[Posted 7:00 AM ET]
After 9/11, President Bush did a superb job in lining up the
support of our allies in the war on terror and I emphasized at the
time just how critical this would be, whether it was the assistance
of the navies of Spain and Germany in patrolling the waters,
Canadian sharpshooters in Afghanistan, elite Australian units,
France’s crack intelligence network, Britain, Malaysia,
Singapore, the Netherlands, Morocco and countless others. The
arrests of four al Qaeda types the other day in Paris, men who
were plotting heinous attacks, bears this out and is but another
reason to be thankful that the U.S. does have friends in this
effort. And so we keep praying that we can skirt disaster this
holiday season and beyond.
But at the same time war grows near with Iraq, and it’s
encouraging to see the likes of France begin to come around to
the realization that there is no alternative in this instance. I also
see no reason not to believe the reports that Saddam has a
scorched earth plan for when he’s attacked, whereby he will
destroy his power plants, oil fields, and his own people, while
blaming the U.S. in an effort to get the rest of the world to buy
into it.
All hell is about to break loose and at times the cries of the
pacifists may rise above the din. But President Bush will exhibit
the steely resolve to finally finish the job.
I was reading a work by the great patriot Thomas Paine this
week, his pamphlet “American Crisis” which starts out “These
are the times that try men’s souls.” Paine wrote it back in
December 1776 and the words helped rally and inspire George
Washington’s demoralized troops. The message resonates to this
day. Paine writes that he once met a man who was standing…
“with as pretty a child in his hand, about eight or nine years old,
as I ever saw, and after speaking his mind as freely as he thought
was prudent, finished with this unfatherly expression, ‘Well!
Give me peace in my day.’…(but) a generous parent should have
said, ‘If there must be trouble, let it be in my day, that my child
may have peace,’ and this single reflection, well applied, is
sufficient to awaken every man to duty.”
History teaches us much. Let’s hope we’ve learned our lessons.
—
Wall Street
The great strategist Doug Cliggott was on CNBC the other day
with anchor Maria Bartiromo. Last year at this time Cliggott
forecast a Dow of 8500 for 2002, which this week Maria called
“pretty close.” Pretty close?! The Dow was about 8350 when
she said this and it finished the week at 8512, with but six trading
days to go in the year. I’d say, with a certain amount of
certainty, that he nailed it.
So what does Cliggott see in 2003? Try 7000 on the Dow, 750
on the S&P 500 (which closed this week at 895). Yikes! You
mean to say, Mr. Editor, that the losing streak will be extended to
4 years?
Maybe so. I’m saving my own thoughts for next week, but in the
meantime Cliggott’s reasoning is quite simple. He sees very
little in the way of economic or earnings growth, while existing
valuation levels are still extremely high.
I suppose, however, that you desire more information, just as
you’ll want Christmas Day off, so I’m here to tell you that with
regards to the U.S. economy, most of the news this week was
alright. Housing starts rose again in November, the consumer
price index was tame, industrial production eked out a gain and
the latest reading on the leading economic indicators was solidly
positive.
But the weekly report on the job market was lousy and retail
sales are punk, while in a speech on Thursday night Federal
Reserve Chairman Alan Greenspan was none too cheery. Mr.
Bubble acknowledged that the economy is still in a soft spot, but
in addressing some of the worrywarts in the global audience, he
also said that deflation wasn’t an issue, even as he then spent an
inordinate amount of time discussing it. Hmmm, mused the
editor. Time for Dame Andrea to draw him another bath so he
can clear up this conflict of his.
Meanwhile, the world is growing impatient with Americans.
“Spend, ye fools,” shouts the chorus, “for our economies grow
ever weaker and time is running short.” Everyone depends on
Americans to buy their goods and this reliance grows stronger
with each passing year, it seems. But many of us are loaded with
debt and tiring of this burden. “We need to save more,” some
reply. “Solve your own problems.”
