[Posted 7:00 AM ET]
It’s Just a Week, but…
President Bush had a good one and at least in terms of the polls,
his slide in popularity appears to have stabilized in the mid-50s,
not bad at all considering the post-war issues in Iraq and the state
of the U.S. economy. Plus, 66% approve of the President’s
handling of the war on terror, while 58% say troops should stay
in Iraq as long as necessary. [NBC News / Wall Street Journal]
I would argue that the latter number is still soft, though the
former should remain strong because even as the administration
ties the two together, correctly, in my opinion, I’m not so sure
the people would if we suffered serious setbacks in Iraq.
Of course with all my harping on Bush’s inability to address
America in prime time, I note a Washington Post editorial from
this week that said the President had held 8 solo news
conferences vs. 61 for his father at this point in his
administration, with Wednesday’s being #9, but, again, it wasn’t
in prime time. I give up.
What does seem clear, though, is that Bush has weathered the
State of the Union issue, and most appear to believe him when he
says he’ll stay the course in both Iraq and Afghanistan, though in
the case of the latter, I guarantee 90% of Americans didn’t know
the Taliban launched 3 separate attacks this past week, killing at
least 10 Afghan soldiers and officials. In other words, the
Taliban lives, despite the administration’s rhetoric in this regard.
The President received more good news on Thursday with word
that North Korea would accept multi-lateral talks involving not
just the U.S. and China, but also Russia, South Korea and Japan.
True, we have a long, long way to go here, and the fickle North
Koreans could turn again on a dime, but what seems apparent is
that China has finally helped persuade Kim Jong Il that if he
hopes to keep his bad haircut and access to beautiful women, he
better begin to cooperate.
There is a problem with so many at the table, though, and that is
nothing gets accomplished unless the five facing Pyongyang are
all on the same page, and for those North Koreans dying in the
prison camps, the U.S. urgency to gain victory on the nuclear
weapons front could still leave them out in the cold.
Everyone knows there is no final solution without regime change
and the days of wishfully hoping that ‘we can wait them out until
the commies collapse’ are long over. North Korea already has
nukes and you’d have to be an idiot to think they aren’t currently
building more. It’s been 10 months since we first confronted
Kim and nothing has happened, except increased employment for
the orcs, slaving away deep in the mountains.
And before we go running into the streets of Washington and
New York, kissing strangers and welcoming a new era of peace
on the Korean peninsula, remember who the U.S. will be
aligning itself with in the coming discussions…China. If a
settlement can be reached, there will be a price to pay, maybe not
now, or even 5 years from now, but it’s coming. More below.
Wall Street and the Economy
President Bush also had a decent week on the economic front, as
there were increasing signs a solid recovery is in the offing,
beginning with the fact that the first estimate of growth for the
second quarter was 2.4%, not the 1.5% that was expected. Heck,
if Q2 was 2.4%, then Q3 and Q4 will easily be 3.5%+, the
experts surmised, and yours truly is two weeks away from
throwing in the towel, abandoning my own 2% 2nd half prediction.
[I need two more weeks to work on a good concession speech.]
No doubt, whether it was the Fed’s survey of regional activity,
the “beige book,” or numbers for purchasing, industrial
production, or new orders, the news was mostly encouraging.
And let’s face it, the news from Europe and Japan has also been
the best in recent months, with generally rising confidence
amidst signs of a pick-up in consumer spending. Even Argentina
is stirring, as unemployment there ticks down, a good thing.
And back in the U.S., as Treasury Secretary Snow said, this
economy is “spring-loaded,” what with the tax cuts beginning to
hit the system. Why it’s enough to make one want to go down to
the old beer cellar and whip out a 16-oz. can of Foster’s, circa
2003.
Ah, but not so fast. There’s the little issue of the bond market,
which has seen the fastest rise in yields in the U.S. Treasury
segment since May 1987 (and you know what happened 5
months later then). Remember our little troika; tax cuts, a weak
$, and historically low interest rates, all designed to ensure a
solid, long-lasting recovery? Well, two legs are now out, as the
dollar strengthened on the better economic news, while interest
rates (and housing) are no longer cooperating.
In fact, forget cooperating. Another 50 basis points (1/2%) or so
increase in the yield on the 10-year Treasury and the whole
housing sector – which you’ll recall now makes up 29% of the
U.S. economy if you add in all phases, including those folks
working on your mortgage refis – could go into free fall. At
4.50%, refinancing is already dead. At 5%, expectations for new
construction will, at best, wane.
I noted a while back that the cross-currents in the U.S. economy
were as dangerous, and unpredictable, as any in modern time.
