[Posted 7:15 AM]
Ah, the dog days of August. A time characterized by sloth,
indolence, and malaise. A time to pull out the thesaurus.
Of course you know what they say, in the course of history
August often supplies us with many market-moving surprises.
Why who can forget August 1756, when Frederick the Great of
Prussia launched a preemptive invasion of its ally Saxony, thus
precipitating the Seven Years” War. Or August 7, 1819, when
Simon Bolivar defeated the army of New Granada (Colombia),
thus completing the revolution against Spanish rule. Oh, did the
markets rock and roll back then. Remember?
Of course you don”t, but heck, I”ll be damned if I can come up
with anything truly enlightening regarding the week just passed
on Wall Street. The latest reports on the economy provided no
real guidance, with consumer spending remaining strong, but
consumer confidence slipping. The jobless claims reports
continue to show a decline in people seeking employment, but
then the July employment report revealed a decline of 42,000 in
non-farm jobs. [Farmers are always working.] The actual
unemployment rate in this country remained unchanged at 4.5%,
though few believe it (certainly logic dictates otherwise), while
the recession in manufacturing continued unabated. Early
reports are that folks are spending a decent portion of their tax
rebate checks, but the Christmas season is just around the corner
(sorry to rush matters, but I”m impatient by nature) and I can”t
possibly paint a rosy picture on this front.
Add it all up and most folks on Wall Street, at least, are asking,
“Where did you say you”re going on your vacation?” Well, at
least Washington takes off, along with all of Europe, and that”s
normally a good thing. Except back in August 1485, when the
future Henry VI defeated the forces of Richard III at the Battle of
Bosworth Field, with Richard meeting his untimely demise. No
word on what happened to his account.
—
There was one market moving comment of note, if only briefly,
and that was a Merrill Lynch report on the semiconductor sector.
“Although the semiconductor industry continues to struggle with
a combination of overcapacity and weak demand, we believe that
the worst of the downturn is over.”
Investors both here and abroad surprisingly took this to be super
bullish, as Merrill intended, and semiconductor stocks, as well as
other tech issues, rallied.
But then folks reread the statement, focusing on “overcapacity
and weak demand” and it was like, “Hey. What”s so great about
that? Maybe we”re at a bottom, but 20-30% growth rates aren”t
exactly around the corner either.” And it”s not as if most tech
issues are cheap.
Of course the temporary good feeling early in the week was
buttressed by some comments by Intel”s CEO, who said he was
looking for a rebound in PC sales as the kids go back to school.
[I didn”t realize the kids trash their computers each summer…
seems like such a waste.] But the good feeling in techland was
dashed somewhat by EMC”s none too optimistic remarks on the
future and its plan to continue to wage the battle on price, thus
cutting margins. Verizon, significantly, also weighed in on the
telecom front with mention of the fact that they saw business
scaling back on phone lines.
Actually, the Street is now focused on Cisco”s upcoming
earnings report this Tuesday, and whether or not CEO John
Chambers will give the all-clear signal. Of course you”d have to
be mainlining oxycontin to think he would.
Street Bytes
–For the week the Dow Jones managed to pick up 96 points,
0.9%, to close at 10512. Nasdaq gained 1.8% to 2066. Phew,
after my comment of last week that we”d have a little rally, we
eeked one out.
–U.S. Treasury Yields
1-yr. 3.44% 2-yr. 3.89% 10-yr. 5.16% 30-yr. 5.59%
Basically unchanged on the week, though with the employment
report not being as sloppy as many expected, some are
questioning whether the Federal Reserve will lower rates come
the next meeting on August 21. They will.
–Energy: I take up the energy legislation below, but as far as the
markets this week, if you”re a bull on this sector, crude and
gasoline inventories dropped by a significant amount and the
price of crude continued to rebound, back above $27.50 for West
Texas. The average price of gas at the pump, however, has now
fallen from $1.76 to $1.46 in just the past two months, ever since
we were told to watch out for $3 gas…just a slight miss by some
experts. Meanwhile, California, loaded up with long-term
contracts now, lost $35 million in July on its power trading, as
the market price was below the contract levels. But we”ll wait
until the fall before we chastise Governor Davis any further.
