[Posted Sat. PM from Hong Kong / Sat. AM ET]
Folks, as I was without any means of communication for about five
days this week, the following may omit one or two items which
some of you would have considered newsworthy, but,
scrambling these past few days to get back on board, I think I
have things pretty well under control. We”ll start out with a
market overview, cover the world, as always, and then you have
to allow me some time to discuss my experience on Yap, out in
Micronesia.
Wall Street
Back in 1964, Barry Goldwater had a campaign slogan, “In your
heart, you know he”s right.” I”ve decided to co-opt it, only mine
is, “In my heart I know I”m right.”
And, heck, if you don”t have conviction as you walk through life,
the whole thing is kind of a wasteful exercise, but I”m about to
get way off track.
I”ve been calling for a long spell in the financial markets
characterized by malaise and cynicism. Two weeks ago it hit in
earnest, and it followed through to this past Monday and
Tuesday, even as the Federal Reserve did its job in once again
lowering interest rates for the 5th time this year.
Of course, at the same time I was out on an island in the Pacific
and really couldn”t have cared less, but when I arrived back into
civilization late Wednesday and turned on CNBC Asia Thursday
morning, I found that the markets in the U.S. had a huge delayed
reaction to the Fed move and soared.
But first the facts. The Federal Reserve, in cutting the federal
funds rate to 4% (it was 6.5% before the first reduction on
January 3rd) said that economic activity still favors weakness for
the foreseeable future.
Specifically, while consumer spending and housing are holding
up reasonably well, both could “weaken and weigh on the
economy,” and the Fed is also worried about the continued
decline in the level of spending on capital equipment. In other
words, they are doing all they can to avoid recession.
Are the Fed”s actions in 2001 too little, too late? Your editor still
thinks that Greenspan will be successful in avoiding recession, as
classically defined. But we are not back off to the races, and if
the price of oil holds levels attained on Friday for any reasonable
spell, outright recession would then be hard to avoid.
And then there is the equity market, which we all know is
supposed to be a discounting mechanism. We also know that
eventually the Fed”s actions on rates should have a positive
impact on both the consumer and business, but this generally
takes at least 6-9 months before the reductions begin to influence
behavior.
Again, however, Wall Street is looking beyond the still lousy
corporate earnings scene of today and expects a far better second
half and a solid 2002. At least that”s what it is telling us as
investors took the Dow up 343 points on Wednesday and 480 on
the week, +4.4%, to finish at 11301, its best level in over 8
months and just 420 points shy of its all-time high.
But the Nasdaq is a far different animal. While it, too, rallied, up
4.3% on the week to 2198, the index is still a staggering 2850
points from its best ever, or about 56%.
That tells you everything, for while the commentators and
strategists are beginning to foam at the mouth again (not a good
thing in this era of foot-and-mouth and mad cow), it needs to be
pointed out that during the bubble of late ”99 / early ”00, two-
thirds of the volume was in Nasdaq (and it”s roughly still the
same percentage today). The action wasn”t in the Dow 30 and
there is still more than enough pain to go around. Despite the
Nasdaq”s solid rally from its low earlier in the year, you aren”t
going to see 4000, let alone 5048, for quite some time.
Lastly, the action these past few days reminds me a little of early
2000, when investors totally ignored the impact of rising oil on
the bottom line. Because of late-breaking renewed tension in the
Middle East, oil spiked on Friday. We focus on “wild cards” for
good reason here. An educated investor can save themselves a
lot of angst. One ignores the international scene at their own
peril.
So enjoy this rally (as I am with my own energy holdings) while
you can. It”s not going to last and, as a man of conviction, I still
say malaise and cynicism will soon rule the day again.
Street Bytes
–Inflation: In its statement on Tuesday, the Fed said that
“inflation is expected to remain contained,” and the latest tame
reading on consumer prices certainly helped if you are in this
camp.
