**Note: The following was posted Friday 1:00 PM ET due to
travel. Next week’s review will not be posted until Monday AM,
May 6.
—
The plot thickens, concerning relations between the United States
and Saudi Arabia, that is. I’m no Miss Cleo, but clearly from the
looks of President Bush at his brief press conference on
Thursday, his talks with Saudi Crown Prince Abdullah did not go
well. Actually, he had the same look as when he was reading to
the school kids in Florida, when he was informed of the Trade
Center attacks. Plus, Abdullah certainly didn’t help the
atmosphere yesterday by his failure to meet with the press.
The secretive, sneaky, two-faced Saudis came to Crawford
supposedly bearing the message that the Bush administration
better mend fences quickly with the Arab world, as if we need to
apologize for anything. No, of course we shouldn’t and should,
instead, be firing questions at the man who now looks to lead the
Arab world, Abdullah. Undoubtedly, the administration did ask
the hard questions on the Saudis support of terror and the
proliferation of hate in the region. But those who reap the spoils
in the House of Saud are a tough breed, or they wouldn’t have
survived as long as they have. It’s a test of wills between the
good guys and, being as diplomatic as possible, the dirtballs.
This isn’t just about the Israeli-Palestinian conflict, it”s about
the survival of the despots. Long ago, the leaders of Saudi Arabia,
Egypt, Jordan, even Syria could have led a permanent peace
movement, if they had had the will to do so. At one point Anwar
Sadat seized the moment, and even Jordan’s King Hussein, but
what gains were made years ago are but a fleeting memory today.
There are no Churchills in the Middle East, that much is certain,
and as opportunity slipped through the dictators” grasps, the
extremists have seized the day and now control the agenda.
What makes it all different from past conflicts, however, is the
level of weaponry.
So all President Bush can do is stay committed to defeating
terror, wherever we find it, while also staying engaged in case,
perhaps by divine guidance, some heroic figure of good emerges
from the dunes to be a true partner in peace. Of course that may
prove to be a mirage, but hope is all we have. In the meantime,
the Saudis raise $150 million (the new estimate) in a telethon and
pass the proceeds on to al Qaeda types with the Kingdom’s good
wishes and just one request in return; let us keep the throne.
While back in Washington, I hope they are preparing for the
worst. Bush, Powell, Rumsfeld et al just saw the future in their
discussions with Abdullah…and it had to make them sick to
their stomachs.
—–
Wall Street
Great time to be an analyst, eh? Not! Just think of those kids in
B-school, scrambling to get back on the marketing track.
“Whaddya mean it’s too late to change?” they’ll sob. “But…but
…I’ve decided I don’t want to work on Wall Street.”
“Geezuz, boy, get a hold of yourself,” will be the reply of the
adviser. “Here’s a Kleenex.”
Now that SEC Chairman Harvey Pitt has finally joined the crowd
in investigating the massive conflicts of interest scam on Wall
Street, the SEC adds its name to the NYSE, NASD, PGA, NHL,
UAE…and Eliot Spitzer, all in the name of truth, justice and the
American way.
Of course none of this should come as a surprise to anyone. It’s
merely what happens after a Great Bubble, when the foam and
froth have washed up on shore and the bubbles quickly sink into
the sand…where the water then provides nourishment for the
sand crabs, or, in this case, the lawyers, who then force their way
up to the top, pinching unsuspecting, daydreaming souls lying on
the beach as they implore, “Hire me!”
What has and will transpire over the coming months is all part of
the cleansing process. New regulations will be adopted and the
whole analyst / investment banking / client relationship will be
altered…until the next bubble.
The problem for today, though, is a serious one. You can’t just
‘wish’ a crisis in confidence away. It takes time, and lots of it.
The investing public was mugged by an unscrupulous cadre on
Wall Street, and after this happens the victims tend to be highly
suspicious for years, if not forever.
What’s too bad is that, yes, there are a ton of good folks in the
financial industry. In my 16 years I got to know more than a few
who had real character and a sense of ethics, but it is a business
that is also replete with its share of sharpies, and unfortunately
the decent folk get tainted.
There is a bottom line to this story when it comes to future
market performance. With more shoes to drop, the odds of a
truly sustainable rally in the equity markets are not great. You’d
probably have better luck playing the ponies.
