[Posted 7:00 AM ET]
“Today’s act was committed by scum for whom nothing is
sacred.”
–Russian President Vladimir Putin
This past week was an absolutely awful one for Planet Earth,
particularly for Europe and Asia, and the carnage should send a
distressing message to those of us in this country.
President Putin was referring to the devastating, tragic bomb
attack on the people of Dagestan, a Russian republic bordering
Chechnya. The pictures from the scene were horrifying, as a
well-placed mammoth, remote-controlled device went off on a
crowded street, just as a military marching band was passing as
part of Russia’s Victory Day commemoration, which honors
Russia’s heroes from World War II. At least 41 were killed (12
of whom were children) and 130 injured in an act that was
undoubtedly the work of Islamic militants. While no one as yet
has stepped forward to claim responsibility, the reason why we
should all care here is not because it may be the work of Chechen
guerillas, but rather it is almost certainly the work of those who
espouse the Wahhabi faith.
A second catastrophic act occurred in Karachi, Pakistan, as
Islamic militants suicide-bombed a bus carrying mostly French
engineers working on contract to the Pakistani navy. 11 French
died in what was another highly premeditated attack, which I can
guarantee was not only carried out by Fundamentalists, but was
also the work of, again, Wahhabis.
Why the emphasis on Wahhabism? As some of you know, back
in 1999 I was writing of this dangerous sect, which most
Americans finally learned of through the events of 9/11, and
while it’s unlikely the two attacks were coordinated (though one
can’t be sure), what should scare the heck out of all good people
is that it is as if the evil ones haven’t skipped a beat, despite
seeing one of their key infrastructures obliterated in Afghanistan.
Al Qaeda (Wahhabis), in its many forms lives.
Meanwhile, in the Netherlands, Pim Fortuyn, the hard-core
extremist political leader was assassinated. Fortuyn had a
platform based on the belief that immigrants were swamping his
country, a feeling that is clearly gaining increasing converts
across the continent.
[*Even though this same attitude, as I’ve said countless times
before, dooms Europe economically because the demographics
of the native Europeans are such that within decades there will be
no one to buy the goods, while the growing elderly population
will clamor for social services that no government will be able to
afford.]
As part of Fortuyn’s stance, he was virulently anti-Muslim.
These days, however, the problem for the whole world is how to
separate those who espouse the “good” Islam from the
Wahhabis, a sect that sanctions violence, which, with today’s
weaponry threatens the very existence of the Western World.
Wahhabism started in Saudi Arabia. Wahhabism is the official
creed of the Saudi dynasty. As Fortuyn railed, Wahhabism
rejects the humanist tendencies of the West, and the current
Saudi leadership allows Wahhabi clerics to flourish behind their
backs as a way of self-preservation. The Saudi government
funds terrorism, and, by extension, Wahhabis. There are
undoubtedly those within the ruling family itself who are
Wahhabis. Tens of thousands of Muslims in America are as
well.
Bombs in distant lands often carry a message our leaders back
home need to understand.
Wall Street, Part I
Incredibly, at the end of the week it was as if Wednesday’s 300-
point Dow rally, 8% Nasdaq stampede, never occurred, for on
the week both the Dow Jones and Nasdaq still lost ground, with
the Dow declining 0.7% to 9939, while the tech barometer lost
0.8% to close at exactly 1600. In a nutshell, another suckers
rally, particularly for those equity mutual fund buyers on
Wednesday morning who received the day’s closing price, only
to see their new investments immediately underwater.
[In the interest of full disclosure, I have been out of the
technology sector, entirely, since early 1999, except for two
instances. As I reported, last spring I purchased about a 3%
position in Nasdaq QQQs, strictly for a trade, and I sold shortly
thereafter at a loss, and, a second time, this Wednesday AM,
when I purchased a 2% position in a classic, beaten down story,
at $6.66, while setting a ‘stop’ at $5.70. It closed the week at
$6.38 and I could unload it as early as Monday, if the market
doesn’t do that for me. My goal was for a whopping rebound to
$8, if the short-term euphoria had continued for just another day
or two.]
