[For the record, posted at 7:15 a.m.]
Aww @#$%!!!
Just when you thought it was safe to buy your tux for the
inaugural, Florida throws you another curveball. And once again,
it”s awful tough to comment on the historic events of just the past
few hours, especially when you have no freakin” idea how it”s all
going to end up!
I have a few random musings on the rhetoric of the week below.
For now, suffice it to say that for the first time I can honestly
opine that this is getting more than a little scary and a trifle
unsettling.
Even if the U.S. Supreme Court delivers us all from this debacle,
the atmosphere is now so poisoned that what I really fear most,
rising racial tensions, seems almost inevitable. It”s hard to write
this objectively after just watching the sickening visages of Jesse
Jackson and Charlie Rangel spouting their venom. [And I”ll be
the first one to admit that the Republicans have a few of their own
who should just shut up as well.]
I wrote shortly after the election that, given the circumstances, Al
Gore had a right to ask for a recount. But he set the wrong tone
right from the start when he sent out William Daley for that first
press conference. It”s been downhill ever since.
And I suspect that I”m not the only one who is getting a little
depressed. Sentiment indicators were already sliding nationwide
for mostly different reasons. Throw this mess into the mix and
who can possibly feel as good about the state of the union as they
may have felt say six months ago? And that will have everything
to do with the coming action on Wall Street, as well as the future
shape of our economy.
It”s now possible Alan Greenspan will have to act sooner than he
wanted to, by lowering interest rates, in order to prevent a real
collapse.
In the meantime, the following comments on the action in the
financial markets this week largely ignore the events after
4:01 p.m., Friday. Otherwise, I”d go nuts.
Wall Street
Last week I said that the markets were looking for Fed Chairman
Alan Greenspan to bail them out. He delivered. I also said that
after an inevitable relief rally, one would need to refocus on the
fundamentals. Of course it”s the fundamentals that caught
Greenspan”s attention as well.
In a speech on Tuesday, Greenspan could not have been more
clear as to the state of the economy; with the preponderance of
data pointing to a significant slowdown. And Wall Street ate up
the following statement.
“In an economy that already has lost some momentum, one must
remain alert to the possibility that greater caution and weakening
asset values in financial markets could signal or precipitate an
excessive softening in household and business spending.”
Greenspan appeared to leave little doubt that the Federal Reserve
was prepared to lower interest rates if the economic situation
worsened much further. And since the speech was on Tuesday,
one also has to wonder just how much lead time he had on such
key indicators as Friday”s employment report, as well as the latest
figures for inflation and retail sales, which we will receive this
coming week.
So Tuesday morning, both stock and bond markets soared. The
Nasdaq recorded its biggest one-day gain in history, 274 points or
10.5%. The Dow”s gain of 338 points, while not historic in
percentage terms, nonetheless was its largest since March 16.
The advances in tech-related issues were stupendous. A broad
measure of Internet stocks rose 12%, the Nasdaq telecom index
increased 10%, and the average tech mutual fund soared 12%.
But the rest of the week, while filled with amazing volatility, was
anti-climactic. The Nasdaq finished at 2917, up 10.3%, meaning
its admittedly spectacular gain came on one day, while the Dow
closed at 10712, also realizing its weekly gain solely as a result of
Tuesday”s action.
While it now appears that the Fed will announce a shift to a
“neutral bias” with regards to the prospects for inflation, it is still
only conjecture as to when they will actually ease interest rates.
Certainly they are looking at more than actual economic data.
For example:
There were a slew of profit warnings from the likes of Intel,
Motorola, Apple, and Bank of America. Intel blamed the slowing
consumer PC market as well as a number of cancellations for
orders worldwide. Bank of America said that its estimate for bad,
or non-performing, loans is greater-than-expected.
Regarding technology in general, Merrill Lynch strategist Richard
Bernstein warned that there is “tremendous overcapacity in the
tech sector.” This can only lead to even lower profits.
On the banking front, Greenspan himself warned of a credit
crunch if bankers didn”t loosen up a bit. He said you don”t want
to “cut off credit to borrowers with credible prospects.” And as if
to echo the credit crunch fears, Moody”s forecast that 8.4% of
junk debt outstanding will default next year.
So while Treasuries are falling to their lowest levels in over one
and a half years, the spread between government and lower-rated
corporate bonds continues to widen, crushing these companies
with soaring interest costs. [There were, however, some well-
received higher-rated corporate bond offerings this week, a
plus sign.]