However, while your editor believes that inflation is not an issue
for the balance of the year, at least, of course, like all things,
inflation will one day return…and it”s part of my “5% annualized
returns on stocks for years to come” scenario. And for a more
aggressive opinion on the subject, I turn to strategist Marc Faber,
in my book one of the best in the world. Why CNBC doesn”t
attempt to get this guy on more often, I”ll never know, even if
because of the time difference (Faber hails out of Hong Kong) it
has to be on tape.
So I arrive back on Guam from Yap late Wednesday and flick on
CNBC Asia, where within one minute, there is my hero, Dr.
Faber, discussing the Fed”s rate move. Faber, who writes the
“Doom and Gloom Report,” said that throughout history, action
as aggressive as that which the Fed has now taken, always leads
to a bubble somewhere in the financial system. This time he is
convinced it will be in commodities. The huge run-up in gold
and oil on Friday certainly makes him look prescient, at least for
a day or two. Of course a bubble in commodities could create
stagflation (high inflation with little growth), which would do a
number on the economy and stocks.
–U.S. Treasury Yields
1-yr. 3.72% 2-yr. 4.35% 10-yr. 5.40% 30-yr. 5.76%
The long end of the curve rallied back as the bond market
refocused on the positive impact of the Fed cuts, liked the decent
CPI number, and ignored other signs that inflation could
eventually become a problem.
–Dell Computer”s earnings reports always contain some
interesting insight, and its latest release revealed that they still
see good demand in Europe and Asia, and, while there is intense
price competition in their market space, they nonetheless see a
robust rebound later in the year.
While I have never owned Dell stock, personally, I like the
company because they put out a good product. [I know, having
recently purchased my 6th Dell PC in the past few years.] And I
also have to credit Michael Dell for being the first to say that
they were going to defend their market share, come hell or high
water, even at the expense of profits.
I recently did a “Wall Street History” piece on Montgomery
Ward and its long-time chairman, Sewell Avery. Monty Ward
got lost in the dust at the hands of Sears, and, later, other
competitors, because Avery retrenched, severely, after World
War II, as he expected an economic downturn, possibly resulting
in another depression. His actions couldn”t have been worse for
the future of the company. Maybe Michael Dell knows this
lesson.
–Citigroup”s acquisition of Mexico”s Banamex seems like a
brilliant move to me. And for once here”s an instance where I
don”t mind Bob Rubin”s high-profile position at Citigroup. We
all should want Mexico to succeed and anything that makes
Banamex a stronger operation is good for both countries. You
better believe that should Mexico undergo another fiscal crisis,
Rubin”s presence will be a positive. [I actually can”t believe I
just wrote this…it must be the fact that I have a spectacular view
of Hong Kong from my hotel room.]
–E-Commerce sales fell 19% in absolute terms in the first
quarter of 2001 from the fourth quarter of 2000, due in no small
part to the demise of many Web retailers, and now only amount
to 0.9% of all retail sales.
–My Portfolio: I”m up to 25% stocks, 75% cash / bonds, thanks
to a nice move in my energy holdings. I maintain my 5%
Nasdaq QQQ position for a “trade” with a target of 2400. [No
scientific basis behind this last bit…just a gut feeling.]
–Oh yeah, have you checked out the market”s valuations!!
Much more on this next week.
Energy
The Washington Post, one of our “papers of record” (whether
you like it or not), opined on the unveiling of the Bush
Administration”s energy program.
“(The) proposal…reflects an unprecedented federal commitment
to increased energy supply.”
I venture to say that no one has covered the energy issue, on a
broad-based scale, as we have here over the past two years. And
we”ve covered the individual items featured in the plan that was
put forward this week ad nauseum. So there”s no need to go into
great detail, particularly when the real battles over specifics are
yet to be fought in Congress. But I do have to note the
following.
