[Posted 7:00 AM ET]
Across the Atlantic
President Bush completed the most ambitious trip of his
presidency, and while the White House seemed pleased by the
results, my old adage of ‘wait 24 hours’ once again applies. In
summarizing, we’ll examine the individual components.
Middle East: There are some who say the President was taking
a risk, politically, in enmeshing himself in talks between the
Israelis and Palestinians. I beg to differ. Regardless of the
outcome, the American people (at least a vast majority of those
capable of finding their local voting booth) understand enough
of the history of the region to know that while success is
unlikely, the United States must nonetheless continually attempt
to be an honest broker.
And so after the tepid handshakes in Jordan, what we are left
with is a Palestinian leader, Mahmoud Abbas, who seems to be a
good man, but entirely out of his element, and Israel’s Ariel
Sharon, a hardliner, who won’t be able to control the more
radical forces in his own society.
We thus have the distinct possibility of two civil wars. First, in
vowing to defeat any peace initiatives, Hamas and Yassir Arafat
have drawn their own lines in the sand, while many of Israel’s
settlers will invariably take up arms against their government
when they are asked to dismantle the outposts. It could be even
bloodier than what we’ve witnessed the past few years, and the
outcome is as uncertain as ever. It also didn’t help that the Arab
leaders Bush met with in Egypt are worthless, with the possible
exception of Jordan’s King Abdullah.
Iran: President Bush may not have stopped here (now that would
be a story), but the topic of Iran and its burgeoning nuclear
weapons program was an integral part of the discussions. At
Evian, the G-8 issued a statement that weapons of mass
destruction were the “pre-eminent threat to international
security,” referring specifically to Iran and North Korea, and by
the end of the summit (after Bush had left), Prime Minister Blair
thought he had extracted a concession from Russian President
Vladimir Putin, with Putin supposedly telling Blair that Russia
would stop exporting nuclear fuel to Iran for the plants it was
helping Tehran build. But by Thursday (‘wait 24 hours’),
Russian Foreign Minister Ivanov was denying this and said
Russia would ship the fuel anyway.
The G-8: Another bust. The original raison d’etre for these
summits was to ensure the stability of the global economy. Over
time they have evolved into nothing but political gatherings and
photo ops. A good thing for the leaders, I guess you could say,
who could then ignore failures on issues such as globalization
and trade.
But aside from the fact that none of the participants, save oil-
addled Russia, can brag about the current state of their domestic
economy, it’s also apparent that when it comes to Europe’s pet
projects, such as aid to the world’s poor, leaders such as French
President Jacques Chirac have little to stand on, and here
President Bush crushed them.
The U.S. Congress, prodded by Bush, after all, just approved a
massive $15 billion, 5-year AIDS initiative. “Beat that!” you
just know the President wanted to shout. The other summiteers
couldn’t. Heck, South Africa’s own President Mbeki, invited by
Chirac, had to remind Europe of its obligations on this front. As
John Vinocur of the International Herald Tribune pointed out,
Europe’s big problem these days is that it is incapable of
speaking with one voice on anything, and in so many respects it
remains marginalized despite the fact that the potential of its
economic bloc to rival the U.S. is there.
Lastly, you had the painful interplay between Chirac and Bush.
Sure, they put their best face forward for the cameras, but as
soon as Bush went to the Middle East, Chirac immediately felt
compelled to remind his audience that the war against Iraq was
“illegitimate and illegal.” And so, many of us will continue to
boycott Paris.
WMD: Regardless of your take on the issue of Iraq and weapons
of mass destruction, unlike Chirac you have to believe that the
war was totally justified, as thankfully most Americans, at least,
still feel. But you also can’t ignore the fact that the debate on
WMD is just heating up, as both President Bush and British
Prime Minister Blair are learning first hand. Former CIA
employee Jeffrey Smith noted in the Washington Post that it all
comes down to a single issue, “Was there pressure on career
(intelligence) professionals to alter their analysis, and if so, from
whom?”
Many of my right-wing colleagues continue to insist this isn’t
anything to worry about. It is. Secretary of Defense Rumsfeld
and Vice President Cheney, along with CIA Director George
Tenet, may all be culpable to a certain extent. And to my friends
who disagree, just note that it isn’t only Democrats crying for
investigations. Republican leaders such as John Warner, Chuck
Hagel and John McCain want to establish the truth, as well.
Senator Warner said of a congressional probe, “The situation is
becoming one where the credibility of the administration and
Congress is being challenged.” While in the case of Senator
McCain, it’s safe to say there has been no greater supporter for
moving against Saddam than he, but if you watched him on
“This Week” last Sunday, you saw a man who appears to be
deeply troubled by what may have been faulty data leading up to
the war.