Should the price of electricity rebound, the contracts may not
look so bad.
–Microsoft is not in the clear as far as the antitrust case, not by a
long shot. On Thursday an appeals court refused to reconsider
its original ruling that Microsoft illegally bundled its Internet
browsing software with its operating system. So the courts still
need to apply remedies for Microsoft”s antitrust violations.
But Windows XP is due to hit the markets around October 25
and, ironically, many of Microsoft”s rivals are anxious for the
release because XP could be a catalyst for stimulating overall
demand in the PC sector.
–Abby Cohen is urging her clients to overweight technology, in
case you give a damn. But a strategist I do respect, JP Morgan
Chase”s Doug Cliggott, reduced his year end target on the S&P
500 from 1200 (we sit at 1214 today) to 1100. The index hit
1103 this past April 4, but hasn”t closed below the 1100 mark
since 10/30/98.
–Good news! DuPont sees an uptick in demand for Kevlar, the
material that”s used in the making of bulletproof vests. Wait,
maybe that”s not so good.
–Scott P. in Melbourne, FL had a good point when it comes to
those super huge pay packages that many underperforming CEOs
are receiving these days, because, we are told, this is the only
way to retain them. “Who is insane enough to retain this kind of
performance?” argues Scott. But Scott and many of you know
that until we all get off our duff and vote our shares, we can”t
expect anything to change. [There”s a pretty big battle going on
at Computer Associates over a similar issue, but the little guy,
who has a real job and doesn”t watch CNBC all day like some of
us schleps, wouldn”t have reason to know what”s really going
on.]
–I”ve certainly done my share of Net bashing over the past two
years, but congratulations are in order for Priceline.com, which
reported a legitimate profit for the 2nd quarter. Yes, the travel
sector would appear to be one of the Net”s real success stories.
[Valuation, and competition, will still play a role in share prices,
however, as some Priceline investors correctly deduced by
week”s end.]
–Worldwide, over 300,000 jobs have been lost in the telecom
sector in the past 3 months.
–European manufacturing is at its lowest level since 1998. The
Bank of England reduced interest rates for a 4th time this year in
its battle to stave off recession, but the European Central Bank
stubbornly refused to budge.
–The IMF is acting this weekend to attempt to stave off further
trouble in Argentina and Brazil, putting together substantial loan
and credit line packages. More on this next week.
–Back in April, the outlook for 4th quarter earnings on the S&P
500 called for growth of 13%. Now that forecast has been
reduced to zero.
–General Electric has been finally ordered by the EPA to clean
up a large segment of the Hudson River, scene of the dumping of
vast quantities of PCBs decades ago. Thus, while the dredging is
taking place (assuming it”s not blocked in court), we shouldn”t be
surprised to discover a giant 200-foot electric eel, which would
make for exciting television.
International Affairs
China / Taiwan: Let”s try and be somewhat optimistic here. On
Thursday, the government-run People”s Daily said that after an
initial “haughty and hard-line stance” by the Bush
administration, “the U.S. has constantly made goodwill
expressions.” By all accounts, Secretary of State Powell”s visit
was successful in damping down tensions and it”s good that
dialogue has at last been reopened on a number of fronts,
including human rights.
[However, in a worrisome development, a Hong Kong resident
and Falun Gong adherent was arrested in Beijing. Falun Gong is
still not illegal in Hong Kong, so this was clearly a severe breach
of internationally accepted norms of behavior. And China
continues to arrest academics, trumping up espionage charges.]
China being China, there will always be issues most freedom-
loving people would not tolerate. In another example, the U.S.
State Department was forced to protest the fact that a Powell
interview that was broadcast on state television deleted all
discussion of human rights and Taiwan. And regarding the
latter, the Chinese military continues its war games off the
Taiwanese coast, obviously designed to intimidate, while China
denies it is building up its forces on the coast opposite Taiwan.
