[Posted 7:15 AM]
“Christ-mas time…is here, happi-ness…and cheer.
Fun for all…that children call…their favorite time of year.”
–Lee Mendelson, “A Charlie Brown Christmas”
I was watching NBC News Thursday night and Tom Brokaw had
the story of a 10-year-old boy who lost his firefighter father in
the Twin Towers attack. To say it was touching is an
understatement, as even Brokaw was on the verge of tears when
it came time for him to wrap up. Though I had to wonder if, deep
down, he was feeling what I was, that being the sentiment that I
had renewed hatred for those who perpetrated the act and tried to
steal Christmas from the hearts of so many of us, especially our
young people.
But we”re lucky to have a president who has risen to the occasion
with a sense of purpose and conviction, traits also exemplified in
the following note, written a few days ago, by a Navy fighter
pilot, a man I have known about for some time through a good
friend of mine. The lieutenant is currently serving in
Afghanistan.
“We have started stuff around here. Let all of your compatriots
in New York know that your son is exacting revenge on these
people to a level they have never seen before. We will continue
to do so until it can be guaranteed that nothing like 9/11 can ever
happen again.”
We”re praying for you. Thankfully, we have folks like yourself
to take care of those enemies of the free world who don”t get it.
This isn”t the Christmas season most Americans wanted, but we
still have our faith. Good will triumph over evil.
—–
It was a decent week on Wall Street, with the Dow Jones picking
up 2.3% to close back over 10000 (10035), while Nasdaq
registered a small decline to the 1945 level.
With consumer sentiment continuing to pick up and the housing
sector showing amazing resilience, it”s easy to build a case that
the economy has bottomed. But, to repeat myself, it”s the shape
of the recovery that matters, especially with valuations on many
stocks as frothy as they appear to be. And while no one can
disagree that inventories have been worked down to levels that
augur for a pickup in manufacturing down the road in order to
restock the shelves, it”s really a question of do the goods then get
moved and, if so, at what price?
Economist Ed Yardeni was discussing the impact of
globalization and increased competition for today”s corporation,
the point being how difficult it is to raise prices, and if you can”t
raise them, how do you generate profits, particularly, I would
add, with soaring costs for items like healthcare.
Sorry, folks, I just think that those who are calling for a robust
recovery, more than a strong quarter or two, are sadly misguided.
And to also just ignore ”event risk” would be a huge mistake. In
this new age we can never let down our guard, and I still argue
that not having a substantial cash position (or holdings in quality
bonds), especially when you are the breadwinner in the family, is
financial suicide.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.79% 2-yr. 3.12% 10-yr. 5.08% 30-yr. 5.46%
Bonds were largely unchanged, even with the more positive
economic news, and the long end of the curve actually rallied a
bit. One reason…there simply isn”t any inflation to worry about.
–Argentina: For starters, as the unrest heated up this week, a
money manager in Spain (Spain”s banks having a huge exposure
to the country) said, “Investors had discounted economic
distress, but not social distress like this.” Well, anyone with half
a brain knew what road we were headed down, and, being the
possessor myself of half a brain, I laid it out for you, beginning
weeks ago.
So now the government has been toppled and, as of this writing,
at least the military is staying away. But there are still many
investment pros that say the Argentinian experience will have
little impact on other emerging markets. They couldn”t be more
wrong, but be patient with me as events unfold over the coming
months.
For starters, of course investors will shy away from investing in
much of Latin America. But, to be selfish about it, will this also
impact investment in countries like Turkey, where I increased
my own investment this week (to the 5% level I previously
discussed)? I would prefer to think that Turkey is sheltered
somewhat by its overwhelming strategic importance in our war
on terrorism. And elsewhere outside of Latin America, each
emerging market must be viewed on its own merits.
Look at South Africa, for example, where the currency has
collapsed in large part because Zimbabwe”s Robert Mugabe
seems bent on taking down the entire southern part of the
continent. And in Asia, you”re nuts to consider investing in
Indonesia or the Philippines, but, on the other hand, South Korea
has more than held its own. Bottom line, if you understand the
politics of a particular country or region, you can make informed
decisions, otherwise, stay away from the entire sector.
–Japan: The yen continued to collapse, which is good for the
nation”s exporters, except when the folks who are supposed to
buy the goods aren”t in the buying mood. Otherwise, a falling
currency obviously shows a lack of confidence in the
government”s ability to turn around the economy. And the Bank
of Japan issued another of its desultory statements on Friday,
saying that the situation is “worsening broadly.” I realize this is
the same stuff you”re reading from me every week on the Land
of the Setting Sun, but imagine what it”s like to live there!