—–
More conflicting signs on the economy as the latest data on
durable goods and housing starts showed a decline and, more
importantly, consumer sentiment fell to a 3-month low. The
good news was the GDP figure for the first quarter, up a
whopping 5.8%, though even here this was tempered some by
the disappointing 2.6% rise in final sales (stripping out
inventories), slightly below expectations. Nonetheless, growth in
the current quarter will undoubtedly remain robust, leaving us
with our long discussed theme…then what?
Well, no need to beat a dead horse this week, but when looking
ahead one can’t dismiss the outlook overseas, and the news on
this front is not as good, particularly in key countries like
Germany, where business confidence unexpectedly fell and
Bayer AG, Europe’s 3rd-biggest chemical manufacturer said
“there is no clear sign of recovery.” In other words, not so fast,
boomsters. [In Germany the awful school shooting on Friday
won’t help matters either. It doesn’t exactly make you want to
shop.]
For the week, as of noon Friday, the Dow and Nasdaq had
resumed their losing ways, with Nasdaq back to levels not seen
since last October, 1700, while the Dow was flirting with 10000.
*Final return figures will be posted by Sunday PM, down below.
Street Bytes
–U.S. Treasury Yields [As of noon, Friday]
6-mo. 1.87%% 2-yr. 3.23% 10-yr. 5.08% 30-yr. 5.60%
The Fed isn’t raising interest rates anytime soon, the economy
may not be strong enough to generate a true inflation threat, and,
voila, you have an improving bond market. Mortgage rates are
also suddenly back down below 7%, which lends support to what
would otherwise be a serious problem in the housing sector (he
notes, partially tongue in cheek).
–Energy: Saudi Arabia will not play the oil card, as widely
reported, unless you pick up the paper one morning and see that
Crown Prince Abdullah is sitting in heaven with 72 virgins. But
there clearly is still a major ‘risk premium’ priced into the
current levels of crude, $4 or so is the best estimate, and if we
had a relative stretch of calm in the Middle East, oil, now around
$26.70, would fall. Fundamentally, the inventory picture, at least
for this week, also improved a bit, while the rig count continues
to drop. This last factor should eventually set the stage for
higher profits for energy-related shares (as is already being
reflected in the oil service sector), strictly from a supply-demand
standpoint, assuming even the slightest economic growth
worldwide.
Finally, I continue to be amazed at the disinformation campaign
being waged against ANWR, but I’ll give it a rest for a week….
……sorry, I can’t. I was watching Margaret Carlson on “Capital
Gang” (another rip-roaring Saturday night for the kid) and she
made the asinine statement, “ANWR doesn’t provide a fraction
of our energy needs.” 5% is more than a mere fraction, my dear.
But then I guess you phoned in your pledge to the Saudi telethon.
Oh, what the heck, it’s time to head up to the refuge and shoot
some disease-ridden caribou before we all get the Plague.
–Telecom: The bloodbath continued, as Williams
Communications declared Chapter 11 and WorldCom’s debt
rating was slashed to just above junk, with the latter’s shares
now trading below $4. WorldCom is trying to convince the Street
that they are O.K. with their $30-billion in debt until 2003, but
these things have a way of spinning totally out of control, see
Enron. It doesn’t help matters when your CEO, in this case
Bernie Ebbers, owes the company $367 million in loans he was
advanced to purchase the stock.
But the telecom story, broadly defined, runs far deeper than long
discussed issues like overcapacity, mammoth debt loads, and
zero pricing power. Ericsson and Lucent are among those who
have announced a new series of huge job cuts as capital spending
continues to dry up, but more worrisome is this single fact…
there is no new ‘big thing’…a theme we have echoed in this
space for years. For example, some of the much-ballyhooed
wireless technology is now receiving a well-deserved thumbs
down and, as one story pointed out, even in Japan, consumers are
rejecting the 3G upgrade that was to be the savior for the
industry. Why? As one Japanese user said, “The screens are not
spacious enough to read letters and the buttons are too small.”
Simply put, why bother?
Regarding Japan, Howard French of the New York Times wrote
a piece on the declining popularity of Prime Minister Koizumi
that could just as easily be applied to the tech sector when he
wrote that Japan is a “country of mass fads.” Or you could say
that when it comes to technology, Japan is the canary in the
mine.
