[Posted 7:00 AM ET]
About one week ago, the following incident occurred in Bahrain,
as reported by Neil MacFarquhar of the New York Times.
The U.S. ambassador was at a program sponsored by a U.N.
model school. One student asked for a moment of silence for the
recent Palestinian victims of the war, at which point the
ambassador suggested they remain standing to pray for Israeli
suicide victims. Within an hour an account rocketed across the
region that the American was paying respect only to the Israelis
and you might have seen the result, a massive protest in the
streets of Bahrain, as well as similar demonstrations elsewhere in
the Arab world.
This is what the U.S. is up against in this clash of civilizations.
Each story gets twisted and distorted, with the result being
murder and mayhem. But as John McCain said last Sunday,
there is “no moral equivalence” between the violence perpetrated
by Israel versus the campaign which Yasser Arafat is conducting,
and I agree with the senator that in the case of the United States,
we must stand firm for our principles. For now, however, I am
going to withhold comment on Secretary of State Powell’s
mission, especially because this column is being posted before
his once postponed meeting with Arafat (if it comes off at all).
There will be plenty of time for more analysis next week and in
the coming months. In the meantime, I add the following to the
debate.
–A representative from the Arab League commented on
television that “U.S. credibility is at stake.” What?!
–An NBC / Wall Street Journal poll revealed that by a 3 to 1
margin, Americans hold Palestinians more responsible for the
violence than Israel, though I’ll predict that the same Americans
will turn against Israel if and when the U.S. gets hit again.
–The bulk of the press coverage of the fighting in the West
Bank is despicable. I saw one CNN report where the viewer was
supposed to feel sorry for a Palestinian woman because her
garden was bulldozed. At the same time, in any war there are
sometimes excesses which are regrettable (like a pulverized
infrastructure), though in this instance it is mostly warranted by
the nature of the threat Israel faces.
–Israel is not targeting civilians.
–Israel’s good ally, Turkey, is now in a very difficult position
with the rest of the Arab world and will face increasing internal
pressures that could impede U.S. efforts against Saddam.
–Should real negotiations ever begin, the situation over the
Israeli settlements is hopeless. Israel will be required to
dismantle many of them, but the settlers will refuse to move…
result, civil war.
–Of course Hezbollah is attempting to get Israel to bite on a
second front in the war, by shelling Israeli positions and villages.
This is one instance where even the U.N. has to admit Israel is
totally in the right. Bush meets with Lebanon’s prime minister
this coming week, though the gentleman is simply a tool of
Syria. For its part, Damascus doesn’t want all-out war. They’d
get their butt kicked.
–Saudi Arabia has been holding a telethon to raise money for the
Palestinians. $100 million poured in the first day, but there is no
guarantee it won’t be used to fund terrorism.
–Prime Minister Sharon was right, Arafat should have been
taken out in 1982.
Additionally, President Bush is about to be played as the fool
when it comes to the upcoming visit by Saudi Crown Prince
Abdullah. I can see the President’s statements already.
“The U.S. has a long history of friendship with the Kingdom of
Saudi Arabia.”
“Crown Prince Abdullah is an ally in our war against terror.”
“Saudi Arabia has been a tremendous help in stopping the money
flows.”
“Saudi Arabia never told the U.S. to re-deploy its forces
elsewhere,” etc., etc. Your editor will be choking to death while
viewing this.
Don’t get me wrong. Despite the calls from both sides of the
political aisle, Bush can do little more, today, than stay engaged.
Let’s just hope that behind the scenes he is setting the stage for a
far different day, and if he isn’t, well, events are likely to force
his hand. As the opening story should make all too clear, we need
to face the fact that soon we will have to get in the faces of the
“22 unelected dictators” (McCain) and tell them in no uncertain
terms, when it comes to state-run media and the schools, cut the
s—.
Consumer Confidence
Related to the above discussion is a piece I saw in the Wall Street
Journal on Monday by Steve Liesman, concerning a 20-year
study by Carl Steidtman, which purports to show that there is
little relationship between confidence and consumer spending.
