“America is the land where cheap petrol is seen as a God-given
right.”
–A reporter for the BBC on Thursday night
Why, of course, my European friends. Just because you all pay
triple what we do at the gas pump doesn”t mean you have to be
so caustic. And in America, we have politicians who defend this
right to have cheap gas, not fight us! For example, here”s Al
Gore.
“You should never have to depend on the big oil companies to
heat your home or drive your car down the highway. If I am
president, I”m going to stand up to big oil and demand fair
gasoline prices for all families.” [Even if that means laying off
tens of thousands of workers in the petroleum industry, Mr. Vice
President? Gee whiz. Thanks!]
Ahh, the politics of oil. Referring to Gore”s statement that “I will
work toward the day when we are free forever of the dominance
of big oil and foreign oil,” a lead editorial in the Washington Post
replied.
“And what is that supposed to mean? To create a villain as an
alternative to having a serious discussion of a problem he might
rather shun is a sleazy tactic.”
Commentator David Ignatius summed it up earlier in the week.
“Oil is dangerous stuff. It destroys presidents and prime
ministers.”
But while the popularity of many European leaders plummeted as
the price of oil soared, I suppose the average American thinks
that our leaders acted responsibly in announcing on Friday that
the U.S. would raid its Strategic Petroleum Reserve for 30 million
barrels of crude.
So, at times like these it”s necessary to review some facts.
The world consumes approximately 76 million barrels of oil per
day. OPEC currently produces 29 million barrels, or about 40%
of the world”s energy needs. The U.S. consumes 19 million
barrels per day.
In 1993, the U.S. imported 50% of its oil.
Today, that figure is 59%.
The U.S. and the world, until recently, had profited from
historically low oil prices. $10 oil (late ”98) helped fuel the global
recovery.
The U.S. has a strategic reserve of some 570 million barrels, or
30 days supply at current consumption rates. It was intended to
be used for a national emergency, like war or an unforeseen
supply disruption. Even if you argued that the 40% we produce
domestically would remain available to meet our needs, you are
still talking about just a 50-day supply.
Lurking in the reeds is Saddam Hussein. Appearing on “This
Week” last Sunday, Senator John McCain said, “I am deeply
concerned Saddam could cut off (Iraq”s oil) production. It”s
election time.” McCain then reiterated that the U.S. should step
up covert activities to overthrow him.
Oil expert Daniel Yergin also stated that Iraq was the key. If they
took their 3 million barrels off line, oil would soar, regardless of
what we are doing with our own supply.
What both McCain and Yergin failed to mention is something that
they undoubtedly know about. Informed sources now say that
Saddam Hussein has lymphatic cancer. If true, how this impacts
events is anyone”s guess. But of more immediate import is an
upcoming vote in the U.N. which could trigger an Iraqi response.
Kuwait is making a $16 billion claim against Iraq for damage
done to Kuwaiti oil fields as Saddam was retreating at the end of
the Gulf War.
And, as you are all well aware, the unfolding energy crisis is
about more than crude oil and gasoline; it”s also about home
heating oil (affecting 10 million homes in America) and natural
gas (58 million homes and businesses).
[Incidentally, the release of the 30 million barrels from the
Strategic Reserve hardly impacts the heating oil supply.]
By week”s end, however, energy prices had fallen over 10% from
their earlier highs, with crude closing at $32.68. I would venture
that it settles in the $30 range.
OPEC next meets November 12 and Saudi Arabia announced
that, if need be, they will produce more oil beforehand. That was
prior to the Clinton / Gore action to raid the reserves. I
imagine OPEC”s next meeting will be rather contentious.
[There is a gathering in Venezuela this week to celebrate OPEC”s
40th anniversary. But no major statements of policy are
anticipated. Lots of rhetoric, however, I”m sure.]
It continually bears repeating. OPEC is not the problem. We are
the problem. The U.S. has the resources to be energy self-
sufficient. But that takes leadership.
On the earnings front, one name dominated…pause for the Intel
jingle.
Ding Ding!
Ding Ding
The company warned the Street that revenues would fall far short
of expectations in the 3rd quarter due to slowing demand in
Europe. The announcement was made after the close of trading
on Thursday.
It looked like trouble Friday morning. The Nasdaq quickly fell
214 points, the Dow Jones over 140. But by the end of the day,
the Dow closed up over 80 and the Nasdaq”s loss was trimmed to
just 25. For the volatile week both averages thus lost less than
1%, with the Dow finishing at 10847, the Nasdaq, 3803.
