[Posted 7:15 AM]
“Make the world go away
And get it all off my shoulders
Say the things you used to say
And make the world go away.”
–Eddy Arnold
Sorry, Eddy. Deal with it. But at least the first quarter is now
history, and an historic one it was as the Nasdaq fell 26%, its
worst opening act ever. At a level of 1840, the decline from the
all-time high is now back to 64%. Meanwhile, the cast of the
Dow Jones wasn”t exactly performing “Riverdance” either, as the
Dow lost 8%.
If you had to pick two key stories on the week, it would probably
be the positive readings on consumer confidence and the 15th or
so warning from Nortel Networks. On Tuesday, the Conference
Board released its sentiment numbers and they reflected a
surprising pickup in confidence from February”s dismal levels
(albeit the overall reading remains very low). The market reacted
positively; maybe things weren”t as bad as they seemed! The
Dow Jones rose 260 points and Nasdaq climbed 60. But then on
Wednesday morning, telecom giant Nortel told us its business
landscape was awful, with little sign of improvement until something
like 2029.
A slight exaggeration, perhaps, but when you take the two items
together they tie neatly into an issue previously discussed in this
space, that being the battle between Corporate America and the
consumer. Overpaid chieftains who failed to see the slowdown
coming, versus Joe Six-Packs who continue to spend, even if they
can”t afford to. Put the two together and you have a formula for
avoiding recession, barely, like by 0.5%.
I comment further on the telecom sector in “Street Bytes,” but for
now let”s take a look at steel and globalization. From time to
time I have mentioned that I track the level of steel production to
get a broad overview of the manufacturing sector. Is it the best
single indicator of economic activity? Probably not. There are
others like freight cars and machine tool orders, for example, but
if you just examine 3-6 month trends, steel is pretty good at
calling major turns. Last fall it foretold the downturn long before
the bulk of economists and strategists did.
Today, though, as I noted a few weeks ago, production of steel is
trending up (check out my 3/30 “Wall Street History” piece for
all the specific numbers and further analysis) and it”s a major
reason why I think the U.S. economy will avoid recession. But
this also means I”m ignoring the “down” reports on
manufacturing, like this past Friday”s Chicago Purchasing
Managers Index. That”s a risk.
And, as my learned friend Jimbo told me the other day (Jim is
personally knee-deep in the tech debacle, from a career
standpoint), are large manufacturers nonetheless operating off
forecasts developed in late 2000? Are they truly acknowledging
the worldwide slowdown? Maybe he”s right.
And what of globalization”s role in the new economic order?
This week, Gerald Seib, writing in the Wall Street Journal, labeled
the current environment a “time of economic anxiety,” which is
why I have used up so much ink on my Greenspan / Save the
World pitch. The Federal Reserve has far more to do in the way
of cutting interest rates (after all, my projected 0.5%-1.0%
growth rate is no hoedown), and the main concern should
continue to be what happens in the rest of the world.
Of course it doesn”t help that our partners in Europe also fail to
“get it.” The European Central Bank voted to keep its own
interest rates steady this week, despite obvious signs that
Europe”s little spurt of economic activity is far from enough to
get them to the finish line. The ECB continues to be paranoid
about inflation, which at a current 2.6% is above its target of
2.0%. And the mad cow / foot-and-mouth crises are leading to
higher food prices. But, geezuz, mon freres, get a grip. If your
economies collapse, a higher price for cod will be the least of
your worries.
The world is on a collision course with destiny…and that destiny
is trade wars. The last truly global recession was in 1974, as a
result of the Arab oil shock, and trade was the weapon of choice.
But these days, amidst the heightened sense of one world / one
environment (see my discussion on Kyoto below), seemingly
minor conflicts can escalate quickly. Much will be written by
many on this topic going forward, unless we can arrest the
economic slide soon. For his part, Alan Greenspan can still help
save the day, it”s just that the odds on him doing so are falling
rapidly.
Street Bytes
–Bonds rallied on the short end, but fell at the 10-and 30-year
level, amidst growing certainty that the Fed will act before their
May 15 meeting to lower interest rates. [The bond market”s
certainty, not mine.] But further appreciation on the long end
would appear to be limited.
1-yr. 4.09% 2-yr. 4.18% 10-yr. 4.92% 30-yr. 5.44%
–Quarterly earnings estimates continue to plummet at the rate of
0.5%-1.0% a week. Not only are profits for the S&P 500 now
expected to decline in the first two quarters of the year, they are
only a week or two from going negative for the third quarter as
well. But the first week there is little change in these figures
could be a significant one. If nothing else, it should help confirm
the bottom in the equity markets.