Of course I disagree that one can look at the past 20 years and
extrapolate going forward when it comes to this topic because
it’s a different world. To wit…
While I certainly concur that today’s booming confidence #’s
auger well for spending, I simply have my doubts that confidence
will remain high (and it has slipped according to the latest
University of Michigan study released on Friday), which should
have an impact on spending. But Steidtman would argue that
cash flow, not confidence, drives spending. Well, my point has
been since 9/11 (and before in examining potential flashpoints)
that we are in a new era, with far greater threats. Americans
resumed their spending ways last fall for a number of reasons,
the primary one being that, thankfully, we weren’t hit again, and,
just as importantly, we were inspired by President Bush’s
leadership at this critical juncture.
Looking at it more dispassionately, economist Robert Samuelson
adds, there were 3 other factors that led to such a shallow
recession, both before and after the attacks; the Bush tax cuts, a
high level of mortgage refinancings thanks to low interest rates,
and falling energy prices. Over the coming year, however, the
contribution from all three will be negligible, at best.
So to Mr. Steidtman, I appreciate your research efforts, but a
rational study of today would probably reveal that a well-placed
dirty bomb or two will shatter confidence, reduce spending, and
contaminate your work, thus confining it to the ash heap of
history.
Wall Street
It was another lousy week, with the Dow Jones’s losing streak
hitting 4 (minus 0.8% to close at 10192) and Nasdaq’s, 5 (also
minus 0.8% to 1756). The damage could have been far worse,
however, were it not for healthy performances on Wednesday
and Friday. The rest of the week saw the Street buffeted by a
new round of SEC inquiries (imagined or otherwise), earnings
preannouncements and actual reports, the ongoing destruction in
the telecom sector, David Duncan’s admission of guilt in the
Arthur Andersen / Enron saga, and the investigation by New
York’s attorney general into the practices of the securities
industry. Add it all up and it doesn’t exactly give one a warm
and fuzzy feeling, nor make you want to call your broker for the
purposes of placing a ‘buy’ order.
The tech disaster continues unabated, as stocks ranging from
AOL (focusing on the Net side of the story), to WorldCom, to
Lucent and Nortel all registered multi-year or all-time lows.
When it comes to telecom, specifically, all you really need to
know is the following. For communications equipment, the
capacity utilization rate is 55%…55%! Now I’m no Eddie
Einstein, but that adds up to a ton of surplus capacity, along with
an awful profit outlook in a sector already laden with mountains
of debt.
On the broad-based economic front, retail sales rose in March,
but at a rate less than expected, a none too robust 0.2%, which
should give one pause as to the strength of the recovery. While
on the capital spending front, you continue to hear statements
from the likes of IBM, “Capital spending is down across the
board,” and Nortel, “(Companies are showing a resolve) to
minimize spending in the near term.”
Regarding IBM, early in the week they warned that earnings
would miss the target by a wide margin and the stock cratered
10%. Then on Thursday, the stock fell victim to a report by a
newsletter, SEC Insight, to the effect that Big Blue was being
investigated for accounting violations. It turns out that the SEC
had looked into some issues, but concluded weeks ago there was
nothing to warrant further inquiry. It’s perhaps telling that IBM
recouped a mere fraction of its loss following this disclosure.
Next week will witness the first real torrent of earnings reports
and if they are anything like what IBM intimated, or even G.E.,
the latter having matched the earnings per share estimate, but
falling light on revenues, expect more desultory action on Wall
Street.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.94% 2-yr. 3.36% 10-yr. 5.15% 30-yr. 5.65%
The producer price index rose 1% for the month of March,
though if you strip out food and energy, the core rate increased
just 0.1%. Higher oil and gas prices were the prime culprit in the
first number, but if the price of crude continues to trend lower, as
it has the past few days, then that should positively impact the
data for May, if not sooner. Of course it also depends on what
happens in the Middle East.
That said, as we’ve been documenting the past few weeks,
inflation for a slew of products and services is rising. While
some of what I have written is tongue-in-cheek, my friend Mark
R.’s trips to the grocery store (with the latest revelation being
that Progresso Soup spiked 22%, while veggies are simply
soaring because of the drought) is reality. And this week,
PIMCO’s Bill Gross weighed in with his latest missive
(pimco.com). I won’t use this space to go into all the details of
his thinking these days, except to relate his conclusion, that being
that Fed Chairman Alan Greenspan’s hands are tied and,
“because Greenspan must keep short rates relatively low, the risk
of inflation in future years will be greater than (would) otherwise
(be the case).” So we will remain on inflation watch, if you keep
it where it is.