Quite frankly, it was a stupendous performance, helped in no
small part by the first-ever Group of Seven intervention in the
euro, a successful maneuver to prop up the flailing currency.
Most interventions of this sort do not, in the long run, succeed.
This one better.
But Friday belonged to the Nasdaq, so herewith are a few market
leaders with their closing prices (rounded off) along with the low
level of Friday morning.
Juniper Networks, Fri. close, $225 / Fri. low, $202
JDS Uniphase, $107 / $97
Rambus, $85 / $75
Sun Micro, $118 / $111
Oracle, $80 / $75
Cisco, once again failing in its leadership role, only moved from
$58 to $60 during the session, still well off of its spring high of
$82.
And as for Intel, well it lost some $80 billion in market value
Friday, as over 300 million shares were traded; an all-time record
for a single issue. Now I went back through some records in an
attempt to put this in perspective. During the crash of October
29, 1929, a then record 16.4 million shares were traded…for the
whole exchange.
What the market did on Friday was slough off Intel”s revenue
warning as a one-time event, limited to Intel and some of its
closer brethren, like Dell. This may prove to be a bit too
optimistic.
When the actual third quarter earnings results begin to come out
in early October, most of the numbers will undoubtedly be strong,
relative to expectations. But the Street is waiting for guidance on
the fourth quarter and beyond. Corporate executives, and press
release writers, will have to choose their words carefully or they
risk pulling an Intel.
And back to the euro. The exposure to Europe that many U.S.
multinationals have is quite large. PaineWebber”s Ed Kerschner
wrote in a report this week that, for example, the 28 leading
technology companies in the S&P 100 have a 26% exposure
there.
One European analyst said this week, prior to the intervention,
“We won”t be able to strengthen the euro if we don”t strengthen
efforts to forge common policies.”
Plus, there is a highly significant event this coming Thursday.
Denmark goes to the polls to decide whether or not to join the
euro group. While all of the political and business leaders in the
country want to be nation #12 to do so, the people are evenly
divided. A victory could add stability to the currency and, also,
European equity markets (which staged a big comeback of their
own on Friday). A defeat won”t be good.
Street Bytes
–One additional note on OPEC. A spokesman for the cartel
warned that OPEC nations expect to be compensated if the world
turns away from oil. Specifically, the global warming treaty, the
Kyoto Protocols, which is aimed at cutting emissions of carbon
dioxide, the source of which is in the burning of oil and coal. One
oil minister said, “We are assuming that only for another 15 years,
maximum, will we have oil as a big share of the energy mix.”
And, to give you another example of how contentious the Kyoto
Protocols are, the U.S. and Russia want credits for vast forests
which sop up dangerous greenhouse gasses.
–Treasury Secretary Lawrence Summers lost quite a bit of
credibility with his memo to President Clinton on September 13,
arguing that both he and Alan Greenspan were against releasing
fuel from the Strategic Reserves. 9 days later, he endorsed the
idea.
–Last week I wrote of the issue of “moral hazard,” where an
institution becomes too big to fail and the government has to bail
it out or risk crushing the economy.
This week, Fed Chairman Greenspan, speaking before the
American Bankers Association, echoed these thoughts.
“Today”s products and rapidly changing structures of finance
mean that supervisors are backing off from detail-oriented
supervision, which no longer can be implemented effectively.”
And Greenspan stressed that we need better disclosure of risks in
order to avoid public loss of confidence.
–The House approved a new retirement package which could
easily be one of the 2 or 3 most significant accomplishments of
this Congress if it gets signed into law.
The maximum IRA contribution would go from $2,000 to $5,000
after 5 years, and the maximum 401 (k) level would go up to
$15,000 from its current $10,500 over the same time period.
President Clinton is against the measure, arguing that it
doesn”t do enough for the poor. But this is how you address the
social security conundrum. Raise the limits on accounts of this
kind, gradually raise the social security eligibility age, and you
don”t have to mess with the other stuff, like private retirement
accounts. This IS your private retirement account. It would
work. But it”s too simple.
–The telecom sector continues to plunge. It only seemed like
yesterday that everyone and their brother was recommending that
you “overweight” the group. Said one analyst of today”s
environment, “Spending (on infrastructure) has grown at absurdly
fast levels relative to the revenues and profits produced by that
spending.” [The Nasdaq telecommunications index is down
28% for the year.]
