[Posted 7:00 AM ET]
SARS
“What is distinctive and disturbing about the virus is that we are
watching its development unfold in real time.”
–Editorial in the Times of London
And that’s a problem. You can talk all you want about how the
actual number of deaths attributable to SARS is ‘X’ times less
than the number who die in car accidents, or who die from the flu
each year, but that misses the point. While we all hope we can
say the virus has been contained a month from now, none of us
knows if this will be the case, and the scary part is it only takes
one “superspreader” to wreak havoc on an entire community.
This isn’t West Nile Virus, where you’re worried about mosquito
bites, SARS can be passed on by everything from humans down
to cockroaches. And the panic it is spreading in some parts
is quite understandable, until we learn far more. Any responsible
business leader, for example, has to be concerned about the
welfare of his or her employees and must take appropriate action,
whether it’s shutting down a plant or blocking travel, yet each
move has its own ripple effect throughout an economy.
Thus far, however, there is a giant loser, that being China. The
new Communist Party boss, Hu Jintao, is off to a horrendous
start. Hu, himself, seems to this outsider to be a man with
potential and one the West can eventually work with, but he’s the
man on the hot seat now, the one in charge, and it is he who will
suffer as the government’s credibility and accountability go out
the window. For starters, why would anyone believe them on
other matters, such as addressing the burgeoning bad bank debt
issue I raised weeks ago? If they can’t be trusted on SARS, why
should they be on financial matters important to prospective
investors, or with the safety of Olympic athletes in 2008, to take
it one step further into the not so distant future?
Last Sunday the government announced that in Beijing there
were actually 10 Xs the number of cases previously reported,
but this bit of candor was already too late. Canada, for
example, should be not only upset at the World Health
Organization for issuing its travel warning for Toronto, but
Canadian leaders should be fuming at China, because it was a
single person flying from there that caused the problems. Simply
put, it’s not fair.
So now we watch this train wreck unfold in slow motion as all
countries impacted see their economies tank. And even if we
begin to hear officials say SARS has been contained (as may be
the case in Toronto), it will be months, maybe longer, before any
economic vitality returns to the impacted areas.
You know, it’s sad. The Asian region, in particular, has had one
shock after another going back to 1997 and the currency crisis
that was caused by corrupt government officials and rogue
traders. These are good people who have suffered unnecessarily
as they merely try to make enough to give their children a better
future. And in the case of SARS, someday we may be able to
pin it all down to some corrupt, ignorant commie bureaucrats in
Beijing. What a tragedy.
North Korea
Leader Kim Jong Il and his cronies really are a bunch of idiots.
The U.S., South Korea, Japan and others are prepared to pour in
aid of all types if they’ll just abandon their nuclear weapons
program. Chances are Kim would then remain in power, running
his gulags, if he wanted, such is the desire among the allies to
end this scary mess.
But Pyongyang used the initiation of talks between it and
Washington, with China as an observer, to declare that it did
indeed have one or two nuclear bombs and was gearing up to
make more. And of course they had the gall to say that the U.S.
needs to drop its “hostile” policy. Secretary of State Powell was
clearly livid, saying the U.S. would not be intimidated. President
Bush followed with similar remarks.
There are those in Washington who criticized the mere idea of
this round of talks. Of course these are the same folks who offer
up no rational alternative (i.e., Newt Gingrich). What the
meeting in Beijing did accomplish, though, was to expose once
and for all the deceit in the North Korean position. We always
knew this to be the case, but, once more for the international
community further proof was required, and gladly provided by
the thugs of Pyongyang.
Friends, this week North Korea may have crossed the line
without firing a shot. Anything is possible, only this time I’m
referring to preemptive action on the part of the United States.
This crisis can not go on. For starters, it’s doing a number on the
Japanese and South Korean markets and economies, both of
which have thus far largely avoided SARS but can’t escape the
threat posed by Kim’s regime.