China, of course, argues that the U.S. shouldn”t be selling arms
to Taipei.
Meanwhile, in Taiwan itself, my long discussed theory of an
economic coup is gaining steam, and American businessmen are
playing a crucial role. Dell, for example, is pressuring Taiwan”s
President Chen Shui-bian to open up to China, warning that the
island will get left behind as China booms. According to the
latest figures, 53% of the world”s laptops and 25% of its PCs are
currently manufactured in Taiwan (sold under the Dell, Gateway,
and Compaq labels). Business leaders argue that relatively small
steps like direct flights from Taipei to Shanghai (currently routed
though Hong Kong…thus wasting a whole day) are vital. Of
course they have a point. And as I”ve previously stated,
Taiwan”s own business leaders are aggressively cutting deals
with the mainland while the Taiwanese people increasingly favor
integration. Much of this talk, however, has been fueled by
Taiwan”s severe economic downturn and tumbling stock market,
but, alas, the market has rebounded some thanks to encouraging
talk on the semiconductor front. To be continued.
Russia: The big news in Moscow this weekend will be the visit
of North Korean leader Kim Jong Il. But first, there are growing
signs of improved relations between the U.S. and Russia, and,
believe me, we are all for it around here. The early release of
American John Tobin from a Russian prison is no small
achievement. Clearly, Presidents Putin and Bush had this on the
agenda in Genoa and Putin deserves a little credit (we”re not
ready to go overboard, yet) for seeing the light.
As for North Korea and fears of a new military alliance between
Moscow and Pyongyang, disregard any rhetoric you hear this
weekend. Of course they”ll issue a statement against the U.S.
and missile defense, but Putin knows where his bread is buttered,
an expanding economic relationship with the U.S. and the West,
not with some tinhorn dictator.
Kim, meanwhile, continued his magical mystery tour this week
when on Tuesday he arrived in Omsk and actually got off the
train. Yes, that”s right, and he even toured a tank factory, as well
as a pig farm. No word on which he found more fascinating.
Now you have to imagine that his 10-day trip to Moscow has
disrupted the lives of hundreds of thousands of Russian citizens
along the way (tracks were shut down for long stretches at a
time), so I can”t imagine he is a real popular figure about now, all
the more reason for the massive security effort, I guess. I just
wish that Michael Palin had been onboard for one of his
travelogues.
Israel: The U.S. labeled Israel”s attack on Hamas a
“provocative” act, and the rest of the world community
condemned the action, which killed 8, including 2 children. The
Sharon government”s policy of assassination gets bolder every
day, but the death of the children virtually guarantees there will
be no real ceasefire (peace, as Sharon himself said on Friday, is
out of the question) for months to come. Hamas told its people
to go directly after Israel”s leaders. But if you are looking for a
shred of hope, the Palestinian News Agency did take the
extraordinary step, for them, of urging an end to Palestinian
attacks on Israel.
Japan: Prime Minister Koizumi received his big election victory
in the upper house vote this week, with his LDP party gaining
more seats than anticipated, thus setting the stage for his long-
awaited economic reform program. The economy continues to
tank, but the question becomes, how quickly will Koizumi act?
Meanwhile, his foreign minister, Madame Tanaka, refused for a
spell to fire the ambassador to Washington, a gentleman who has
been implicated in a massive financial scandal. By week”s end,
however, Tanaka promised to comply.
And back to the reform program, a criticism of Japan over the
past decade has been that its leaders are lacking in any new ideas,
i.e., they”re pretty dense. In case you had your own doubts, I
noticed the following in Friday”s Wall Street Journal.
With Japan”s unemployment rate already at 4.9%, “Trade
Minister Takeo Hiranuma predicted this week that the jobless
rate could spike above 5% in the next couple of years.” I rest my
case.
India: Just when you thought diplomacy was breaking out
between India and Pakistan, Indian Prime Minister Vajpayee
called Pakistan”s President Musharaff “clueless,” not normally a
way to improve relations, especially when your target has loose
nukes lying around.