–Telecom: In my ongoing effort to trash the potential for the
wireless web, it needs to be pointed out that AT&T has 15 million
wireless phone subscribers, but only 500,000 have Internet
service. Only 10% of Sprint”s customers want it. As one analyst
said in the Washington Post, “The reality is that people aren”t
finding the services interesting.” What?! You mean you don”t
need to know there is a sale on cappuccino at Starbucks?
On another matter, if you have DSL service, beware. Major
provider Northpoint closed its operations, stranding about
100,000 subscribers. Many of their competitors are also
on the verge of bankruptcy. So have a backup plan ready.
And then there is Europe. The 3 biggest telecoms (Deutsche,
France, and British) collectively have accumulated $120 billion in
debt over just the past year (at least $150 billion overall). And
they say they need another $100 billion to finish building out their
systems. Forget the fact that it”s now apparent the long hoped
for “3G” technology will be a bust.
Simply put, there are too many telecom companies, too much
fiber-optic cable, and too few customers.
But wait, there”s more! Palm estimated that sales for its current
quarter will be in the $300 million range versus Wall Street”s
projected $550 million! Just a slight shortfall. The previous
quarter, which ended in February, revenue was $470 million.
What does this trend tell you?
–Amazon”s Jeff Bezos was a guest host on CNBC this week,
wherein we got this little nugget. “We don”t need to raise cash,
but if we did it would be for strategic reasons.” Ah, you mean
like survival?
–A consultant in San Francisco projected that the Bay Area will
see an additional 30,000 dot-com job losses over the coming year.
Which reminds me of my first, and only, dot-com conference
there. It was 1999 and I was so disgusted by the hubris exhibited
by the industry”s “leaders” that on the final night I sought the
refuge of the Gold Coast restaurant (where I know the owner)
and proceeded to have a very enjoyable time watching Monday
Night Football.
–MarchFirst, an Internet consultant, may be on the verge of
bankruptcy. My recommendation is that the employees in the San
Francisco area check out the Gold Coast.
–The IPO of Lucent spinoff Agere was far from a home run.
Originally expected to be priced between $16-$18, it was brought
out at $6 and barely finished the week above that level. Lucent is
edging closer to junk status. If the business environment for their
products doesn”t pick up soon, you may see thousands of
shareholders offering their holdings at garage sales this spring.
Speaking of which, if you come across any old baseball cards or
Dave Clark Five albums at these events, drop me a line.
–Energy: Remember California”s original estimate of the cost to
help the utilities in the state avoid bankruptcy, about $10 billion?
Now it”s more like $23 billion by 2003. And this week the
regulators hiked rates another 40% (for a total increase of
about 50% for some customers since the recent crisis began).
But I have to tell you, Californians are still paying about what we
do here in the Northeast, and many residents who can ill afford
the new charges will not be subject to the increase at all (as it
should be).
Nonetheless, we all had to endure stories like the one where the
older woman cried, “My husband is incapacitated and all he can
do is watch television. What am I to do?” Oh, c”mon. If you”re
that bad off you don”t have to worry, just don”t expect the media
to tell us that.
And speaking of the media, as we approach the summer driving
season, it”s time to go back one year and recall the disinformation
campaign that many of us lapped up. I made fun of those who
were screaming about $2 a gallon gasoline as we were shown
mothers and fathers who said, “Now I can”t afford to take my
family on vacation.” I then pointed out that if you drove 2,000
miles, at 25 miles per gallon, paying 50 cents more, that”s
an extra $40. Would you cancel a vacation over $40?! Of course
not. And Americans took to the highways in record numbers last
summer.
But at the same time I was also pointing out that rising fuel costs
would hurt corporate profits, big time. The bulls on CNBC said,
“No way. We”re in a New Era and the U.S. economy is much
less dependent on energy prices than it was back during the major
crises of the 1970s.” Wrong. Every company that is
disappointing its shareholders these days blames a slowdown in
capital spending and…rising fuel prices.
So it”s once again time to scare the public. Now don”t get me
wrong, if you”re a cabby or trucker, high gas prices hurt big time.
And the rising cost to heat and light your home or business can be
a real drag. But, as the Bush Administration keeps pointing out,
the real story is we haven”t had a long-term policy in decades and
now we”re paying the price.
Back to California and the Pacific Northwest. Others are finally
wising up to the biggest issue. If it doesn”t rain, there”s no
power. The states of Washington, Oregon and Idaho, for
example, are 80-85% dependent on hydropower and they are in
the midst of a devastating drought (with the salmon soon to be
among the victims). California normally relies heavily on
hydropower from this region to get through the summer.