The reason for Wednesday’s insanity was Cisco’s earnings
release after the close on Tuesday, wherein the company solidly
beat expectations. But CEO John Chambers was quick to add
that he saw no immediate turnaround in overall business
prospects and revenues may be up just slightly in the current
quarter. No problemo, said the herd. Buy!
I’m not going to beat up Cisco for probably telling the truth and
as the company pointed out, when it comes to its dominance in
the networking sector, Cisco’s revenues were up 2%, year over
year, versus the next 10 competitors (outfits like Juniper
Networks) which saw their revenues tumble a combined 43%
over the same period. But as was proven by the market action on
Thursday and Friday, Wall Street needs far more than an ‘o.k.’
report before it stages any sustained rallies, within the context of
an ongoing bear market, mind you.
On the economic front, productivity rose a robust 8.6% in the
first quarter, the fastest pace since 1983. [Coming out of a
recession, increased workloads can be handled without hiring
more workers, ergo, you often see a big pop in the productivity
figure.] Meanwhile, unit labor costs fell at the fastest rate since
’83 as well. So good news.
But (oh, you just knew one was coming), in one of the most
telegraphed non-moves in recent years, the Federal Reserve held
the line on interest rates because they still saw future demand as
“uncertain.” So the jury is out on economic growth for the
second half of the year and with the rest of the world largely in a
funk and needing the U.S. to kick it up another notch…it falls on
us, my fellow Americans, to open up the wallets yet again, whip
out that plastic until the credit card companies’ fraud units are
frantically leaving messages for you to call, while Corporate
America has its own role to play in upgrading systems that don’t
need to be. This is who we are and what we do.
Wall Street, Part II
It would have been hard to miss all the magazine covers the past
few weeks, screaming about investors’ mistrust and loss of
confidence in Wall Street. So, for my new readers, I have to take
a moment to note what I wrote in this space this past January 26
(the rest of you can grab some coffee).
“Some of us warned last fall that Enron was huge, while many
such as the editorial board of the Wall Street Journal attempted to
pooh-pooh it…
“The tentacles reach far into the executive offices of many of
Wall Street’s leading firms…and as the ‘little guy’ becomes
more and more aware of the financial shenanigans that have been
going on, not just at Enron but at other big name corporations,
they’re going to increasingly worry about the safety of their
holdings…And the media will play a larger-than-life role in it all,
too, as it should in this instance. Heck, careers will be made, so
there are more than enough incentives for them to dig deep.
“Oh yeah, this is big. It will fuel a loss of confidence that will
help stymie any attempts the Street makes to rally, and, as I
wrote last week, if foreigners, who hold a giant share of U.S.
stocks and bonds, lose faith then one day we could be witness to
a rout.”
[Regarding the last point, the actions of foreign holders, it is
definitely already happening.]
Street Bytes
–U.S. Treasury Yields
6-mo. 1.86% 2-yr. 3.17% 10-yr. 5.13% 30-yr. 5.61%
With no inflation, at least in the official data, and sustained
recovery still a question mark, the Fed won’t be raising rates
until August at the earliest.
–It is increasingly apparent that Europe’s own recovery is very
weak. Industrial production in Germany and the UK actually
declined in March, a big surprise, while Germany’s largest union
authorized selective strikes this past week as they demand a 4%+
pay raise…inflationary. Meanwhile, unemployment in Deutschland
continues to rise and it seems almost too late for a reversal that
would bailout the now waning reelection hopes of Chancellor
Schroeder in September.
–As for Argentina, not for nothing but I was watching a
BBC report Thursday and many in the country are now going
hungry. The nation is imploding, though, I’ll admit, amazingly
the contagion hasn’t spread, yet, the way I feared. But that
doesn’t mean the rest of the continent is whistling while it works.