–The #1 rated economist for at least ten years running, Ed
Hyman, released a statement Friday morning proclaiming that the
risks of a global recession had picked up markedly.
–My steel indicator continues to confirm a slowing economy. No
real uptick in weeks.
International Affairs
China: The U.S. Senate approved permanent normalized trade
relations (PNTR) with China by an 83-15 margin. This historic
agreement ends a 20-year annual review process, one that was
put in place to monitor such issues as China”s suppression of
human rights, their treatment of Taiwan, and weapons exports.
Democratic Senator Robert Byrd said, “I think the Senate is
about to make a grave mistake.” And as a further example of
China”s disregard for religious freedom, authorities arrested an
81-year-old Catholic bishop for being Catholic. It”s funny how
some of our presidential candidates play up the importance
of their own religious faith, yet fail to comment on such a gross
violation of basic human rights.
There is no doubt that China made significant concessions to gain
PNTR approval as well as admittance to the WTO. But you can
be sure they will now drag their feet. This week it was
announced that the U.S. trade deficit with China hit a record $7.6
billion in August.
The vote also represents a huge victory for President Clinton,
who had made PNTR a centerpiece of his trade policy. He now
awaits the judgment of history.
Serbia: By the time some of you have read this, the results of
Sunday”s presidential election may be known. If neither
Milosevic or his main opponent, Kostunica, receive 50%, a runoff
takes place October 8.
NATO is awaiting the vote with bated breath. Will Slobo, who
trailed badly in pre-election polls, rig the outcome? If he loses,
would he allow the opposition to take control? Will he create a
diversion by moving against Montenegro?
Any aggressive action would have to be met with NATO force.
But we have a presidential election in this country.
Mr. Kostunica, by the way, is no friend of the West. He has
slammed NATO and the U.S. with every opportunity. However,
it is agreed he”s better than Milosevic. The European Union has
vowed to lift economic sanctions if Slobo is defeated.
North Korea: The U.S. is slated to hold extensive talks with the
North in New York beginning September 27. Topics such as
missile proliferation and further economic aid are on the agenda.
While we should be encouraged that North Korea appears to be
emerging from the Dark Ages, one needs to also acknowledge a
report issued by the Pentagon during the week, the conclusion of
which is disconcerting. The North continues to deploy “large
numbers” of rocket launchers along the DMZ between North and
South. In addition, the North is apparently stockpiling chemical
and biological weapons.
India / Pakistan: Fighting escalated once again over the disputed
province of Kashmir. And a terrorist bomb blast in Pakistan”s
capital killed 16.
But the bigger news occurred on the diplomatic front where
India”s Prime Minister Vajpayee was given the largest state dinner
ever held by the Clinton administration. At the same time,
Pakistan”s leader, General Musharraf, is upset at being snubbed
by the U.S. during his recent visit to New York for the U.N.
summit. Here”s why all of this is important…and confusing.
Pakistan had been an ally of the U.S. for decades. During the
Cold War we supported them while India allied itself with Russia.
China, ever worried about India”s ambitions and their vast shared
border, also supported Pakistan.
Today, the U.S. is displeased over the failure of democracy in
Pakistan as well as their alleged support of terrorism. So we have
directed our attention to India (appropriately). Historically,
however, Pakistan had fought side-by-side with the U.S., from
Afghanistan to Somalia.
But India is also about to receive Russian President Putin at a
state visit in October; one result of which will be the signing of a
number of bilateral defense projects between the two, including
the sale of 300 Russian tanks.
And for its part, China continues to pump missiles and technology
into Pakistan. All of this is taking place in the region that experts
agree is a nuclear flashpoint.
Israel / PLO: As one PLO analyst put it, “The peace process is
fading by the day.” The situation is now exacerbated by an Israeli
highway project that is being built through some Palestinian
neighborhoods of Jerusalem.
Indonesia: There is no doubt that the nation is imploding and
central authority is virtually non-existent. This week, Indonesian
soldiers were implicated in the recent slaying of 3 U.N. aid
workers in West Timor where, additionally, up to 120,000
refugees face imminent starvation unless food aid is brought in.