Lastly, this week we had a resolution of sorts to the conflicts of
interest issue, with a settlement between the leading brokerage
firms, the SEC, New York’s Attorney General Eliot Spitzer and
other regulators. It’s a whitewash, and the $1.4 billion in
collective fines is a joke, while none of Wall Street’s top
chieftains are being charged with any wrongdoing, thanks to
their ability to pay for the world’s best attorneys.
But on the other hand, the little guy still owes a debt of gratitude
to Spitzer, regardless of the outcome, because if it hadn’t been
for him most of this garbage never would have come to light.
Some Republicans say that it was all a political ploy, a
Democrat with high ambitions. I say, who gives a damn. The
guy was doing his job, just as Rudy Giuliani once did when he
was prosecuting cases. It doesn’t matter that he was an elephant,
a donkey, white, yellow or black.
In the meantime, if you personally have a legitimate beef with
your brokerage firm, join the class-action suits. This agreement
doesn’t preclude it and indictments may still be in the offing for
key players. Unfortunately, though, Citigroup’s Sandy Weill
walks. Look for him at the next charity gala…because that’s
what they do.
Street Bytes
–Thanks to a Friday rally, all 3 major indexes managed to finish
higher on the week, though less than one percent in each case,
with the Dow closing at 8512, up almost 80, while Nasdaq
gained a single point to 1363 and the S&P tacked on 0.7%.
On the technology front, Oracle posted better than expected
results but its revenue forecast is still basically flat for
the foreseeable future, not exactly a ringing endorsement for
the sector.
–U.S. Treasury Yields
6-mo. 1.23% 2-yr. 1.73% 10-yr. 3.95% 30-yr. 4.89%
For the week, bonds rallied largely on war fears.
–Gold (symbol AU): A naturally occurring metallic element,
often used in jewelry, in connectors for electronic equipment,
and as a form of money, which bolted out of its 5-year trading
range of $250-$340 this week, hitting $355 at one point, before
settling at $341. What does it all mean? Well, for the first time
in quite a while gold is acting like the safe haven in times of
global turmoil that we were all told back in grade school was the
case. The recent upward move is also perhaps a sign that the
market is worried about reflation, while others point to recent
troubles with the U.S. dollar. Or it could just be that the hedge
funds / speculators finally got a sustainable trend working in
their favor, at least for a few weeks, and they’re merely toying
with us, before the bottom drops out, they head for the hills, and
the schleps are left with the dust and a pan of sand.
Oh well, I have listed the price of gold from day one of this
column because I know many of you follow it, while carefully
picking my spots to discuss it in any detail. Alas, two weeks ago
I alerted you to the potential breakout and wrote of it further in
my 12/6 “Wall Street History” piece. Hopefully, one or two of
you profited by this. Unfortunately, yours truly didn’t.
And one other item on the topic. There is an interesting lawsuit
floating around wherein a metals dealer has sued both Barrick
Gold (a giant in the industry) and J.P. Morgan Chase for
scheming to hold the price of gold down over the past 15 years,
through the use of derivatives and off-balance-sheet vehicles.
Rumors of this have been prevalent for some time and it’s hoped
through this action that the truth may finally come out.
–Energy: Crude oil production from Venezuela accounts for
14% of U.S. imports so if you shut this source down, as has been
the case the past few weeks down south, you have a problem.
And $30 oil, while good for a spike or two in energy shares, is
not good for the global economy, which is why from a personal
perspective, with my own decent stake in the sector, you have to
be nimble once the shooting starts in Iraq. If we get a final surge
I’m out…and will seek to reenter at far lower prices. Overall,
the best thing for oil would be some stability in the $22-$24
range, where the impact on the global economy is minimal,
demand catches up to supply, and, in the case of my drillers, the
large integrateds (like Exxon) once again feel comfortable
spending on new exploration. As for natural gas, get used to
these higher prices, unless the economy totally craps out. Today,
the supply /demand equation is strongly in favor of the demand
side.
