I was watching NBC News on Thursday night and Tom Brokaw
ended the broadcast with a little commentary on how the day”s
events were a reminder to everyone that foreign policy is still a
vital issue, particularly in this presidential election year. Gee,
thanks for that insight. Of course, these are the same folks who
gave us 5 minutes out of every 22 allotted to their nightly
newscasts on forest fires, each night, all summer, while totally
ignoring developments elsewhere.
People often say to me, “StocksandNews really doesn”t have
much about stocks.” I”m assuming you now recognize that my
focus on international events has everything to do with the
financial markets. And, in most cases, things don”t suddenly
change overnight. The news networks may lead you to believe
that, but regular readers of this column know otherwise.
I have a saying in describing what it is that I do; a car bomb going
off in Sri Lanka has absolutely nothing to do with how you and I
lead our lives, nor the state of our finances. A car bomb going off
in Tel Aviv just might.
I feel obligated from time to time to mention that I focus as I do
on the “wild cards” because these are the events that could
drastically shape consumer sentiment. I can guarantee you that if
full war broke out in the Middle East, you and I wouldn”t feel
quite as jolly this coming holiday season. Nor would corporate
chieftains feel as compelled to throw millions of dollars at every
possible capital project. And these kinds of decisions impact
profits which, over any significant period of time, will affect the
value of share prices. In the words of Ross Perot, “It”s just that
simple.”
But in order to understand the events of this past week, it is
necessary to make some broad-based observations on subjects I
have continuously discussed in this space.
–If you didn”t before, now you understand why I decry the
arrogance displayed by many of our nation”s leaders. We should
thank God every day we live in this great country. We shouldn”t
act, however, as if God only favors us. One of the things that I
like about George W. Bush was on display this past Wednesday.
He understands that America needs to be “humble, not arrogant.”
–Anti-Americanism continues to grow. Much of it is totally
unwarranted…some of it is. And a few of our enemies believe its
“payback time.”
–We continue to escape full disaster because the world”s leaders,
as bad as some may be, still haven”t crossed that final line yet, i.e.,
employment of weapons of mass destruction. Increasingly, you
can see why we can never let our guard down.
–October is only half over. There are one or two more surprises
left before the election. And maybe we”ll see a positive one.
Now to the specifics.
Perhaps the most important event of the decade will take place
Oct. 21-22 in Egypt, assuming the full Arab summit occurs as
scheduled. While events are extremely fluid in the Middle East
right now, one thing is for certain; the Gulf War coalition is in
shambles and we will get an idea as to just how bad it is if this
summit comes off.
[I am not referring to a “peace summit” involving Israel and the
PLO.]
There is one person who has been invited and, if he chooses to
show up, it should send a chill through every American…Saddam
Hussein.
Saddam may decide it is too great a security risk for him to attend
but, nonetheless, the Arab world is increasingly putting pressure
on the U.N. to lift the sanctions on Iraq.
It”s been almost two years since we had inspectors on the ground
in Saddamland, checking for Iraq”s weapons of mass destruction.
We have no clue what he”s been up to. What we do hear,
however, is unsettling.
The past two weeks Saddam has repeatedly stated that he would
eradicate Israel if Lebanon or Syria would give him some land
from which to operate.
And it”s a big concern that our “friend,” Saudi Arabia, has made
some rather bellicose statements of its own, including the
comment that they would get involved in a big way if Israel
attacked its neighbors.
What is also now apparent is that President Clinton, in his rush to
build his legacy, was ill-prepared for the last Camp David summit
and that, incredibly, he didn”t bring other parties into the
discussions, like Egypt. Thus, it should come as no surprise that
Egyptian President Mubarak said the proposed U.S. settlement
“would be a time bomb that would explode in the faces of all.”
There is also no doubt who has gone the extra mile in this whole
process, Israeli Prime Minister Ehud Barak. Of course the
question in Israel is, was Barak willing to give up too much? And
to this point, the hawks can now say, “I told you so.” At week”s
end, Barak was looking to form a national emergency government
with hard-line opposition leader Arik Sharon. It was Sharon”s
recent trip to the Temple Mount which helped spark the violence.
And then you have the Palestinians and Yasser Arafat…Ali Baba
and the 40 thieves. As I”ve noted on numerous occasions, where
the heck does all the aid money go? Of course, we already know
the answer to that one. So why haven”t we held Arafat”s feet to
the fire?
The Palestinian people have zero future, if history is to be our
guide but, believe it or not, we want Arafat to survive. Why?