Iraq
Time for another rumble in the U.N., as the U.S. and Britain face
off against France and Russia yet again, this time over the lifting
of sanctions in Iraq. President Bush and Prime Minister Blair
want to be able to use Iraq’s oil revenues to rebuild the country,
while France’s Chirac and Russia’s Putin are, in the words of a
Washington Post editorial, taking a “morally repugnant stance.”
France and Russia have no problems with sanctions being lifted,
but only after Iraq has been certified free of weapons of mass
destruction. If you read this and feel like screaming, go ahead,
it’s good to let it all out. Of course who then would do the
certification but none other than Hans Blix. This would also
mean all kinds of new delays, which is just what Paris and
Moscow want in order to secure their oil contracts.
Well, we’re all getting quite used to this by now and a real test
for the Bush Administration will arrive in about 4 weeks, as the
President is due to travel to St. Petersburg for a summit with
Putin, after which he goes on to France for an E.U. affair. That
means there’s 4 weeks to clean up the Iraqi mess or something
tells me a lot of china is going to be broken at the various
banquets.
As for Iraq proper, despite denials to the contrary the U.S. was
clearly not prepared for the extent of the Shiite fervor in places
like Karbala, while on the issue of the search for weapons of
mass destruction, it is particularly frustrating no real smoking
gun has yet been found. It’s not going to be enough to tell the
world community, as some captured Iraqi officials have said, that
much was destroyed before or during the war. We must find
something, or, for starters, preemptive moves against the likes of
North Korea will be that much more difficult to pull off. But on
this issue, I’m still optimistic.
Finally, as scholar Bernard Lewis, columnist Jim Hoagland, and
others have pointed out, the De-Baathification of Iraq must
continue apace. No amnesty. They are Nazis.
Wall Street
The first reading on first quarter GDP came in at a paltry 1.6%,
far below consensus. But no surprise here. 1.4% in the 4th
quarter, 1.6% in the 1st…basically, recession type figures. Sure,
no one else has put it that way, but it’s been six dreadful months
on the employment and manufacturing front, even if some of the
official numbers, like the employment rate, argue differently. As
I said last week, though, maybe the worst is over, it’s just that
“tepid” will be the watchword for the foreseeable future. And, of
course, SARS is a new wild card for an already sick global
economy.
There was a smattering of good news this week. A key reading
on consumer sentiment was a bit stronger than expected, while
durable goods orders were up and energy prices mostly down.
But figures for housing were mixed, while the weekly jobless
claims number was hideous, though one can’t make much of a
single week in this category. The employment picture overall,
though, is not getting any better. Plus, the latest Federal Reserve
study of regional activity conceded there may not be much, if
any, of a post-war bounce.
Much has also been made of the earnings releases of the past few
weeks. Sure, there haven’t been any high-profile disasters, but
we still don’t have that one key player saying the coast is clear.
Any success has been achieved through cost cutting, not revenue
growth, and until the latter truly turns it’s difficult to envision
much upside in equities. It also needs to be mentioned that
while 2nd and 3rd quarter numbers have been ratcheted down
some, the figures for growth in the 4th quarter remain way too
high.
I also can’t imagine that next week’s announcement of a final
settlement in the Wall Street conflicts of interest scandal will
make for a positive backdrop. It should be great reading, though,
as the word “fraud” finds its way into the report in a myriad of
instances, a key for future lawsuits against the Street.
Street Bytes
–For the week markets were mixed, with the Dow Jones down
just 31 points to 8306, while both the S&P 500 and Nasdaq
edged up a whopping 0.6%, the latter to the 1434 level. Gains
early in the week were wiped out Thursday and Friday, just as
many technical indicators were flashing ‘buy.’ Which is why
you always have to combine both fundamental and technical
analysis, boys and girls.