For every reason to be optimistic I can give you another to be
scared to death. And in terms of being scared, if capital spending
doesn’t quickly assume the role of leadership that housing has
for many years, 2004’s growth story could be early history; I
don’t care what presidential election years normally foretell.
Plus we have this not so little issue of debt….at the federal, state,
municipal, and personal level, let alone the massive amounts of
leverage that have some financial institutions no doubt working
this very weekend in an attempt to make sense of it all. In other
words, we better get a recovery and bond prices need to stabilize,
soon, or we have some serious systemic problems on our hand.
Finally, on the issue of the ‘jobless recovery,’ as best exhibited
by July’s desultory employment report, just last week I wrote the
following:
“The issue of trade, along with the exporting of jobs overseas, is
about to explode in a big way and will be a major one in the 2004
presidential campaign. Whether it’s IBM’s self-acknowledged
effort to accelerate the move of a large segment of its white-
collar force to India…or the U.S. textile industry’s complaints of
dumping by Chinese producers…”
Wednesday, front page headline in the Wall Street Journal:
“Trade With China Is Heating Up As a Business and Political
Issue”
That same day, North Carolina-based Pillowtex, makers of
Cannon and Fieldcrest towels, declared Chapter 11, throwing
6,400 out on the streets with more to follow unless alternative
uses for the factories can be found. Company officials blamed
China.
This week I had my first real serious problem with a Dell
computer, and my newest one at that. So I called the tech line,
expecting to be rerouted to India. I asked the fellow, “Are you in
Bangalore?” “No, Manila.” “I was just in the Philippines, at
least for a few hours,” I told him, at which he was sincerely
excited. Unfortunately, two calls and two days later, he hadn’t
fixed the problem.
For years now, we’ve listened to economists and Alan Greenspan
talk about the great “productivity miracle” in America, as you
and I were led to believe that as computers improved efficiency,
for example, some jobs would be lost, but as profits then
increased, eventually others would be hired back.
But that’s not the full story these days. “Productivity” is also a
buzz word for simply taking the work elsewhere. To build the
widget, it may still require 5 workers, but instead of all 5 being in
Toledo, 2 may now be here and 3 in Indonesia, if American
workers are lucky.
All you’re going to hear on the campaign trail from the
Democrats is “I believe in free trade, but I also believe in fair
trade.” [In the case of Richard Gephardt and his ties to organized
labor, it won’t even include the first part.]
It’s a call that is already resonating in America. Personally, I
will always believe in free trade, and, for example, support the
agreements approved by the U.S. Senate this week for Chile and
Singapore.
But I’ve also noted for years that big business, worldwide,
doesn’t always act in their country’s best interest…forget the
shareholder angle. Yes, free trade and progress, but like many of
you are finding out all too frequently these days, I also don’t feel
like taking it up the ass.
Street Bytes
–U.S. Treasury Yields
6/13/03
6-mo. 0.84% 2-yr. 1.07% 10-yr. 3.10% 30-yr. 4.17%
8/1/03
6-mo. 1.02% 2-yr. 1.81% 10-yr. 4.42% 30-yr. 5.34%
Yikes! The 10-year actually traded at 4.57% Friday morning and
remember, in the bond market speed kills. I warned you all
weeks ago on the dangers in this arena, particularly for those
owning bond funds. Hopefully, you took my advice to at least
re-examine your holdings. If you didn’t, and don’t understand
why your fund’s net asset value suddenly cratered, don’t write
me, call your advisor.
I would add, however, that in the case of some closed-end
offerings, the bloodbath may have created a few opportunities.
Look for those with deep discounts to NAV, both on the
corporate and muni side, as long as you understand there are still
huge risks out there.
–Just when you thought you had seen it all on the corporate
governance front, we had a flurry of news from WorldCom, now
MCI. First, to give one example, the Justice Department is
investigating charges that the company was improperly rerouting
long-distance calls through Canada, in an attempt to evade
paying local access fees; they’d thus look like foreign calls, not
subject to the charge. Of course, if true, this could drastically
impact MCI’s ability to emerge as a strong competitor of AT&T
and Verizon, to name a few. And then on Thursday the
government slammed MCI with a ban on bidding for future
contracts, another move severely impacting the company’s
future.
Separately, MCI’s new woes were AT&T’s gain, while in the
case of Verizon it faces the potential for a massive strike this
weekend.
–Speaking of corporate governance, the SEC settled with
Citigroup and J.P. Morgan Chase for $300 million for the
companies’ roles in helping Enron to perpetrate a fraud (mainly
by disguising debt as sales). Of course while we’re happy to see
the banks get their heads slammed into the pavement, and to
have the great Sandy Weill’s legacy tarnished further, it’s
despicable that not one criminal charge was levied against an
individual at either firm. Yes, if you were naïve and thought the
Street was going to truly mend its ways, you are sadly mistaken.