GDP growth for all of Latin America is expected to be less than
1% in 2002, just as in 2001, and if you take out Brazil, it could
be more like minus 1%. The standard for any emerging market
is a minimum growth rate of 5% in order to make serious inroads
against poverty. [GDP estimates courtesy of Simon Romero /
New York Times]
–Energy: So much for the positive impact of Iraq’s return to the
oil markets. Crude prices closed at the highest levels since 9/11,
$28, with the latest terrorist incident in Israel once again adding
to the “war premium.” In addition, inventories fell sharply as the
original impact of Iraq’s 30-day moratorium began to bite (which
you would now obviously expect to reverse, again, all things
being equal).
Then you have the issue of Enron and the documents that show
the company was manipulating prices in California. Let me say
up front that I owe some of you an apology for my critical
comments concerning the state and its spring 2001 energy
crunch. Make that a partial apology. Because as the Washington
Post opined this week:
“California’s politicians created a flawed electricity market that
banned the long-term contracts that would have stabilized
prices…(and) refused to raise retail prices as shortages
mounted.”
The suppliers then took over and, in the end, Governor Davis
locked the state into the very long-term contracts he once
eschewed…though at the absolute peak in prices. D’oh!
–Thank goodness for stories like Krispy Kreme these days. I
have never owned shares in the company but I have certainly
enjoyed the product. [Some of you will recall that in college
down in Winston-Salem (the home of Krispy Kreme), I sold the
delicacies for beer money, but ended up eating my inventory.]
So we welcome the news that they will be opening 62 new
stores in 2002.
–70% of Europeans already own mobile phones, i.e., the growth
story is long over.
–Broadband is failing miserably, too. Many “average” Net users
(recognizing most of you don’t fall in that category) now realize
it’s not worth the extra cost.
*I will finally get to my thoughts on Wi-Fi, as promised, next
week.
–Many Wall Street firms have not been saving e-mails for 3
years, as required by law. Gee, I can’t imagine what they are
trying to hide, can you?
–The SEC is looking into the practices of the hedge fund
industry, where $144 billion of investor dollars were poured
during 2001. Of course, like all Street fads, it will end very
badly.
–The New York Post reports that among her own Hewlett-
Packard employees, CEO Carly Fiorina is called the “wicked
witch from the East Coast.” What I find really incredible,
however, is the fact that she has never stepped foot in the
company cafeteria. I guess she doesn’t go to the occasional
softball game, either.
–IBM hit a 4-year low this week and will be laying off up to
10,000 employees.
–While Merrill Lynch may yet settle with New York’s attorney
general on the analysts / conflicts of interest scandal,
nonetheless, the potential liabilities for most brokerage firms are
staggering.
–Lastly, CNBC has been backpedaling faster than a hiker who
suddenly stumbles upon a grizzly, with regards to its prior role in
the Bubble and its recent campaign on ethics in broadcasting. So
I was startled on Tuesday when David Faber comes on with the
story that WorldCom and its bankers were close to an agreement
alleviating the company’s short-term potential cash crunch.
Shares in WCOM immediately rose, from about $1.95 to $2.25
(on the way to $2.50 early Wednesday), largely on this report.
What was so bad is that cohort Joe Kernen then proceeded to
practically high-five Faber for the report’s impact on the stock
price, as bad an example of pumping as you saw during the
Bubble era.
Why do I really care? Whether or not WCOM reaches an
agreement in the next few weeks (there’s a deadline) is
immaterial. Some folks, however, undoubtedly bought on the
boosterism. Then on Thursday, Moody’s and Fitch lowered
WorldCom to junk status (S&P followed on Friday) and the
stock closed the week at $1.60. But I can guarantee you the
hedge funds who some CNBC employees shill for made a fast
little buck and are enjoying their ‘found money’ this weekend.
For their part, neither Faber nor Kernen uttered a word as to their
Tuesday act later in the week as the stock fell 40% from the
Wednesday high.