Meanwhile, consumers are being hit with skyrocketing energy
bills. Folks in the Northeast, Midwest, and West, in particular,
will see their bills rise by $300-$500 this winter. That”s $300-
$500 not spent on consumer goods. Couple this with the election
mess and shrinking portfolio values and it”s no wonder that
consumer confidence finally took the hit I”ve been waiting for to
show up in the numbers. The key University of Michigan study
revealed a drop in confidence this month not seen since the last
recession in ”90-”91. [I really believe this is the Wall Street story
of the week.]
But the silver lining of the week was the stock market”s seeming
ability to shake off bad news, witness the reaction to Intel”s profit
warning. Now, however, the game has changed again, thanks to
the Florida Supreme Court. If you”re nimble you can trade this
market but there is way too much uncertainty for this guy to be an
aggressive buyer. The trend for corporate profits and the
economy is still down. True, there is no recession yet. But
changes in sentiment can be swift.
Don”t worry about missing the next 5 or 10% up move. There”s
no reason not to keep your powder dry. And heck, if you don”t
like your neighbor”s politics, you may want to use it against them!
Street Bytes
–Energy: The price of crude oil continued to plummet as it is
increasingly clear that more oil will soon flood the markets,
especially now that Iraqi crude appears to be back onstream.
Recall that OPEC set a target price band of $22-$28 earlier in the
year as they increased production in an attempt to stabilize
prices. Well, when you see my weekly quote on the price of oil,
understand that that is for the most expensive grade, West Texas
Intermediate, which now stands at $28.44. OPEC”s price band is
for a basket of various grades, meaning it includes North Sea
Brent which generally runs about $1.80 less than West Texas.
I bring this up because North Sea is now trading firmly within the
band. Suddenly, OPEC now has to worry that they opened the
spigots way too much during the year. When oil was trading
above $30 they claimed that the supply / demand situation wasn”t
as tight as the markets had you believe, thanks in no small part to
the speculation that is the nature of the commodities markets. In
other words, OPEC is pissed. They kowtowed to excessive
pressure from the West, particularly from a Clinton administration
worried about securing a legacy through the election of Al Gore.
As one who warned you all about the energy situation long before
the mainstream media picked up on it, I feel compelled to
reiterate that $25 oil is about the level that should satisfy all
parties and, most importantly, it would accomplish two things;
first, help keep the world economy from tanking and, second,
continue to fill oil producers” coffers (money that increasingly
would be used for the benefit of the Arab people).
We don”t want oil to collapse to the $10 level again. We do want
the Arab nations to finally begin to modernize their economies.
The “disaffected” you should be concerned with are not minority
voters in Florida. You need to be concerned with the swelling
ranks of disaffected youth in the Middle East, who increasingly
fall under the spell of extremist Muslim clerics.
So, as long as demand remains at current levels, meaning the
world economy continues to grow, look for OPEC to slash
production this coming January as an insurance policy against
collapsing prices. And this will also be the ultimate test of
OPEC”s unity.
Of course, the price of crude isn”t the only energy-related issue on
the plate these days. While oil was collapsing, the price for
natural gas was hitting a record high as both gas and heating oil
continued to suffer through their own unique supply / demand
problems. And it once again points out that one of the chief
failures of the Clinton administration has been the complete lack
of a national energy policy. Zero new oil refineries in over 20
years. No new power plants in California in 10 years. It”s
shameful.
And speaking of California, it”s unbelievable to think that
government leaders could not have foreseen the incredible surge
in demand resulting not only from an expanding population, but
from the boom in Silicon Valley as well. Power issues in
December are unfathomable to this Northeasterner. High fuel
costs yes, electricity problems no. And now the weather is poised
to deliver a real knockout blow to the West coast over the
coming days.
–Government bonds had another spectacular week with the
growing feeling that the Federal Reserve will have to start
slashing interest rates before January is finished. And the latest
levels have given those of us who missed a chance to refinance
one and a half years ago another shot.
U.S. Treasury Yields
1-yr. 5.75% 2-yr. 5.46% 10-yr. 5.30% 30-yr. 5.50%
–Having been passed over for the top job, G.E.”s Robert Nardelli
and James McNerney were named CEO”s of Home Depot and
3M, respectively. G.E. likes to talk about their deep bench;
which speaks to a broader issue, that being the game of musical
chairs played by corporate executives these days.
A Business Week study showed that for the decade of the 90s,
one third of the CEOs appointed at 450 large companies lasted
three years or less.
–As expected, dot-coms have cut back drastically on their ad
buys for the Super Bowl, taking 10% of the slots vs. 50% last
year. Overall, a 30-second spot during game hours cost $2.4
million.
