[Posted 7:15 AM]
“We have a great product. Audiences acknowledge this. I have
never been in a competitive market space where a company has
had this low of a ”lost sales percentage,” (meaning that) very few
companies in 2000 looked at our solution, and elected to buy our
competitor”s. Yet, I have also never seen this number of
evaluations be deferred, or come to no-decision! They see it, they
love it. They just can”t justify spending an unbudgeted $1 million
on it in this economic environment.”
–A good friend of mine who holds a senior management position
at a leading edge technology firm.
That really sums up the situation in corporate America today. For
many years, up to the second half of 2000, it was easy to justify
any purchase. You couldn”t afford to be left behind. Now, the
almighty bottom line mandates that you review each purchase as
if it was the last $1 million in the corporate coffers. A pretty
good thing, in actuality. Kind of takes one back to the days of
Ben Franklin, eh?
But, heck, if this nonsense doesn”t stop soon, we could be back to
eating gruel!
And isn”t it something that after 6 weeks in 2001, we are right
back to where we started the year, thanks to the Nasdaq”s 7%
swoon, back to the 2470 level, or, once again, 51% from its all-
time high. The Dow Jones is also where it started 2001, save 7
points, at 10781.
It”s about sales and profits, man, to paraphrase Dennis Hopper
from those great new commercials he”s doing. Cisco rolled over
and died this week, losing 30% in value after the company
announced that it fell way short of its revenue target for the
recent quarter, and that the current one may exhibit little growth
at all. For a company that has recorded 44 straight quarters of
expanding sales, that was awful news. And, as a tech bellwether,
it was disastrous for the rest of the technology sector as well.
I have reflected on the fact that the Federal Reserve needed to act
aggressively in order to save not just the domestic economy, but
that of the world as well. And in Cisco”s announcement they
added that while their own domestic growth was down, overseas
demand remained healthy. Imagine what would happen if that no
longer proved to be the case.
But while Cisco”s news was unsettling, at least there was some
candor. As for Oracle, it hit a new low this week simply because
investors don”t believe them. Oracle said that it”s not suffering
because its customers use its products to become more efficient.
I would submit that my friend”s analysis above is enough to
debunk their stated optimism.
As we”ve discussed the past few weeks, Oracle aside, corporate
America has been increasingly gloomy while the consumer
(despite plunging confidence readings) is still shopping. We”ll get
more up-to-date figures this coming week on the latter, but
another ugly market week, like we witnessed in Nasdaq, along
with the full realization that the latest rally attempt failed, isn”t
likely to make the shareholding public want to go out and buy a
new Beemer. Unless we hold these current market levels, it could
be the final straw.
And not helping matters any is the stench emanating from Lucent.
While everyone is innocent until proven guilty, the SEC
investigation into Lucent”s accounting practices should worry the
hell out of every market participant. Accounting misconduct
from a MicroStrategies is one matter. From once erstwhile
leaders like Xerox and Lucent, it”s quite another.
If nothing else, Americans believe that the majority of news they
hear from its corporate darlings is truthful, whether it”s good or
bad. If the perception grows that a decent percentage of our
companies are playing with the books, confidence in our market
system could swoon.
I rail against investing in emerging markets largely because
they”re nothing but a snakepit when it comes to deciphering
accounting practices. But if Lucent books phony sales to juice
earnings in order to maintain a certain share value, what”s the
difference between this practice and that of some two-bit water
company in Thailand?
So let”s all hope that Lucent is cleared and that they are the last
big player to be investigated. But, of course, you know where I
really stand. The whole world reeks. There isn”t a nation on
earth that is clean, and it only seems to be getting worse.
Street Bytes
–Energy: Every time you think that oil is going to tumble, it finds
an excuse to claw back. This week the inventory picture
tightened and Iraq continued to play games, failing to release its
crude until it was paid tribute. And complicating the picture
(aside from the Western energy dilemma) is the fact that we are
entering a heavy maintenance period, as the refineries shift from
heating oil to gasoline in preparation for the vacation driving
season.
Across the country, heating bills have skyrocketed this winter to
the tune of an additional $300-$500. That”s not chump change to
most Americans.
And did you see the “60 Minutes” piece on the Arctic National
Wildlife Refuge (ANWR)? I”m sorry, folks, but a large number
of Americans still don”t get it. So let”s review.
