[Posted 7:00 AM]
“The plight of people in states that sanction terror is caused by
the corruption of their leadership, not by us.”
–Mort Zuckerman, Editor-in-chief, U.S. News & World Report
Last week on “Meet the Press,” Tim Russert mused that the
United States needed to launch a public relations campaign on all
that is good about our country and the steps we have taken to
help the Muslim world, like in Somalia and the Balkans, for
example. On Thursday you then had another example of our
charity, as President Bush announced the latest effort to aid the
starving Afghan people. I was reminded of the conclusion to
Abraham Lincoln”s Second Inaugural Address.
“With malice toward none, with charity for all, with firmness in
the right as God gives us to see the right, let us finish the work
we are in…to do all which may achieve and cherish a just and a
lasting peace…with all nations.”
Part of any PR campaign is also to point out the weaknesses in
Islam, at least as practiced by many of the governments of the
Arab world today. Granted, this is a far more delicate subject,
particularly for our leaders, so allow your editor to take a stab at
it.
Two years ago I did some extensive pieces on Islam for one of
my other links (I”ll let you dig around). In one I quoted the
brilliant, and controversial, British historian and philosopher
Arnold Toynbee (1889-1975). Toynbee”s “A Study of History”
(written 1934-61) emphasized the need to study an entire
civilization rather than single nations. Here is some of what
Toynbee concluded about Islam, as I wrote in November 1999.
On the career of Muhammad, Toynbee discusses two distinct
chapters. “In the first he is occupied in preaching a religious
revelation by methods of pacific evangelization; in the second
chapter he is occupied in building up a political and military
power and in using this power in the very way which, in other
cases, has turned out disastrous for a religion that takes to it.”
And if Muhammad was such a successful businessman, why do
most modern-day Islamic leaders reject capitalism and the
Western ways of today? Toynbee:
“(Once Muhammad reached Medina after the ”hejira” from
Mecca) he used his newfound material power for the purpose of
enforcing conformity with at any rate the outward observances of
the religion which he had founded in the previous chapter of his
career. On this showing, the hejira ought to mark the date of the
ruin of Islam and not the date consecrated as that of its
foundation. How are we to explain the hard fact that a religion
which was launched on the world as the militant faith of a
barbarian war-band should have succeeded in becoming a
universal church?”
Current-day Islamic scholar Albert Hourani writes of the
adoption of Islam by governments for the purposes of stirring up
the disaffected.
“Those who wished to arouse them to action had to use the same
language. Islam could provide an effective language of
opposition: to Western power and influence, and they appealed
to those who were shut out of the power and prosperity of the
new societies; and in response regimes began to use the language
of religion more than before.”
Some of today”s Islamic regimes can”t compete on the economic
playing field so they instead tout weapons of mass destruction as
the great equalizer. Or as Toynbee concluded over 40 years ago,
“The least inhuman form of inhumanity is apt to be displayed by
representatives of a successfully aggressive civilization in whose
culture-pattern religion is the governing and orienting element…
The underdogs” inferiority can be cured by religious conversion,
and in many cases the top-dogs have exerted themselves to effect
this cure, perhaps even against their own interests.”
If you still believe that taking out Osama bin Laden is all the
U.S. and the West need to do, come to your senses quickly.
What has the potential over time to evolve into World War III
may not be a holy war, but it would be a clash of civilizations.
—
The Federal Reserve, Congress, and the Economy
In reducing the target rate for federal funds a 9th time this year –
to its lowest level since the ”62 Mets went 40-120…and thus far
the Fed has had equal success in moving the equity markets –
they issued the following comments.
“(The) terrorist attacks have significantly heightened uncertainty
in an economy that was already weak…risks (remain) weighted
mainly toward conditions that may generate economic weakness
in the foreseeable future.”
Both the stock and bond markets finally staged a significant post-
Fed rate cut rally, in hopes that not only are further cuts coming
down the pike, but that the combination of historically low rates
and federal stimulus will be enough to effect the much hoped for
“V-shaped” recovery.