–Europe: The consumer is holding up reasonably well in France
and the U.K., which may preclude them from slipping into
recession. Overall, however, growth throughout the E.U. is non-
existent…and then there is the launch of the euro. More on that
next week.
–Warren Buffett, in a CNBC appearance, called for investment
returns of 7% a year over the coming decade. With a forecast
like that you might as well just buy PIMCO Total Return Fund
and sleep at night.
–G.E.”s new CEO, Jeffrey Immelt, provided some holiday cheer
with his own forecast that the company”s profits will be up some
18% in 2002, specifically, $1.65-$1.67 per share. So slap your
favorite multiple on that estimate. I”m also glad Immelt can see
the future so clearly because I sure as hell can”t.
–Motorola announced it was slashing another 9,400 jobs in ”02,
bringing the company total to 43,000.
–Cisco wannabe Juniper Networks slashed its 4th quarter
earnings outlook by half, thereby dealing another blow to the
tech sector”s growth prospects, while on the non-tech side, Alcoa
reported its first quarterly loss since 1994.
–Microsoft revealed it has a serious flaw in its Windows XP
software, like the whole operating system was left open to a hack
attack. Geezuz, thousands of folks worked on this project and
they still blew it. And pursuant to discussions in this space over
the past few weeks, what”s laughable is the fact that the problem
arose from a feature that will eventually allow consumers to
control their home appliances using their computers. Which
means that the sensors telling you your milk or beer is low
wouldn”t work. This is potentially the end of civilization as we
know it.
–Per my recent pieces on asbestos litigation, there was some
good news on this front as an enlightened Pennsylvania
legislature passed a bill that will limit asbestos-related liabilities.
This is particularly important for state-based Crown Cork &
Seal, which has been hit especially hard by judgments against it
resulting from a tiny acquisition years ago. From here on,
liability will be limited to the total value of the predecessor”s
assets in the case of an acquisition. It”s a step in the right
direction.
–Much is made of the “January effect,” which means it”s
probably now a worthless indicator. Nonetheless, over the last
20 years small cap stocks have outperformed large caps by 2%
during this month.
–For all the heat Dynegy and other power producers are taking
in light of the collapse of Enron, it does need to be mentioned
from time to time that we still rely on these folks for the building
of new power plants, so problems in this sector can obviously
have an impact on our ability to meet future energy needs.
–In a comment on Enron and the problems encountered by
employees trying to sell the company shares within their
401 (k)s, Jack Welch said he didn”t know employees could face
such a situation. I find this absolutely unbelievable that any
CEO wouldn”t know this standard fact of changing plan
administrators. And speaking of Enron, why the Wall Street
Journal”s editorial page continues to defend it, I”ll never know.
–But wait, there”s more…J.P. Morgan initially declared its
exposure to Enron was $965 million. Then, within the space of
24 hours, the total became $2.6 billion. Aw hell, what”s $1.7
billion among friends?
–6 executives at Tyson Foods were indicted for smuggling
illegal Mexican immigrants into the country. At least they didn”t
smuggle Mexican chickens, which, as you know, tend to be
skinnier and tougher in texture.
–Huffy declared that the Scooter fad was officially dead, as it
announced plans to scrap its inventory and ship it all to the Island
of Misfit Toys.
–Not to pay this deal short shrift (and to place it below scooters),
but AT&T did merge its cable operations with those of Comcast
for a total of $47 billion in stock and $25 billion in assumed debt.
So the dismantling of once mighty Ma Bell continues and,
importantly for consumers, this latest move leaves 5 cable
companies in control of 80% of the market, which means one
thing…your bill will keep soaring.
–Energy: The latest word has OPEC going through with its
production cut of 1.5 million barrels per day on January 1st, with
the further expectation that non-OPEC will contribute a cut of
around 500,000 barrels. But, again, I cannot stress enough that
when it comes to the actual price of oil and natural gas, without a
return to normal winter weather in North America, any rally is
unsustainable.
Meanwhile, as colder weather potentially sops up some
inventories, at least the rig count continues to fall (thanks to
tumbling prices making some wells less profitable to operate)
and that also helps the supply side of the equation. As for the
demand picture, any pickup in global economic activity
obviously helps as well. I”ll have more in depth comments on
the energy scene next week.
–E-commerce is still less than 2% of all retail sales.
–The Journal asked the question whether or not Hewlett-Packard
should just focus on printers, to which I”d add it should limit the
business further to printer cartridges. As a major user of same, I
can see that this is clearly where the real money is. By the way,
did I ever tell you what my ultimate business dream was, to own
McIlhenny”s Tabasco Sauce? Man, I could do a job promoting
the heck out of it. And it helps prevent colds, too. [The board of
directors of StocksandNews totally disavows Mr. Trumbore”s
medical claims.]