Does drilling for oil in ANWR help California? No.
Do we gain any immediate advantage by starting today? No. It
would take years to reap any benefits.
Could the environment be harmed? Possibly, though damage
would be limited and we”re talking about drilling in a minutely
small portion of a South Carolina-sized refuge.
What about the caribou? Geezuz, who gives a damn about a few
caribou?! And at Prudhoe Bay, the caribou are multiplying faster
than the Clintons could get the furniture out of the White House.
Here”s the bottom line, which unfortunately bears repeating every
few weeks. We must explore all energy alternatives…starting
today. That means new projects for oil and natural gas, as well as
alternative sources like wind power. There are some risks, for
sure, but if we don”t take them, we are setting ourselves up for an
even more terrifying fall in the U.S. economy than what we may
be witnessing today. Until we get out of the grasp of OPEC, we
can afford to do no less.
As for the short-term, and the looming catastrophe this summer in
California, at least the state is finally scrambling. They still don”t
know what they”re doing, but there”s a chance they may stumble
onto a solution that would help the whole region skate by for a few
months.
It”s amazing to think that the wholesale price of power has risen
from 15 cents to $1 per kilowatt hour, and yet the utilities can
charge only 6.7 cents. And with the latest legislation placing
California directly in the electricity game, the state will now lose
money just like the utilities do.
Plus, as is the case nationwide, everyone just assumes that energy
costs will fall…and stay down. Obviously, the sudden rush to
construct new facilities, as well as a belated conservation
movement, will help California. But I go back to my first point.
It”s far more complex than that.
I said last week I would comment further on the conspiracy
theories floating around. Well, I frankly didn”t see anything
worth discussing. For starters, now that I believe 100% of the
globe is corrupt, if the generators of California”s power
(companies like Williams, Dynegy, and Reliant) are doing
anything wrong, no one should be surprised. But when the state
mandates that the generators keep selling juice to California, even
though there is no guarantee that the Dynegys of the world will
be paid, I think conspiracy theories take a back seat.
–With the latest Nasdaq collapse, let”s see where we stand with
some of the tech blue chips after all of this talk of recovery just
two weeks ago. Following is the all-time high and Friday”s
closing price. [Rounding off.]
AT&T $61 $22
Cisco $82 $28
Dell $60 $24
EMC $103 $56
Intel $76 $34
JDS Uniphase $153 $43
Microsoft $120 $59
Oracle $46 $24
Sun Micro $65 $25
Yahoo $250 $28
Nasdaq 5048 2470…off 51%
–And this week Tokyo”s Nikkei average fell perilously close to
its all-time low (post-1989 crash, when the index was at 39000),
12879, established back on 10/9/98 at the height of the Russian /
Long-Term Capital debacles. The Nikkei recovered some at
week”s end to finish at 13422. Here”s a look at the performance
of a few key benchmarks since those dark days of 10/98.
Nikkei +4.2%
London FTSE +27.8%
Frankfurt DAX +63.5%
Dow Jones +36.5% [The Dow hit 7399, intraday, on 10/8/98,
but staged a stupendous rally to finish at 7899 on 10/9.]
This all just proves, again, how sick the Japanese market and
economy remain.
–U.S. Treasury Yields
1-yr. 4.68% 2-yr. 4.64% 10-yr. 5.02% 30-yr. 5.39%
We had a flight to quality across the board at week”s end.
–Lehman”s convertible bond analyst, Ravi Suria, continues to say
that Amazon may not make it. Ravi is a smart dude. Amazon hit
a new low on Friday.
–EToys laid off its final personnel, shuttling them off to the island
of misfit toys. Nothing personal, mind you.
–The Wall Street Journal published a Harris Interactive poll
rating the reputation of 45 leading corporations. #1 is Johnson &
Johnson, #43 is Exxon Mobil. Of course, Exxon set the all-world
profit record last year of $17.7 billion. A truly miserable place to
hang your hat.
–Northwest Airlines” traffic for January was up 7% over a year
ago. You have to throw this into the mix when you”re trying to
figure out if we”re truly in a recession. But if 2 of the 4 biggest
airlines strike (ex-Continental), as is possible this spring, recession
would be almost impossible to avoid.