Peru: President Alberto Fujimori shocked his nation by
announcing he was stepping down. A videotape was uncovered
which showed Fujimori”s intelligence chief offering an opposition
congressional leader $15,000 to support the president in last
spring”s disputed election. At week”s end, the military, which had
been silent for 5 days, affirmed their support for Fujimori. No
date has been set for elections. Nor does anyone seem to know
where the intelligence chief has gone. He evidently has dirt on
everyone, including the president. [I have more on Peru in my
9/21 edition of “Hott Spotts.”]
Switzerland: This charming nation is holding a referendum shortly
on whether to restrict the number of foreigners to 18% of the
total population.
I have written from time to time of how troubling events below
the surface are in Europe. And, in the case of the rise of Austria”s
Freedom Party, above the surface.
But after reading the blurb on Switzerland, I was listening to
George Will having a discussion with Artemis Records executive
Danny Goldberg concerning the issue of violence and the music
industry. Will argued that some of the cultural trends we are
seeing in this country should remind us of the period before the
rise of Nazi Germany. That”s not as crazy as it seems.
As Will pointed out, we blamed Joe Camel for its influence on
kids and smoking, but we refuse to come down hard on “artists”
like Eminem.
Goldberg fell back on the now standard denial, that there is no
causation between products and violent acts, yet we know that
smoking causes cancer.
In recent weeks, the German government has been cracking down
on neo-Nazi groups and their web sites (both can be banned in
Germany). What is particularly worrisome is that neo-Nazis are
infiltrating the U.S. [Source: U.S. News]
In America, white supremacists used to be comprised of ragtag
groups. But now the movements have gone global and the
Internet is the glue.
I have long argued that the situation will undoubtedly rear its ugly
head the next time we have a recession (particularly in Europe).
You can imagine how easy it is to target immigrants during
periods of rising unemployment.
This week, a German political scientist commented, “All the
ingredients are there, somebody just has to mix them together.”
This Week in Politics
Presidential Polls
Newsweek: 50-38, Gore. [Most analysts laugh at Newsweek”s
numbers]
CNN / USA Today: 48-46, Gore
A New York Times electoral map gives Gore 240 (270 needed
for election) vs. 201 for Bush, with only 98 considered a tossup,
including Michigan, Wisconsin, Missouri and Florida.
As noted previously, Gore has been stepping up his attacks
against Big Business. “It”s not a question of them being targets,”
said the vice president. “It”s a question of them targeting the
American people.”
A Washington Post editorial replied. “In lashing out against big
oil, big pharmaceutical firms and big health maintenance
organizations, Mr. Gore is playing the demagogue, and he himself
knows it.”
For his part, George Bush had his first good week since prior to
the Democratic convention. I watched his appearance on
“Oprah” and he did a solid job. And, having seen both Bush and
Gore on her show the last two weeks, Oprah, herself, deserves
credit for being fair to both candidates.
In New York, a Daily News survey showed Hillary with a 48-43
lead over Rick Lazio. But a Marist poll has the race tied.
Random Musings
–John Deutch, the former CIA director who was under
investigation for using his unsecured home PC to download top
secret material, is now being investigated further for his work
when he was an assistant secretary of defense. Said Senator
Charles Grassley, “Evidently, Mr. Deutch is a congenital
downloader of classified information. It will be interesting to see
how the Justice Department deals with this case, especially in
light of the Wen Ho Lee case.”
This is serious stuff we”re dealing with. Deutch was using his
AOL account and, heck, my 7-year-old nephew could have
hacked into our nation”s secrets. And, of course, the worst part
is the fact that Deutch was taking home details of covert
operations which may have compromised our agents. Make that
former agents.
–Unbelievable that NBC was so stupid as to not show anything
live from Sydney. But our Canadian friends, thanks to their
awesome CBC, is bringing the action as it happens. NBC played
us for chumps and now their early ratings are well below
expectations.
And what was Nike thinking with that chain saw ad?
–Don”t bother looking. I”m not on Hillary”s sleepover list.
–Just uncovered e-mails confirm that Al Gore knew the Buddhist
temple outing was a fund-raiser.
–Domestic beer consumption was up 4.4% in August after
slipping in July.
–Follow-up: The World War II memorial was finally approved
and construction starts on the Washington Mall, November 11.
–Manhattan”s office vacancy rate is down to 5% while rents have
skyrocketed 30% in the past year. The city has no real
construction projects underway to address the issue. It”s kind of
like the U.S. and oil production.