–The Bush report said that supply / demand imbalances, “if
allowed to continue, will inevitably undermine our economy, our
standard of living and our national security.” Just look at the
ever-volatile situation in the Middle East, if you have any doubts.
A bullet to the head of one of the moderates, like Egypt”s
Mubarak or Jordan”s Abdullah, would be a catastrophe and send
oil skyrocketing to heights not seen before.
–The Bush plan also has sops to environmentalists and no one
doubts that conservation, as well as alternative energy sources,
are important to any long-term goal of energy independence (or
at least close to it). But when the prices come down, as they
invariably will again, conservation goes out the window and
using oil and coal, for example, becomes a far too easy solution
for both business and the consumer.
[Just a note of caution to those of you playing the fuel cell /
alternative energy stocks. Personally, I missed this opportunity,
but my advice is to be careful. Not all of these companies will
succeed, though, admittedly, bubbles like this sector is going
through can last a while.]
–How sickening is it to listen to Tom Daschle and Dick
Gephardt? Of course, we all know they have to play the blame
game. But just go back to the opening quote from the
Washington Post. Even with its liberal bias, the Post recognizes
that finally someone is doing something about a huge problem.
That being said, the energy proposal is a long-term one, with
little to offer in the short run. There is no doubt compromises
will be reached in Congress to address the issues of the needy,
particularly if Friday”s spike in oil is a harbinger of things to
come. Republicans are justifiably worried, already, about the
mid-term elections in 2002. Unfortunately, most Americans
aren”t like the readers of this site. They have little grasp of who
is really to blame for this whole mess.
–It is true, however, that the nation is already beginning to
address the issue, with the building of new power generation
facilities proceeding at a rapid clip (because the companies see
an economic incentive…that”s capitalism…and that”s good).
But don”t let this lull you into a false sense of security. We still
have to drill in places like the Arctic National Wildlife Refuge,
unless we want to live through an age of minimal growth, high
unemployment, low corporate profitability, and dead in the water
equities.
–California is now officially in the energy game. This should
scare the heck out of its residents.
–Note to Jimmy Carter: Geezuz, we threw you out 20 years ago
for good reason. Now go out and count votes in Peru or
something.
International Affairs
Israel: Since September, about 3 out of every 4 weeks in this
region have been awful ones, and with the further escalation in
violence on Friday, the whole world should be increasingly
concerned.
The week started when Israeli officials themselves had to admit
they screwed up royally in mistaking an outpost containing 5
Palestinian policemen for one that was to be inhabited by
Arafat”s henchmen. This is war, however, and accidents happen.
But, of course, the action only inflamed the Palestinians, leading
to Friday”s tragic exchanges.
No one should be surprised. Prime Minister Sharon promised to
play hardball, and the Arabs are hell bent on the destruction of
Israel. It”s just that simple.
Separately, Senator Mitch McConnell openly questioned the $2
billion in aid we annually supply to Egypt, second to the $3
billion that Israel receives. After all, McConnell correctly points
out the government-supported press has “been spewing anti-
Semitism at an all-time high” level.
But, in your editor”s mind, the worst thing we could do right now
is drastically reduce our support of Egypt. Egypt and Jordan are
critical to any kind of stability in the region. And, let”s face it,
stability is all we can hope for. With another generation of lost
Arab youth, thanks to their lack of a real education and the
prevalence of hatred, peace is out of the question.
China / Taiwan
So here I sit in Hong Kong, having received not even a nod from
passport control last night. While Hong Kong is still “free,” I
think most of us would agree it”s only a matter of time…and
we”ll explore this in more detail next week. The hotel did
request my business card…so by just plugging in “China” to my
search function, they”ll find out all they need to know about this
guy and his attitudes.
Meanwhile, Taiwan”s President Chen Shui-bian said he”s willing
to talk to China”s Jiang Zemin. But Chen has riled up Beijing
because of his upcoming brief stopovers in the U.S. this week
while he”s on a trip to Latin America.