Regarding the congressional role, it certainly has been
fascinating to see the reemergence of former Treasury Secretary
Robert Rubin. The current secretary, Paul O”Neill, has been
relegated to cheerleader, while Rubin is back to being the go-to
guy. As he hunkered down with Alan Greenspan and
congressional leaders for the purposes of crafting an appropriate
plan, here are some of Rubin”s ideas, as spelled out in a New
York Times op-ed piece.
“Ever since the softening began, consumption and housing have
been the strong point in our economy. Business investment has
declined because of great excess production capacity. For most
companies, low levels of investment now are not the result of
cash positions or financing capacity, but an absence of demand.”
If you agree with Rubin, as I do, then some of the stimulus being
bandied about, like investment tax credits for new equipment,
would be non-effective. I also agree that the stimulus should be
targeted more towards the lower-middle class. But Rubin adds
that at the end of the day, “What happens domestically and
internationally in combating terrorism will have a greater impact
on our economy than anything we do now in the economic
arena.” Spoken like a true realist.
As for hard data, it”s still difficult to gauge the full impact of the
attacks on both business and the consumer. While tech
companies continued to largely disappoint (more to follow), U.S.
auto sales, post-attack, were not quite as poor as had been feared.
[For September: Ford -10%, GM -3%, DaimlerChrysler -28%…
D”oh!] But the employment data, for both weekly jobless claims
as well as the report for September, continued to show gathering
weakness on a scale not seen in 10 years.
Right now, however, what really matters, aside from consumer
confidence, is housing, at least that”s what everyone from
Greenspan, Bush, Rubin and your editor are in agreement on.
The level of mortgage refinancings is dependent on the long-end
of the Treasury yield curve and the bond market will not take
kindly to obscene spending, masquerading as stimulus. As
Senator Phil Gramm said earlier in the week, “To save my life,
it”s all tribute and no stimulus.”
Well, Friday afternoon the president emerged and issued a
clarion call to stick to tax cuts, both for individuals and
corporations, and avoid pork barrel spending. The markets
rallied on this news.
Street Bytes
–It was another impressive week for equities as the major
averages have now staged the best back-to-back weekly
performance since last April. The Dow Jones picked up 3.1% to
close at 9119, while Nasdaq gained 7.1% to finish at 1605. The
Dow has picked up almost 900 points from its closing low of
8235 on September 21, and Nasdaq is up from its low of 1423.
–U.S. Treasury Yields
6-mo. 2.17% 2-yr. 2.72% 10-yr. 4.51% 30-yr. 5.31%
The bond market still expects the Fed to lower the target for fed
funds another 50 basis points, down to 2.0% by yearend.
Inflation remains a distant concern.
–Forecasts: The World Bank has reduced its outlook, for the 30th
time, to reflect a 2002 economic growth rate of 1.0% in the
industrialized nations, and just 2.0% for developing countries
(which is really a recession rate). The latter are hit hardest by
falling exports and reduced tourism. For example, according to
the latest figures 65% of vacations booked for the Caribbean
have been canceled. [This may have improved some over the
past few days.]
Meanwhile, Sir John Templeton had the following observations
(from his CNBC interview): “Valuations (are still) too high in
relation to earnings power…We are nowhere near the end of the
bear market yet; at least another year, may 2 or 3 years
more…Over the next 5-10 years you will be fortunate to come
out even in the U.S. stock market.”
By contrast, another Wall Street “Hall of Famer,” Peter Lynch of
Fidelity, has been touting the same old stuff in full-page ads.
Just like Charles Schwab, Lynch”s advice is basically to relax.
Over time the stock market always rises, he says. I would like to
remind Mr. Lynch, however, that for extended periods of time
the Dow Jones has gone nowhere, like from 1929-54 and 1964-
82.
Templeton, on the other hand, has never been a shill. And who
can forget the best investment call, ever…his recommendation to
buy Telefonos de Mexico at around 50 cents. That was vision.
Sir John is currently bullish on Korea and Singapore, if you care
to play those.