Because in the current environment, whomever were to replace
him could be far worse. The extremist elements in the PLO rule.
Why else, then, when you have been given 90% of what you
wanted in the peace negotiations, would you turn it down as
Arafat has?
Again, the upcoming Arab summit is critical. By standing tall
against Israel, Arafat will be lionized by his Arab brethren. It is
the moment he has waited for.
One final note on the Palestinians. No one should be surprised at
the extent of the violence. Last year I wrote of the teachings in
Palestinian schools where from the earliest age the children are
taught to hate everything about Israel. Yet I never hear our
government, or that of Britain or France for that matter, condemn
it.
No, instead we ply them with more money. And with each
generation, the hostility hardens until an heroic figure like Yitzhak
Rabin emerges on the scene and peace seems possible. Then that
leader is taken out and we have to start all over again. You can
never lose hope but, at the same time, we can be forgiven for our
moments of utter despair.
Wall Street
The line of the week is from Dreyfus chief strategist Richard
Hoey.
“Amateur hour is over.”
We finally had some real fear in the market. But it took a wild
card to instill it in investors of all stripes. For the 6th straight
week, both the Dow Jones and Nasdaq finished lower with the
Dow closing at 10193 (-3.8%), the Techdaq, 3316 (-1.3%). At
Thursday”s close the Dow was off some 14% from its all-time high;
the Nasdaq, a sickening 39%. The latter”s closing level of 3074
was its low point for the year.
Friday, though, reminded me of a scene from World War I where
the opposing sides would declare a cease-fire in order to clear the
battlefield of bodies. Occasionally, a survivor would be found.
And thus it was that investors, given a respite as the Middle East
quieted down a bit, picked through the carnage and decided that
more than one or two stocks were still breathing.
But first, for the archives, here are some representative tech
stocks; including a date for when the 52-week high was achieved,
as well as the low for this past week (rounded off).
Cisco (3/27/00) $82, $48
Sun Micro (9/1/00) $129, $96
EMC (9/25/00) $105, $81
Oracle (9/1/00) $93, $62 (pre-Friday”s split)
Intel (8/28/00) $76, $35
Microsoft (12/30/99) $120, $52
Apple (3/23/00) $75, $19
Rambus (6/23/00) $127, $55
Yahoo! (1/4/00) $250, $55…time to take off the exclamation
point.
Amazon (12/9/99) $113, $24
Dell (3/22/00) $60, $22
CMGI (1/3/00) $163, $16
That, folks, is what happens in a bear market. And you can also
see why a spectacular rebound, like the one we witnessed on
Friday, was in order as the Nasdaq registered its 2nd biggest
percentage gain in history (+7.9%).
So where do we go from here? In the short term, it mostly
depends on the political situation in the Middle East, the price of
oil, and the deteriorating credit situation around the world. Long
term, as always, it comes down to the pace of corporate profits
and interest rates. But this week, let”s spend the time on the short
term.
Of course, oil and politics are intertwined. Crude surged $4
Thursday morning as the situation in the Middle East, coupled
with the terrorist attack in Yemen, caused panic buying; the
thought being that a real supply disruption was in the cards. On
Friday, oil backed off but still closed at $35, up $4 on the week.
Economies around the world can not withstand oil at these levels.
It must come down and OPEC knows this. If there is a firm
cease-fire, the price of crude should tumble. But the fly in the
sand is Saddam.
Yet it wasn”t just Mid-East tensions which moved oil this week.
The latest inventory figures in the U.S. showed that we continue
to draw down our reserves at an alarming rate. And the major
concern remains heating oil.
The Star-Ledger newspaper here in New Jersey ran the following
bold, front page headline.
“Your gas heat bill will cost 16% more.”
For most families in the area, that doesn”t exactly make them
want to rush out and buy every family member their own Bose
wave radio for Christmas.
But if oil doesn”t kill the economy, the looming debt crisis may.
Financial stocks plunged earlier in the week as persistent rumors
of incoming debt bombs shared center stage. [Just another reason
for a national missile defense.]
There is no doubt that there is a credit squeeze for lower-rated
companies and the big area of concern continues to be the
telecommunications sector. For example, Europe is spending
some $260 billion in web-enabled phone systems but, at that cost,
what will be the profits? Lenders needed to be hit over the head
with a 2 X 4 before it sank in and now the window is closed.
A good friend of mine who, well, let”s put it this way, is way up
there in the New York banking community, told me the other day
that the economy is slowing much quicker than is talked about
and the credit issue is about to explode.