We need to clean this mess up quickly and some heads should
roll. The obvious problem, however, is that this would mean
admitting mistakes. But as history teaches us (and as some
learned this week on Wall Street), better to get it out in the open
now, especially if you’re a supporter of President Bush, then to
let it fester and impact America’s ability to move on future
threats.
Both Rumsfeld and Secretary of State Powell will be summoned
for the hearings later in the month and fireworks are guaranteed.
What will be interesting to watch is whether or not a John Dean
type character emerges to put the blame on Rumsfeld…or
Cheney. Not likely, but an explosive possibility.
Finally, on a related topic, remember that bomb site in Baghdad?
The one where Saddam and his Baath Party cronies were said to
be dining last April, even as U.S. troops were moving through
the city? Can you believe that it took two months to begin to
fully excavate it and look for evidence? Lt. General David
McKiernan, who’s a good man on the ground there that is also
clearly being jerked around by his superiors, admitted as much to
NBC the other day. Amazing.
Wall Street
As I watched the equity markets soar ever higher this week, with
the Dow Jones hitting 9200, the S&P 500 the 1000 level, and
Nasdaq 1650, I couldn’t help but think of 1999. At the end of
’98, I sold out of a substantial, long-held position in technology,
throwing in the towel because I simply couldn’t understand the
valuations being accorded most issues in the sector. So I sat out
1999’s Nasdaq gain of 85.6%, though I made up for it by nailing
the recovery in the oil-services sector.
Since ’98, except for a little 2 or 3% trade here and there (most
of them losers), I have stayed out of technology and while I
believe we will finally see some kind of replacement cycle
rebound, once again I can’t get too excited as I watch
valuations get stretched like a Hollywood facelift.
And it’s not just technology, as we sit with a trailing price /
earnings multiple of 33 on the S&P 500. I know, I know. The
“e” in p/e is turning around, and interest rates are low, so with
the competition for the investment dollar so limited, why
wouldn’t you climb aboard the equity train? Because the caution
I’ve exhibited the last five years has held me in good stead and
the last I checked, not only is the economy still punk, but I’m
also still sleeping with one eye open, lest a dirty bomb go off and
the financial markets, worldwide, collapse.
As for the past week, the news on the economic front was so-so,
even as the equity markets augured for a brighter future. The
employment picture is still abysmal (I don’t buy Friday’s
‘happy talk’), with the manufacturing sector losing another
50,000 jobs in May, 2.6 million since July 2000, while Ford and
General Motors* announced production cuts amidst lackluster
sales.
*Last week I wrote that auto sales were declining. When the
May figures came out, however, that proved to be the case for
Ford and DaimlerChrysler, but GM’s actually rose 4%, as
declines in car sales were outweighed by an increase in truck
purchases. My fault in anticipating incorrectly.
Meanwhile, you also can’t discount the global picture, best
represented by the Euro Zone. The European Central Bank was
dragged kicking and screaming into cutting its benchmark short-
term rate 50 basis points to 2% and it was like, duh! After all,
here is the recent growth picture for the region.
Q4 ’02…+0.1%
Q1 ’03…+0.0%
Q2 ’03…+0.0% (est.)
You have to admire the consistency. The decline in the U.S.
dollar continues to do a number on European manufacturers at a
most inopportune time and while some Americans can say, oh,
who gives a damn, you wouldn’t be uttering that if you were
working for a company that sells its products there and is
dependent on a consumer who has the confidence to spend.
And let’s face it, IBM’s disclosure that it was being investigated
for revenue recognition issues going back to 2000 and 2001
shouldn’t give those who thought the worst was over on the
corporate governance front a warm, fuzzy feeling. It’s the
classic case of fooling around with the numbers just enough to
beat Wall Street’s earnings expectations by a penny, so
executives could cash in their options at a higher price. Just
more B.S. and another example that America’s corporate
accounting and ethics are no better than many Third World
nations.
But doom and gloom aside, world equity markets have all turned
up, warranted or not, and that’s a good thing, as Federal Reserve
Chairman Alan Greenspan told a European audience this week.
Street Bytes
–The S&P 500 and Nasdaq rose for the 7th week in 8, though the
former wasn’t able to hold the 1000 level. The Dow Jones,
however, finished above 9000 (9062). All three were up 2-2.5%
as volume continued to pick up, a good sign, though even here I
wish a commentator would note just once that Lucent, in trading
100 million shares a day, represents a staggering 6% of the
overall volume on the NYSE most days. Throw in other sub-$5
stocks like Nortel and the data is further distorted, that is if you
believe in stating all the facts.