Morgan Stanley”s Byron Wien is far more positive than
Templeton. Correctly cautious the past year, Wien says he has
been waiting for the consumer to crack and investors to
capitulate. Both are occurring and the contrarian in him sees this
as bullish. Wien is domestic strategist at Morgan Stanley.
Global strategist Barton Biggs feels we will retest the lows of
9/21. But chief economist Stephen Roach says we might have a
V-shaped recovery after all. Don”t go changin” on me now, Mr.
Roach!
–Money manager Susan Byrne on CNBC. “The S&P is
undervalued if you think there will be positive growth in ”02.”
What I see is an S&P with a current P/E based on trailing 12-
months earnings of 29. So if you buy the ”undervalued”
argument, you”re calling for substantial gains in 2002 earnings.
Good luck.
–I forgot to mention that when I received my new Dell laptop
last week the package read “Made in Malaysia.” I would have
guessed Taiwan. So it”s just possible I saved some Malaysian
guy”s job…nothing wrong with that. And while Dell this week
said it wouldn”t have to lower its third quarter profit projection
any further, Gateway continued to pile on the bad news. Dell
went after the competition and beat them in a price war.
Gateway got creamed. It”s time to put the cows back in the barn.
–Back to valuation, Wednesday”s big tech rally was spurred on
by comments from Cisco CEO John Chambers, who said he was
“very comfortable” with current estimates for the company”s
quarter ending 10/27. Shares rocketed to $15 from a recent low
of $11. Nice profit if you timed it, but I would caution that if
you think Cisco is going to move substantially above $20 over
the coming year, remember that the fiscal 7/03 (yes, ”03)
estimate for Cisco”s earnings is currently $0.40. At $20 that”s a
P/E of 50. [The 7/02 estimate is 18 cents, which would be a P/E
of 111 on $20.] Granted, the 40 cents could end up being
substantially higher, or lower, but as they say in the trading pits,
it”s ”yours.”
Cisco competitor Juniper Networks (which was trading at $245
as recently as 10/16/00) also had a great week, rising from its
recent low of $9 to close at $15. But in contrast with Cisco,
Juniper”s 12/02 earnings estimate is for $0.54. You can do the
math at $20, suffice it to say it”s at least better than Cisco. Both
stories are in an area, remember, that still suffers from severe
overcapacity.
–The news on the telecom front worsened considerably,
particularly if you are / were employed by the likes of Corning or
Nortel. Corning is laying off an additional 4,000, while Nortel
said by yearend its workforce will have been pared from 94,500
to less than 50,000.
–Compaq had more bad news and blamed their continuing
revenue and earnings shortfall not just on the attack but also on
the storm which hit Taiwan that I wrote of recently. I told you
that typhoon was big stuff.
–Sun Micro CEO Scott McNealy finally had to bite the bullet
and announce layoffs…3,900…as the server giant continues to
lower its revenue forecasts.
–Eli Lilly is freezing salaries for its 15,000 workers next year.
That”s 15,000 who will be downsizing their purchases. Good for
Wal-Mart and Hyundai, however.
–It”s great to see the share prices of Cisco, Oracle and EMC
back in the precocious teens. But at less than $10, Sun Micro is
like the little brother on the outside looking in. “Hey, kid, add a
few bucks and you can play ball with us. Now scram.”
–Credit card defaults and mortgage delinquencies are soaring. I
was always taught that was a bad thing.
–It”s been said that markets climb a wall of worry. The past two
weeks the market is climbing a wall of war.
–We have covered the asbestos litigation issue pretty extensively
here at StocksandNews and this week brought word that auto
parts maker Federal Mogul is the latest to file for Chapter 11
protection. FMO thus joins 30 other companies who filed since
1982 (including USG and W.R. Grace). While the company
doesn”t see any job losses (yet) as a result of this action, it
certainly points out that the U.S. government has been slow to
enact legislation restricting asbestos claims. [Both political
parties are guilty of cozying up to trial lawyers in this instance.]