Canada: U.S. Ambassador Paul Cellucci criticized the Canadian
government for continuing to slash defense spending, while
Ottawa stepped up its criticism of U.S. “unilateralism.” I”m
checking out rumors of troops massing on the North Dakota /
Manitoba border.
President Bush and Congress
No matter how you slice it, the president had a good week. For
starters, the patients” bill of rights compromise has something for
everyone. While many of us were leery of any legislation that
allowed unlimited suits in state court, the proposed maximum
settlement of $1.5 million is reasonable, and, more importantly, a
patient review board system will be in place for expedited action.
The process is as fair as you”re going to get on this contentious
issue. Of course you still have 42 million uninsured in America,
but that”s a story Democrats should be loathe to bring up because
the uninsured rolls only increased during the Clinton years.
And the House surprisingly passed an energy package, which
grants Bush almost all of what he sought…and which makes the
editor happy, too. For example, the House bill allows for
exploration on 2,000 acres of the Arctic National Wildlife
Refuge, all the oil companies say is necessary and about the size
of a small airport, and I guarantee you the caribou will continue
to flourish (just like in Prudhoe Bay where the herd has at least
tripled). In fact the caribou may like it so much, they could be
lining up for jobs.
But whereas I”m confident the House and Senate will
successfully reach compromise on a final patients” rights bill, the
Senate could still torpedo much of the Bush energy plan, and, as
much as I like the House provisions, the Democrats can spin this
issue come 2002 and 2004, especially since the Republicans
should have increased the mileage requirements on SUVs, a
major blunder in my opinion. Actually, it was flat out stupid.
And speaking of stupid, what the hell are Republicans thinking in
abandoning Bush on the whole Mexican truck deal? We finally
have a real friend in President Fox and we do this. NAFTA
allows for the trucks (and what”s not being pointed out is the fact
it would be years before folks in Illinois, for example, ever had
to deal with this, and NAFTA contains all manner of safety
provisions). This is no small issue.
Random Musings
–NMD: In light of my comments of last week, long-time reader
Ollie B. passed along some information from the opposing side
(not that this is his personal position), which I appreciated.
Many of you are familiar with the Federation of American
Scientists (FAS) who made a lot of hay after our failed NMD test
of last year. “Any country capable of deploying a long-range
missile would also be able to deploy countermeasures that would
defeat the planned NMD system.” That was written April 2000,
and they still have it up on their web site. Alas, the recent
successful test did include countermeasures and, at least this one
time, the system worked.
Yes, we have a long, long way to go, and the land-based system
that is getting most of the press is just one of the options. But for
each successful test, skeptics will say, yeah, but this was under
such a controlled environment. Point taken. Nonetheless, it
remains an obligation of government to do all it can to protect us
from the many enemies we will accumulate over the coming
generations. And as I glanced at the august lineup of FAS
directors, I couldn”t help but muse that many of these same
individuals probably thought we couldn”t go to the moon.
–Katie Couric to the D.C. Assistant Chief of Police: “Why did
Chief Ramsey say there”s a 50-50 chance (Chandra) will be
found?” Just a wild guess on my part, but perhaps the chief
thinks there”s a 50-50 chance of finding her.
–Dr. John reminds that when it comes to today”s reporting
giants, we do have Brian Lamb. Right on, Doc.
–President Bush is exploring a set of recommendations for
election reform, including one that would make the presidential
election day a national holiday, but it would be consolidated with
Veterans Day. I”m in favor of the first part, not the second.
–Congressman Charles Rangel, on welcoming Bill Clinton to
Harlem: “This is the last president we ever had that was elected,
and if we had our way he would be reelected.” Oh, that Charlie
Rangel, he”s just a laugh riot, isn”t he?
–It”s nice to see that Bill Clinton cares so much about AIDS and
Africa. Of course this is the same man who did absolutely
nothing on the issue for 8 years. President Bush comes in and
we”ve already committed $300 million, with undoubtedly more
on the way.