So where does all of this leave the Federal Reserve? By Thursday
afternoon, many were beginning to bet that the Fed may have to
lower interest rates because of the plunging stock market as well
as the loan issues.
But on Friday, the government reported that retail sales in
September registered their largest gain in seven months while
producer prices rose a robust 0.9%, including a stronger-than-
expected 0.3% increase in the core rate. Bottom line, even if the
Fed wanted to lower interest rates, the inflation numbers may
prevent them from doing so for awhile.
And, continuing with the inflation theme, the Fed has to be
concerned about the impact of tumbling share prices on the value
of employee stock options, many of which are now underwater.
While this may seem counterintuitive, what it means is that
employees may start demanding higher wages to make up for
their now non-existent options gains.
As for the bond market itself, you can imagine that there was
quite a flight to quality earlier in the week and U.S. Treasury
yields collapsed across-the-board.
1-yr. 5.94% 2-yr. 5.84% 10-yr. 5.72% 30-yr. 5.80%
Street Bytes
–This week marked the tenth anniversary of the start of this leg
of the bull market, 10/11/90. Back then, the Dow Jones was at
2365, Nasdaq 325. The average NYSE daily volume was 155
million shares. Today, it”s about a billion.
–EMC was the best performing stock for the last 10 years, up 6
quadrillion percent…or something like that.
–Some mighty stocks fell particularly hard after issuing various
warnings.
Yahoo!: Revenue growth of only 30% is projected in 2001, not
the 90% investors have become used to. Yes, it”s that old word
again, deceleration. It”s impossible to rationalize a staggering
price / earnings multiple when the company is projected to earn
60 cents next year. So the market slammed it. But it still closed
the week trading at 100 times the 2001 estimate.
On another matter, Yahoo always reports detailed traffic figures
in their quarterly statements. But what investors don”t know is
this fact. Everything in a quarterly report is audited…except
traffic. The figures you hear for the web are largely a bunch of
bull. Heck, I, myself, have just a rough estimate of my own
statistics. And the 20 different software packages out there give
you 20 different numbers.
Lucent: Their headquarters are just 3 blocks from my home.
They”re at the top of the hill, I”m at the bottom. And with their
latest warning to the investment community that all is not well, I
better start checking my water supply. The failure of this
company to adapt to the times will be studied in business schools
for the next century. And the fact that the CEO remains in place
is incredible. Finally, their problems may be far from over.
…..excuse me, there”s a knock on my door….
Home Depot: It was sad seeing these guys warn about their
upcoming earnings. Everyone loves them.
Motorola: Warned that handset sales going forward will not be as
robust as planned….Sayonara!
Juniper Networks: Success! A blowout quarter for this upstart
competitor of Cisco”s. The stock soared over 10% on Friday,
alone. But geezuz, it”s back trading with a multiple of around
400.
DoubleClick: This online advertising specialist said the future is
not too rosy. The clickthroughs ain”t what they used to be. Did I
tell you about the deal where I had 9 of them for 4,000+
impressions on one particular site?! You do the math.
–Oil: The release of 30 million barrels from our Strategic
Petroleum Reserve really has been the joke many of us thought it
to be. In fact, it”s verging on scandalous. Of the 11 firms who
bid on the oil, three are tiny little jobbers, including one run by a
man working out of an apartment in New York, while living with
his mother. [Granted, the food must be good.] So now, as of
this writing, these little guys can”t seem to come up with their
lines of credit.
Regarding tapping the oil in the Arctic National Wildlife Refuge,
here are some more facts as set forth by Senator Frank
Murkowski.
ANWR contains, by best estimates, some 16 billion barrels of
reserves. We currently consume 19 million a day in America.
For those concerned with the environment, we now have 25 years
experience operating similar projects in Prudhoe Bay…which,
incidentally, amounts to some 25% of domestic oil production.
During this time, the caribou herd has tripled in size.
[Heck, in New Jersey we now have 100,000 deer. When the
Pilgrims arrived – from Plymouth, MA., via Interstate 95 –
supposedly there were only about 1,000!]
ANWR is 19 million acres. 17.5 million can”t be touched, ever.
The other 1.5 could be utilized for drilling. This is a no-brainer.
Drill.
–Asian market returns (a/o Thursday, in $”s): Indonesia -56%,
Japan -19%, Philippines -48%, South Korea -51%, Taiwan -31%,
Thailand -54%.
–Lots of talk about Janus Funds and redemptions in their once
high-flying portfolios; another negative for the market as it
increases selling pressure on selected issues.