Instead of all the pork that may yet find its way into the stimulus
package, Congress should pass a law protecting corporate
America from obscene judgments, because, remember, in the
case of asbestos even G.E. could eventually become a target.
–International: Most overseas markets have rallied nicely the
past two weeks after the depths of the week of 9/17, all except
Argentina, it seems, where ongoing problems are now negatively
impacting Spain”s equity market, due to Madrid”s banking
exposure in Latin America. Tokyo”s Nikkei index managed to
finish back over 10,000 for the first time in 3 weeks, but the
business sentiment figures continue to plummet.
As for the global airline picture, while traffic may be returning,
in many cases it”s not enough as governments have had to move
in to attempt to save the likes of Sabena, Swissair, Olympic, Air
New Zealand, Air Portugal and Alitalia, to name a few.
Discounters like Ireland”s Ryanair are, however, more than
holding their own…which begs the question, shouldn”t we all
just let the free market do its thing? Now discuss amongst
yourselves.
–Energy: OPEC is mulling over further production cuts, while
for one week at least, prices stabilized some. In the U.S.,
inventories of most crude products continue to rise in the face of
slowing demand, though a return to near normal jet traffic would
put a dent in reserves (as would an early cold snap).
Oil service and drilling stocks continued to rally back. Folks
shouldn”t need to be reminded that if the pace of drilling drops
too much, the stage would be set for another price spike…and
the cycle would start all over again.
–Which leads me to ”My Portfolio”…the ever-changing and
exciting quest of the editor to outsmart the market. As we pick
up our story, on Wednesday I jettisoned my QQQs, booking a
sizeable loss on a position I acquired when the Nasdaq was at
1950. But then on Thursday I did something I would have never
thought possible just 6 months ago, I purchased a Russian energy
stock. While I don”t give out individual names, it”s not difficult
to figure out what I bought. If Putin is successful in getting
Europe to diversify out of the Middle East, my stock could be a
winner. [Yes, I”m on record as previously saying, how could
anyone invest in Russia? Well, the world has changed.] So I”m
85% cash and 15% energy. [My other holding continues to
rebound.]
The Coalition
[Random, semi-organized thoughts on this brave New World.]
Israel: Perhaps the most significant comments of the week, albeit
quite inflammatory, were uttered by Israeli Prime Minister
Sharon. Following another horrific attack, this time perpetrated
by a Palestinian dressed as an Israeli soldier, Sharon lectured the
U.S. and the West. “Do not try to appease the Arabs at our
expense…Do not repeat the dreadful mistake of 1938, when
enlightened European democracies decided to sacrifice
Czechoslovakia (to the Nazis) for a convenient, temporary
solution.” The Bush administration immediately condemned
Sharon”s remarks.
India / Pakistan: Frankly, if you”ve been reading this site the past
few years, or simply a good newspaper once a week, none of the
recent events should come as a surprise, except for the scope of it
all. And so you also shouldn”t be surprised that one of the more
significant events, post-attack, was the bombing of Indian-
controlled Kashmir”s parliament which killed 38, an act
perpetrated by Pakistani extremists who have long been
supported by the government.
Is it any wonder then that India, the world”s largest democracy,
questions what exactly the U.S. is doing in cozying up to India”s
hated rival?
And one other note. In a separate incident in Kashmir this week,
3 Indian soldiers were killed when they tried removing a corpse.
The body was booby-trapped…it exploded. These people are
absolutely sick.
Russia: President Vladimir Putin stated that, “Russia”s special
services do not need any additional proof to participate in the
struggle against terror acts,” and Putin also slammed the Saudis
(bless you, Vladimir) for their reluctance to allow the U.S. to
fully use its airbases. “I think this is a cardinal error,” he said.
“It”s not a question of soldiers preparing strikes against Muslims
but rather of soldiers preparing strikes against terrorists.”
This new U.S. / Russian relationship is fascinating.
Conservatives, such as the editorial board at the Wall Street
Journal, say ”beware.” I say go for it. Yes, the rights of
Chechens will continue to be trampled on, but, to be callous (this
is the Jeanne Kirkpatrick school of diplomacy), there are bigger
issues these days. It”s all about avoiding nuclear war, baby!
