[Posted 7:00 AM ET]
Pheww…as of this writing we can all breathe a little easier. No
major terrorist incidents and a huge reversal in the stock market.
So we give thanks, that is if San Francisco’s 9th Circuit allows us
to do so.
Wednesday afternoon, things were looking mighty bleak for the
greatest country on earth. It only made sense for our public
officials to exercise extreme caution in preparing for the Fourth,
as unsettling as it may have been, while on Wall Street, equity
prices, engulfed by prospects for further terror attacks, as well
as the ongoing crisis in confidence, took the S&P 500 and
Nasdaq to their lowest levels since 1997.
As Friday dawned, however, it was as if we were all like
Ebenezer Scrooge, who, following his evening with the spirits,
peered from the sheets, realized he had survived the night, and
discovered it was Christmas morning. And just like Scrooge,
who went on to have Christmas in his heart all the remaining
days of his life, Wall Street looked around and said, damn, it had
gotten far too gloomy and, following the market carnage of the
past two-plus years, stocks were simply too cheap to pass up.
So a merry time was had by all, at least those bothering to check
in. The Dow Jones climbed from an intraday low of 8897 on
Wednesday to 9379 by the close of the week, registering a 325-
point advance, Friday, while the S&P 500 climbed from 934 to
989, and Nasdaq soared from its Wednesday low of 1336 to 1448
by the end of trading.
[For the week, however, while the Dow tacked on 1.5%,
breaking its 6-week losing streak, Nasdaq started a new one,
falling 1%, while the S&P was unchanged for a second straight
time.]
Can the sudden good feeling continue? Hopefully. But at some
point investors will once again look around and realize that even
if the coming flood of corporate earnings reports are positive,
stocks are still overvalued, the corporate accounting issue may
actually heat up, not go away, as companies rush to fix their
books before they take the SEC-mandated pledge that all future
numbers are clean, and the terror threat will remain for decades.
But wait, there’s more. The June employment report revealed
that the economy hasn’t created any new jobs to speak of the past
four months, government (both at the federal and state level) is
hemorrhaging red ink, capital spending on all things tech remains
virtually non-existent, and investors are about to receive their
quarterly statements, which will be downright depressing.
What’s good? The U.S. and its allies have disrupted the terrorist
network, housing (shifting gears) is strong and another round of
refinancings is putting more dollars back into homeowners’
pockets, personal income is rising, but, most importantly, on
days like Thursday, we recognize just how lucky we are to live in
this awesome place. At the end of the day, that has to count for
something.
Middle East
George Will commented that President Bush’s recent speech on
the region marked the “end of Western condescension to the
Arab world.”
The New York Times’ Thomas Friedman, on the other hand,
said:
“It’s time to stop kidding ourselves. Getting rid of the Osamas,
Saddams and Arafats is necessary to change this situation, but
it’s hardly sufficient. We also need to roll up our sleeves and
help the Arabs address all the problems out back.”
Guess who I agree with? Why Mr. Will, of course. It’s time to
act. Regime change is the only way to go and we also have to
get a handle on those who threaten to make the Fourth of July, or
any other day of the year, a day of mourning rather than one of
celebration.
Some, like Friedman, were swept up this week in a UN-
sponsored report on the Arab world which, now get this, said the
region was stagnating! Holy cow! Stagnating? You mean the
peoples’ lives aren’t getting better and they may actually be
sliding backwards? So tell me something new. We would like
the Arab people to effect the change themselves, but it looks like
they need a push. Those were President Bush’s initial marching
orders, after all, and they still make sense to me, though it would
be callous not to recognize the many sacrifices that we may have
to bear.
As for Iraq, specifically, they made it much easier to build the
Bush case for action when they once again dismissed the notion
of a return of the arms inspectors.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.75% 2-yr. 2.88% 10-yr. 4.86% 30-yr. 5.53%
On Louis Rukeyser’s program Friday night, superstar economist
Ed Hyman called for a 4.25% 10-year by 2003.
[As an aside, for those who may have watched this particular
show, Hyman made a reference to “$60,” yet for probably 90%
of the viewers it wasn’t made clear what he was talking about.
He was referring to the projected earnings in 2003 for the S&P
500. If the figures actually come in around that mark, then I’ll
concede a solid bounce in the markets at some point over the
next 12 months.]
–The dollar stabilized this week.
–Japan: The Nikkei registered its 2nd-straight gain as a big rise in
business confidence, along with strength in the export sector,
offset Moody’s decision to downgrade 5 large banks to the
lowest possible rank.
–Another CEO bit the dust, Vivendi’s Jean-Marie Messier, who
ran the world’s #2 media conglomerate into the ground. But for
being such a lousy steward, Messier was granted an $18 million
severance package. Oui, oui!