–At the end of each review I post the Bull/Bear sentiment
readings, compiled by Investors Intelligence who monitors the
outlook of newsletter writers. It has always been known to be a
classic contrarian indicator, i.e., if everyone is already bullish,
that”s probably really bearish, because, who”s left to buy?
In the old days, like the 80s, the reading was far more valuable
than it”s been over the past decade, mainly because there was
more volatility in the readings than today. But, nonetheless, I
have scribbled them in a book since March 1990 and the 61.8
bullish reading of this week is the highest in that period, 11 years.
The #”s are released on Wednesday and represent a survey from
the prior week, so when I glance at them for my own benefit at
week”s end, I discount the reading by two weeks to get a better
handle on where the Dow was when the forecast was really
issued.
To give you a sense of how it can be a helpful tool, back on
7/6/94, the bull reading was just 23.3. Discounting the date
some, the Dow was around 3600 when the newsletter writers
would have been polled. One year later, the Dow sat at 4700; a
rather nice return of 30%.
Again, it”s just one of many guideposts, and not a particularly
great one anymore, but anytime the figure for the bull or bear
case is above 60 or below 40, it could be useful. Obviously, the
current 61.8 reading for the bullish case isn”t exactly a great sign
going forward, if you follow this theory.
International…and U.S. Defense Policy
Middle East: Ariel Sharon, a k a “The Bulldozer,” crushed Ehud
Barak by 25 points in Tuesday”s election. While it”s impossible to
judge where the peace process goes from here after just a few
days, we”re likely to learn quite a bit sooner than later. First off,
Sharon needs to form a coalition government in order to get a
budget passed, but it is also likely that all parties to the peace
efforts will take a few steps back before plowing ahead once
again.
As for the Bush administration”s role, they clearly would prefer a
cooling off period. And they also made it very clear that
whatever President Clinton had proposed is now off the table as
far as they”re concerned.
Of course, while the Bush folks would like to take a go slow
approach, former envoy Dennis Ross reminds everyone that the
Middle East “does have a way of imposing itself on you.”
The Arabs will paint Sharon as an international pariah, and he
does have a checkered, violent past, to be sure. One can only
hope he is now a true pragmatist, a la Menachem Begin in 1979
at Camp David.,
Former Prime Minister Benjamin Netanyahu weighed in this week
on the election and Yassir Arafat.
“Barak projected weakness to our enemies – a weakness that only
invited further aggression.”
And as for Arafat, “For years, (he) has spoken out of both sides
of his mouth. Paying lip service to the peace of the brave in front
of Western audiences, Mr. Arafat has used his state-controlled
news media to foment hatred against Jews and call for the
destruction of Israel. While leaders like Anwar Sadat of Egypt
and King Hussein of Jordan sought to prepare their peoples to
live in peace with Israel, Mr. Arafat chooses instead to praise
suicide bombers as national martyrs and preach a holy war to end
the occupation of Palestine in spite of the fact that nearly 99
percent of Palestinians no longer live under Israeli rule but are
under his own despotic regime.”
Finally, I thought Charles Krauthammer summed up the current
situation perfectly.
“Israelis are tired, and desperate for peace. But they are brave
people and they don”t like to be played for fools.”
De-Fense…De-Fense
President Bush is wasting no time in his attempt to shake-up the
Pentagon and there are going to be more than a few ruffled
feathers. For starters, Bush campaigned on a pledge to increase
defense spending as well as reshape our armed forces to meet the
threats of tomorrow, not yesterday”s.
However, to some he has sent conflicting signals. Bush is not
going to submit to Congress a huge increase in the defense
budget after all, at least not until he gets his tax package through.
That”s the main story you”re seeing in the press these days.
Couple this with the report that the Pentagon evidently needs $5
to $7 billion in immediate aid for simple training and munitions,
and there would appear to be a contradiction here. The President
who railed against the readiness deficit during the campaign
seems to be abandoning the military.
[As an aside, this week Defense News reported that the Navy
currently can arm only 110 of 275 attack aircraft based on 6
carriers in the Pacific Fleet with precision guided missiles.]