–Goldman”s Abby Cohen issued her 17th “stay the course”
message of the year.
–German consumer confidence continues to slide, as is the case
in France. And the euro intervention of a few weeks ago has had
zero impact.
International Affairs, Part Deux
Serbia: I issued my cautious comments last week upon the fall of
Milosevic for good reason; as was borne out the past few days.
President Kostunica has his hands full. The pundits keep
forgetting that this is a nation of gangsters and, while some have
undoubtedly fled the land with their countrymen”s money, other
truly awful elements survive intact. Kostunica is struggling for
control of the police, the courts, the banking system and customs
authorities.
And you also have the issue of Kosovo, where the Kosovar
Albanians are looking on with envy, desirous of their own
independence.
Nonetheless, the U.S. and Europe need to rush aid into Serbia
before winter does a number on the people. Kostunica seems to
be what the doctor ordered. But he needs the logistical support.
Turkey: Remember that little story of last week and the potential
congressional resolution which would charge Turkey with
genocide in 1915? Well, as expected, Turkey is fuming and they
are close to resuming full trade relations with Iraq. For starters,
they are preparing to pump “full force” from an Iraqi pipeline to
retaliate against the U.S. [This would be in violation of U.N.
sanctions.] And the mandate which allows the U.S. to use the
crucial Incerlik air base ends December 30. The Turkish
parliament could easily decide to boot us out. This is another
foreign policy disaster.
Russia: The forgotten war in Chechnya flared anew as rebels
killed at least 10 in an attack. There was also a report in the New
York Times that Vice President Gore was cutting all kinds of
secret deals with former Russian Prime Minister Chernomyrdin
back in 1995; one of which was an agreement to stop the flow of
Russian arms to Iran. The Russians have not complied.
North Korea: Secretary of State Madeleine Albright put on a
despicable performance at her Thursday afternoon press
conference. The woman who seems to care more about her
stickpins than about U.S. foreign policy interests, segued right
from the disaster in Yemen into President Clinton”s discussions
with North Korea”s #2 figure.
Granted, this was a highly significant event, but you had to see
her to appreciate how inappropriate it was to “crow” while
families of U.S. servicemen and women still had no idea on the
fate of their loved ones.
But back to the issue. It would appear that there is now a good
chance that Clinton will visit North Korea before his term is out.
And I”m sure he”ll bring bags of money and grain…just enough to
get the North Korean army through the winter.
One hero did get his just reward this week, however. South
Korea”s President Kim Dae-jung won the Nobel Peace Prize. If
North Korea ever develops into a true democracy, he will go
down in history as one of the great statesmen of all time. But as I
wrote last week, his own people are growing increasingly
skeptical of the North”s charm offensive. For now, though, he
deserves the benefit of the doubt.
China: President Clinton signed into law Permanent Normal
Trade Relations. But, at the same time, trade representative
Charlene Barshevsky was winging her way to Beijing to attempt
to convince the little Communists that they better hold to their
end of the bargain. This is all necessary because China is waffling
big time. They are worried what truly free trade would do to
their industry and agriculture; i.e., the potential exists for massive
civil unrest because of the tremendous dislocations that would
result from real reform.
Belarus: With the ouster of Slobo, this is the last real dictatorship
in Europe, though the media seems to forget this fact. President
Lukashenko, he of the Hitler-style mustache, is now facing an
emboldened opposition movement of his own. Sham
parliamentary elections are slated for this weekend.
Poland: President Kwasniewski (this is my personal typing quiz)
was easily re-elected this week. Lech Walesa received just 1%.
Argentina: President de la Rua faces a huge corruption scandal
which has already claimed his vice president as a victim.
Phlippines: President Estrada is being urged to resign over
allegations of massive kickbacks from gambling syndicates.
Thailand: The Thai baht (their currency) hit a 27-month low
because of the slow pace of reforms and lack of confidence that
the government will do anything about it. You can virtually make
the same statement about the rest of Asia. And, of course, it was
in Thailand that the whole Asian Crisis of ”97 began.
Belgium: In local elections, a far-right party scored big gains.
One of my wild cards continues to take shape in Europe…an ugly
movement is gaining strength.
Peru: Embattled President Alberto Fujimori has done something
extraordinary. He requested a “leave” of absence for awhile as he
stays in the U.S. [2 of his 4 children live here.] This guy is just
inviting a coup.
Sudan: The U.S. scored one victory this week, preventing Sudan
from gaining a seat on the U.N. Security Council. Instead,
Mauritius received the African slot. And, as a follow-up to my
comments of a few weeks ago, China suddenly appears to be
distancing itself from its participation in Sudanese oil projects.
