
cargo ship which holds some 10% of their armor and other heavy
equipment. The owners of the GTS Katie had refused to bring it
into port for fear they wouldn”t receive proper payment.
Philadelphia
If you are a Republican, you had to be pleased. If you are a
Democrat, you should be worried.
George Bush passed his test. “Quite a speech!” gushed CNN”s
Judy Woodruff. “He was presidential,” said NBC”s Tim Russert.
You know where I stand so I”ll try and limit my comments. The
early polls taken Thursday evening show Bush with anywhere
from an 11-point (NBC / Wall Street Journal) to an 18-point
(Voter.com / Battleground) lead. Bush got his post-convention
“bounce.”
But I do need to make an observation concerning the issue of
race, as touchy as it may be. Here”s how I see it. The
Republicans can offer Black America Colin Powell and
Condoleeza Rice. The Democrats counter with Jesse Jackson and
Al Sharpton (or John Conyers or Maxine Waters).
When Bush tabbed Dick Cheney to be his running mate, the hue
and cry arose that the Republicans were going back to the future.
Now I ask you, looking at the above names, which party is
moving forward and which one is stuck with the same old
hackneyed issues and solutions?
The Washington Post”s Richard Cohen wrote a piece on
Thursday titled “Diversity: It”s Not All Phony.”
“Powell and Rice send precisely the right message. They may
owe a measure of their charisma to their racial identity and
personal sagas, but they are not in the least black spokespeople.
If they wind up in a Bush administration, it will be on account of
ability and experience, not because they represent a particular
constituency or a racial agenda.
“In contrast, the leading black slated to speak at the Democratic
convention is Jesse Jackson. He is first, foremost and entirely a
racial spokesman. He is beloved by most blacks, admired by
many whites but personifies an agenda…that is rooted in racial
grievance.
“Powell and Rice represent precisely the sort of diversity most
Americans not only favor but also strive for.”
Folks, should George Bush win, you”re talking about the
Secretary of State and the National Security Advisor, arguably
the two most important positions in any administration. To me,
that possibility should fire up all Americans who yearn for equal
opportunity. It would be the full embodiment of the American
dream.
Just a few other thoughts. I particularly liked two lines put forth
by Rice and Powell. “(The president should) exercise power with
judgment and humility.” “Power without fanfare and arrogance.”
Any American leader who sticks to these principles will go a long
way towards tackling the dangerous issue I have continually
raised…the growing anti-Americanism throughout the world.
–Cindy McCain clearly looks like she”s got the bug. My guess is
she runs for her husband”s seat when he decides to pack it in.
–Rick Lazio has surged 7 points ahead of Hillary in their New
York Senate race.
Patriotism
It shouldn”t come as a surprise that I watched all the convention
action. [Except I did catch the “Survivor” tribal council and I
relished the banishment of Jordan from “Big Brother.”]
The political conventions are great civics lessons for us all. And I
look forward to the Democrats week in Los Angeles.
But the networks coverage was abysmal. However, even the main
alternative, CNN, saw their ratings drop some 40% from 1996.
This week I received a note from a childhood friend, Jim, which
encapsulated the feelings I sometimes express in this column. Jim
had been at a sales meeting in Atlanta and didn”t have the
opportunity to catch much of the Convention.
“I was waiting to board my flight last night and I watched the
coverage on CNN Airport News, struggling to hear the poor
audio amidst the announcements of delays and further
cancellations.
“I dropped out of the line when they introduced Stormin” Norman
on deck the Battleship New Jersey. I stood by myself at the door
of the gate and listened to his introduction of Bob Dole, followed
by Bob”s call for a World War II memorial. I fought back a tear
thinking of my father, when he noted the Veteran count has
diminished from 16 to 6 million. As tourists and business
travelers waited in the queue to board the flight, I observed that
few noticed the broadcast; and none joined me to listen. I
listened to Dole”s speech in its entirety, and boarded the flight as
they closed the door behind me.
“All 125 of us arrived in Newark at the same time early this
morning. 124 of them dragged themselves into Essex County
seeking either their homes or hotels. I walked into Terminal A
proud to be a citizen of the United States of America, and
conscious of the fact that my place in life today has been formed
by the generations that preceded me. Who cares if Conventions
are political commercials? Last night, this brief encounter
reminded me that the process is an important one.”
Random Musings
–Drugs: More young people are using them than ever before yet
both political parties are ignoring the issue (outside of a few
throwaway lines).
This week the Fed”s broke up a huge crystal methamphetamine
(crystral meth) ring controlled by Mexican gangs. Parents, be
aware of this new danger that is sweeping our country. This stuff
is bad news.
A little over two years ago, I was on the island of Saipan and was
being driven around by Father Gary, a local Jesuit priest. Father”s
cell phone was constantly going off. His conversations were
short and I really didn”t know if I was part of something I
shouldn”t be. Finally, I asked Father what was up. That”s
when he told me about crystal meth, which had been introduced
to the island about a year earlier. All of those calls were from his
parishioners, wanting to set up appointments to see him for drug
counseling. I have seldom seen someone so distraught as he
related to me how the drug was destroying the young people.
[Father Gary died a few weeks ago; dropped dead serving mass.]
–It increasingly looks like a final decision on whether or not to
proceed with a national missile defense will await the next
president, as it should. The Pentagon doesn”t feel it is able to
provide President Clinton with all the necessary data for him to
make the call. They are supposed to hand over the information in
September but the last failed test, which yielded zippo, has them
hamstrung.
–A controversial report shows that the 1994 Brady Law has had
no impact on homicide rates in states that previously had looser
controls. And because the report is in the Journal of the
American Medical Association, a rather respected forum, it packs
a whallop.
–Geez, this is a serious Week in Review, isn”t it? Have we ever
heard Chelsea talk?
–Canadian Professor Paul Kedrosky weighed in on the Napster
issue in a Wall Street Journal op-ed piece.
“So we (apparently) applaud Napster because of three flawed
premises. One, we think that theft is subjective: It depends on the
seriousness of the thing being stolen. Two, theft also depends on
how much theft feels like theft. And three, it depends, Robin
Hood style, on who we”re stealing from. The recording industry
is rich; they can afford to give up a few songs for free, can”t
they?”
–An important study on cell phone use said that there was
“increased risk” of rare types of brain tumors. In other words,
the claims of absolute safety can not be stated.
–Two volcanologists were killed in Indonesia this week when the
volcano they were observing, from the rim, erupted. I hate when
that happens.
Gold closed at $272
Nymex Crude Oil, $29.96
Returns for the week, 7/31-8/4
Dow Jones +2.4%
S&P 500 +3.0%
S&P MidCap +4.7%
Russell 2000 +2.7%
Nasdaq +3.4%
Returns for the period, 1/1/00-8/4/00
Dow Jones -6.3%
S&P 500 -0.4%
S&P MidCap +13.6%
Russell 2000 -0.2%
Nasdaq -6.9%
Bulls 52.3%
Bears 30.6% [Source: Investors Intelligence]
Note: Check out my Wall Street History piece for 8/4 if you
want to know why it”s called “Wall Street” and not “Chestnut
Street.” Yes, a shameless attempt to drive traffic.
Have a great week, friends.
Brian Trumbore