International
Israel: Believe me, I’m not ignoring another tragic, chaotic week
here but in my humble opinion, for this one, at least, attention
needs to be refocused on the role of Saudi Arabia in the
spreading worldwide terror network, one of whose victims is, of
course, Israel. We all now await the next round in the cycle of
violence, as Prime Minister Sharon has the right to retaliate.
India / Pakistan: 800 have died since January 1st in fighting in the
disputed region of Kashmir. 500,000 Indian soldiers remain on
full alert on the border with Pakistan. Pakistan’s Musharraf is
obviously struggling to maintain control of the extremist
elements in his nation and is highly vulnerable. For its part,
India can’t control the religious persecution of Muslims by the
Hindu majority. Both have nukes and would not hesitate to use
them. Aside from that, all is calm, all is bright.
Iraq: Folks, the handwriting is on the wall, especially when even
Colin Powell is making public pronouncements on Saddam’s
“feverish” effort to build nukes, while at the same time Saddam’s
tie to this week’s theme is that he will be selling his weapons to
the Wahhabis. The Wall Street Journal has also now
documented the world’s worst kept secret, that being the
$billions of oil-for- food petrol dollars which are being diverted
to the madman’s military machine.
Unfortunately, those of us desirous of immediate military action
have to be a bit more patient (though mine is running thin), as a
new sanctions regime is being finalized (with the support of the 5
permanent members of the U.N. Security Council; U.S., Russia,
China, France and Britain), one that is designed to ensure as
much as feasibly possible that oil funds go to those most needing
it, which would then conveniently deny Saddam the excuse that
his people are being persecuted.
Afghanistan: We once again acknowledge our allies, in this case
Britain, Canada and Australia, whose forces are making major
contributions in the al Qaeda sweeps. I toast you all.
North Korea: The country suddenly canceled talks with the South
over hard-line statements made by South Korea’s foreign
minister. The little commie at the top has rather thin skin, I see
…and he also has all those artillery pieces still pointed at Seoul.
Japan / China: On an issue related somewhat to the above,
Japanese officials are incensed at China over an incident the
other day at the Japanese consulate in Shenyang. A group of North
Koreans rushed the building, seeking asylum, and Chinese police
ran into the compound (which is protected, diplomatically, by
international law and standards), tackling some of them and
dragging the poor folks out. The Japanese have a video of the
whole tragedy and it is causing quite a stir.
Burma: You want good news? Aung San Suu Kyi, a former
Nobel Peace Prize-winner and the nation’s pro-democracy
leader, was released from 19 months of house arrest. Suu Kyi’s
party won the 1990 election but was never allowed to take office
as the generals consolidated power in the renamed country,
Myanmar.
Random Musings
[Fasten your seatbelts…it’s going to be a bumpy ride.]
–When it comes to domestic politics, President Bush is losing
this Republican. In the words of one commentator, the farm bill
that the President will be signing shortly is “grotesque” and, as
Senator McCain said, totally obscene. I am all for the farmer
(and will be heading back out to visit my friends in Oklahoma
this fall), but this legislation will cost American taxpayers some
$20 billion a year for the next 10…and with absolutely no benefit
to consumers.
More importantly, when one looks at the Big Picture, don’t start
crying foul when our trade partners, particularly the Europeans
with their own excessive subsidies, stick it right back at us.
We’ll have no one to blame but ourselves, as we no longer hold
the ‘moral high ground,’ and when you couple this bill with the
Bush administration’s recent terrible, pandering moves on steel
and Canadian lumber, it’s easy to see why we are headed for
outright trade wars…at the worst possible time in our nation’s
history.
We need cooperation on the war on terror, nothing is more
important, and this gives many another excuse for America
bashing. Lastly, the whole process in the Senate, where the
tyrant, King Daschle, holds court, would have been avoided if
Jim Jeffords hadn’t defected, but then your editor predicted the
mess that would follow.
–A Saudi official: “Saudi Arabia believes terrorism violates the
tenets of our faith.” So why do you fund it?