For its part, China arrested another Chinese – American / U.S.
citizen on charges of spying for Taiwan. And in this ongoing
strange relationship, China has offered to let Taiwan hold some
events if China should be granted the 2008 Summer Games, but
only if Taipei agrees to the “One-China principle,” which, of
course, would entail Taiwan accepting that it”s part of Mainland
China.
Taiwan says it is a legitimate government in its own right, so
outspoken Vice President Annette Lu called the Olympics ploy a
“trap.” “It”s like a lion”s cage set up for a kitty to enter,” she
said. [Annette could now be in the running for StocksandNews
“Person of the Year.”]
And then there is that flap over Japan”s textbook. Like South
Korea, Beijing is demanding that Japan rewrite those parts that,
according to the Chinese Foreign Ministry, “advocate
imperialism and whitewash and deny Japan”s history of
aggression.”
[Just an aside, here in Hong Kong I have arrived just in time for
the reemergence of “bird flu,” which killed 6 people back in ”97,
and mostly affects the sale of live chickens, a popular purchase
in the markets for the locals. But I”m not planning on buying any
live birds while I”m here. Actually, I may not eat any dead ones
now, either!]
North Korea: They are threatening to pull out of the 1994 nuclear
deal cut with the U.S. This is just another gambit to blackmail us
for more food aid, which never finds its way to the people, and
instead goes to the military.
Iraq: The U.S. and Britain are prepared to relax sanctions on
civilian goods in an attempt to win world support for maintaining
strict controls on military-related items. This is the best we can
do at this point, sad to say.
Ukraine: Just a brief follow-up to my many notes on the
journalist who was beheaded, a case which may lead all the way
up to President Kuchma. This week, the government laughably
said that the man was actually killed by two criminal gang
members, who were later then killed themselves by two
gangsters now in custody. I made up better stories in second
grade.
Italy: For the archives, Berlusconi was formally elected prime
minister, and is now being urged to divest at least a portion of his
vast media holdings to avoid any conflicts of interest.
Guam: With the new emphasis on a heightened military presence
in the Far East, the U.S. base in Guam is critical, particularly if
we lose some of our basing rights in Japan, the Philippines and
South Korea. Guam is exploding with activity and the U.S. Air
Force is looking to add 200 more fighters and bombers, plus 3
nuclear submarines, over the coming months.
But there are some in the Pentagon who feel that a huge buildup
in one or two areas makes the bases more vulnerable to future
weapons (i.e., ballistic missiles which could contain chemical or
biological warheads). The debate will rage on as Secretary of
Defense Rumsfeld finalizes his spending plans.
Philippines: Ordinarily, I don”t argue much about price, but when
I had to hire out a driver to take me to a museum in Guam the
other day, I knew enough about the lay of the land to negotiate
with fervor. I turned down two offers and ended up with a
delightful Filippino gentleman who accepted my conditions. I
mention this because while I was having dinner in Guam with
some local Jesuits (one of whom I had met four years earlier
during my first trip to the area), they asked me, “When you
travel, how do you get your information? Bars?” You betcha.
That plus cabbies, smaller restaurants (where the employees may
have more time to talk), and the local media.
So this particular guy was useful to me as we spent an hour in the
car together. I asked him what his thoughts were on the current
political turmoil in his native land and he helped confirm what
I”ve been reading. It comes down to education. The poor and
uneducated loved B-movie star turned president, Estrada. They
were enamored with his common touch. But, to put it as
delicately as possible, they weren”t smart enough to understand
that Estrada was plundering the national treasury.
The successor, Gloria Arroyo, on the other hand, is a daughter of
privilege. Aside from the fact that she took power under highly
questionable circumstances, the poor can”t stand her. So now
Arroyo is running around in jeans as she visits them (instead of
the nice dresses she used to wear on these jaunts) and she has
agreed to donate 2,500 acres that her husband”s family owned to
a land reform program. [No word on whether she cleared this
with him first.]