Lastly, some of you technophiles may be thinking right about
now, yeah, but Mr. Editor, don’t you know about Wi-Fi? [A new
wireless technology that lets you access the Net at warp speed.]
I’ll save my comments on this for next week. For now, let me
just say I’ve seen this act before, it’s called Openwave.
–Argentina: As Prudential strategist Ed Yardeni said, “It is
extraordinary we haven’t see more of a reaction” to the
calamitous developments in Argentina. The respected finance
minister resigned after losing support for the president’s latest
proposal to swap cash for government bonds, while as of this
writing, only a limited number of banks are open with few folks having
access to their cash. Meanwhile, the currency continues to
collapse and foreigners are not only the targets, institutions like
Citigroup (which announced its loss in the country is now $2.2
billion, not the $450 million originally estimated) will
undoubtedly abandon the nation for a lengthy spell when it
comes to new investment, thus crippling the economy even
further. I just don’t see how this story has a happy ending.
–I’m not going to comment on every 2-3% move in the U.S.
dollar, but, let’s face it, what with the accounting scandals, the
general loss of confidence, and a questionable economic
recovery (looking out to the second half of the year), for starters,
investors finally have an excuse to look elsewhere, even if the
alternatives are not that great either. So we keep our eye on it,
but still don’t see a reason to panic, yet.
–One person who deserves a ton of credit on the GDP front is
ISI’s Ed Hyman, perennially, Wall Street’s top strategist.
Hyman earned his stripes once again as last December, when all
was doom and gloom on the economic front, Hyman (as reported
in this space) was the only one to call for solid growth in the first
quarter numbers.
–Tiffany’s increased its sales outlook for the rest of 2002, a
surprise, and the stock responded in kind. Evidently, sales of its
new cubic zirconium line are the key.
–Amazon.com has been fodder for this column for years now, so
it’s only fair that I applaud its recent earnings report, one in
which they also raised estimates for the remainder of 2002.
Which leaves you with the obvious…how do you value a
bookstore? That’s all it is, you know. Yes, the stock had one of
its customary spikes following the release, but I see little more
than that in the future.
–AOL Time Warner formally announced its record $54 billion
loss (someone needs to tell Matt Drudge this was known for
weeks…he placed the story in ‘red’ on Tuesday, for you
Drudgophiles). Of concern to shareholders today, however, was
the news that overall advertising revenue was down 13%, with
the projection that online advertising could be off an incredible
33% in ’02. Who wudda thunk this just 2 years ago? Of course
there’s no surprise here. I told you back then that online
advertising was a disaster. When was the last time you clicked
on a banner, let alone purchased something as a result of doing
so?
–Tyco, once known as “G.E. Jr.,” terminated its plan to split
itself into 4 businesses, while announcing 7,000 additional job
cuts. The stock sank over $5 on the news and one share is now
worth about the cost of a case of beer. You know which one I’d
rather have.
–Homebuilder stocks, on the other hand, continued to sheet rock.
–Last week I commented on Nasdaq volume, saying that often
just 5 stocks accounted for 20% of the overall volume. Well, on
Monday, a day when WorldCom alone traded 253 million shares,
coupled with the next 4 on the volume list the percentage was
29%.
–Fed Chairman Alan Greenspan unexpectedly took a shot at
those two government sponsored companies, Freddie Mac and
Fannie Mae, which help finance home loans. For years folks like
Jim Grant have questioned the excessive use of derivatives by
both (used to hedge the massive interest rate exposures they
have), a fact which is significant because the two operate under
an ‘implied’ government guarantee; that being, should some of
the positions blow up, Fannie and Freddie, along with the
counterparties, would be bailed out. But as Greenspan attempted
to make clear, ‘au contraire, mon frere.’ All Wall Street really
wants is far more disclosure on the risk profile.
International
France: Oh, those daffy, Pepe Le Pew-esque French. First, they
have this crazy electoral system with 16 candidates vying for the
presidency, then they hit the streets in massive numbers when
neo-Fascist Jean-Marie Le Pen qualifies for the May 5 runoff
with a mere 17% of the vote (frontrunner Jacques Chirac only
had 20%). Of course, I warned you all, weeks before the mass
media caught on I might add, that Le Pen could throw us all a
real curve and he did. [Last Saturday the New York Times had a
lengthy editorial on the election, the day before the vote, and
never mentioned his name.]