–Two major ‘firsts’ this week. The suicide bombing in Karachi
was Pakistan’s first (I was surprised to learn this) and Fortuyn’s
assassination was the first of a political leader in the Netherlands.
–Another awful thing happened in Hungary. Bank robbers
killed 6 in a single incident. This is a nation that had just 3
victims in the last 25 years as a result of bank heists. It’s like all
of Europe is a seething caldron.
–My fellow travelers, again, stay off tour buses in Europe if at
all possible this summer. Next week I’ll fill you in on where I’m
headed shortly, a few places where I’ll be heeding my own
advice.
–As I noted last week, Warren Buffett made some rather frank
comments concerning the coming nuclear or biological attack on
the U.S. Monday was the first chance for Wall Street to react
and it certainly rattled the markets some, not because it was
something new, but rather Buffett laid it all out in such a candid,
matter-of-fact way that it had to get many to refocus on what’s
really important these days. From my standpoint, it’s another
excuse for me to say that with regards to your own portfolio and
finances, constantly ask yourself, “Can I survive, financially, if
the unthinkable happens?” [I’m just Mr. Happy this week, aren’t
I?]
–Jimmy Carter is about to become the first former U.S. president
to visit Castro’s Cuba, with Fidel granting him permission to
speak to a national television audience. Separately, the Bush
administration added Libya, Syria and Cuba to the list of those
nations bent on making weapons of mass destruction, so maybe
Carter, instead of discussing human rights, should say “O.K.,
where are you hiding the germs?”
–A most interesting vote is taking place in Newark in a few
days, that being the election for the office of mayor, with the
4-term incumbent, the corrupt and philandering Sharpe James,
going up against 33-year-old Stanford MBA Cory Booker.
When I started StocksandNews in February ’99, I had the bright
idea of getting Booker to write a few pieces on Urban America
for this site. He turned down my request for a meeting but did
set me up with his chief of staff, a delightful fellow, and we had
a great conversation at Newark City Hall (Booker is a
councilman). [I decided then, however, that rather than press
my idea, you all would be stuck with me.]
This primary campaign has been ugly, with James rolling out the
goon squad to harass Booker supporters (like having the cops
ticket cars with Booker bumper stickers…and worse) and it is the
hope here that this immensely talented African-American kicks
James’s butt.
–As you know, a topic near and dear to my heart is the fact that
American high school and college students don’t know squat
when it comes to the history of their own country. So on
Thursday, NBC News reported on a new example of same (with
the rest of the media picking up the story on Friday),
standardized tests administered by the Department of Education.
The result? 57% of high school seniors score below “basic,” the
lowest designation. You talk about pitiful, only 30% could
identify what NATO is and only 37% knew that President Nixon
was responsible for the opening to China. But they can all play
video games and figure out how to download pirated movies and
music.
I had a friendly disagreement with my brother over in Ireland
(any arguments while drinking Guinness are usually friendly) as
to the importance of computers in our school systems today. I
know everyone should have at least the basic skills required in
today’s modern business world but, dammit, if the kids are so
freakin’ proficient, why the hell can’t they do better on history
quizzes, which, especially in today’s crappy world, are ten times
more important than anything else they are learning at that level?
Give them a good book.
Here’s why the above really matters. In the case of the high
school seniors, these kids can vote, let alone those who preceded
them and have similar deficiencies. We don’t need an ignorant
electorate, one which someday may opt for a leader with zero
foreign policy skills, like John Edwards. [We have one today
who, after a strong start post-9/11, is clearly struggling.]
This war will last decades, while from time to time we will go
through relatively tranquil periods; my chief fear being that
during one of these lulls the American people will be totally
focused on domestic issues, so that one November we will elect
someone we’ll regret just months later. It’s not enough to say,
let me lead my life, you guys take care of my security. It just
doesn’t work that way and as an American citizen, we all have a
responsibility not only to stay informed, but also to know some
freakin’, elementary history.