Until Bubba is doing his thing to these crooks in a state
penitentiary, nothing will really change.
As for Enron, the Washington Post reported that years ago Janet
Reno’s Justice Department didn’t follow-up on an IRS criminal
referral concerning Enron’s bribes to Guatemala’s president.
–But wait, there’s more. Crain’s New York Business reminded
us that, yes, Wall Street’s crooks keep coming back, like a bad
dream, witness former Drexel Burnham chief Fred Joseph and
Salomon Brothers’ John Gutfreund. They are supposed to be
banned from ever running another Street operation, but it appears
they are effectively skirting the rules by maintaining “senior
executive” type titles with the two companies they are presently
involved with.
–Energy: OPEC opted to maintain current production targets for
another two months until it weighs Iraq’s progress in returning to
the export market, while demand itself is perking up as the global
economy rallies. Meanwhile, the U.S. Senate and House now
must reconcile their respective energy packages, but since we
have a long way to go in this regard, further comment will be
deferred.
–Officials in Britain are scared to death about the country’s own
soaring consumer debt levels, which now stand at record levels.
–The financial services industry, including the commercial
banks, has to have taken a huge hit in the fixed-income markets,
as I hinted at earlier. For the past year or so, Wall Street’s
investment banks, to give but one example, consistently beat
earnings estimates thanks to both cost-cutting and improved
profits from their bond operations, even as retail and M&A
activity dried up. That trend is in the process of reversing in a
big way, and Friday’s market action in the sector began to reflect
the sudden, new reality.
–Lord & Taylor is closing 1/3 of its stores, while laying off
3,700.
–A judge ruled IBM had violated age discrimination laws,
adversely impacting pension benefits for older workers. The
change in plan type, which many other corporations have also
adopted, helped earnings.
–The president of G.E.’s jet engine division said he sees no
recovery in his sector until 2006 or 2007.
–McDonald’s reported that U.S. sales rebounded at the best pace
in 5 years, due to fresher meat and the ability of company
officials to protect the fields of lettuce from rabbits.
–I have refused to cover the story of Vivendi and its attempt to
sell off its Universal U.S. entertainment assets (such as Universal
Studios), because, as MGM said in its own decision to pull out
of the bidding process, ‘Frankly, Scarlet, I don’t give a damn.’
–My portfolio: Still 15% equities, 85% cash….no bonds.
International Affairs
China / Taiwan: The Pentagon now claims that China has 450
short-range missiles targeting Taiwan, while it is producing at
least 75 more a year. Plus, China now has medium-range
missiles capable of taking out U.S. interests as far away as
Okinawa. [And, of course, it also has nukes that could take out
San Francisco, or Seattle if the guidance system is faulty.]
Going back years now, I have argued in this space that all China
had to do was hit Taiwan’s defense systems and airstrips with an
initial volley and then sue for peace. An actual invasion is
unnecessary. Beijing would thus count on Taipei buckling under
the pressure, as the people would fear total devastation, which
would lead to Taiwan’s acceptance of “One China, one system.”
What would the U.S. do? It all depends on who is leading the
nation at the time, which is why I’m frustrated when I hear,
accurate as it may be, that “it’s the economy, stupid,” each
presidential election cycle. No, these days it’s more about
security and world affairs. My fear has always been that at some
point the American electorate will turn soft (say in 2008) and
elect a president with a purely domestic agenda. China, then,
would take advantage of this, though in the above example, we
do have the 2008 Olympics in Beijing, so one would assume
nothing could happen beforehand.
My other counter to those who say, well, China would never seek
to overthrow Taiwan militarily because the world would then
isolate it economically is that with much of the developed
world’s production capacity already over there, the Chinese
government may deem it a risk worth taking. The world would
have no choice but to continue to trade with them.
Farfetched? Possibly. Inconceivable? No way.
China / Hong Kong: Chief Executive Tung Chee-hwa met with
pro-democracy legislators in what at first appeared to be a
conciliatory gesture, but then he set no timetable for further
discussions on the anti-subversion legislation, Article 23. Tung
is taking solace from his support back in Beijing, but the issue
will undoubtedly bubble anew within the next month or so.