But to give Bush the benefit of the doubt, let”s see where we
stand in another 3 months or so. Bush has just appointed 79-
year-old military analyst Andrew Marshall to complete a
sweeping review of every facet of the Pentagon. While few
outside of it have ever heard of him, Marshall is a legend in army
circles for being one who can think outside the box. [His history
in the defense establishment goes back to his days as a nuclear
strategist in 1949.]
Marshall is not your normal bureaucrat, rather, he has promoted
radical reform measures in the past; such as recommending that
our military assets be repositioned out of areas where there is no
potential threat to the U.S. (i.e., Europe) and move them to Asia
(closer to China). He has also spearheaded many of the war
games where China is increasingly the unnamed enemy.
All of this has everything to do with national missile defense,
potential cuts in our strategic nuclear arsenal, and foreign policy
issues, such as how far do we go in our support of Taiwan and
what to do about North Korea, Iran, and Iraq. From their recent
pronouncements, Bush and Secretary of Defense Rumsfeld seem
to be leading us towards an era of defense, with appropriate
offensive forces.
We can expect broad-based reform initiatives in as little as a few
months, from proposals to scrap 5,000 of our existing 7,500
nuclear warheads, to an abandonment of the ABM Treaty.
Regarding NMD, Rumsfeld made it clear this week that we have
a “moral imperative” to pursue it, though no one (including
Rumsfeld and Bush) knows exactly what shape it will take as yet.
And the battle is on between the U.S. and Russia to win over
European opinion. [China is a totally different matter.]
Again, a huge fight has begun within the Pentagon as each branch
fights to retain cherished weapons systems, even if they no longer
meet the threats of tomorrow. Actually, it”s kind of like what
Eisenhower warned us all about as he left office, the vast
influence of the military industrial complex.
And one final thought on missile defense. There is no doubt that
the U.S. is just as likely to be attacked with weapons of mass
destruction through employment of suitcase bombs or a tanker
loaded with nukes sitting in Long Beach harbor. [I have
mentioned this often before.] My friend Al passed on a note from
a gentleman who used to work at the Army War College, which
said that we must build up our counter-terrorist forces to attempt
to meet such threats. Absolutely. But it would also be criminal
not to continue to explore and immediately implement some form
of defense for ballistic missiles.
Over the coming years, particularly when our budget surpluses
aren”t overflowing, our leaders are going to have to go before the
American people and explain that just because something may
cost a ton, we still owe it to those who follow (as well as those of
us still here) to try and defend our interests from all manner of
attack. It”s not going to be an easy task, especially when, as the
World War II / Korea generation passes from the scene, we are
largely left with a people not used to the word “sacrifice.”
I have wondered aloud on countless occasions why today”s
international pariahs have acted as responsibly as they have, i.e.,
North Korea has the capability to destroy Seoul, what keeps them
from doing so? What holds back all of the bad guys? Fear of
retaliatory annihilation hasn”t always stopped them in the past. We
can”t make it easier to cross the line.
Russia: Meanwhile, CIA Director George Tenet told a Senate
subcommittee in very blunt terms that the U.S. should
increasingly view Russia as a threat. President Putin is bent on
gaining back some of the Soviet Union”s past glory. And
Russia”s arms sales to China, India, and Iran are obviously
intended to erode American influence. Of course it”s all also tied
to the above discussion. Putin, incidentally, has a 76% approval
rating among his people…and the guy hasn”t done anything of
substance. What stability currently exists in the nation is a direct
result of high oil prices, nothing else.
Africa: Thomas Homer-Dixon, director of a Toronto-based
peace group, wrote a fascinating piece* concerning the spread of
light arms in Africa that has turned once manageable conflicts into
big deals.
“Some would argue that events in such poor and distant countries
have little relevance to people in the developed world. But rich
countries suffer if significant chunks of the world become more
violent and decrepit. Zones of anarchy are not only dead weights
on the world”s economy, they can also become sites of major
humanitarian crises that demand external intervention, generators
of waves of outward migration, incubators for disease as their
health infrastructures collapse, and havens for transnational
terrorist and criminal networks that target rich countries.
“We live cheek by jowl on this planet. The United States can”t
hope to isolate itself from these threats, because they can
insinuate themselves into our lives by ship, plane and fiber-optic
cable. If the United States wants to ensure its national security, it
must instead seek to address these threats” underlying causes,
including the spread of modern light weapon technologies in the
developing world.”