–Short interest (betting that stocks will go down in price)
remains at record high levels, so rallies will be sharp, like
Friday’s, as the ‘shorts’ cover their bets. [Friday was deceiving
since volume was so light.]
–I happened to glance at my steel production figures for June
and, in looking back at the data since I started tracking it way
back in 1990, this past month represented the best June ever in
terms of the trend. Taken alone, of course, it means little, but it
is a useful tool in confirming manufacturing activity, which
continues to pick up.
–Tyco was able to spin-off its CIT finance unit, but for well
below what experts thought it would fetch. The aftermarket
action was sloppy, as well. Bottom line, Tyco ended up
receiving less than half what it paid for CIT just 13 months
earlier. Another job poorly done.
–For those of you owning AT&T shares going back to the 1984
breakup, you may want to get your hands on the July 8th edition
of Business Week. A J.P. Morgan Chase study breaks down the
values of all the spin-offs (useful for otherwise nightmarish tax
calculations), with the conclusion being that as of 6/24, if you
had 100 shares of AT&T in 1984, held onto all the spin-offs and
took dividends in cash, you would have beaten the S&P, 12% vs.
11.3%. [Actually, hardly worth the trouble.]
–Virginia congressman Jim Moran, a former stockbroker,
recently borrowed $50,000 from AOL founder James Kimsey to
play the market. He promptly lost it all but later repaid the debt.
While this isn’t illegal, it certainly is unethical and Moran has
borrowed large sums from friends on more than this one
occasion, having once lost $120,000 in his own account trading
options. [Source: Michael Shear and Spencer Hsu / Washington
Post]
–Remember the stock, Openwave, that I commented on,
negatively, back in early 2001 (2/17/01, for starters)? It’s down
to $2 from around $70 when I was slamming it.
–My portfolio: I purchased a small position in a third company
in the energy sector last week, so I’m now about 82% cash and
18% equity. The valuation became too compelling, but I won’t
load up further at this time.
–Martha Stewart cancelled her CBS “Early Show” appearance,
so America lost out on learning about icebox smoothies.
Meanwhile, investigators are scouring Manhattan trash bins for
the knife she used on air two weeks ago.
International
India / Pakistan: Indian Prime Minister Vajpayee designated a
new #2 who is a big time hardliner, a story far more important
than the one touting the military’s removal of some land mines
near the line of control. As for Pakistan, one wonders how
President Musharraf can survive the year, with an increasing
number of folks favoring his removal.
China / Hong Kong / Taiwan: Hong Kong “celebrated” 5 years
of Chinese rule, a period which has encompassed two recessions
and a slow deterioration in democratic principles. Otherwise, the
future is rosy.
Meanwhile, China test-fired a spiffy, new air-to-air missile,
while the U.S. continues to restrict Taiwan’s deployment of
similar weaponry needed to defend itself against a sudden,
massive assault from the mainland.
Lastly, Chinese Premier Zhu Rongji lashed out against the elite
who are cheating on their taxes, another sign that China’s
economic miracle may not be all it was cranked up to be. The
Financial Times had a piece on Friday discussing the country’s
phony GDP numbers, a subject I raised in this space 3/23/02.
Japan: A cargo ship containing 550 pounds of nearly weapons
grade plutonium has left Japan and is slowly making its way to
Britain, the first of many such ventures as Japan is bent on using
reprocessed fuel for its nuclear plants. But, this presents quite a
target for terrorists, and while a New York Times report stressed
security concerns for when these ships go through the Straits of
Gibraltar, I would be more worried about getting through the
Strait of Malacca, between Indonesia and Malaysia. And as
friend Charles K. noted, let’s also hope the captain doesn’t pull a
Hazelwood.
Random Musings
–President Bush’s insider trading situation from over 10 years
ago is no small deal in today’s political climate, particularly
when combined with Vice President Cheney’s Halliburton
stewardship. 2004 is a long way off and much can change in
between, but this will not be the ticket then, you can count on
that. Cheney is going to have to step down sometime after the
November vote, probably, after Iraq.
–On a related note, last fall I said I wouldn’t comment on the
actual conduct of the war, and I haven’t, until now. While it’s
recognized that accidents happen, we can’t afford too many more
missteps in Afghanistan like this week’s incident.
In my home I have a Matthew Brady photo of President Lincoln
dressing down General George McClellan for his failure to go
after a retreating Robert E. Lee following the battle of Antietam.
Lincoln never hesitated to make changes at the top of the military
command (he fired McClellan, twice) and I just hope if it’s ever
warranted, President Bush won’t hesitate either. It’s not in his
makeup to do so, however.
But you’re probably thinking, what the heck does General
Tommy Franks have to do with the accidental firing on the
wedding party? Nothing. But he is in charge…and I’ll leave it
at that, except for one final thought.