Washington and Oregon won”t be able to spare a kilowatt.
One last energy-related item; the Kyoto Accords of 1997 which
addressed the issue of global warming. Over 100 nations signed
this treaty and the U.S. agreed to the terms in principle, which call
for the U.S., already responsible for 25% of the earth”s
greenhouse gases, to begin cutting back on emissions. This week
President Bush said the U.S. will renege on the agreement.
Bush has made a huge mistake. Heck, it”s politics / diplomacy
101. He could have stalled for months, even years, parceling out
a little here and a little there, just enough to please some folks and
keep it off the front page. Instead he blew the issue wide open.
The excuse the Administration has given is a good one; we have
an energy crisis in this country, the economy is suffering, and the
last thing we want to do is increase the costs of doing business.
Fine. We can agree on this. But as I noted in the beginning of
this review, we”re all in this new era of globalization together.
The president needs to at least act like he knows it.
–Switching gears, company insiders are not buying into large cap
technology names. Rather telling.
–My Portfolio: But your intrepid editor finally dipped his toe into
the technology waters for the first time since 1998 and discovered
one thing…the water is still cold this time of year. And I can
even tell you what I bought (for once) because it”s an index. On
Tuesday I took 5% out of cash and purchased some QQQs, the
Nasdaq 100. As it turned out, I lost about 10% on the move over
the balance of the week, but I was better off than if I had bought
some of the individual issues I was looking at. And as I said over
the past few weeks, this is only a trade…but if it goes down much
more, it becomes an investment! So I”m 95% cash and bonds,
5% Nasdaq. Let the good times roll!!
–StocksandNews is awaiting regulatory approval before issuing
our new hummus futures.
International Affairs
*As of this writing, Slobodan Milosevic is under house arrest. It
is expected, however, that he will not immediately stand trial for
war crimes, but rather for crimes against the state. Yugoslavia
should now be eligible to receive more needed aid from the U.S.
Middle East: The first formal Arab League summit in 10 years
was held this week and, as usual, moderates Egypt and Jordan did
what they could to keep the peace. Syria”s new leader, Bashar
Assad, gave the most disappointing performance as one speaker
after another bashed Israel.
And it was a bloody week in Israel. Prime Minister Sharon
retaliated in force after two more tragedies; the cold-blooded
killing of a 10-month-old baby and the deaths of two teenagers at
the hands of another suicide bomber. For his part, Yasser Arafat
didn”t apologize, but, as I”ve noted on countless occasions, Arafat
is irrelevant to the Big Picture. The extremists are calling the
shots.
Britain: Two hours after I posted last Saturday”s piece, I learned
that the 300,000 figure I used for slaughtered animals due to the
foot-and-mouth epidemic was going to approach 700,000. But
then later in the week, British Prime Minister Blair decided that
maybe they should explore vaccination as an alternative. An
incredible screw-up for a man running for reelection on May 3.
[As of this writing, Blair has until April 6 to postpone the vote,
and he”s under extreme pressure to do so.] Yet the British
people, whom I mostly admire because they are the only ally that
would go to war with us these days, continue to give Blair a 50-
31 lead in the polls, which shows you just how awful his
opposition is.
The debate is basically this; why wasn”t vaccination started right
away? The world certainly wouldn”t have seen the horrifying
images of a countryside ablaze and the farming and tourism
industries may have avoided taking such a big hit. That”s the
“pro” side. Those against vaccination argue that you then can”t
label your product “disease-free” because vaccination is not
reliable. Meanwhile, the epidemic is still supposed to get worse
before it gets better.
Over in Ireland, the situation appears to have stabilized, but it”s
still serious. Commented a construction worker, “We”ve been
waiting for something big to stop the Celtic Tiger. [Ireland”s
stunning economy.] Who”d have thought a sheep would savage
her?” Asian nations have banned all Irish farm products.
Here in the U.S., we had our first foot-and-mouth scare on Friday
but tests on some North Carolina pigs proved negative.
North Korea: Our “allies” in the European Union have decided
that since the U.S. was taking a step back from negotiation with
the North, it was appropriate for them to launch their own efforts.
Wouldn”t want to miss a business opportunity would we,
Frenchie?
And North Korea announced it was canceling plans for a joint
table tennis team with South Korea at the upcoming world
championships. [Amazing how ping pong has played such a
crucial role in world affairs, i.e., Nixon”s “ping pong diplomacy.”