Colin Powell was asked last week, stupidly, I might add, by a
network talking head whether he felt any obligation to focus on
Africa and U.S. foreign policy. “My roots are African,” said
Powell. And he can do a lot of good for all the people. But I”ve
noticed one problem. News organizations like the New York
Times are already planting stories designed to discredit any
Powell initiative, saying things like African leaders are distrustful
because he”s from such a conservative administration.
Two thoughts. The opposition in America is afraid he”ll succeed
and reawaken what is basically a black conservative base in this
country (just listen to the messages in most of their churches),
and, second, 98% of Africa”s leaders have reason to be scared.
They should be blown out of office, with few exceptions. And I”d
wager big money that if you caught Secretary Powell in an
unguarded moment, he”d agree.
[*I scribble stuff down during the week and in the case of the
quotes from Netanyahu and Homer-Dixon, I forgot to note the
sources. I apologize to the news organizations involved.]
Colombia: President Pastrana met with the leader of FARC, the
16,000-strong rebel force, at FARC”s own jungle headquarters in
an effort to restart peace talks. A pretty gutty move, especially
when you view the clips of the visit. But, bottom line, the
situation in the whole region continues to deteriorate.
And while Colombia is the world”s largest supplier of cocaine, it
also produces 40% of its counterfeit dollars, an increasing
problem since nations like El Salvador, Guatemala, and Ecuador
have adopted the dollar as their official currency.
Peru: Imagine if the Clinton White House had had videotapes of
all their secret doings, from fundraising issues to Bill”s dalliances
with Monica, and then the material became public. That”s what
you have in Peru today. Thousands of videotapes, instigated by
the former head of intelligence, Vladimir Montesinos, are being
shown on Peruvian television and it would appear that not one of
the country”s leaders has escaped the taint of corruption. There
are films of every politician and judge doing everything…and I
mean, everything.
Random Musings…An Expanded Edition
–The New York Times had the following in their lead editorial on
Friday.
“Mr. Clinton”s irresponsibility was also breathtaking, and has
added millions of Democrats to the rolls of those who regard him
with bitter disappointment.”
This is the New York Times! As I wrote awhile back, the
Clintons are toast.
–And I was thinking about the Clinton legacy and where he may
eventually stack up in U.S. history. Most historians would
probably agree that the Harding administration (known for such
scandals as Teapot Dome) was the worst. I submit that in
another twenty years, or less, it won”t even be close.
Remember, Warren G. Harding did not know of all the
scandalous behavior taking place within his “Ohio Gang,” the
cabinet. And many cases like Teapot Dome played out long after
his death in office (to the benefit of Calvin Coolidge, incidentally,
because he gained credit for cleaning it up). Harding was nanve,
but not complicit.
Bill Clinton, on the other hand, is an accomplice to everything
that will eventually be uncovered. Rest easy, President Harding.
Before you know it (when you”re dead, time is relative) you”ll be
totally forgotten; just the way you always wanted it to be.
–And can the stench get any worse concerning Clinton”s
pardons? Of course it can. Now that the media has turned, as
well as some Democrats in Congress who are suddenly scared to
death about 2002, the saga has just begun.
–Congressman Charlie Rangel, appearing on “Meet the Press.”
“There is strong evidence of fraud and theft in Florida.” No there
isn”t.
–Columnist / author Daniel Gross had a piece in the Washington
Post bemoaning the lack of Wall Streeters in the Bush
administration; Gross”s point being that in a crisis, Wall Street
will be worried that there isn”t anyone experienced in the global
finance of today. Gross quotes Blackstone Group”s Pete
Peterson.
“If I were in the White House, I would like to have somebody,
somewhere, who could feel where the markets were heading.”
What?! Like anyone on Wall Street really knows? That”s
laughable. Treasury Secretary O”Neill will do just fine, and when
the next financial crisis hits he”ll have no problem getting the
appropriate advice.
–New Jersey Senator Robert Torricelli is in potentially deep
trouble as an investigation of his 1996 campaign inches closer to
the big guy himself. [Torricelli used to date Bianca Jagger, not to
be confused with Binaca Jagger, the Fresh Breath Queen.]