–The $: A weaker one is good for exports and it’s a positive for
our current account deficit; since we not only sell more U.S.
goods, imports become more expensive and thus less desirable.
But now we await the arrival of Treasury Secretary-designate
John Snow and whether or not he will be pushed out front with a
new dollar policy for the Administration. As for the argument
that war isn’t good for the currency, I would just say that one
could really get whipsawed, because if we achieve a quick
success in Iraq, the greenback may soar anew.
–Salomon Smith Barney analyst Jack Grubman was banned
from the securities industry as part of the settlement with Spitzer
et al. He was also fined $15 million. Now, with all this free time
on his hands, I’m sure he’d love to have some visitors. Give him
a call.
–Japan’s bad bank debt is said to be about 10% of GDP. In
China it is closer to 40%, which will become more of a story
down the road.
–Germany’s largest union is threatening to walk out as of this
writing, as Chancellor Schroeder’s problems mount. And I loved
this line by Barron’s Vito Racanelli: “The tenor of debate about
German economic growth is fast becoming a monotone of
Wagnerian foreboding.”
–My portfolio: My energy issues gained more ground, though
my awful tech position, Taiwan Semiconductor, came within
pennies of being ‘stopped’ out, before the troops mounted a stand
and said, “Enough. The master needs to be saved.” [I like to
ascribe human characteristics to my shares.] Anyway, I’m still
about 26% energy, 2% tech crap, and 72% cash. But, not for
nothing, my comments on Turkey last week were bang on.
You’ll recall I took my profits in the country about 6 weeks ago
following the election, saying the market there had gotten ahead
of itself, though I was still looking to get back in once war
started in Iraq. Then last week I wrote that I was souring on the
future prospects and was not about to invest until “the fog
clears.” The government is in a state of turmoil over policy
towards the U.S. and Iraq. This week the nation’s leading equity
index plummeted 15%, which means that I get to pat myself on
the back, because, if you can’t pat yourself on the back when you
own the site, when can you?
–Verizon is being slammed in the New York media for its
announcement it was laying off 2,700 workers one week before
Christmas.
–As of 12/19, the average annual return over the past five years
for the S&P 500 is 0.00%, or, exactly the rate of return you
would have achieved by keeping your money in a mattress over
the same period. And you’d have slept better, too.
–Salomon Smith Barney was ordered to pay $3.2 million to a
female broker in a sexual harassment suit. Great week for them.
–Tyco director Frank Walsh coughed up $22.5 million to settle
fraud charges, $20 million of which was a finder’s fee that CEO
Dennis Kozlowski gave Walsh for his role in an acquisition,
which then wasn’t disclosed to shareholders. In other words, just
another dirtball.
–Bank of New York announced it will take a big hit to earnings,
largely due to its exposure to airline leases with UAL. They
aren’t alone in this regard.
–Online sales have been strong this holiday season and I have a
confession to make. I bought a few shirts off two sites and
purchased some Homer Simpson merchandise off another, the
latter because our motto around here is now, “What would
Homer do?” And then do the opposite.
–Shares in Blockbuster fell 30% in one day when it announced
slowing demand.
–Insurance giant Conseco declared Chapter 11, becoming the
latest casualty of this awful year. In fact 7 of the 11 largest
bankruptcies of all time (including Conseco at #3) occurred in
2002, the others being WorldCom, Enron, Global Crossing,
Adelphia, Kmart and UAL. [Thanks, Mike H.] You know,
folks, this isn’t a good thing.
–Billionaire George Soros was found guilty of insider trading in
a French court for a takeover battle he participated in going back
14 years. Soros was fined $2.3 million, but he should have been
assessed another $5 million for writing such indecipherable
books.
–McDonald’s issued another earnings warning and said it will
post its first loss ever. Maybe they should start selling booze…
the margins are better. “Ah, one egg McMuffin and a 16 oz.
McBeer, please.”