–Energy: Crude fell more than $2 this week to the $23.50 level,
as the oil market, at first, took solace in Saudi Arabia’s call that it
would meet any shortfall in production should Iraq carry through
with its embargo, while Libya and Iran announced they would
also not support Baghdad at this time. Then on Friday, we had
another example of just how quickly the world can change these
days, as Venezuela’s President Hugo Chavez was forced to
resign after government forces killed 14 protesters on Thursday.
Up to 200,000 had turned out to demonstrate against Chavez’s 3-
year despotic rule and the generals turned against him. The
significance for the oil market is that Venezuela’s new leader
(elections are currently slated for 6-8 months) should be far more
supportive of the U.S. than Chavez was and the country’s ample
oil reserves (Venezuela already being the #4 exporter to the U.S.)
may become even more of a factor. Already there are signs that
a break from OPEC, at least in theory, is possible. [As an aside,
Venezuela’s state-owned oil company controls Citgo, so as Mike
H. has written me, if you have a station in your area and you
don’t want to support global terrorism by buying Arab oil, this is
an alternative.]
In the long run, though, the energy picture is still all about
economic growth, or lack thereof, and as a player in the sector,
I’m hoping that oil settles in the $22-$24 range, longer-term. We
could see the lower end of that range in a matter of days.
But whaddya say we take another look at the Arctic National
Wildlife Refuge, ANWR. Senator Conrad Burns (R-Mt.) wrote
the following supporting statement in a Journal op-ed piece.
“We cannot continue to jeopardize our security through
dependence on rogue oil, or ignore the glaring reality that the
U.S. is financing global terrorism as a result of a flawed domestic
energy policy.” Yet the Senate still doesn’t have enough votes to
block a filibuster.
–New York Attorney General Elliot Spitzer’s garnering more
than a bit of publicity for his investigation into Wall Street’s
inherent conflicts of interest between the research and investment
banking functions. The first target is Merrill Lynch and others
are to follow. By now many of you have heard about the emails
at Merrill, whereby some bankers and analysts were labeling the
same companies they were humping “pieces of junk,” or worse.
But I’m getting a kick out of some apologists for the Street who
say that investors themselves deserve some blame. Perhaps, to a
small degree, they are right, if, for example, an investor had 50%
or more of his money in a speculative stock. The problem is that
the average investor grew up hearing nothing but positive
reviews on the powers of Street analysts, so what were they to do
when presented an idea except to believe the hype?
For regulars of this column, though, I do have to ask your
indulgence while I relate what I wrote in this space a full two
years ago (4/15/00), as a way of proving to new readers where I
have stood on the issue.
4/15/00: “The ‘business’ of Wall Street is largely a game. Over
time, if you hold quality stocks you can be a winner, but know
one thing. 90% of the advice you get from Wall Street shills (the
research analysts) is worthless.”
In this same column, I also gave the results of my own research.
To give two examples, just one month from Nasdaq 5000, 45 of
the 46 Wall Street analysts had Cisco as a “buy,” with one
“hold.” [Cisco had fallen from $82 to $55 at the time…it’s now
$15.] In the case of Yahoo, 25 rated it a “buy” and 4 a “hold,” as
Yahoo plunged from $250 to $111…on its way to today’s
$15.50.
Believe me, the Street deserves everything that is coming, and
you can be sure brokerage executives are scared to death at the
scope of their potential liability.
–Putnam Funds President Lawrence Lasser saw his
compensation decline from $35 million to $29.6 million last
year. Our hearts go out to him and his family.
–Japan: A new study of bad bank debt reveals that the level
continues to explode. “Bad debt…baaaad debt.”
–Magazine ad pages declined 14% in the first quarter versus the
year earlier period. There are tentative signs, however, that
advertising, in general, is stabilizing.
–The top 5% of taxpayers ($120,000+) pay 55% of the taxes.
The bottom 50% (below $26,000) pay 4%.
–Lucent is reportedly laying off an additional 5,000.
–Yahoo’s first quarter earnings results give one a clear picture of
just how far the Net has fallen from its bubble phase. No one
denies that Yahoo is more than a survivor, but while company
officials attempted to paint a rosy picture, the fact is that Q1
revenues were $192 million (and that was aided by an
acquisition) versus $310 million for Q1 2000.
Additionally, the earnings estimate for 2003 is still just $0.20.