–U.S. Treasury Yields
6-mo. 1.02% 2-yr. 1.25% 10-yr. 3.35% 30-yr. 4.39%
In the same speech referenced above, Alan Greenspan said that
deflation was unlikely, but the Federal Reserve was prepared to
take out insurance if necessary. Then Fed Governor Ben
Bernanke said that while deflation wasn’t an immediate danger,
1% inflation was worrisome, because it’s a quick trip down into
the abyss from there. Put it all together and the bond market
held its recent gains, with mortgage rates hitting another all-time
low, 5.26%.
As for the upcoming Fed meeting, June 24-25, some feel the
employment report wasn’t dour enough to warrant a further
decrease in rates. Whether the Fed cuts or not, though, isn’t as
important as the fact they won’t be raising rates at least the rest
of 2003.
–Here’s my take on Martha Stewart. I really couldn’t give a
damn. There are far more serious instances of personal and
corporate malfeasance that I would love to see addressed and I
was distressed to see both CBS and NBC lead the national
newscasts on Wednesday with this story, instead of President
Bush’s mission to the Middle East. That said, Stewart is going to
get what she deserves. But did you catch that snappy umbrella?
–Of course what we really want to see are some of Wall Street’s
chief executives in cuffs, and towards that end there is still hope
as the SEC has subpoenaed 12 of the largest firms and their top
honchos for emails and other documents pertaining to the
research scandal. Here I thought that we wouldn’t have anything
to do this summer, with the trial of Frank Quattrone not
scheduled until late September, but as the new material is
gathered, and leaked, it could get quite entertaining.
–In another development I can’t get too exercised over, the FCC
voted 3-2 to permit a company to buy television stations and a
newspaper in the same city. Some are concerned this will lead to
too much power in the hands of a few, a la Rupert Murdoch.
Don’t sweat it. You’ll always have alternative outlets such as
this one to get your news, along with an informed opinion. Then
you form your own.
–Housing prices nationwide rose at an annualized rate of 3.8% in
the first quarter. They dropped in only 13 of 220 metropolitan
markets. At the same time, mortgage debt is rising far faster than
any appreciation, a dangerous sign.
After my comments last week that I mistakenly called for a
housing bubble years ago, some of you wrote to say ‘hang in
there.’ Don’t worry. I know the sector will eventually crack.
It’s just that in my game, there’s a statute of limitations on being
able to say “I told you so.”
–Inflation Update: Coors Light is now selling for $4.95 a six-
pack!
–Los Angeles has surpassed New York as the largest center for
international trade, $214 billion, annually, compared to $210
billion. [Source: Crain’s New York]
–The former chairman of drug wholesaler McKesson Corp.,
Charles McCall, was indicted on charges of securities fraud,
along with two other executives, for actions taken in conjunction
with the April 1999 acquisition of HBOC. McCall conveniently
fled the country on Tuesday.
–And then you have the ongoing saga at Xerox. Six former
executives, including two CEOs, were fined a collective $22
million for manipulating earnings, and thus the share price,
through accelerated revenue recognition. Sound familiar? I
knew you’d copy that. But here’s the payoff. The company may
end up being responsible for the bulk of the money since the
execs were indemnified under their employment contracts. Does
that suck or what?
–It would appear that critical legislation on controlling asbestos
litigation has stalled in Congress. Democrats want everyone
covered who can merely spell the word.
–Energy: OPEC meets this week amidst reports that the cartel
will not be cutting production. The price of oil finished the week
over $31 (as measured by West Texas Intermediate), the highest
in 3 months.
–Valuation: One of my pet peeves is the manipulation of the
classic valuation tool, the price / earnings ratio. So mega praise
goes out to market mavens Charlie Minter and Marty Weiner of
Comstock Partners, who in the 6/2 edition of Barron’s said the
following.
“(The) only important data to use for the P/E valuation metric are
‘reported’ trailing twelve-month earnings, not adjusted for
interest rates. We believe this is the best way of determining
whether the stock market is overvalued or undervalued. History
shows what investors paid at market peaks and at market
troughs.”
Case closed. Investors are done an incredible disservice when
commentators get on the air, blab about a p/e on the market, or
for a particular stock, and then don’t tell you if they are referring
to trailing, forecasted, or some other method designed to buttress
their case. It’s confusing as hell. But here at StocksandNews we
always use ‘trailing,’ unless otherwise noted.