International Affairs
North/South Korea: Even the New York Times opined this week
that with regards to North Korea, “The danger is too grave and
immediate.” Pyongyang continues to blackmail the U.S. and its
allies, saying it now wants a non-aggression pact before it will
negotiate on nukes, but, unlike in Iraq, the Bush Administration
has no other choice but to give talks a chance, because there can
be no doubt that if the U.S. launched a preemptive attack on the
North’s nuclear weapons facilities, for example, the nut job, Kim
Jong-Il, would throw everything he had against Seoul and
possibly Japan. This is why even the Times cannot deny the
horrible predicament we are in.
Unfortunately, Thursday’s presidential election in South Korea
didn’t help. Moderate Roh (pronounced “No”) Moo Hyun
emerged victorious and will now press his policy of engagement
with the North, while at the same time calling for a more
“mature” relationship with the U.S., i.e., the issue of U.S. troops
in South Korea is now at the forefront of discussion. Anti-
Americanism has risen across the nation, a dangerous and naïve
attitude that threatens stability on the peninsula and throughout
the region. The Wall Street Journal has labeled Roh South
Korea’s “Schroeder.” Thus far there is little reason to dispute
this.
China/Hong Kong: The people of Hong Kong are protesting in
increasing numbers the proposed law, Article 23, which is an
anti-civil rights act that would allow Beijing’s toadies in Hong
Kong to impose severe jail terms on those committing “crimes
against the state.” Very disconcerting.
Iran: The U.S. Defense Department says the Russians are
involved at all levels in Iran’s nuclear weapons program, while
Moscow continues to deny this. Now if we promulgated regime
change for Tehran like we should be, this problem would go
away, wouldn’t it?
Syria: Per my discussion last week, President Assad traveled to
Britain as part of Prime Minister Tony Blair’s efforts to help out
in the Mideast. It backfired. Assad, ever the asshole, blasted
Blair for his positions on Palestinian reform and Iraq, while Blair
undoubtedly crossed the Syrian off his Christmas card list.
Zimbabwe: Opposition leader Morgan Tsvangirai refuses to
meet with President Robert Mugabe, as proposed by South
Africa and Great Britain. According to Tsvangirai, meeting with
Mugabe only “legitimizes the illegitimate regime,” and he is
continuing to call for Mugabe’s resignation instead. Meanwhile,
inflation in this country is running at 175% as those in opposition
to Mugabe’s rule also find it increasingly difficult to find food.
Random Musings
–Well whaddya know? Al Gore did the right thing, Trent Lott
did the right thing. Now if we could just get Wall Street’s titans
to act in a similar fashion we’d really be getting somewhere.
I’m not going to waste any more space on the Lott issue except
to bring up a telling incident that occurred in New York State
this week. Republican State Senator Joseph Bruno came out in
support of Lott and immediately some Democratic officials
called for Bruno’s resignation. It was beyond absurd, and it’s a
reason why some of us are licking our chops over Al Sharpton
and his probable run for the presidency.
–Reader Chuck corrected me in my comment that Republicans
were “smug” following the November vote. He said the media
expected us to be so, and he has a point. Chuck and I agree that
Pennsylvania Republican Rick Santorum is looking like a good
veep pick down the road. What about Rice / Santorum in ’08?
And now there’s Bill Frist, a good man whose initial media
coverage has been nothing short of flattering. He also has
presidential ambitions.
–A South Dakota woman was charged with forging absentee
ballots in the recent senate race. Becky Red Earth-Villeda is her
name, hailing from my favorite Indian reservation, Pine Ridge.
Geezuz, I wish Republican John Thune had gone through with
the recount in his race vs. Tim Johnson, one which Thune lost by
only 524 votes. Miss Red Earth may have had her hand in some
1,765 absentee votes. Of 381 interviewed for the investigation,
277 said their signatures were forged. Thune is young and has a
bright future. He knows he’ll be back, but we needed him now.
–President Bush ordered a limited initial installation of the
missile shield, beginning with 10 interceptors in Alaska in ‘04.