It also leads me to believe that perhaps all of my beer pong may
yet pay off.]
Russia: President Putin continued to put his stamp on the
government, appointing an old KGB buddy to be Russia”s new
defense minister. Meanwhile, capital continues to flee the
country. And sliding oil will do a number on the economy,
exacerbating the dire situation in the rural areas.
China: President Jiang Zemin made it very clear; butt out when it
comes to the issue of American University professor Gao Zhan
and her imprisonment for alleged espionage. On the financial
front, the government has disciplined 8 of 10 major fund
management companies for price manipulation in the markets.
The rest of Asia could probably use China”s help in this regard.
Canada: First off, to my buddies up north, let”s agree to stay
friends through the coming trade war. And it has the potential to
be a doozy. A controversial five-year agreement on lumber
expires this weekend. Canadian wood is now used in one-third of
U.S. homes. As this is a $6-$12 billion piece of trade (the amount
varies depending on pricing and demand), it is a serious issue.
The U.S. claims that Canada”s lumber industry is heavily
subsidized, thus defying provisions that go back to NAFTA.
Canada denies this. The U.S. also claims that 100 lumber mills
have closed in just the last 6 months because our private firms
can”t compete on price. Of course these kinds of issues become
acute during economic slowdowns.
Japan: Aside from its economic problems, as detailed in a piece
written by Howard French for the New York Times, an emerging
far-right movement is seeking to rewrite history, particularly
Japan”s World War II treatment of South Korea.
Indonesia: Exxon Mobil”s decision to pull out of a large gas
operation here will cost the government some $1 billion in badly
needed revenue. Exxon couldn”t guarantee the safety of its
workers.
Sudan: Slowly but surely the Bush Administration is preparing to
involve itself in the civil war that has resulted in 2 million deaths
since the 1970s. It”s a basic fight over freedom of religion, with a
hard-line Islamic regime in the north, Christians in the south, and
oil in the middle. Many Americans from disparate groups are
going over to literally buy the freedom of Christians who have
been thrown into slavery. [For more on the history of this
conflict, check out my 3/29 piece in “Hott Spotts.”]
Austria: Jorg Haider”s Freedom Party suffered defeat in Vienna”s
municipal elections as their vote fell from 28% in the last vote to
just 20% this go round. Haider”s anti-Semitic, anti-immigrant
rhetoric must be wearing thin. A good sign, given my otherwise
gloomy outlook for Europe. Look for Haider to get a teaching
position at Columbia.
Random Musings
–Tax Cuts: Note to members of Congress. Don”t go for the
short-term fix. Note to readers. Write your Congressman and
tell them not to go for the short-term fix.
–Jesse Jackson will probably be in the news quite a bit over the
coming days because of the National Enquirer tell-all piece by his
former mistress. I”ll leave out the details here. But William
Claiborne had an interesting tale in the Washington Post, detailing
the fake reverend”s use of racial politics to shakedown vulnerable
corporations. The white leaders of these outfits look like real
wimps. This is a story screaming for Mike Wallace.
–The following is from a Wall Street Journal op-ed piece by
Alvin & Heidi Toffler.
“If you think the (digital) revolution is over, get ready to be
shocked again as information technology converges with and is,
in turn, remade by, the biological revolution.”
Why don”t we just skip the information bit and move onto the
cures for cancer?!
–Saudi Arabia banned Pokemon games and cards because they
“possessed the minds” of children, promote Zionism and involve
gambling. What? You mean the Topps Filthy Rich Sheik cards
are any better?
–Trader George reported in on Monday morning, as the last 9
holes of the Tournament Players Championship were being aired.
You could tell who was having the better year on desks across
Wall Street, he said, “every bond guy is watching the golf and
every equity guy is pretending he”s busy.”
–The Taliban notified the world press that it took up to 20 days
to destroy the two giant Buddhas. It would only take about 5
minutes to destroy them.
–Let”s put things in perspective. In the case of the Comair strike,
I”m with the pilots. Some of them make as little as $30,000.
Hell, these guys have the fate of many in their hands (witness
Aspen). Meanwhile, $30,000 is the amount that the Yankees
Derek Jeter earns each time he steps up to the plate. And Roger
Clemens pockets $75,000 for every inning pitched.
–Whenever the media ticks you off, you have to remind yourself
that we still have the freest press in the world…or you”ll go nuts.
On Thursday, I was watching President Bush”s press conference
on the Communist News Network when a reporter asked the
president a question relating to energy policy. Immediately, CNN
flashed a video of caribou frolicking in the beautiful Arctic
National Wildlife Refuge.
