[Posted 7:00 AM ET]
Wall Street
With a few notable exceptions there was little news this week,
but what there was proved to be rather important and not
necessarily joyful with the elevation of the terror alert, which for
once revealed specific threats, and Tuesday’s thunderbolt that the
United States has its first documented case of mad cow disease.
As for the second event, here’s what we know. The American
beef industry is a $50 billion one, but when you add up all the
tangential activity it equates to $180 billion, a sizable figure in an
overall $11 trillion economy. Yet already you’re seeing a fairly
lackadaisical response on the part of the American consumer and
I, for one, can’t see changing my own personal eating habits until
I hear of more herds being impacted.
But while ‘only’ 140 humans have died in Great Britain as a
result of their own extensive experience with this disease, it’s the
horrible nature of it that is so scary. There is nothing worse, by
all accounts, and it was just last week, coincidentally, that I
chose to bring up the story of Britain and the considerable threat
posed to those who may have received tainted blood transfusions
going back to 1996.
For now, other nations are taking the appropriate steps in
temporarily banning U.S. beef and Washington has no right to
tell others what to do before it can creditably prove the case is
isolated, particularly after we correctly banned Canadian beef
following that country’s own lone case last May.
The U.S. exports $3.5 billion in beef products (2nd behind
Australia); $1.2 billion of which goes to Japan, with about $700
million each to Mexico and South Korea. It also needs to be
noted that despite what our government tells us, safeguards
against mad cow in this country are minimal. Better than most
other nations? Perhaps, but that’s not necessarily saying a lot
when the whole food inspection game itself is rife with
corruption and dirty-dealing.
On to the overall economic front, just a little news here and it
wasn’t that great for once with durable goods orders (big ticket
items) falling unexpectedly in November and new home sales
continuing to trend down, though from record levels. The big
issue is retail and the possibility Christmas sales came in below
the 5.7% increase initially projected (they were up 2.2% in
2002). Certainly Wal-Mart’s less than stellar performance
doesn’t bode well when all the numbers are added up following
the post-Christmas crush, though luxury goods makers are
actually doing better than expected. But then that’s an example
of the growing disparity between the rich and poor in this
country, mused the Democratic presidential candidates’
spinmeisters. And there is a bit of truth in this.
Finally, I’ll leave you with a preview of next week’s far more
extensive commentary. 2003 was all about exceeding
expectations. 2004 will be about falling short, particularly in the
second half.
Street Bytes
–Both the Dow Jones and S&P 500 rallied for a 5th straight
week, though gains were muted, with the Dow tacking on 46
points, 0.5%, to close at another 19-month high, 10324, while the
S&P 500 added 0.7% to 1095. Nasdaq picked up 1.1% (its 4th
gain in 5). Volume was pitiful.
–U.S. Treasury Yields
6-mo. 0.98% 2-yr. 1.80% 10-yr. 4.15% 30-yr. 4.97%
Basically unchanged. Bond traders did their last-minute
shopping earlier in the week and most slept in on Friday.
–After my comments of last week, expressing disappointment in
New York Stock Exchange Chairman John Reed for his failure
to release to the public the report on former honcho Dick
Grasso’s pay package, it turns out that Reed may actually go one
step further and sue the NYSE board for granting Grasso the
outrageously excessive compensation in the first place. One
thing I also learned that I find rather amazing is the fact that
Reed has never met Grasso. Which means that Reed is clean,
not having come in physical contact with Dirty Dick.
Meanwhile, I was listening to the Imus program and he
mentioned that Grasso had given the Imus ranch (for kids with
cancer) a check for $350,000! What a great guy, we are led to
believe. But, oh, you dear readers know better than to fall for
this crap. Yup, another case of hiding behind one’s charity. And
not to come off as insensitive, but that $350,000 could do a
helluva lot more good in other areas than in the relatively few
lives Imus touches through his good work. Then again, Grasso
wouldn’t be receiving the great PR Imus gives him on a
nationally syndicated program.
And so this is an appropriate lead-in to our 2003 “Corporate
Sleazeball of the Year” award. Instituted in 2001, it was first
granted to the executive board of Enron. Last year, I awarded it
to all Wall Street chieftains, as best personified by Citigroup’s
Sandy Weill and Morgan Stanley’s Philip Purcell.