Critics say things like, yeah, but of more immediate concern is a
nuke in a Ryder truck or on a freighter sitting in one of our
harbors, to which I can only reply it would be a crime for any
American president not to try everything in an attempt to protect
us.
–For those of you who don’t know former 2-time New Jersey
Governor Tom Kean, the new chairman of the 9/11 commission,
this is one of the truly outstanding men in all of America. Many
of us in my state were disappointed he never ran for the Senate.
–Much was made of the latest study which showed that smoking,
drinking and drug use has dropped among 8th graders. But 15%
of these kids have still smoked pot over the past year (36% of
12th graders). Personally, the dealers need to be put to death…
–…or, perhaps the Dean of the University of Michigan Law
School, who the other night on “60 Minutes,” in arguing the case
for affirmative action, said that when the question arises in class
“Should we decriminalize crack cocaine?…isn’t it important to
have a racially diverse student body?” Decriminalize crack
cocaine? Is this guy nuts? What’s the freakin’ debate?
–Meanwhile, as crime ticks up nationwide, primarily due to the
economy (with ex-cons having a hard time finding work), New
York City has its lowest rate since 1963.
–Los Angeles Police Commissioner William Bratton has banned
high-speed car chases, meaning that Wall Street traders will have
to come up with another activity to bide their time.
–Good friend Jeff B. was panicky this week with the revelation
that Ann Richards was spending a full hour on “Larry King
Live.” “Isn’t her 15 minutes of fame up already?” I thought so.
–Basic cable now draws more viewers than network television.
Last week I told you of my friend Trader George and how he had
recently acquired cable for the first time. Well, on Monday
morning he called to bitch about the programming. “Chill out,
Trader G.,” I said as I glanced at the Food Channel. “You can
always turn it off.” But I also heard from long-time reader John
K., who backed George’s previous no cable stance. John,
though, still has rotary telephones, which I’m now encouraging
him to sell on eBay. As for yours truly, I should probably reveal
I don’t use a dishwasher. Do them by hand, I always say,
preferably while watching “Emeril.”
–A 15-year-old died after performing a stunt he saw in “Jackass:
The Movie.” That was predictable.
–Washington Democratic Senator Patty Murray was visiting a
high school in Vancouver when she asked the students the
following:
“We’ve got to ask, why is this man (Osama bin Laden) so
popular around the world?…He’s been out in these countries for
decades, building schools, building roads, building
infrastructure…We haven’t done that.”
I kid you not, she really said this, and she went on and on.
[Source: Gregg Herrington / The Columbian] As my friend
Harry K. noted, “I guess she’s referring to terrorism schools.”
–Scientists now report that the ten warmest years for Planet
Earth have all occurred since 1987 (with global data going back
to 1900), which while not a good thing in terms of melting ice
caps or stopping the spread of some diseases, is a terrific deal for
us golfers. Fore!
–I saw a news report over the weekend on the Navy’s decades
long training program involving dolphins, who are now being
employed in the war on terror for bomb detection, as well as to
track down enemy divers in our waters. With God’s creatures on
our side, how can we lose?
—
God bless the men and women of our armed forces. We love
you all.
*We just lost a soldier in Afghanistan, killed in a firefight. All
we can do is pray for his family.
God bless America.
—
Gold closed at $341…up from $318 on 11/29.
Oil, $30.30
Returns for the week, 12/16-12/20
Dow Jones +0.9%
S&P 500 +0.7%
S&P MidCap +0.7%
Russell 2000 -0.3%
Nasdaq +0.1%
Returns for the period, 1/1/02-12/20/02
Dow Jones -15.1%
S&P 500 -22.0%
S&P MidCap -14.6%
Russell 2000 -20.8%
Nasdaq -30.1%
Bulls 50.6%
Bears 25.8% [Source: Investors Intelligence]
Have a blessed Christmas, my friends. Travel safe.
*Next week our annual awards presentation, hosted by Denzel
Washington and Sandra Bullock.
Brian Trumbore