–Thomas Fogarty wrote an extensive piece in USA Today on the
high-end real estate market and the boom in $1mm-plus homes,
one third of which are in the San Francisco Bay area. And it”s
amazing how little you get for the cost. I stick by my statement
of last week that real estate values are close to peaking, if they
haven”t already.
–8 of the top 9 all-time percentage gains on the Nasdaq have
occurred this year. Yet the index is still off 28% year-to-date.
That”s all you need to know in order to understand what a crazy
time it has been.
–The collapse of Xerox is one of the big stories of the year. One
hopes that it doesn”t get any bigger because there are an awful lot
of companies tied to its fortunes.
–Crown Cork and Seal, W.R. Grace, Owens-Illinois and
Armstrong World are the latest casualties of the asbestos wars.
Their stocks have all collapsed under the weight of crushing
litigation, the bill for which, by some estimates, could total over
$50 billion when all is said and done. These companies need
expiration dates for the filing of claims. None is forthcoming
unless Congress acts. Fat chance of that happening anytime soon.
–It was June 30, 1999 that the Federal Reserve raised interest
rates for the first of what would be 6 rate hikes. The Dow Jones
closed that day at 10970, the Nasdaq 2680. So the Dow has
largely marked time for almost 18 months, while Nasdaq
investors were like Icarus, soaring ever closer to the sun before
the heat melted their wings, sending them plummeting into the
sea, dead.*
*This is my submission for the Pulitzer committee. Ain”t it good?
–The layoffs have started on Wall Street, though not at a
worrisome pace yet. And elsewhere on the job front, the dot-com
pink slips continue to accumulate like chad on a Palm Beach
County counting-room floor.
International Affairs
[Heaven help us if we were to have a real crisis right now.]
Russia: Back in the lead spot after a lengthy absence…which is
never a good thing. And where to start?
Well, this month Russia holds the U.N. Security Council
presidency which means a further loosening of the U.N.”s
economic sanctions against Iraq will be in order. A French-
sponsored plan which allows Iraq to use more of their oil-for-
food money for other projects was adopted this week.
And then there is the issue of justice in Russia. American
Edmond Pope was convicted and sentenced to the maximum 20
years in prison for his alleged espionage activities. Pope has a
rare form of cancer and the U.S. has been pleading with President
Putin to let Pope go for humanitarian reasons. As of this writing
it appears this will be the case.
What”s pitiful is that even during the Cold War, Pope would have
been part of a simple exchange, well out of the spotlight. Here
we”ve witnessed the breakup of the Soviet Union and yet there
are some things that are worse than before, and we seem helpless
to act.
And Pope”s case isn”t the only one of its kind. The Washington
Post editorialized that there is a disturbing trend in espionage
cases like his.
“All the trials are held behind closed doors, under laws that
broadly and vaguely define espionage and state secrets and allow
the security service to use secret evidence.”
A Russian human rights activist said, “War has been officially
declared on civil society in Russia.” Putin is filling his
administration with old security services cronies.
Separately, the war in Chechnya continues as the rebels launched
a wave of attacks against 25 checkpoints, killing at least 13
Russian soldiers. Some of these Chechen fighters, incidentally,
have offered their services to the Palestinians, who have smartly
said, “No thank you.” [I offer this last bit not because I am siding
with the PLO. Far from it. It”s just a fact that if the Palestinians
accepted Chechen help, it would erode the support they may have
outside the Arab world.]
More on the awful health situation in Russia. Abigail Zugar had
an extensive piece in the New York Times detailing the spread of
infectious diseases like TB, syphilis and even polio. The prison
system is an “epidemologic pump.”
And one final item. Putin will be in Cuba this week.
[Note to the Wall Street Journal: The front page of your 12/8
edition has a bit on the Russians buzzing the USS Kitty Hawk,
explaining that the Pentagon just announced the October episode
this week. Hel-loo…I wrote about this myself way back on
11/18!]
Middle East: It was a week in which Yasser Arafat began
brandishing a weapon (a submachine gun) for the first time since
1994. And an Israeli diplomat was shot in Jordan (the man
survived), but at least Israel received good cooperation from
Jordanian authorities. Then on Friday, violence erupted in full
fury once again as 7 Palestinians and 3 Israelis were killed in
separate clashes and ambushes. As America fiddles, the Mid East
burns.
Romania: The runoff for president is Sunday. In an editorial this
week, the Washington Post dealt with the issue of ultra-
nationalist candidate Vadim Tudor.
“Mr. Tudor…is arguably the most serious political menace yet to
appear in the post-Communist countries of Central and E.