–The incident outside the White House the other day was a
serious one. But the news coverage was incredibly poor. The
very first words I heard were “There is a gunman in the White
House.” Huh, that”s kind of serious, I thought. Well, we
eventually straightened that bit out. But then we were told (by
every network) that the gunman was 17, so I thought, just a local
crackhead. Then we learned that the man was really 47. And I
didn”t see one editorial in the major papers or a related network
news story on this collective screwup. Just think of what can
happen when we have a real emergency.
–Mad Cow: The New York Times reported that the FDA is
concerned that some drug companies have been using cow
contaminants in the development of many common vaccines. To
be fair, the chances of being infected in this manner are
infinitesimal. However, the far more serious issue may be the use
of crushed cow parts in dietary supplements. If your mate notices
a change in your disposition and you start to drool, go see a
doctor.
–I received grief last week for my omission of the weekly Yak
reference (I told you I created a monster). So we”re back. The
Coasters had a Billboard #1 tune back in June 1958 with “Yakety
Yak,” a song written by the legendary Lieber and Stoller.
–This just in from the Kansas Grain Sorghum Commission; fuel
that is 10% ethanol is safe for your car. There still seems to be
some debate over this.
–In the last week, I heard 3 people on television joke about not
being able to program their VCR, including Charles Grodin on
“60 Minutes II.” Geezuz, that”s so, like, yesterday!
–The Clinton departure story really does get uglier and uglier. I
told my “Bar Chat” readers that when I was at the Smithsonian I
was glancing at the permanent White House collection of plates
and silver from administrations like Andrew Jackson”s. I
remarked there wouldn”t be anything from the Clintons, not
knowing just how right that was. They stole the stuff! Oh well,
he left office with a 66% approval rating, not exactly a ringing
endorsement of our country.
–StocksandNews was absolutely shocked, shocked I tell you, at
the announcement that Tom Cruise and Nicole Kidman were
splitsville. And your editor now needs a moment to compose
himself….
–I saw the interview on “60 Minutes II” with inventor Dean
Kamen (IT / “Ginger”). While it was a big time puff piece (I
think the reporter thought she might be able to marry the bachelor
Kamen), he seems like a neat guy. But IT is still just a scooter.
–And then there”s Terry McAuliffe, the new handpicked (by both
Clintons) chairman of the Democratic Party. Here”s what
McAuliffe said in his acceptance speech, as reported by the New
York Times” Richard Berke.
“George Bush says he”s for election reform…Reform this: I say,
park the state police cars, take down the roadblocks, stop asking
people of color for multiple forms of ID, print readable ballots,
open the polling places, count all the votes, and start practicing
democracy in America again.”
Actually, I don”t know what I”m upset about. McAuliffe will be
indicted within the year.
–So Newsweek had this big story on drug addiction in America
and the only nugget I got out of it was the fact that Robert
Downey Sr., the filmmaker, gave Robert Jr. marijuana at age 6
because he thought it was “cute.” I have a simple solution. Let
all of the nonviolent drug offenders out of prison and give Robert
Sr. the chair.
–In France, they”ve had a long running corruption scandal
involving the oil giant Elf Aquitane. The former No. 2 official of
the company was arrested in the Philippines recently after being
on the run for 4 years. So when he was nabbed, the guy
swallowed the chip from his mobile phone to avoid divulging
secrets. An agent said, “He munched up the chip like chewing
gum.” Remember, in many towns across America these days, you
can”t munch on a phone chip while driving.
–Mexican truck update: It”s official. A Nafta-related court has
ruled that the U.S. cannot prevent Mexican trucks from traveling
our highways. Truck stops will be livelier, that”s for sure!
Gold closed at $260
Oil, $31.03
Returns for the week, 2/5-2/9
Dow Jones -0.8%
S&P 500 -2.6%
S&P MidCap +0.3%
Russell 2000 -0.8%
Nasdaq -7.1%
Returns for the period, 1/1/01-2/9/01
Dow Jones -0.1%
S&P 500 -0.4%
S&P MidCap +0.6%
Russell 2000 +2.8%
Nasdaq Unchanged
Bulls 61.8%
Bears 30.4% [Source: Investors Intelligence]
Note: Next week, some thoughts on running a web site and the
Net in general.
Brian Trumbore