This week, nationwide elections were held and the final
tabulations will take weeks, if not months, to confirm, but
Arroyo is not faring very well thus far. And at least 78 have died
in election-related violence. As for the U.S. and our national
security concerns, we do have an interest here (think sea lanes
and proximity to China, aside from any remaining bases), so the
future of this country should be of vital importance to us.
Random Musings
–The Senate Finance Committee approved a tax cut plan, 14-6,
with 4 Democrats siding with the Republicans; Baucus, Breaux,
Blanche Lincoln, and Torricelli. In winning Torricelli”s vote, at
least for now Republicans have reaped the reward for not
castigating him amidst his ongoing campaign finance
investigation.
But the tax plan is awful. The top rate only goes down to 36%
from the current 39.6%, and this minimal reduction isn”t fully
felt until 2007. Bush wants 33%, and much sooner. At least it
helps set the stage for the House-Senate Conference where all of
this will be hammered out.
–As a result of my recent comments on the Vietnam War, Mike
H. in Minnesota just wanted me to remind everyone of how Jane
Fonda was selected as one of the “100 Women of the Century.”
The American Heritage piece I quoted from last week has a
photo of Jane excitedly sitting on a Vietcong tank. Sorry,
Jane, declaring your sudden remorse today will never cut it with
us.
–Now that he”s officially been charged, traitor Robert Hanssen
could face the death penalty. As in the case of Aldrich Ames,
we”ll probably never know how many U.S. agents died because
of Hanssen”s treachery. May his death be swift.
–New Delhi police have their hands full with a populace that is
panicky over the “Monkey Man,” a creature reputed to be half
man – half monkey, which has attacked men, women, and
children. Most authorities think it”s really an animal of some
sort. Just another reason not to go there, nonetheless.
–I saw an extended film clip for the movie “Pearl Harbor” while
at the War in the Pacific Museum in Guam. I don”t care what the
reviewers are already saying, bring your Kleenex. I”m bringing
two boxes. Incidentally, one of the incredible stories of the
aftermath of World War II is the case of Japanese Sergeant
Yokoi, who hid out on Guam until 1972, at which time he was
finally captured by local hunters. Yokoi had no clue the war was
over. [I believe another Japanese soldier hid in the Philippines
for 30 years.]
–This whole Pacific adventure of mine has given me an excuse
to wear my overpriced (made in China) Tommy Bahama shirts.
Of course no one is impressed…that is until I went through
Customs for a second time in Guam this week. The agent was
firing questions at me when he suddenly said, “Hey, nice shirt!”
Knowing I had been to Yap for a spell, he then said, “Are you an
ambassador?” I felt like saying, “No, but I play one on TV.”
Which brings me to the real reason for this extensive trip of
mine.
Five years ago, I was sitting in church listening to the annual
presentation of the “Society for the Propagation of the Faith,”
when I thought, this is silly. Each year we”d hear of building
churches in far off places, spreading the Word, but you never
knew where your money was going! You”d drop a few dollars in
the basket and that was it. No feeling of attachment whatsoever.
The salesman in me said, “Why doesn”t each parish get assigned
a specific place in the world (most of these missions are in Africa
or Latin America) to support so then the parishioners would feel
a certain identity towards it?” Well, our Monsignor urged me to
call the Newark diocese, whereupon the priest who gave our
particular presentation said I should contact the Jesuits in
Manhattan. And so that”s how I came to meet one Father Bill
Scanlon. I explained to him what I sought to do and his eyes lit
up.
“We have a mission on the island of Yap in Micronesia and one
of the islands (that comprises Yap), Rumung, just lost its church
in a typhoon. Maybe we could build a new one there!”
Bingo! I thus became involved in a project that has given me
tremendous satisfaction over the years.
Yap is comprised of four islands, all very close to each other.