Let’s call it 25. You can quickly see why Yahoo plunged $3 on
the report, since investors are finally learning how to use a
calculator. $15 divided by 25 cents is still a 60 multiple…for
2003. Of course you could play the valuation game…and with
similar results…for just about all tech-related issues, and therein
lies the reason why I will continue to avoid the sector.
–I saw an article discussing the fact that rents are soaring in
Kabul as thousands of refugees return. Back in 1978, the
population was 500,000 and today it’s close to 2 million, but in
the intervening 20+ years, there has been little new construction.
So with this in mind, may I recommend Kabul Realty Investment
Trust, symbol KAPOW on Nasdaq.
International Affairs
Iraq: The buildup in U.S. forces in the region continues,
particularly in Qatar, our new best friend in the Gulf. Despite
British Prime Minister Tony Blair’s more dovish stance in
Crawford, at the end of the day he did come down on the side of
“regime change.” President Bush has all he needs to convince
the American people that Saddam must be confronted, soon,
though now we’ll have to go through the motions in the
inspection game, before Saddam screws up (as he inevitably
will) and we have our ultimate excuse to finally act.
Russia: It was fascinating to see President Putin touring Europe
with Mikhail Gorbachev in tow. Evidently, the two have become
friends, with Putin valuing Gorby’s insight, while at the same
time shrewdly limiting the former president’s ability to mount
any criticism of his own policies. I also remain steadfast in my
belief that the newfound relationship between Russia and the
U.S. is critical in today’s world, so I was pleased to see that
Congressman Curt Weldon (R-Pa., and a key figure on foreign
policy) had the same viewpoints. At the same time I disagree
with those who don’t recognize that Russia can also be a huge
help in the Middle East, particularly with regards to Iran and
Iraq.
Colombia: A single car bomb killed 12 as the civil war continued
without let up. Later, rebels took 13 legislators hostage. But the
recent confirmation that FARC has bases in Venezuela may now
be a positive for both Colombia and the U.S. With the change in
regime in Caracas, I have to believe that the new leaders will
want to get the rebels out of their country, unlike Chavez’s
policy of collusion.
Random Musings
–John Leo / U.S. News on the issue of reparations. “This
campaign is the work of an aging and backward-looking black
leadership that can’t seem to extricate itself from victim
politics.”
–U.S. News also reports that James Carville and Paul Begala are
so obnoxious on “Crossfire” that top Republicans are boycotting
the show.
–Headline in the Star-Ledger, the state paper of New Jersey.
“Humiliating days in the West Bank: Palestinians must prove
they are unarmed.” No, that’s not too slanted! Geezuz. What do
you expect the Israelis to do? Ask the parents of those 13 Israeli
soldiers who were killed in a suicide attack, or Friday’s victims,
just for starters.
–L.A.’s murder rate is up 80% from 2000, which goes to show
that success stories like Rudy Giuliani’s in New York weren’t
just about demographics and a healthy economy. It’s about old-
fashioned police work. In L.A., however, the boyz ‘n the hood
are back.
–Ohio Congressman Jim Traficant was convicted on all 10
counts in his bribery and racketeering trial, thereby proving that,
in court, bad haircuts can cost you.
–One of the many reasons to detest Zimbabwe’s Robert Mugabe
is his handling of the country’s fragile wildlife population. For
example, he recently booted some white farmers who were
involved in a rhino conservation program, replacing them with
his “war veteran” thugs. Already, poachers are moving back in
and the animals are in dire straits. So, since rhinos are known
for their poor eyesight, we ask God to grant these beautiful
beasts the gift of 20/20 vision, so that they can kick some butt.
–Bob L. correctly noted that in my recent comments on Louis
Rukeyser, I should have reminded everyone how shabbily he
treated some of his panelists over the years, particularly Gail
Dudack and Bob Nurock. While I have also been annoyed at
Rukeyser’s over the top bullishness, on occasion, I didn’t state
that criticism clearly enough, as well. Nonetheless, Uncle Lou
has a new home on CNBC, starting April 19.
–As my friend Jimbo said the other day, with regards to the
cloning issue, I think most of us are scared that us good folks
will be facing a bunch of cloned suicide bombers, like in a bad
sci-fi movie.
–More studies were released showing the benefits of placing fish
on your dinner table (of course you have to eat it, too). Cold-
water types like salmon, swordfish, tuna and killer whale are
best. Also, look for Charlie Tuna to make a big comeback.