–The scorching heat in the mid-section of the country reminds
me of my own experience during the summer of 1978, when I
was selling books door-to-door in Oklahoma and Kansas. At one
point, Ponca City (OK.) had 20 straight days of 100-degree
temperatures and I became an expert at one thing. Knocking on
doors for a glass of water. Who cared about selling books? I
was just trying to survive. And thanks to the good people who
helped out a poor kid in need.
–Robert F. Kennedy Jr., released this week from prison after
serving time for protesting the bombing at Vieques, named his
newborn, Aidan Caohman Vieques Kennedy. Now how freakin”
stupid is that?
–Speaking of the Kennedy family, my friend Johnny Mac was
musing about William Kennedy Smith, head of “Doctors Against
Land Mines.” “Just how many doctors are ”for” land mines?!”
–Scientists say the world”s population will peak at 9 billion
around 2070 (at which point I will be 112 and still writing
“Week in Review”). But after 2070, these same folks say the
population will decline, which means that one of the world”s nut
jobs will finally go over the edge and by 2072, there will be 43
people left. Which is why the whole Social Security debate is
moot.
–You gotta love it. CNBC has been focusing on “sell strategies”
this week, about 18 months too late. And with all the lawsuits
and conflict of interest charges flying around, you should see
how scared these analysts are when they are giving an opinion on
the tube these days. Suddenly, they want to tell you everything.
“…And I just want to add that when I was in the 4th grade, I hit
Johnny Amazone in the mouth and my firm consequently has
never had an investment banking relationship with him.”
–Mariah Carey had a nervous breakdown…slow news week.
–Yak update: Afraid that I wouldn”t be able to come up with
anything this week, I turned to Solzhenitsyn”s “The Gulag
Archipelago,” where he makes mention of the fact that the
“Yakuts” were imprisoned after the revolt of 1928. This must be
when the stragglers moved on to the Tibetan highlands, though I
haven”t been able to verify this.
–Columnist Michael Kelly on his beach vacation. “Hawaiian
shirts and Bermuda shorts are appropriate only in places where
rum drinks are served in coconut shells. This does not include
most churches.” I must say it is amazing what some women
wear in my church…amazing and rather inappropriate.
–Bacteria have been detected on the edge of space, some 25 miles
above earth, and scientists conclude it can only be
extraterrestrial. Seriously, this is incredibly exciting. And now
they are trying to grow the bugs in the lab and examine the DNA.
You know what this really means, though. When they finished
shooting “Alien XI,” they didn”t clean up the set.
–Finally, who exactly are the idiots that come up with the toy
ideas for fast food chains like Burger King and McDonald”s?
Hmmm, if we add all these little parts and a two-year-old can
snap them off, do you think they”ll then swallow them?
Separately, I saw where in Ontario, Thursday, swarms of aphids
attacked the populace. The National Post of Ontario reported the
following.
“One theory was that the bugs were on the move in a bid to
escape an approaching storm. ”I think it”s an evolutionary thing.
They”ve developed the ability to know when serious weather is
coming that will shake them out of their homes and they”re
trying to get away from it,” said Chris Darling, curator of insects
at the Royal Ontario Museum.”
Now I ask you, who”s smarter, the aphid, or the idiots making
toys for McDonald”s?
Gold closed at $270
Oil, $27.62
Returns for the week, 7/30-8/3
Dow Jones +0.9% [10512]
S&P 500 +0.7%
S&P MidCap +0.2%
Russell 2000 +0.4%
Nasdaq +1.8% [2066]
Returns for the period, 1/1/01-8/3/01
Dow Jones -2.5%
S&P 500 -8.0%
S&P MidCap -0.9%
Russell 2000 +0.8%
Nasdaq -16.4%
Bulls 46.4% [Big drop]
Bears 27.8% [Source: Investors Intelligence]
Note: I”m one who believes it”s kind of silly for a commentator
to have the same picture next to their column for ten years. So I
made the critical decision to change mine around quite
frequently. Of course the last few have me wearing shades, so
just think of me as David Duval without game. Yes, the current
shot is from Pearl Harbor. There, you actually need the shades,
to hide the tears.
Have a great week. I appreciate your support.
Brian Trumbore