And if we begin to diversify our energy sources away from the
Persian Gulf at the same time, good.
Saudi Arabia: I was watching Saudi Ambassador Prince Bandar
bin Sultan last Sunday on “This Week” and I thought, ”What a
dirtball.” Later in the week, columnist William Safire
appropriately echoed the same sentiments, though in a more
thoughtful fashion. Prince Bandar has been floating amidst
Washington high society for years now, soaking up the best
America has to offer while giving little back in return.
Italy: Prime Minster Berlusconi told a group of Arab
ambassadors that he was misinterpreted a week earlier when he
said Western civilization was superior to Islam. Yes, he told
them, Islam was a great religion. It”s not known if he had his
”taps” on.
France: The nation holds a presidential election next year and the
current officeholder, Jacques Chirac, saw his popularity rise
significantly after visiting the U.S. in the aftermath of the attack.
So now his opponent, Socialist Prime Minister Lionel ”Big
Train” Jospin, never a fan of the U.S., is hopping on the
bandwagon in pledging France”s full military cooperation. The
U.S. is “an ally to whom we owe our victory over the Nazis.”
Oui Oui!
Britain: The national unity here remains striking in its
overwhelming support of the U.S. God bless them.
Turkey: A congressional delegation journeyed to Ankara and one
of the leaders said that “Turkey has been there for us very loyally
and America has not always responded at the level of friendship
that we should.” Right on. We need to start by giving them debt
relief and then offering them the opportunity to recreate parts of
the Ottoman Empire by joining us on the march to Baghdad in
2002 or 2003 (the editor wrote, half in jest).
Tajikistan: I just had to pass on a report I saw on the drought-
ravaged nation next to Afghanistan. It”s so bad the boys dig up
ratholes to get grain.
Oman: “Friend of the Week.” It”s giving us everything we ask
for, just as they have done since the Gulf War. Ugly flag,
however.
Random Musings
–From time to time, I”ve written that the number one concern
between Russia and the U.S. should be Russia”s abysmal early-
warning satellite system. You”ll recall that in just the past 10
years there have been at least two near catastrophes, one when
the Russians mistook a flock of birds for a missile strike, the
other being the misreading of a satellite launch from Norway. In
both cases, if cooler heads hadn”t prevailed…well, you get the
picture.
I thought of this the last few days because of two other incidents;
the possible accidental shoot down of the Russian airliner by
Ukraine”s military, and the incredibly stupid hijack that wasn”t in
India. In the latter, you had a hijack drill except no one seemed
to know it was just that – neither the passengers, the crew, the
government, nor the military (whose commandoes could have
stormed the plane with tremendous loss of life). In this hair
trigger world, mistakes will be made. To what level is the
concern.
–Lead editorial in the Washington Post, responding to the
pacifists. “Much as everyone would wish otherwise, foreign aid
and better understanding among peoples – lovely as both are –
won”t by themselves get the job done.”
–I respect Al Gore for his strong statement of support for
President Bush the other day in Des Moines.
–Boy, if you never used an accountant before, you sure are going
to need one next spring.
–I couldn”t care less about Barry Bonds breaking Mark
McGwire”s record. I”m sick of the long ball.
–Reuters has been receiving appropriate grief for its policy
statement, “One man”s terrorist is another man”s freedom
fighter.” Idiots.
–Another sign of the times. While terrorist arrests in the U.S.
and Europe are receiving most of the press – and thank God
progress is being made – Ecuador recently arrested 6 Iraqis on
expired visas who were casing a resort area. While it”s not
known what they were up to, I”d say, ”no good.” And to further
show you how far-reaching the dragnet is, Uganda arrested 7
Pakistanis with potential ties to bin Laden. If there is any good
news in the war on terrorism it is that many in the world
community are beginning to “get it.” The negative is that in just
these two isolated instances, you get a clearer picture of what we
are up against.