I’m not a Franks fan, but politics will inevitably stand in the way
even if Bush and Rumsfeld wanted to make a change. They
wouldn’t do anything before November, because that would be
admitting the roundup of al Qaeda isn’t going quite as well as
they would have liked, and we also have the overriding issue of
Iraq and possible action on this front around year-end. So it’s
just something to watch. I guarantee both the right and left will
be increasingly critical of Franks, deserved or not.
Back to Lincoln, he’s a hero today thanks in large part to his
gutty moves in this arena, an example for all future presidents.
–Then there is this new International Criminal Court, which the
U.S. correctly refuses to sign off on, lest our soldiers be subject
to the whims of a rogue prosecutor. Ironically, it’s something
like the wedding bombing that could be cause for charges. [Or a
My Lai type incident, most likely.] But you can see why there
will be many who blast the U.S. for adopting this stance, while
America threatens to pull out of various peacekeeping missions.
What irks me is that we cannot continue to say no, no, no to
every international issue requiring cooperation that comes down
the pike. We are right, here, and in adopting a harder line in the
Middle East, but it’s also why from time to time we need to
participate in things like Kyoto…if we want to play hardball on
other more pressing matters.
–The only black Republican congressman, J.C. Watts,
announced he will not seek a 5th term, a big blow to those of us
who favor elephants over asses. Watts is a good man.
–Speaking of donkeys, Al Gore is popping up more frequently
these days, reminding half of us why we never contemplated
voting for him.
“If I had to do it all over again, I’d just let it rip,” he told a recent
audience. “To hell with the polls, the tactics, and all the rest.”
He was then immediately administered a lie-detector test and
there were spike marks all over the sheet.
–I kind of get the concept of time-released capsules, but I’m
having trouble understanding an ad I saw for time-released
deodorant. How the hell does this work?
–American Airlines Flight #587 was the one last fall that crashed
shortly after takeoff from JFK. So now some of the victims want
the State of New York to provide free tuition for children of the
victims. Not to be insensitive, but I’m sorry, this is a crock.
New York had nothing to do with the accident. Take the
grievance up with American Airlines.
–Speaking of New York, the cigarette tax in the City went up
this week, meaning a single pack in the Big Apple will now run
you $7. Why it’s enough to drive one to crack.
–Houston, we have a new idiot to compete with Connie Chung
…CNN’s Anderson Cooper, who, in interviewing a National
Transportation Safety Board official following the mid-air
collision over Germany, commented, “We’ve all heard about the
black box. Is that something they’ll be combing the wreckage
for?” Click…
–The situation with the deer herd in the Mid West and “chronic
wasting disease” is getting more than a bit worrisome. Can it
jump to humans in a form similar to Mad Cow?
–A Stanford University business professor has concluded that
the value of an MBA is totally overrated, particularly if you
aren’t admitted to an elite school. So, parents, if you’re about to
help pay for your child’s extended stay in academia, you may
want to think again. [Source: Heather Sokoloff / National Post.]
–It’s official. Insect repellant with Deet is the most effective,
specifically, OFF! Deep Woods brand. Have it handy in case
you come across any CEOs.
–Those of us who love baseball note the passing of Ted
Williams, the greatest hitter and a true patriot, having missed
about 4 ½ seasons due to military service in World War II and
Korea. I’ll have more in Tuesday’s “Bar Chat.”
–Congratulations to balloonist Steve Fossett for his spectacular
accomplishment. But I couldn’t help but compare the big yawn
his feat was met with to Sir Ernest Shackleton’s return to Britain
following his phenomenal Antarctic expedition, 1914-15, when
he came back to a nation at war, with his heroic actions being
buried in the far more important events of the day.
–Historian Richard Brookhiser, on George Washington’s strong,
yet humble leadership. “Washington trusted a higher power
more than himself.”
–Historian David McCullough on the meaning of Independence
Day and the lesson of Jefferson and Adams.
“If ever there was a time to draw strength from their example,
and renew our commitment to their Cause, it is now. Today’s
the day, their day of days. And we might well begin, as John
Adams suggested, with expressions of gratitude to God
Almighty.”
Do you sense a theme here?
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $311
Oil, $26.81 [The Mercantile Exchange was closed on Friday.]
Returns for the week, 7/1-7/5
Dow Jones +1.5%
S&P 500 –0.0%…down fractionally.
S&P MidCap -2.2%
Russell 2000 –4.7%
Nasdaq -1.0%
Returns for the period, 1/1/02-7/5/02
Dow Jones -6.4%
S&P 500 -13.9%
S&P MidCap -5.9%
Russell 2000 -9.7%
Nasdaq -25.7%
Bulls 44.0%
Bears 34.0% [Source: Investors Intelligence]
Have a great week. Pray for our leaders.
Brian Trumbore