–U.S. Treasury Yields
6-mo. 1.16% 2-yr. 1.56% 10-yr. 3.88% 30-yr. 4.81%
Bonds were helped by the weak employment and GDP figures,
as well as the SARS scare. Federal Reserve Chairman Alan
Greenspan had successful minor surgery and President Bush
used the opportunity to say he was behind Mr. Bubble, while
approving of the idea of a 5th term for the chairman, at which
point Greenspan, 96, said, “It would be an honor, President
Eisenhower.”
–Energy: It was a somewhat confusing week on this front as
OPEC held its emergency meeting and opted to cut production,
but not until June 1 and only from a higher production target. In
other words, the cartel is worried about overall market share,
currently around 33%, so the nations will continue to pump more
as they wait to see how quickly Iraq comes back on stream.
Iraq isn’t expected to be in a position to export until June at the
earliest as most of its fields are in a huge state of disrepair. The
infrastructure is shot and it’s going to be quite a while before the
country is pumping at old levels.
This week the price of crude tumbled below $27, though about
$2 of this was a result of rolling over the ‘near month’ contract.
Crude inventories rose, not good news for oil bulls, especially
with a global economy on the skids.
But natural gas is a different story and supplies in the U.S. are
dangerously low.
Finally, two Russian energy outfits, Yukos and Sibneft, are
merging to form the 6th-largest publicly traded oil company in
the world.
–Former CSFB investment banking star Frank Quattrone was
arrested on charges of obstruction of justice resulting from an
investigation into his order to subordinates to destroy evidence in
the IPO spinning scam, whereby shares in hot stock offerings
were exchanged for promises of future banking business. It
appears Quattrone will fight the charges in what would be a most
entertaining trial.
–The New York Stock Exchange said that its reported probe on
“front-running” was really something far more esoteric, and, by
inference, not as damaging. Bottom line, illegal activity is taking
place on the floor, Mr. Grasso, so don’t blast the media, as you
did.
–Former Lehman analyst Holly Becker and her hedge fund /
trader husband may yet be charged with insider trading. Yippee!
–Larry Rohter had a good piece in the Times on growing anti-
Americanism in Latin America. With a history of past U.S.
interference on the continent, you can imagine that the war in
Iraq wasn’t viewed as favorably down here as it was north of the
Rio Grande.
–Well, the saga at AMR will certainly become a case study for
future MBA students on how not to conduct labor negotiations
and win the PR game. Once highly respected CEO Donald Carty
resigned in disgrace following his bungling of the executive
compensation / pension issue we touched on last week.
–Lexmark reported continuing strong demand for its ink
cartridges, even as sales of its printers continued to decline. I
spend over $1,000 a year, personally, on cartridges, so you may
not be surprised I’m thinking of opening a new chain of stores….
“Mr. Ink.”
–The U.S. Senate is stepping up its investigation into abusive tax
shelters, which, you’ll recall, were structured by some of the
leading accounting firms.
–In what could be the most significant item of the week, a
congressional deal is in the works to end all asbestos lawsuits
through the creation of a $100 billion trust that would pay off
legitimate asbestos victims over the next 30 years. Ah, but the
trial lawyers aren’t happy. Speaking of these dirtballs,
presidential candidate John Edwards evidently has a monopoly
on fundraising with this group, being one himself.
–Schwab’s trading volume, a good, broad-based barometer for
the industry, is off 22% from a year earlier, but at least there
were signs of an increase in activity this past week.
–On the earnings front, AT&T beat estimates, but lowered its
forecast for capital spending in ’03, an important declaration for
those of us still looking for a mini-rebound in this area. Ma
Bell’s fallen child, Lucent, lost $553 million in the quarter and
revenue was $2.4 billion versus $3.5 billion a year earlier, but the
company continued to pledge a return to profitability by year
end, thanks largely to its massive cost-cutting. I live close to
Lucent’s headquarters and I think there are six cars in the parking
lot, when once there were 5,000. I’ll have a lawn update in a few
weeks.