But while it’s now tempting to dismiss Le Pen’s final 15 minutes
of fame (he’s no spring chicken), as he should get his ass kicked
by Chirac (I’ll say 68-32), this is more than just a redux of Jorg
Haider’s similar failed bid in Austria two years ago (as the
Journal would have you believe). Why? Because the world has
changed since then, that’s why. Something called 9/11 and a
new rise in anti-Semitism, for starters.
And what does Monsieur Le Pen stand for?
–Withdrawal from the European Union, calling the euro “a
currency of occupation.”
–An end to immigration.
–Deportation of all illegals.
–A crackdown on crime, with the addition of 200,000 prison
cells.
I imagine some of you might be thinking, yeah, what’s so bad
about some of this? Without knowing more about Le Pen’s past,
it’s tempting to say this. But this is a man who refuses to
condemn the Vichy regime of World War II and has labeled the
Holocaust a mere “detail” of history.
Where he has been successful is in tapping into the latest anti-
immigrant craze (one which economically, long-term, will doom
the continent unless they can get a handle on it…though it
doesn’t help when so many of the new entries are simply looking
to establish colonies of Wahhabism), as well as the fact that the
mainstream candidates, Chirac and Jospin, are corrupt, doddering
fools who have failed miserably. Now, however, a Chirac is the
only alternative to an unspeakable future.
Iran: The Financial Times reported that Ayatollah Khamanei is
weighing the opening of a dialogue with the U.S. Iran is
increasingly worried about the ramifications of a U.S. attack on
Iraq, since a Western-installed government in Baghdad would
create big problems for the hardliners in Tehran. There is also
evidence that Iran has been reining in Hezbollah in Lebanon,
witness the decline in cross-border shelling (until Friday).
Pakistan: President Musharraf is allowing U.S. forces to operate
inside the border with Afghanistan in search of al Qaeda. He
continues to take gutsy steps, though the upcoming referendum
that would grant him another 5 years is being criticized. So once
again we fall back on Secretary Rumsfeld’s adage…it’s a dirty
war.
Japan: Prime Minister Koizumi’s approval ratings are now down
to 42-48%, depending on the poll. To placate conservatives in
his party, he stupidly revisited the war shrine (which also honors
war criminals) that got him in trouble last year. So now South
Korea and China are all pissed off again.
Venezuela: President Chavez lost 4 of his leading generals in a
helicopter crash (an accident), while a videotape emerged
showing him ordering the tanks out against the protesters in the
event which led to his initial ouster.
Zimbabwe: Oh, those lovely “war veterans” (who actually have
absolutely nothing to do with Zimbabwe’s war of independence
fought over 20 years ago…most weren’t even born then) are now
going after Asian businesses. A leading militia leader in this
regard, Andrew Ndlovu, has faced charges of incest in the past.
Random Musings
–As a follow-up to my statement of last week that the U.S. must
stay engaged internationally, I offer Robert L. Bartley’s
commentary in Monday’s Wall Street Journal, specifically on
why this nation must act like a leader in this post-9/11 world.
“A sole superpower can’t escape involvement in the world; when
Islam cannot resolve its own quarrels, the U.S. gets attacked. If
this is the potential of the new century, Americans are now
resolving to shape rules of behavior that fit it. Yes, the
Americans should engage the Europeans and the rest of their
critics. Yes, they should say, we are replacing the old rules with
new ones and the world will be better for it.”
–Boy, 20th hijacker Zacarias Moussaoui is one lovely fellow,
isn’t he? As many noted shortly after he was captured, his trial
will be a total disaster, having this week given us all a glimpse of
what he will say when he noted in a pre-trial hearing that he was
bent on “the destruction of the U.S….and for the destruction of
the Jewish people and state.”
–Incredibly, members of the Nobel Peace Prize committee were
calling for Shimon Peres to give up his 1994 medal, but not
Yasser Arafat. Then again, I probably shouldn’t be so surprised.