Israel: Prime Minister Sharon came to Washington and promptly
stuck it to President Bush in saying Israel would proceed with the
building of its security fence, whether the administration wanted
it to or not. On the other hand, Sharon is freeing up to 100
Hamas and Islamic Jihad terrorists as a goodwill gesture to
Palestinian Prime Minister Abbas, even though Abbas has done
nothing to roll up the militants per the ‘road map.’ So, with the
score basically even, depending on which side you’re on, Sharon
then grabbed back the advantage in approving expansion of a
large existing settlement in Gaza, again, ridiculing the peace
process.
In other words, President Bush is looking increasingly foolish,
but as his reelection fast approaches, and as both Democrats and
Republicans vie for the Jewish vote, don’t look for Bush to tell
Sharon, “Stop the freakin’ settlements!” Nope, ain’t gonna
happen. Meanwhile, I’m afraid the relative period of peace in
the region is about to end.
Liberia: This may be the lead story for me next Saturday,
assuming West African and U.S. forces begin to move in as
expected this week.
Saudi Arabia: The Kingdom was infuriated over the blanked-out
pages in the 9/11 report, claiming it was “indicted by
insinuation.” But President Bush refused to declassify the
sections in question.
Both sides have issues in this regard. There is no doubt that
Saudi Ambassador Prince Bandar’s wife, for one, had at best
indirect ties to some of the hijackers, even if one level removed,
and as the New York Times reports there could also have been
two other Saudis with ties to the intelligence apparatus that have
some link as well, while for its part the Bush administration
seems intent on hiding its own embarrassing connections to the
Kingdom, going back to Bush #41.
As for the here and now, the Saudis finally admitted that some al
Qaeda have received training in the country and six suspected
terrorists were killed in a shootout.
Russia: At first, the Kremlin said it was looking to defuse the
crisis over energy giant Yukos, but then Platon Lebedev, the
large shareholder who had been held for weeks, was finally
charged with tax evasion. For his part, President Putin
recognizes that investors are fleeing his country due to the
tremendous uncertainty, but he seems to lack control over some
in his security apparatus who want a share of the oligarchs’ pie.
So, it’s a good time for my bi-weekly reminder, boys and girls.
All together now……….
“Corruption makes the world go ‘round.”
Meanwhile, Putin also continues to have his hands full on the
Chechen terror front, as a bomb blast on the border killed 35.
Philippines: President Arroyo now admits that last weekend’s
mutiny by 300 junior officers and troops was really a coup
attempt. Arroyo handled the tense situation well and no shots
were fired, but afterwards it was discovered that former President
Estrada was probably behind the uprising. Given the country’s
history, none of this is surprising and it’s another reminder just
how fragile democracy is here. It’s also imperative, as far as the
U.S. and the war on terror is concerned, that Arroyo survive.
Indonesia: Well whaddya know? President Megawati, whom
I’ve ridiculed in the past, gave a speech where she blasted the
“blind fanaticism of Muslim militants,” labeling them a
“terrifying threat.” While this may seem like an obvious
admission to some of you, it is significant coming from the
leader of the world’s largest Muslim nation. Megawati also
deserves credit for her government’s recent success on the terror
front, which benefits us all.
Britain: The crisis enveloping Prime Minister Blair’s leadership
deepened as the inquiry into weapons expert David Kelly’s death
will expand to include testimony from Blair’s defense secretary,
his communications chief, and Blair himself. The leader of the
commission, Lord Hutton, will also be grilling the BBC and its
reporter Andrew Gilligan, the real demon in this whole mess.
Alas, Blair is now off on holiday, singing, “See youuuu….in
Sep-temmmm-berrr….”
Burma: What a joke. Just like in Zimbabwe, the world is
ineffectual in dealing with a band of thugs. In the case of Burma,
the goons said that Aung San Suu Kyi would be released from
detention by October once her “case” is wrapped up. What case?
She never should have been imprisoned in the first place! In
fact, she should have assumed the presidency years ago
following the election that the druggies then ruled invalid.
Turkey: Parliament has been busy, approving bills designed to
ingratiate itself with the European Union, including legislation
that curtails the powers of the military. Of course the generals
won’t like this, so look for a coup in, oh, about 4 months.
Random Musings
–If the talks with North Korea do come off, and Kim Jong Il
happens to make a personal appearance, I hope the U.S.
representative will go to his other 4 counterparts at the table…
“Grab him!!……..Gotcha, you little @#$%.”
–I recognize that Donna Walker – the woman who perpetrated
the hoax on the Sherrill family, claiming she was their missing
daughter – is probably mentally ill, but in all sincerity, I see zero
reason for this woman to be allowed to live. No one should be
able to ever do something like this to a fellow human being. My
God can’t possibly forgive her.
–Yes, the Defense Department’s proposal to operate a “terror
futures” market was one of the dumbest ideas since, oh, New
Coke.