–Two-thirds of all the elderly people – 65 and older – who have
ever lived are alive right now.
–Over the past two-plus years I have purchased 4 Dell PCs and
never had a serious problem. But two months ago I bought my
first Gateway, mainly because a Gateway Country store was
nearby.
So in two months it broke down and the PC was diagnosed as
having a severe hardware problem.
I wouldn”t bring this up except for the fact that when I took it in
to the service department and was told it would be two weeks
before anyone would even look at it, well, I kind of went ballistic.
But here”s the payoff. The service manager told me he had 73
other PCs with similar problems sitting in the shop. 73 in one
store! I”m back to Dell, thank you.
–Whitewater counsel Robert Ray declared that there was
“insufficient evidence of wrongdoing” to go for a conviction
against President Clinton or Hillary. Twelve others, however,
were convicted, including former Arkansas Governor Jim Guy
Tucker.
–Senator Joe Lieberman, speaking before a group of Hollywood
executives on Monday night. “We will nudge you. But we will
never censor you.” Final answer? Undoubtedly.
–Bubble Boy informs me that a new survey just out reveals that
fewer men wash their hands after going to the bathroom than the
last time the survey was taken. One of the undercover sites was
Grand Central Station in New York. Do you think the politicians
who shake all those hands there know this?
–A new book on Bill Clinton reveals that he used his attorney to
inform Hillary of the truth in the Monica affair. Not exactly
“Profiles in Courage” stuff.
–During the 1996 campaign, Al Gore said, “The link between
viewing lots of violent imagery and being violent is becoming as
well-established as the linkage between smoking and lung
cancer.”
–New Jersey”s own alleged 15-year-old stock swindler, Jonathan
Lebed (no relation, as far as I can tell, to Russian strongman
Alexander Lebed) was charged with generating over $270,000 in
illegal profits by manipulating the share price of teeny, tiny
companies through his postings in chat rooms. Of course, it”s his
parents, not Jonathan, who should be thrown in the slammer.
–And the above also ties in nicely with an article written by Katy
Kelly in U.S. News decrying the amount of time our youth spend
in front of computers. As psychologists and neurologists are
increasingly establishing, it”s important to feed the body, not just
the mind.
Said one doctor, “If we want to capitalize on what evolution has
given us, we don”t want to make them sit in a chair and stare at
moving pictures. What we want is to get them outside and play.”
Another commented, “Parents have been sold a bill of goods
about how valuable these experiences are.”
So here”s a winter tip from your editor. Seeing as everyone is
warning of normal weather (with cold temperatures…because it”s
winter) and rising heating oil and gas prices, send your little ones
outside now to chop firewood.
–The West Nile Virus has killed 13 in Israel. In Yemen, another
mosquito-borne disease, Rift Valley Fever, killed 78 in one week.
This same affliction has also killed at least 16 in Saudi Arabia.
–The Firestone death toll is now over 100.
–Recently uncovered by Jordanian authorities, an official Osama
bin Laden terrorist training manual, available on CD-Rom. Don”t
know if the Home Shopping Network has any plans to offer this.
–I just noticed that my cleaning lady placed my Ronald Reagan
and Winston Churchill spoons upside down. Actually, my Nixon
one is also misplaced…but I wasn”t going to tell you that.
Gold closed at $272
Oil, $32.68
U.S. Treasury Yields
1-yr. 6.07% 2-yr. 6.06% 10-yr. 5.84% 30-yr. 5.91%
Returns for the week, 9/18-9/22
Dow Jones -0.7%
S&P 500 -1.2%
S&P MidCap -2.6%
Russell 2000 -2.3%
Nasdaq -0.8%
Returns for the period, 1/1/00-9/22/00
Dow Jones -5.7%
S&P 500 -1.4%
S&P MidCap +18.5%
Russell 2000 +2.8%
Nasdaq -6.5%
Bulls 49.5%
Bears 31.1%
CONTEST: Don”t forget to enter the “Pick the Dow” contest for
your chance to win $2,500. Sorry, if you enter more than once,
all of the entries for that e-mail address are automatically
invalidated.
Of course I”m not eligible. But for the record, here are my own
choices for 12/31.
Dow Jones 11027
Nasdaq 3941…but it”s gonna be a bumpy ride.
I appreciate your support. Spread the word.
Brian Trumbore