–I have long argued there is no “next big thing” on the
technology front and Microsoft CEO Steve Ballmer basically
confirmed this is in an e-mail to his employees, saying
Microsoft’s customers had “less passion and enthusiasm for
technology.” At the same time it’s safe to say that the biotech
field will be the source of all kinds of breakthroughs. Just be
careful if you’re investing in individual names. No single
sector has had more booms and busts than this one.
–Amazon, eBay and Yahoo are beginning to crack. They acted
like crap this past week; not a good sign, technically, in an
otherwise strong market.
–Those of you who feel like you’ve had an idea that was ripped
off can take heart in a recent federal ruling that ordered Taco
Bell to pay $30 million to two men who claimed the talking
Chihuahua was their idea. Granted, it took awhile, as the
gentlemen initially sued in ’98; having pitched an ad campaign to
Taco Bell back in ’96, only to see commercials with the large rat
airing in ’97. The company said advertising giant TBWA-Chiat-
Day proposed it. Hah! Suck it up, Pedro. [In the interest of
fairness, I should add that I could spend an hour a day in Taco
Bell. It’s heaven.]
–Insider selling continues to soar, while the number of “bears”
among the investment newsletter class is at another 11-year low,
as noted in my weekly bull / bear readings listed below.
–Airline stocks also soared. Goodness, gracious. We’re talking
AMR has gone from $1.25 last March to $9.95 on Friday (before
closing at $9.11) and Continental, $4 in March, hit $15.50 on
Friday (it closed at $14.60).
–Hong Kong: SARS may have peaked, until next winter, but the
damage has been done. The government cut its growth forecast
for the year by half as a result of the fallout.
–My portfolio: My energy holdings are down to five. I sold my
aggressive, electricity-generation play for a big gain (now I can
tell you, it was Calpine), though once again, I may have left a lot
on the table. So I’m about 37% energy, 1% India (hey, this is up
15% in just a few weeks) and the rest cash.
–In a deal between rival hand-held device makers, Palm is
acquiring Handspring in what can best be described as a touchy-
feely merger.
More International Affairs
North Korea: Deputy Defense Secretary Paul Wolfowitz has
been traveling throughout Asia, trying to shore up alliances,
while explaining the new policy of realigning some U.S. forces.
By week’s end Wolfowitz reached an agreement with the South
Korean government that the 37,000 U.S. troops in this country
would be redeployed away from the DMZ (as well as the huge
base in the middle of Seoul). The U.S. says this will not only
improve the defensive posture, but also its ability to strike
preemptively (due to our technical advantage), while the Bush
administration also agreed to continue to hold joint exercises
along the DMZ, as the Roh government wants U.S. forces to
remain a tripwire.
Meanwhile, officials from Pyongyang told a U.S. congressional
delegation that the North has almost finished reprocessing 8,000
spent fuel rods, though this couldn’t be verified. Some, like
Republican Congressman Curt Weldon of Pennsylvania,
nonetheless are optimistic that a substantial economic aid
package could be all that is required to entice the North to
dismantle its weapons. Oh, were it that easy.
China / Taiwan / Hong Kong: House Majority Leader Tom
DeLay, in a speech at the American Enterprise Institute on
Monday concerning the Chinese communist government.
“This notion that these oppressive and dangerous men could
convince the United States that their murderous ideology should
be imposed on a free and independent Taiwan is absurd. And
refusing to say so, for fear of upsetting Beijing, is not tact: it is
infantilism.”
[I have more on DeLay’s speech up on my “Hott Spotts” link.]
Separately, dissident Martin Lee had a powerful op-ed piece in
the New York Times. You’ll recall that back in 1997 Beijing
promised Hong Kong that for the ensuing 50 years it would fall
under the philosophy of “one country, two systems.” But now
the Hong Kong government (toady of Beijing) is about to adopt a
national security bill that would criminalize “treason, sedition,
subversion and the theft of state secrets.”
Just last week I wrote of the four arrested in China for posting
anti-government articles on the Internet, one of whom is now on
a hunger strike. Of course this new act in Hong Kong could
easily be used by local authorities in a similar fashion. And as
Lee further points out, let’s say someone wants to write a story
on graft and the 2008 Beijing Olympics. Do you think they’d get
away with it? Hardly.
Burma: A week ago, Nobel Prize winner and opposition leader
Aung San Suu Kyi was placed under house arrest following a
violent attack against her headquarters by the military
government. Today, no one knows what happened to her. It was
back in 1990 that the military goons refused to accept the
mandate of the people in casting aside the results of a free
election that should have elevated Suu Kyi to the top slot.