–Someone needs to tell Katie Couric that privately she can have
any opinion she wants of John Ashcroft, but when she’s on the
air, Ashcroft is, after all, attorney general and deserves to be
treated with respect. Her behavior the other day, concerning a
piece on him, was reprehensible.
–Speaking of which, many of us in the New York area, in
particular, were super-psyched to see attorney Lynne Stewart
indicted by Ashcroft’s Justice Department for aiding and abetting
terrorism in the case of blind cleric Sheik Abdel-Rahman, one of
those behind the 1993 World Trade Center bombing. Everyone
has a right to counsel, but attorney-client privilege doesn’t
extend to a client’s efforts to continue his campaign of death
while behind bars.
–I received a few comments on my use of ‘balrog’ last week in
my bit about North Korea, so I feel obligated to say it was a
reference to “Lord of the Rings.”
–Uh oh. Canada’s national parks’ workers could be going on
strike. It appears the parks will stay open, however, but the
campgrounds would be closed, as they couldn’t be properly
maintained. Of most worry to many of you, though, should be
the fact that, as one official put it, “If a fence is breached, there
could be a lot of animals running around loose on the road.”
Which means one thing, folks. Armies of grizzlies will be on the
move, heading south, taking hostages and hijacking tractor-
trailers of food.
–Well, another year and no Pulitzer for yours truly. I was sure I
would win this time for my groundbreaking series on yaks in
2001, as well as the overall content of my “Bar Chat” link. Just
goes to show how fierce the competition is.
–Hugh Hefner turned 76. You know, there’s something to be
said for a guy who has lived his life in pajamas, while
surrounded by gorgeous women. It’s rather stimulating, come to
think of it.
–Don Rickles at Milton Berle’s funeral. “I would like to be paid
for this.”
–Lastly, I watched the funeral for the Queen Mother Tuesday
morning on C-Span and it was a moving tribute to a figure who
looms large in Britain’s history. Of course from time to time I
bemoan the fact that a majority of Americans are truly ignorant
when it comes to the study of their own past, something I
couldn’t help but take measure of as I watched the funeral
procession. [A few months ago I wrote up the results of a history
quiz given to 550 college seniors, including from Harvard and
Princeton. Pitifully, only 37% knew what war the Battle of the
Bulge was fought in.]
It was Rudy Giuliani, after all, who told us that in the days
following 9/11, he took solace in reading up on the Battle of
Britain and the heroic response of the British people during that
time. Thankfully, New York and Washington were attacked just
once. So imagine what it was like for residents of London during
the early stages of World War II, to endure the horrors of being
bombed, night after night, month after month.
But it was the Queen Mother who helped set a courageous
example then by opting to stay with her people, instead of fleeing
to shelter outside the line of fire. [Buckingham Palace was also
hit.] Since those days, the Queen remained a beloved figure in
Britain, and despite all the talk of a monarchy in disarray, it may
surprise some to know that today, only 12% in the country would
like to see it abolished.
It’s about symbolism, something that many Americans may find
a bit remarkable. But it isn’t any different than our own
reverence for Abraham Lincoln and his glorious memorial in
Washington, or the symbolism behind the American flag, more
important than ever these days. It’s why up to 1 million Brits
turned out to honor their Queen Mother this week, and why all
activity stopped in the country for a sustained period of
remembrance.
So as we travel down this dark road laid before us, we pray that
our staunchest ally, Great Britain, continues to walk shoulder to
shoulder with us in this war to save civilization. That’s why I
also waited on Tuesday morning to hear one song in particular…
“God Save the Queen.”
God bless the men and women of our armed forces.
God bless America.
—–
Gold closed at $302
Oil, $23.47
Returns for the week, 4/8-4/12
Dow Jones -0.8%
S&P 500 -1.0%
S&P MidCap +2.2%
Russell 2000 +3.6%
Nasdaq -0.8%
Returns for the period, 1/1/02-4/12/02
Dow Jones +1.7%
S&P 500 -3.2%
S&P MidCap +6.7%
Russell 2000 +5.5%
Nasdaq -10.0% [Nasdaq telecom index, -33.7%]
Bulls 52.6%
Bears 30.9% [Source: Investors Intelligence]
And to Arnold Palmer, farewell. I’ll never forget walking 18
with you.
Have a great week, everyone. I appreciate your support.
Brian Trumbore