–And once again my retailer of the year is Bed Bath & Beyond,
the world”s greatest store. Granted, you need to be of a certain
age to truly appreciate many of the products, like Good Grips
spatulas and back massagers. I also grade the sales help at
BB&B the friendliest around.
International Affairs
Iraq: The drumbeat continues and the battle lines are being
drawn. On one side are those like Secretary of State Colin
Powell who urge caution in confronting Saddam – an opinion
currently shared by our allies – while on the other are those like
the U.S. senators (including Lott, Lieberman, and McCain) who
in a recent letter to President Bush said:
“For as long as Saddam Hussein is in power in Baghdad, he will
seek to acquire weapons of mass destruction and the means to
deliver them…We have no doubt that these deadly weapons are
intended for use against the United States and its allies.
Consequently, we believe we must directly confront Saddam,
sooner rather than later.”
But I also still give Powell the benefit of the doubt and he did
speak openly this week about overthrowing the Butcher of
Baghdad…soon. And the urgency is real, especially if you
believe a New York Times story on an Iraqi defector (whose
credibility appears to be solid) who supplied further details on
Saddam”s weapons of mass destruction program.
And I must comment on a column by the Times” Thomas
Friedman, who wrote that the U.S. will have to go it alone.
That”s simply a standard remark when discussing Iraq. He”s
wrong. We will build a substantial enough case whereby others
will follow…namely Turkey.
Turkey: The government has moved quickly to gain influence in
Afghanistan, becoming the first nation to send its foreign
minister, and it should play a vital role in any peacekeeping
mission. My impression is that Turkey understands they have an
incredible opportunity to step up and show the world it can be a
role model for the entire Islamic world. And regarding Iraq,
political and military leaders are coming around to the U.S. view
of things. All they want is to know America is finally committed
to overthrowing Saddam, once and for all. This time I”m
convinced we are. Ankara will thus follow.
Israel: Thankfully, it was a relatively quiet week as Arafat once
again vowed to “punish all planners and executors” of terrorism
and to “hunt down the violators firmly.” Of course the Israeli
response was that actions speak louder than words. Later in the
week, Arafat”s Palestinian Authority arrested 16 of its own
security forces, the first time this has occurred. And then Hamas
said it would no longer take part in suicide bombings on Israeli
soil, targeting civilians, but reserved the right to go after soldiers
and settlers on the West Bank. I report all of this simply as a
review of events. As for the actual significance of these
seemingly positive moves, you”d have to be a fool to believe this
is really the beginning of a lasting truce.
India / Pakistan: President Bush issued his strongest statement of
support yet for India and its own war against terrorism,
specifically the fight against Kashmiri groups which have the
backing of elements in the Pakistani government. India has
showed remarkable restraint after the attack on its parliament,
and they need to be rewarded with our unstinting support.
Of course what makes this whole region so dangerous is the fact
that the U.S. also is relying heavily on Pakistan and President
Musharraf. And there seems to be little doubt that all of the
Taliban and al Qaeda fighters who have crossed into Pakistan are
sowing the seeds for internal strife in the future. So far
Musharraf has stood up to the extremists in both the military and
his intelligence services. Let”s hope he can continue to do so.
Russia: President Putin continues to act as if U.S. withdrawal
from the ABM Treaty is no problem and in interviews this week
he said the issue would not stand in the way of the developing
partnership between the two. Peace on earth, good will to men.
China: Unlike Russia, China”s reaction to the scuttling of the
ABM Treaty was a little harsher this week compared to last, as
the government press warned of an arms race. This has been the
stock answer for the past year concerning this issue but what
does matter is what happens between India and Pakistan. If
tensions were ratcheted up to the point where the two are
escalating their own respective buildups, China will be forced to
match the gains of its rival, India.
But in 2002, the overriding issue for China is the battle to see
who succeeds President Jiang Zemin, as well as the integration of
the Chinese economy into the WTO. Regarding the latter, with
increased competition tens of millions more will lose their jobs.
For example, 350 million farmers are suddenly without
protective price controls and with the continuing population shift
to the urban areas, the Communists are deathly afraid of massive
unrest.
Which is why the fate of Taiwan is so important. There is no
doubt that leaders in Beijing would not hesitate to attack the
island if they need to turn to nationalism in an effort to take the
peoples” minds off of the tremendous dislocations taking place
on the mainland.