–While I was away in Ireland I missed the fatal tornadoes in
Maryland, but saw a comment in the Washington Post by David
Vierhing, wondering why those civil defense sirens, which every
community in America has, didn’t go off to warn Maryland
residents, who obviously aren’t used to tornadic activity like in,
say, Tornado Alley. Vierhing’s point was that in today’s world,
use of those sirens should be brought back, especially for
something like a “someone has poisoned the water, don’t drink
it” warning. Obviously, not everyone is glued to television or the
radio all day and the siren would be your signal to tune into the
appropriate messenger. Great idea. Fat chance it will happen.
–That mini-anthrax scare in Washington on Thursday is just a
further example of the fact that for decades we will never be able
to let down our guard (another reason to sleep with one eye open
…but then I already volunteered to do that for you). It’s also a
reminder of the costs of homeland security, both from a
federal government as well as corporate standpoint, let alone the
military costs, all of which will continue to exceed projections.
President Bush this week was out front warning us all, as the
budget situation worsens by the week. Get used to this
discussion. It’s not a positive for the financial markets.
–From all indications the amount of spam, or junk e-mail, is
proliferating at a wildfire pace. It’s outrageous there is little you
can do about it and it’s going to get so bad that in 2-3 years many
folks will just throw up their arms and say “the hell with the
Net.”
–Back to being ignorant, a study reveals that only 14% of
Americans realize Canada is our nation’s largest trading partner.
So allow your Uncle Brian to spell it out.
Total imports / exports for Jan. / Feb.
($billions)
Canada $57
Mexico $35
Japan $26
China $20
Germany $13
UK $11
South Korea $9
France $8
Taiwan $7
Italy $5
–Another study reveals that sugar pills work just as well as
anti-depressants like Prozac and Zoloft. While it’s unexplainable,
the real importance is that both methods work.
–A Copenhagen report confirmed that those children who were
breast fed for 7-9 months had a sharply higher IQ than those who
only received one month’s worth (sorry, I don’t know how to
phrase this better). As for yours truly, I was in the former group
and a pretty smart child, but then at age 41, I suddenly took a
turn for the worse, spiraling downward, as I decided to start a
web site.
–Speaking of breasts, did you catch any of Fox’s show on the
Playboy Girl Next Door? [I was getting tired of watching
Harvey Eisen for the umpteenth time on Rukeyser’s program…
ahem.] Was that the dumbest bunch of babes you ever did see?
Goodness, gracious.
–According to another study, this one from the journal,
Pediatrics, girls with piercings anywhere but their ears “were
more than twice as likely to have had sex, smoke, shoplift, skip
school, lie to their parents and paint graffiti.” [Joseph Brean /
National Post] Aside from all this, the kids are quite normal.
–Finally, congratulations to the Weather Channel on its 20th
anniversary. Next to “The Simpsons” and PBS’ “Frontline,”
consistently, the best programming on the air. I always used to
tell my road warrior wholesalers, why would you order in-room
movies when you can watch this? They never seemed to follow
my logic.
God bless the men and women of our armed forces and our
allies.
God bless America.
—
Gold closed at $311
Oil, $27.99
Returns for the week, 5/6-5/10
Dow Jones -0.7%
S&P 500 -1.7%
S&P MidCap -1.6%
Russell 2000 -3.8%
Nasdaq -0.8%
Returns for the period, 1/1/02-5/10/02
Dow Jones -0.8%
S&P 500 -8.1%
S&P MidCap +3.6%
Russell 2000 +0.9%
Nasdaq -17.9%
Bulls 52.6%
Bears 28.4% [Source: Investors Intelligence]
Notes:
–Don’t forget the archives, folks. On my “Wall Street History”
link, for example, I have something on just about every major
event of the past 150 years.
–I also did a damn good piece on Camp David for “Hott Spotts”
this week, if I may say so myself.
–Plus we have the always eccentric Dr. Bortrum and the
adventures of our own philandering “Lamb,” all, if you keep it
where it is.
Thanks for hanging with me last week as I recovered from my
week of golf and stout.
As always, I appreciate your support.
Brian Trumbore