–Pakistani President Musharraf to CNN: “There is no chance of
any extremists coming into the army (and controlling the
nukes).” I continue to sleep with one eye open. I suggest you do
the same.
–Two places I wouldn”t frequent between Thanksgiving and
Christmas – the Short Hills Mall in New Jersey and
Bloomington”s Mall of America, both rather high profile targets.
–Update: I am concerned I may not have sent the right message
last week to my heroin-addicted readership. I said the price
should be coming down as the Taliban floods the market (after
halting production in ”99) to pay for its military needs. But, my
drug-addled friends, the U.S. may target the opium fields! In
other words, when it comes to meeting your heroin needs, we
might see a V-shaped price spike.
–C”mon, let NASCAR fans bring in their coolers. After all, why
would they put anything in there that would spoil a good time?
–Columnist Frank Rich: “The more we know now, the better,
because knowledge is an antidote to the anxiety of change, and
more change is the only certainty ahead.”
–The Canadian government is all pissed off at the U.S. because
some in Washington are insinuating that Canada harbored the
terrorists who perpetrated the hijackings. True, the fact is all 19
lived in the U.S., not Canada (at least for any extended period of
time), but you”d have to be a moron not to also know that
Canada is a training ground, thanks mainly to an immigration
policy that is even more lax than ours here in the States. Of
course at the same time Prime Minister Chretien is also jealous
that President Bush clearly prefers hanging out with Mexico”s
Vicente Fox more than he does with the socialist from Ottawa.
As for Fox, I said it before he was elected and I say it again
now…Mr. President, you are one cool dude. [Paid for by the
Vicente Fox Fan Club.]
–Salmon Rushdie: “The fundamentalist (is against) freedom of
speech, a multi-party political system, universal adult suffrage,
accountable government, Jews, homosexuals, women”s rights,
pluralism, secularism, short skirts, dancing, beardlessness,
evolution theory, sex.” They also don”t like beer.
–Speaking of pluralism, before you book your trip to Mecca,
remember that non-Muslims can”t go there. All are welcome to
Bethlehem, however.
–No, I”m not buying a gas mask. But I am going to build a
shelter 50-feet below my basement. Just don”t tell my condo
board. Wait, I”m on the condo board!
–British Prime Minister Tony Blair on the U.S. practice of
accepting immigrants and letting them succeed or fail on merits.
“I think of the Statue of Liberty and how many refugees,
migrants and the impoverished passed its light and felt that if not
for them, for their children, a new world could indeed be theirs.
“I think of a country where people who do well, don”t have
questions asked about their accent, their class, their beginnings,
but have admiration for what they have done and the success
achieved.”
–New York Mayor Rudy Giuliani, in a speech to the UN.
“The strength of America”s response, please understand, flows
from the principles upon which we stand. Americans are not a
single ethnic group. Americans are not of one race or one
religion. Americans emerge from all of your nations. We”re
defined as Americans by our beliefs, not by our ethnic origins,
our race or our religion.
“Our belief in religious freedom, political freedom, economic
freedom – that”s what makes an American. Our belief in
democracy, the rule of law and respect for human life. That”s
how you become an American.”
[You can read the full speech on my “Bar Chat” link, 10/5.]
–Lastly, I”m off this morning to South Dakota and Montana,
visiting places ranging from Little Big Horn to Wounded Knee
(slight contrast there), and from Mount Rushmore to Deadwood.
I”ll be wearing my Dale Earnhardt cap, so if you see me at one of
the sites be sure to say hello.
God bless our president and the men and women of our armed
forces.
God bless America.
—
Gold closed at $292
Oil, $22.39
Returns for the week, 10/1-10/5
Dow Jones +3.1%
S&P 500 +2.9%
S&P MidCap +2.2%
Russell 2000 +2.5%
Nasdaq +7.1%
Returns for the period, 1/1/01-10/5/01
Dow Jones -15.5%
S&P 500 -18.9%
S&P MidCap -14.6%
Russell 2000 -14.2%
Nasdaq -35.0%
Bulls 34.4%
Bears 42.7% [Source: Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