–EBay saw revenues rise 94%, thanks to its PayPal acquisition,
and the company raised earnings guidance for the full year. The
shares rose another few dollars, as did those of Amazon, which
also beat expectations. On Monday the Journal followed
Barron’s earlier lead with a negative piece on both stocks, along
with Yahoo, but yours truly has called this one right. Sure, all 3
are grossly overvalued, but you never get in the way of a moving
freight train, to use an old, hackneyed phrase. Also, never catch
a falling knife and never bet on the Red Sox or Cubs.
–Meanwhile, AOL Time Warner had some good news for the
quarter, finally, but as a follow-up to my comment on Net
advertising last week, AOL’s online division warned of a further
35-45% decline in ad revenues.
–My portfolio: I made a nice buck this week on my electricity
generation play (it’s one of those beaten up issues under $10
you’re all familiar with), but I lost some on my new tech
position. The drillers did alright…………………..so we’re
breaking out the premium ale. [If you’re new to the site, this is
how we measure success around these parts.]
International
Israel: Prime Minister Ariel Sharon has vowed to meet with
Mahmoud Abbas (a k a Abu Mazen) as soon as the latter is
confirmed by the Palestinian parliament to become the new
prime minister. Abbas finally emerged victorious in his struggle
with Yassir Arafat over control of the Palestinian security force,
though the future role of Mohammed Dahlan, who will oversee
it, was scaled down as a concession to Arafat.
There is a glimmer of hope here, especially if Abbas can rally the
Palestinian people, who by now should be pissed that they’ve
allowed Arafat to run roughshod over regime finances. The
people should string him up in the town square, though I’m not
holding my breath on this one. For his part, Abbas isn’t exactly
popular, either.
But I need to digress a bit and mention Times columnist Thomas
Friedman, who gets an inordinate amount of publicity for his
views on the region. Friedman wrote a piece this week on the
Palestinian / Israeli conflict and didn’t say anything about Syria,
Lebanon or Hizbollah.
I have written time and again that the U.S. government should
put the screws to Israel regarding the settlements, something
Friedman has supported as well, but at the same time the terrorist
threat in Lebanon (Hizbollah) needs to be eliminated. That
single act would do more for the peace process than anything
else.
Argentina: Interesting presidential election on Sunday, with
former President Carlos Menem, age 72, running once again. A
runoff seems likely as the field is winnowed down. Menem is
married to a 37-year-old former Miss Universe…Carlos, my
man!
India / Pakistan: Are talks between the two over Kashmir
actually in the offing? Possibly.
Turkey: After 30 years, Turkish Cypriots were allowed to cross
the border to the Greek Cypriot part of the country for one-day
visits, a significant step towards rectifying this mess and
necessary if Turkey is ever to gain E.U. membership.
Nigeria: I think I have one reader in all of West Africa, but there
was a time just about two years ago when Nigeria was to be the
model of democratic reform for the entire continent. Alas, it
hasn’t turned out to be, but this week President Obasanjo won re-
election. The opposition claimed the vote was rigged so look for
another few years of violence.
Actually, with the networks seeking new ideas on the reality
television front, why not build a little Hollywood set, complete
with a bank, museum, and hospital, and then get 100 Iraqis and
100 Nigerians to face off against each other, for the purpose of
seeing who can loot the town quicker? Call it simply, “Looters’
Wild!” I’m copyrighting the idea.
Random Musings
–I think I just lost another shot at the Pulitzer over the above
remark.
–Italy is sending 2,500-3,000 troops to Iraq, including military
police. Buy a product marked “Made in Italy” this week to show
your appreciation.
–Of course I’m assuming you’ve been buying Australian goods,
too, all along. Defense News reports that the Aussies are
expanding their special forces operation, the troops having
played a huge role in Iraq. It would be a big help to the U.S. if
Australia could take care of smaller hot spots in Asia down the
road, as they did to a certain extent in East Timor.
–In what was billed as a major speech, former House Speaker
Newt Gingrich blasted Secretary of State Powell over the
secretary’s policy initiatives for Iraq, Syria, and the U.N.