–Jeb Stuart Magruder, former aide to Richard Nixon, now says
that Nixon personally ordered the break-in at Democratic
National Committee headquarters, not that this really changes
anything on the heels of all we have learned over the past few
years, though with regards to Nixon, overall, I remain in his
“Silent Majority.”
–WIR 6/28/03: “The result of the (Supreme) Court’s ruling (on
the Texas anti-sodomy statute) will be a new militancy on the
part of Gay activists that promises to divide America more than
ever on this issue…”
Well, whether fierce division is the true end result remains to be
seen, but no doubt the issue of same-sex marriage is in the
forefront of discussion in America, let alone other gay platforms.
As every pundit and news program has already said this week,
we are being inundated with the stuff, as exemplified by the New
York Times headline the other day, “Gay-Themed TV Gains a
Wider Audience.”
And there were all manner of polls the past few days, ranging
from a USA Today / CNN survey that revealed the country is
split 50/50 on making same-sex relations legal, but 57-40
opposed to actual civil unions. While in New Jersey, a Star-
Ledger poll said that residents ‘approved’ gay marriages by a 55-
41 margin. [I have trouble believing this last one.]
And as you all know by now, New York City is spending $3
million to expand a high school that heretofore no more than 200
people knew was catering to gay students, though this institution
is not just for gays, it’s also for bisexuals and “transgender”
students. [Every time I see this last word I have to double-check
my Webster’s. ‘What the heck is that again?’]
Of course what upsets those of us in the New York area who are
aware of the City’s budget crisis is the fact that $3 million is
being spent on this project at the same time firehouses are closed.
Proponents counter that students need a haven from bullies, to
which one councilman said, so let’s spend the $3 million on
security and anti-violence programs.
–California’s recall process is just beginning to heat up.
Arnold’s evidently out, Riordan (good choice) is in, but Feinstein
lurks in the weeds, which come to think of it is what the state
will resemble regardless of who wins; a field of weeds.
–Just a few statistics on the growing U.S. prison population.
10.4% of black men in the 25-29 age group are incarcerated,
1.2% of whites. And violent crime, not drug offenses, is
responsible for 64% of the increase in the # of men, overall, in
state prison from 1995 to 2001. Louisiana has the highest
incarceration rate, 794 per 100,000 residents, Maine and
Minnesota the lowest. Actually, these latter two states also have
the most moose. This “exclusive” random musing may require
further…….musing.
–So I’m channel-surfing the other night, getting in touch with
the latest my Comcast network has added, when I come across
two alternatives for Kobe Bryant and his recent $4 million
purchase of a diamond ring for wife Vanessa. First, Home
Shopping Network had a “Diamond cut, Riccio Bracelet,
Technibond!” for only $42.90, including shipping & handling.
But if Kobe wanted to go a bit more upscale, we had an offering
on the Gemstone Shopping Network, “Cobalt Blue Tanzanite,”
for only $5,500. Either way, a huge savings, I think you’d agree.
[As an aside, I had no clue there was a Gemstone Shopping
Network and the guy running it was ranting and raving about
how all the talk of “blood diamonds” is false, in essence
defending the likes of Liberia’s Charles Taylor and al Qaeda.
Someone arrest this a-hole.]
–Admit it; you’d love to have Dr. Greg Forbes, Severe Weather
Expert for the Weather Channel, at your next party.
–Everything that can be said about Bob Hope already has.
Personally, I loved the man. I just hope our young people, as
well as future generations, learn to appreciate what a great patriot
he was. I was watching a CNN program the day of the
announcement of his passing and the anchor asked Vice
Chairman of the Joint Chiefs of Staff Peter Pace if there is
anyone today who comes close to equaling Hope? Pace: “There
is no one.” And at least in my remaining years, there never will
be.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $347…huge slide Friday.
Oil, $32.31…up $1.77 the same day.
Returns for the week 7/28-8/1
Dow Jones -1.4% [9153]
S&P 500 -1.9% [980…continuation of the tight range.]
S&P MidCap -0.4%
Russell 2000 -0.2%
Nasdaq -0.9% [1715]
Returns for the period 1/1/03-8/1/03
Dow Jones +9.7%
S&P 500 +11.4%
S&P MidCap +14.4%
Russell 2000 +22.2%
Nasdaq +28.5%
Bulls 56.5
Bears 19.6 [Source: Investors Intelligence / Chartcraft]
Note: I’m off to Detroit this week. Every few years I seek out
the world’s worst baseball team for a few games, and this year, at
28-78, it’s not even close. Tigers fever….catch it!
Have a great week. I appreciate your support.
Brian Trumbore