–Sinn Fein’s Gerry Adams refused to attend a congressional
hearing on the IRA’s ties to Colombian rebels. This is the same
Adams, of course, who enjoys unfettered access to America’s
fundraising machine.
–Schools across Greece were shut down, as the government tries
to deal with a mysterious virus that has claimed at least 3 lives.
What they do know is that one symptom is myocarditis
(inflammation of the heart).
–A Swedish food study has certainly riled some folks, namely
those in the fast food and potato chip industry. Researchers
claim that chips and fries, as well as other high carb foods, may
contain a substance (acrylamide) that causes cancer. While
personally I often dismiss similar findings, to be honest this one
simply makes sense, with the deep-frying that is involved.
Meanwhile, the Journal had a story on the large increase in heart
disease among the Chinese, undoubtedly as they adopt Western-
style fast food habits.
–After reading Salman Rushdie’s op-ed piece in Friday’s
Washington Post, it’s really too bad the fatwa against him wasn’t
carried out after all. I mean, you won’t believe the following,
contained within a piece criticizing France for its election fiasco.
“Every so often, an electorate will shrug its shoulders and decide
there isn’t much difference between the main contenders for
office. The day after the election, reality bites, but by then it’s
too late. When it last happened in Britain, the consequence was
Margaret Thatcher’s long, damaging reign.”
What?! Hey, Rushdie, “Satanic Verses” sucked.
–Arthur Andersen is eliminating free morning donuts. Now
you’ll really see an exodus.
–The advice from the Street Monday morning was for last
week’s PGA tour winner, Justin Leonard, to cash his check
quickly…after all, it was the WorldCom Classic.
–USA Today reports that household debt for seniors is up 164%
in 8 years, to $20,300, thanks in no small part to the stock market
and low interest rates on CDs and savings accounts.
–I wish it was Karl Rove, and not Karen Hughes, who was
leaving.
–Mark my words, we’ll be having a serious discussion about re-
instituting the draft by November. Also, the budget deficit for
the current fiscal year is now slated to exceed $100 billion. This,
in and of itself, is not cause for concern, but no one is prepared to
see this as the norm again, and it will be as our costs for the war
are likely to skyrocket. As for this year, tax receipts are 30%
below last year’s levels, the worst such performance since 1980,
due largely to the fact that revenue from capital gains has dried
up.
–Line of the week from a Journal editorial: “Home to 14,000
Palestinians, Jenin was not Mayberry R.F.D.”
–Every few months I feel obligated to repeat a musing I first had
years ago. Remember when our ‘CNN world’ was supposed to
bring us all together? Instead, we get to see how much we really
hate other…but at least it’s in real time!
–Yup, no new ‘big thing’…except in the fields of medicine and
biotechnology and, at the end of the day, isn’t it a helluva lot
more important to cure cancer and diabetes than to be able to
watch a freakin’ video on some handheld device? I rest my case.
–This week’s “Gossip Report”: That lady who was shacking up
with former G.E. chairman Jack Welch quit her job at the
Harvard Business Review. Back in 60…
–Regarding the whole Robert Blake case, StocksandNews will
not have one further word on it, unless, of course, the verdict
results in massive rioting in upper-middle to upper-class
neighborhoods.
–The latest findings from the Hubble telescope reconfirmed that
the universe is 13-14 billion years old. Wall Street’s marketing
machine is hopping on this one.
“If you invested $10,000 in Quarry Inc. 13 billion years ago,
today you’d have….”
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $312
Oil, $27.11
Returns for the week 4/22-4/26
Dow Jones -3.4% [9911]
S&P 500 -4.3%
S&P MidCap -3.2%
Russell 2000 -3.1%
Nasdaq -7.4% [1664]
Returns for the period, 1/1/02-4/26/02
Dow Jones -1.1%
S&P 500 -6.3%
S&P MidCap +4.7%
Russell 2000 +2.7%
Nasdaq -14.7%
Bulls 52.7%
Bears 30.1% [Source: Investors Intelligence]
Note: I am heading overseas for a spell, though this time I
probably won’t be supplying any great insight, i.e., this is a golf
boondoggle. *Thus, I also won’t be posting next week’s review
until Monday AM, nor responding to your emails until I return,
so I appreciate your understanding in advance.
As always, thanks for your support and have a great week.
Brian Trumbore