But only 3 are connected. The 4th, Rumung, is a tribal island
where you need to get permission from the chief to visit. To this
day there is still no electricity (which means “no cold beer” as
one local businessman told me) and about 100 live there year
round. Another 500 or so are from Rumung, but now live in Yap
during the week, since that”s where the employment
opportunities exist, and travel to Rumung on weekends.
In 1997, I ventured out to Yap to see what kind of progress had
been made on our church. [Rumung is all Catholic, by the way.]
There was just a rough foundation and you have to picture that
the work is exceedingly tough. For starters, all building material
has to be moved by boat onto the island, including cement
blocks, and it is backbreaking manual labor. Plus, since most of
those who are chipping in work during the week, progress can
only be made on Saturdays, if everyone shows up!
In ”97, I made a lot of friends, who continued to write me over
the years, updating me on the progress. Aside from my financial
contributions, I would send them my old sports t-shirts, as often
as possible. This is a very poor place and a little gift like this
was always greatly appreciated.
Alas, last September, Louis Rugin, a local who was spearheading
the construction, died suddenly. I met him in ”97 and he touched
me greatly. I knew what a loss it was for the community, and I
wondered how much progress would be made upon my return
this past week.
In the interests of time, it is necessary to leave out many of the
details. Suffice it to say that I was greeted at the airport last
Saturday with an outpouring of affection, and I spent a
memorable time on the island. I was taken by boat to Rumung
on Sunday and to my amazement the church is about 70%
complete. It is going to be spectacular. It is also far bigger than
I initially imagined. I was met by about 50 of the villagers and I
am grateful to Ted for showing me around parts of the island that
I hadn”t seen before. [Yap and Rumung were Japanese
strongholds, both prior to and during World War II. Thankfully,
though, they were able to avoid most of the fighting.]
On Tuesday night, we were scheduled to have a little dinner,
Father Neil and the Maryknoll Sisters who live on Yap (and are
all now close friends), along with a few from Rumung. Instead
of just a couple, however, about 60 showed up at my place of
residence. All the women made dishes and it was a feast. These
are some of the kindest people in the world. And when I got on
the plane that would take me back to Guam Wednesday
afternoon, there was a sudden downpour, even though it was
sunny. I haven”t communicated with my friends yet about this
final incident, but I can imagine what Sister Joanne was thinking,
as she waited for my departure.
And so it was that five years ago, I was directed to the Jesuits
and Father Scanlon, who, in turn, directed me to Yap. Maybe, in
some small way, I have helped a few people there. What I do
know is that they have touched me more than they can ever
imagine.
I joked last week about finding the meaning of life during my
journey. I”ve decided that it”s all pretty simple. Those of us who
are blessed owe it to those less fortunate to make an attempt to
help make their lives better. It also comes down to respecting
your fellow man…and speaking out against those who don”t.
As for me and my friends in Micronesia, when all of us are gone,
at least I now know that on a hill in Rumung, a church will still
stand. Maybe that”s the ultimate meaning of life.
Gold closed at $288
Oil, $29.91
Returns for the week, 5/14-5/18
Dow Jones +4.4% [11302]
S&P 500 +3.7%
S&P MidCap
Russell 2000 +3.9%
Nasdaq +4.3% [2199]
Returns for the period, 1/1/01-5/18/01
Dow Jones +4.8%
S&P 500 -2.1%
S&P MidCap +3.0%
Russell 2000 +4.7%
Nasdaq -11.0%
Bulls 50.0%
Bears 35.4%
Note: As I gradually head home over the coming week, I”ll be
traveling where it”s far easier to keep up, so I should have a more
detailed market analysis next week, if warranted. And now, as I
sit here in Hong Kong, not having stepped foot outside since my
arrival, I”m reminded of the last “Calvin and Hobbes” strip, where
Calvin goes to Hobbes, “It”s a beautiful day. Time to go
exploring!”
Brian Trumbore