Random Musings
–While Osama bin Laden may have lost a bit of his mystique,
Arab affairs expert Fouad Ajami had the following comment
concerning the future.
“…the depth of Arab radicalism must be understood. Osama bin
Laden was the Arab street”s hero and, for a brief apocalyptic
moment, the repository of its sense that history had turned its
way and that America had gotten its comeuppance. The forces
that gave rise to him and gave him his means persist. If the past
is any guide, the crowd is already scanning the horizon in search
of a new avenger, a would-be vindicator who in the fullness of
time will take it on another disastrous ride, and another cruel
reckoning with a terrible destiny.”
–Saudi rulers are all bent out of shape over Western media
coverage of their country post-9/11. Of course they deserve it.
And a word for Saudi ambassador Prince Bandar. The day I”m
allowed to visit Mecca, is the day I”ll let up on the criticism.
–According to the Washington Post there are 700 chemical
plants in the U.S. that, if attacked, could put at least 100,000 at
risk. For example, in Philadelphia there is a refinery that keeps
400,000 lbs. of hydrogen fluoride that could asphyxiate 4 million
nearby residents. While in South Kearney, NJ (near the
Meadowlands and New York City), a plant with chlorine and
sulfur dioxide could threaten 12 million.
–John Walker: Well, it looks like he”s going to get 10-15 years,
as he probably won”t be tried for treason, which is really
unfortunate because he should be executed.
I noted that his parents, experiments gone awry from the Sixties,
are upset he hasn”t had an attorney present during his
interrogation. And then 97-year-old socialist reporter Helen
Thomas chimed in during a press conference.
“(Walker) is not allowed to see his parents. Is that American?”
“He is being interrogated without an attorney. Is that fair?”
Someone muzzle this big bag of wind.
–Hey, did you see that PBS program last Sunday on ravens?
Now how cool are they? And ravens are clearly more intelligent
than Helen Thomas.
–Speaking of intelligence, or lack thereof, I was watching a little
C-Span on Wednesday and the House debate on the stimulus
package. Now I hadn”t watched C-Span in quite a while so this
was a good civics lesson in just how stupid some of our
representatives truly are. And what an embarrassment that they
couldn”t agree on a plan to help the economy.
–2001 will go down as the 2nd warmest year on record for planet
earth. Anything to extend the golf season, I say.
–Boy, just a thought, but I”d hate to be working for Martha
Stewart and not put the sprinkles on the pinecone the correct
way.
–I went to see “Lord of the Rings” and it was everything I hoped
it would be. And parents, don”t listen to these blowhards on the
air who say that it is inappropriate for younger children. Sure,
not 6-year-olds, but 10 and up can handle it. Better to have
dreams about Orcs than planes screaming into buildings.
The other big movie event of my year is coming soon, “Black
Hawk Down,” the story of the heroic, yet tragic, 1993 mission in
Somalia. The early reviews are nothing short of sensational.
What will be interesting, however, is whether the U.S. is taking
the war on terrorism to this country next, as many suspect. If so,
it would create an interesting atmosphere in the theatre and it”s a
factor that also can”t go unnoticed in the Pentagon. Show the
troops the movie and then let them wail away. Something tells
me they”d be more than a bit fired up.
–As I noted last week, Britain is having problems with its postal
system and will be laying off up to 30,000 workers. So this week
Prince Charles had the truly brilliant idea of combining the
failing rural post offices with pubs. “Honey, I”m off to the post
for some stamps…back in 2 hours.” “OK, dear…hey, wait a
minute!”
–If there were a pub at my local P.O., I would definitely buy
more stamps.
–On a more serious note, here”s to the men and women of our
own postal service this holiday season. They”ve come through in
a big way.
–And good for Father Blind, a priest at my parish, who said the
other day, enough of this “Happy Holidays,” it”s “Merry
Christmas!”
God bless President Bush and the men and women of our armed
forces. Roll on.
God bless America.
—–
Gold closed at $278
Oil, $19.62
Returns for the week of 12/17-12/21
Dow Jones +2.3%
S&P 500 +1.9%
S&P MidCap +2.1%
Russell 2000 +2.7%
Nasdaq -0.4%
Returns for the period, 1/1/01-12/21/01
Dow Jones -7.0%
S&P 500 -13.3%
S&P MidCap -2.9%
Russell 2000 +0.1%
Nasdaq -21.2%
Bulls 46.0
Bears 28.0 [Source: Investors Intelligence]
Note: I”m taking a little break from the site with regards to some
of the other links. “Week in Review” will, however, be a real
stemwinder next week, as I attempt to look ahead to 2002.
A Merry Christmas to all.
Brian Trumbore