Europe.”
Mexico: Vicente Fox was inaugurated as his nation”s first non-
PRI president in 71 years. In an inspiring address, Fox reached
out to the poor and the indigenous peoples of the country, like
the Chiapas rebels. But he doesn”t control a majority in the
Congress which is still populated with old guard PRI legislators
who don”t want to give up their perks. Fox has made a ton of
promises and it will be tough to deliver. [See “Hott Spotts” for
more.]
Venezuela: As part of his anti-corruption plan, President Chavez
sought to oust hundreds of union leaders. So a vote was held and
only 20% of the people went to the polls. But the measure
passed and now you”ll have a struggle between the two. Chavez
overstepped his bounds and for the first time the people are more
than a little miffed.
South Korea: Anti-Americanism is growing as the U.S. has yet to
issue a formal apology for No Gun Ri, the massacre of civilians
which occurred days after the start of the Korean War. While the
U.S. Army may have been justified in its actions because the
situation at the time was so chaotic, it seems to me that we still
have to apologize. And if we don”t watch it, a 50-year-old issue
could blow up in our face.
European Union: In meetings this week, the European Union is
addressing a number of crucial issues as the member nations seek
some sort of mutual identity outside of their own national
interests. And leave it up to the French to screw things up.
French President Chirac said that the talked about E.U. army
force of 60,000 would be independent of NATO. Britain”s Tony
Blair said, “I don”t think so.” The collapse of NATO at this point
would be a disaster.
Germany: The government is going through with its plans to ban
the National Democratic Party (the neo-Nazis). They are allowed
to do this under their constitution but the whole court process
would probably take up to two years, which means that the Nazis
will receive a ton of free publicity.
Eritrea / Ethiopia: Good news. After the latest war which killed
tens of thousands, these two enemies signed a peace treaty. It”s
time to rebook your flights there.
Global Warming: What”s this? More good news! The European
Union and the U.S.-led bloc are holding additional talks in
Toronto after the recent discussions in The Hague broke down in
a sea of acrimony. Actually, quite a shrewd move by the U.S.,
Canada and Japan. Take everyone to Toronto, remind them that
it”s still pretty darn cold, and then the Greenies might say, “You
know Bob, maybe this whole thing is much ado about nothing.
Let”s go have an ale.” Well?
Philippines: Now here”s a president for you. President Estrada”s
impeachment trial began amid widespread street protests. Now
you”ll recall that when Estrada came to power just a few years
ago, he was the B-movie actor who seemed to be following his
own Ronald Reagan script. Only I don”t quite think Reagan did
the following.
According to an article by Rajiv Chandraschkaran (this didn”t
quite clear spellcheck) of the Washington Post, Estrada is a real
piece of work. He parties every night with his close political
cronies, drinking and gambling to considerable excess. Regarding
the former, he is known to drink 10 bottles of his favorite wine,
Chateau Petrus, which evidently runs $1,000 a bottle. As to his
gambling, the pots sometimes approach $500,000.
And at the end of these wild nights, Estrada would head to the
home of one of his 4 mistresses. His aides say he then wakes up
around noon and asks them what kinds of business deals he had
cut the night before. The aides have to stay sober just so they can
keep track. And one other item on the president. Supposedly,
he eats, literally, nonstop. There is a permanent buffet in his
office, stocked with his favorite foods: roasted pig, lobster, giant
prawns (hmmm…giant prawns…) and crabs. Come to think of it,
sounds like a good idea for the StocksandNews holiday party!
Random Musings
–Just a few election comments of note this week. Democratic
Congressman John Lewis (a veteran of the Civil Rights
movement) said, “If there”s a perception that this is not a
legitimate presidency, the political climate will not be orderly and
peaceful. I”m not making a threat; I just think it”s so.” Well,
congressman, are you at least going to try to help lower the
volume? I didn”t think so.
–And from Newsweek”s ultra-left Jonathan Alter. “Colin Powell,
Condoleeza Rice and Cheney”s calls for ”diversity” in the cabinet
are not likely to pay big political dividends.” What more are Bush
and Cheney supposed to do? Find a spot for Nipsey Russell?
–I have to repeat this every week for the benefit of my
Democratic friends. Powell and Rice would occupy the two top
foreign policy jobs! Both have impeccable credentials. This is a
good thing for America, even if Black America can”t seem to
understand it.
–As the vote is dissected, experts point to various wildcards that
may have influenced voter behavior; items such as high energy
prices, the late Bush DUI charge, Elian and the previously strong
Democratic Cuban vote, Republicans not deploying Bo Derek
non-stop in Florida to win over the male, 75 and up age group…
–I”m really surprised we haven”t seen any ads for the Ronco
Votomatic.