“What the heck is that all about,” I thought while almost throwing
a baseball through the television. Of course we know. How dare
the president drill for oil in this pristine wilderness! But when a
question on missile defense arose, I certainly wasn”t surprised that
CNN failed to show a graphic of an Iranian strapped to a missile,
Slim Pickens style, as it hurtled toward New York.
–And then there is the death penalty. You will never convince me
that capital punishment is not warranted in many instances. This
week, for example, Attorney General Ashcroft said he is recommending
it for Robert Hanssen, should the traitor be convicted. Good.
And then there”s Timothy McVeigh. I wrote last fall of my trip
to Oklahoma City to pay my respects to the victims of the
bombing, and of how when I walked the memorial grounds, my
heart welled up with hatred for the SOB.
I get a kick out of our European friends who decry that America
still has the death penalty. [And this coming week we”ll see if a
French magistrate extradites the man responsible for the murder
of the abortion doctor in Buffalo. The French are afraid he could
be given the chair.] Of course these are the same folks who
allowed millions to be gassed right under their eyes.
–There was lots of news on the cloning front, beginning with
Gina Kolata”s piece in the New York Times. Evidence is
mounting that human cloning would be extremely dangerous.
Said one doctor, “The cloning process seems to create random
errors in the expression of individual genes.” The Bush
Administration will rule against the potential practice shortly.
–Puffy Combs now wants to be called “P. Diddy.” We here at
StocksandNews, however, will refer to him as, “The rapper
formerly known as Puffy who escaped conviction on weapons and
bribery charges because he was rich and famous and could afford
attorneys like Johnnie Cochrane.”
–Dateline / Kekexili, China. “Wild Yak Brigade rides to the
rescue of the rare chiru…Rugged Khampas, traditional Tibetan
warriors, are riding the range, with automatic rifles and handguns
at the ready, on the lookout for poachers.” [The chiru is a tiny
antelope.] Next week, our final installment on the noble Yak.
–The chairman of Commerce Bank is building a 45,800-square-
foot home in New Jersey, bigger than Bill Gates”s house. Bubble
bubble. Glub glub.
–You may have seen this Discovery Channel study where they
purport to have come up with a new look for Jesus, based on the
latest scientific evidence (such as an examination of ancient skulls
at the time of Christ). I”m trying to decide whether or not I
should be concerned that what they”ve come up with appears to
me to be a cross between the NBA”s Vlade Divac and Monday
Night Football”s Dan Fouts.
–You can book it…next year”s “Best Picture” will be either
“Pearl Harbor” or “Lord of the Rings.”
–How dare Jennifer Lopez wear such a revealing outfit!
Goodness gracious.
–According to IKEA and Newsweek, 72% of men report getting
a better sleep on a couch. Only 27% say they get a good night”s
sleep while in bed with their spouse. [I guess the other 1% are
really in the doghouse.]
–According to the New York Post, Chelsea Clinton enjoyed
spring break in Aspen with three of her friends. The kiddies
partied down, shopped, and dined at the finest places. Ordinarily,
none of us should care except that 6 Secret Service agents went
along, at our expense. And they had to go 5 days ahead to case
everything. The agents” tabs were $300-$500 a night. Oh well,
she receives this detail for only another 4 months. But heck, I”m
the one blasting the Taliban!
–Michael Jackson”s interior decorator said Michael has 17
mannequins in his bedroom. 6 are adult size, the rest children.
They are fully clothed. There”s a horror flick somewhere here.
–And I forgot to note last week that WGN in Chicago recently
aired the last “Bozo” show in the U.S. As a kid, Bozo always
gave me the creeps. Future generations have now been spared.
Gold closed at $259
Oil, $26.29
Returns for the week, 3/26-3/30
Dow Jones +3.9% [9878]
S&P 500 +1.8%
S&P MidCap +0.4%
Russell 2000 +1.6%
Nasdaq -4.6% [1840]
Returns for the period, 1/1/01-3/30/01
Dow Jones -8.4%
S&P 500 -12.1%
S&P MidCap -11.0%
Russell 2000 -6.8%
Nasdaq -25.5%
Bulls 48.9% [Huge reversal…good if you”re a contrarian]
Bears 38.0% [Source: Investors Intelligence]
Notes:
–For you baseball fans, I added a link to baseballreference.com
on “Bar Chat.”
–And since the Masters will have begun before I address you all
next, it”s time for my annual plea, “Go Arnie!” He”s going to win
this year, you know.
Have a great week. Play Ball!
Brian Trumbore