Zimbabwe: The week of massive protests did not come off
totally as planned. Businesses shut down, further crippling what
is left of the economy, but most people were afraid to mount any
public demonstrations.
Liberia: A U.N. backed court indicted President Charles Taylor
on war crimes for his actions years ago in Sierra Leone, giving
Liberia’s rebel movement a new incentive to wreak havoc of its
own. There are no winners here.
–Turkey: If you’re watching the growing contest of wills
between the military and the Islamist government, one key is the
issue of military procurement. The generals are intimately
involved in the process, historically, but the government is
saying that they have to adhere to E.U. guidelines, which put
control of such items in civilian hands. Of course the military
wants to see the nation eventually join the E.U., too, so it’s an
interesting game of one-upsmanship.
Random Musings
–A new poll of 16,000 in 20 countries for the Pew Research
Center garnered quite a bit of press this week. Some of the more
important findings were:
Only 12-17% of those in Turkey, Indonesia and Pakistan have a
favorable view of the United States. [Indonesians gave the U.S.
a 75% favorable rating in 2000. Now it’s 83% unfavorable.]
Just 29% of Americans have a favorable view of France. [This
was 79% in February 2002.] The figure for Germany among
Americans is 44% favorable. [83% in 2/02.]
97% of Jordanians are opposed to the war on terror.
But, a majority of those in Australia, Canada, Great Britain and
Italy have a positive view of American policy; even as fewer
than half do in France, Germany and Russia, though the #’s are
all up from March.
The figures quoted in the press this week, however, are
deceiving. Worldwide, the “American people” still receive
substantial support; it’s President Bush’s policies that some
disagree with. And no one mentions the obvious. This data is
also highly volatile. Any success in the Middle East, let alone
stability in Iraq, could cause a surge in support for the President.
–Senator John Kerry can’t raid his wife’s ketchup fortune after
all in his run for the presidency, according to his reading of the
federal election laws. Why the heck did he marry her then?
–The best zinger of the week goes to President Bush and his visit
to Poland, where he praised the people for their support in Iraq,
while chastising France and Germany for belittling Poland’s role
in the New World.
–A few days after the Olympic Park bombing in 1996, I headed
down to spend 3 days at the Games. The memory I’ll always
have, aside from Michael Johnson’s spectacular performance in
the 200 (still the greatest sporting event I have witnessed in
person), is how empty Atlanta seemed. It couldn’t have been
easier getting around, for example.
But switching gears, it’s disturbing to see the amount of support
bomber Eric Rudolph appears to have, at least in western North
Carolina, and it represents another reason why domestic
terrorism will always remain a concern of law enforcement. At
least in this arena the FBI appears to have met with success in
infiltrating the extremist groups. These aren’t the brightest
Americans, after all.
–I didn’t realize what a beautiful place Evian was. Too bad it’s
in France.
–At the G-8 summit we had the now obligatory scenes of dirty,
grubby anarchists, who are nothing but a bunch of looters.
–I’ve always taken the New York Times with a grain of salt. It’s
just one of my many sources, though its op-ed page remains
required reading for those of us in this game, even if it does tend
to elevate the blood pressure. Of course it’s also never been a
secret that Howell Raines is a pompous ass.
–Speaking of pompous asses, the Clintons continue to play us all
for chumps. But Hillary will sell her book, because there is a
market among a certain segment of the population for such
drivel. Bill’s memoir, though, will be a disaster. More
importantly, Hillary will gauge the reception during her book
tour and if she survives the ridicule, I now think she’ll run in
2004. Why? Assuming New York’s economy bounces back
over the coming 24 months, Governor George Pataki would
represent a formidable foe in Hillary’s 2006 Senate race, let
alone Rudy Giuliani. In other words she could be dead,
politically, before 2008. So she may decide to roll the dice now.
–In light of the Sammy Sosa corked bat debacle, it’s necessary
to reassure you that your editor has never employed cork in
writing these missives. Nor have I popped any. It’s too early in
the morning, after all.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $364
Oil, $31.28
Returns for the week, 6/2-6/6
Dow Jones +2.4% [9062]
S&P 500 +2.5% [987]
S&P MidCap +2.0%
Russell 2000 +2.9%
Nasdaq +2.0% [1627]
Returns for the period, 1/1/03-6/6/03
Dow Jones +8.7%
S&P 500 +12.3%
S&P MidCap +12.6%
Russell 2000 +18.5%
Nasdaq +21.9%
Bulls 56.5%
Bears 20.7%…another low. [Source: Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