–Last week I wrote of high profile children, namely Albert Gore,
Jr. and Chelsea. So in Sunday”s Times Magazine, Margaret
Talbot wrote on the emergence of Chelsea. Talbot said in part.
“If she is not yet a wholly public figure, she is certainly not a
private citizen either. Increasingly, she seems a fair journalistic
subject.”
Talbot writes of Chelsea”s extensive travels this year which,
frankly, have irked me a bit since you and I are paying for her and
a separate staff. Somehow, I don”t feel like I signed on to foot
the bill for her worldly education…but I digress.
Since Chelsea won”t speak up in public, Talbot adds, “It makes it
seem that she is being used in some icky, insidious way – that she
has been set forth as a paragon of normality, a child who has
never rebelled despite her father”s exquisitely embarrassing
travails.” Right on.
–ABC had a program on Thursday night, “Shooting War,” which
I”m sure some of you saw. For those of you who didn”t, it was
about the army cameramen during World War II, complete with
graphic footage.
But there was a clip I must comment on from personal
experience. The program showed film from the Battle for Saipan
in the Mariannas. A Japanese woman is shown throwing her
baby off a cliff and then committing suicide herself. The narrative
says that the film was too powerful to release at the time.
But what the show failed to add is that there is even more
explosive footage, floating around Japan, showing Japanese
soldiers throwing the babies off the cliff. The Japanese
government has long sought to suppress it, for obvious reasons. I
was at this cliff in Saipan over three years ago. You just can”t
believe how barbaric some people can be. War is one thing. This
was something only God can begin to make sense of.
–I can pop a letter into the mailbox to Micronesia but I have to
physically go to the post office to send one to Canada. There is
something wrong here.
*The preceding commentary was paid for by “Citizens for
Merging the U.S. and Canada.”
–November was the 2nd coldest in U.S. history. Really and truly.
–Last year at this time, I was making fun of all those who rushed
to print end of the century books. I said it seemed as if they
could be leaving a lot out, like a resolution of the tech bubble.
Little did I know they should have waited to include this election.
–It”s official, New Jersey”s Jon Corzine spent $62.8 million on
his Senate campaign, doubling the previous record of $30 million
established by the losing Senate candidacy of California”s Michael
Huffington.
–Speaking of politicians, New Jersey”s other senator, Bob
Torricelli, has just written a book on famous political speeches
and quotes. So I”m in Borders the other day and this very nice
woman is assisting me with my inquiry. “How do you spell the
author?” “Ahh, T-O-R-R-I-C-E-L-L-I, Robert.” “Gee, that
name sounds familiar.” I said nothing. It should scare you that
this person probably voted.
–NASA now believes it has irrefutable evidence that Mars was
once waterlogged, which means that there should be a fossil
record of life. It boggles one”s mind, particularly those of us who
still look up in wonder on a starry night. The next president must
speed up the timetable for manned missions to this planet.
–In 1989, the average large company CEO made $1.2 million, or
45 times the blue-collar wage average. In 1999, the CEO earned
$12.4 million, or 475 times the blue-collar tally. [Source:
Business Week]
–And here I was going to nominate Sanders Sauls for
“StocksandNews Man of the Year.” Oh well, he tried.
–Strom Thurmond turned 98 this week. It may be time for a
“Pick the Date” contest. I”ll say June 4th. But wait, Strom would
be replaced by a Democrat in the Senate! Keep Strom Alive!
Keep Strom Alive! [Actually, imagine the added turmoil if he died
in the next few weeks, breaking the tie in the Senate.]
–And the State of Texas broke the all-time record for executions
in one season, err, year, as they tallied #38 this week. I should
have noted earlier, with execution #37, that this exceeded the
major league record for triples in one season, 36, held by
Pittsburgh”s Owen Wilson (1912). Just more “Fun With
Numbers,” boys and girls.
Gold closed at $272
Oil, $28.44
Returns for the week, 12/4-12/8
Dow Jones +3.3%
S&P 500 +4.2%
S&P MidCap +7.6%
Russell 2000 +4.9%
Nasdaq +10.3%
Returns for the period, 1/1/00-12/8/00
Dow Jones -6.8%
S&P 500 -6.8% [yes, the same]
S&P MidCap +18.7%
Russell 2000 -5.1%
Nasdaq -28.3%
Bulls 54.6%
Bears 30.6% [Source: Investors Intelligence]