This change in policy really is because China”s 2nd largest oil
company is due to go public soon and they don”t want any bad
publicity. Which begs the question, are China”s public comments
contrary to private doings?
Ecuador: On Thursday, Colombian rebels kidnapped 10 workers
from an oil field, including at last report 6 Americans. In any
other week, this would have been a big story.
Random Musings
–Richard Gere says that given a choice of being any woman for
24 hours, he would choose to be Madeleine Albright.
–From Harper”s Magazine, the number of people in North
Carolina killed by automobiles since 1998 after lying in the middle
of the road: 66.
–Rift Valley Fever, a mosquito-borne disease, has killed 100 in
Saudi Arabia and Yemen. Regarding the latter, after Thursday, I
can”t imagine any of you give a damn…I certainly don”t. I wish it
was 1,000.
–About 3 months ago, I addressed a racial issue which was quite
controversial. A school district with which I am familiar was
profiled in the New York Times and the black students admitted
that they were under pressure from their peers to “underperform.”
On Thursday, Professor John McWhorter had an op-ed piece in
the Wall Street Journal echoing these sentiments.
“…black American children – middle-class ones included – quite
often sharply disparage black peers who strive for good grades,
accusing them of ”wanting to be white.” This phenomenon is
exhaustively well-documented across the country…Black
students begin this teasing as early as elementary school.”
I would add that today”s ugly, hostile hip-hop culture certainly
doesn”t help matters. And then you have “role models” like the
Philadelphia 76ers Allen Iverson. Iverson, you”ll recall, is
producing some disgusting hip-hop garbage himself. The New
York Times sportswriter Harvey Araton had the following to say
about him this week.
“More than music, more than morality, this is about another
overindulged, self-absorbed jock who listens to no one and
always thinks he got a bad rap.”
–61% of parents of children under 7 think spanking is an
appropriate form of discipline.
–Holy cow…the debate…I almost forgot. Yes, I watched it. It
was held at my alma mater, after all. Survey says? Bush.
–Remember my little expose on Gateway three weeks ago? Well,
this week the company”s solid earnings report helped lead the
Nasdaq back on Friday. But I obviously don”t care about that.
What I wanted was to have a PC fixed, one I had purchased as a
gift, only to have it break down with a hardware problem after
just two months. I told you that there were 73 with similar
problems waiting to be fixed in the store where I had purchased
the piece of c—.
So, I patiently waited the two weeks before they formally
diagnosed it, called to find out if they had ordered the part, and
called again this week (it”s now 3 total) to see if it was fixed.
“As a matter of fact, Mr. Trumbore, the part just came in and we
will get right on it. You should be able to pick it up tomorrow.”
Well, I arrive at home that evening to discover a nice, big
package from Gateway at my front door. I was the proud owner
of a hard drive.
It”s now fixed, over 3 weeks later. And because Gateway didn”t
take care of me in the manner I deserved, I have besmirched their
name in this space. Buy Dell!!! [PCs, not the stock, necessarily.]
–New Jersey Republican Senate candidate Bob Franks will spend
about $4 million on his campaign, opponent Jon Corzine, $55
million. The Republican Senatorial Committee has given Franks
zero, zippo, nada. They did the same thing to Christie Whitman
when she almost upset Bill Bradley in the early 90s. So note to
the Republican National Committee and the RSC, lose my
number! You will never receive a dime from this guy.
–Finally, you see the pictures of the victims of the USS Cole
and your heart goes out to their families; White, Black, Hispanic,
Asian…and you contrast it with the problems in the Middle East.
We live in a great place. God bless them and remember the glory
of their spirit.
Gold closed at $272
Oil, $34.99
Returns for the week, 10/9-10/13
Dow Jones -3.8%
S&P 500 -2.5%
S&P MidCap -2.3%
Russell 2000 -2.2%
Nasdaq -1.3%
Returns for the period, 1/1/00-10/13/00
Dow Jones -11.4%
S&P 500 -6.5%
S&P MidCap +12.7%
Russell 2000 -4.8%
Nasdaq -18.5%
Bulls 41.5% [Good contrarian indicator that this is slipping]
Bears 31.7% [Source: Investors Intelligence]
**About two more weeks to get your entry in for the “Pick the
Dow” contest. Your chance to win $2,500. Deadline, November
1st.
I”m off to Oklahoma for some fact-finding. Tune in next week.
You won”t be disappointed.
Brian Trumbore