Gingrich, whose ego knows no bounds, has proven to be a
corrupt, conniving bastard and it’s the hope here he will just fade
away. Of course the chances of this happening anytime soon are
nil. But it should also be pointed out that the Department of
Defense and the Department of Diplomacy, as I like to call State,
have been and should remain mutually exclusive. You need
both, while at the same time it’s the president who is ultimately
responsible for policy. So Gingrich’s shot was really at Bush,
and I imagine it wasn’t much appreciated in the family quarters.
–Democratic Congressman Richard Gephardt attempted to
distance himself from the field for the presidential nomination as
he unveiled a sweeping health care plan. I have had a few kind
words for him over the past year due to his support of President
Bush on Iraq, and you can’t deny his policy initiative is bold. It
may help his efforts. Just a dispassionate opinion, nothing more.
He’d sweep away my favored tax cuts, after all.
–The Journal had an extensive story on the issue of port security,
which all of us know is where the United States is most
vulnerable. Canada also has a huge problem in this regard, with
no more than 4% of containers being examined in either country.
The situation will improve immensely over the next 3-4 years,
but that’s not soon enough.
–Oops, looks like Pennsylvania Senator Rick Santorum won’t be
on any veep lists in ’04 or ’08. But, sorry, I’m not going to
comment further on the remarks that got him in trouble with the
gay community.
–German Chancellor Gerhard Schroder apologized for his anti-
U.S. remarks in the lead up to war. You can’t be mad at
everyone, as I’ve said before, because it’s not good for your
health. So in the case of Germany, do what Condoleezza Rice
advised…ignore them. Reserve the bile for France.
–Regarding the Laci Peterson tragedy, if Scott Peterson is found
guilty, I once again ask opponents of capital punishment, give
me one good reason why he should live?
–Time for your quarterly reminder, if you didn’t catch the
references earlier in the column. Corruption is what makes the
world go ‘round.
–Earth Day tidbit, courtesy of George Will: In the 1980s, Los
Angeles County averaged 80 “stage one” ozone alerts annually.
According to Will, L.A. hasn’t had one in over two years.
–Old friend Pete S. took me to task for my comparison of Kobe
Bryant with Michael Jordan. So, yes, I concede Jordan never
played with a center like Shaq, but Kobe’s overall game at this
stage in his career is as good as Jordan’s was, some say better.
Then again if the Lakers lose to the T’Wolves, I reserve the right
to revise and extend my remarks.
–The looting of Saddam’s palaces by some in the U.S. media
kind of cracked me up. For starters, why would you ever display
the stuff? “Get a load of this Saddam on velvet. Yeah, I stole
it.”
–Regarding the Shiite celebration in Karbala where scores of
participants cut their heads with swords, my only thought was,
sure hope the weapons are sterilized.
–Since I was making fun of Sumerian art the other day, it’s only
fair that I point out the 3 main artistic themes of my own home;
the Civil War, Irish golf, and framed Peanuts strips. The Civil
War prints never went over well with the ladies.
–Hans Blix’s contract expires June 30. Could be an excuse to
party.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $333
Oil, $26.26
Returns for the week, 4/21-4/25
Dow Jones -0.4% [8306]
S&P 500 +0.6% [898]
S&P MidCap +1.4%
Russell 2000 +1.3%
Nasdaq +0.6% [1434]
Returns for the period, 1/1/03-4/25/03
Dow Jones -0.4%
S&P 500 +2.2%
S&P MidCap -0.3%
Russell 2000 +1.4%
Nasdaq +7.4%
Bulls 42.7%…big drop, worries about sustainability of earnings.
Bears 34.8% [Source: Investors Intelligence]
Note: I’m heading overseas for a few days and will not be
responding to your e-mails until I return. Next week’s review
may be a few hours late Saturday AM.
Have a great week.
Brian Trumbore