But this year it’s a lay-up…Dick Grasso…and I have to gloat
once again because it was yours truly who nailed this guy way
back in the days after 9/11, when the rest of America was singing
his praises. This was no national hero, as the facts are now
bearing out, certainly not more so than even the phone repairmen
who miraculously spliced the lines back together in time to
reopen the Exchange.
And Grasso is such a sleazeball (reminder: “dirtballs” often kill
people; “sleazeballs” are creeps who pay themselves outsized
sums, often illegally, while hiding behind charitable donations)
that after much internal debate, and taking into account the
advice of readers, I nonetheless have to formally name the trophy
the “Dick Grasso Sleazeball of the Year Award.” When the New
York Stock Exchange is finally turned into a museum of
financial history (as I long suggested, allowing the current one on
Broadway to move into larger quarters), a wax likeness of Grasso
will greet visitors, thus helping teach generations of future
investors, as well as foreign tourists, the true tale of this
despicable charlatan.
–Here’s a thought for the future, thinking outside the box, that
you won’t find anywhere else. After North Korea collapses,
either from within (preferred) or through outside interference
(deadly force), it will become the new hotbed for outsourcing as
companies realize they can have the same cheap labor here as
they do in China, only the North Koreans will be paid 2 cents an
hour versus the $0.50-$1.00 common in many industries in
China. This, of course, would have severe ramifications for the
Chinese economy, causing massive unrest, so China would then
have to invade North Korea to set things straight. It’s just that
simple.
–Reader John K. tells me that the IRS processing center out on
Holtsville, Long Island (many of you recognize that address) is
shutting down shortly, thereby throwing 1,700 workers out on
the street. Over the coming two years, John reports the IRS will
be closing all but 2 of 10 facilities due to the growing number
who are filing electronically. Just another sign of the times.
–The massive fraud perpetrated by the Italian dairy giant,
Parmalat, is now estimated to be upwards of $11 billion and
investigators now believe it went on for 15 years. Staggering.
Then again, the cows were always killed off before they could
tell anyone.
Anyway, no one should truly be surprised after the raft of
disclosures of similar wrongdoing in the U.S. Corruption and
fraud make the world go ‘round, as we like to say in this space.
No single individual is untouched by it, whether it’s American
investors, Asians beset by crony-capitalism, European
commissioners lining their pockets, or African villagers not
getting the clean water and good roads they need because some
tinhorn dictator is going to Paris on shopping excursions. As the
Martians who are holding Beagle 2 hostage know, Planet Earth is
dirty.
–Speaking of dirty, Freddie Mac now admits to manipulating
earnings going back over 10 years and the New York Post’s
Christopher Byron notes, the independent investigation paints “a
lurid picture of an out-of-control, rudderless company careening
through the stock market with no one responsible for anything
except to show the relentless upward surge of earnings whether
they were rising or not.”
–Emerging market equity funds saw the largest inflows ever for
the group in 2003, exceeding the previous best of 1996; ergo,
right before Asian markets suffered their meltdown in 1997-98.
If you want to draw parallels, just keep your eye on China. Not
that I expect it to happen in 2004, but when the bubble finally
bursts here, the rest of the region collapses.
–Back to dirty Wall Street, CIBC was fined a cool $80 million
by the SEC for its role in helping Enron manipulate earnings
through the creation of phony partnerships. Significantly, CIBC
accepted responsibility for the “criminal conduct of its
employees.” But how many will go to jail? Probably no one.
CIBC nonetheless joins an illustrious group that also includes
Citigroup, J.P. Morgan Chase, and Merrill Lynch, which together
have now paid fines totaling $460 million in just this one case.
Of course for the firms involved it amounts to about a week’s
profits…that’s all.
–In a true display of hypocrisy, two former mutual fund
executives, Jon Fossel (Oppenheimer Funds) and Don Powell
(Van Kampen) are pushing for industry reforms, such as reduced
fees and more improved disclosure. These guys raked it in
themselves in the 1990s and now they’re going to tell us what the
industry needs to do? For his part, Fossel always saw himself as
gubernatorial material, so I’m not surprised he is hopping on this
bandwagon…in an attempt to get some shred of publicity.
Shameless.
–Mutual fund market timer / hedge fund operator Dan Calugar
may have made $175 million off his illegal late-trading of funds
primarily in the Alliance and MFS families (the former being
most culpable). Calugar and his co-conspirators tampered with
the trade tickets to reflect 3:59 PM ET when the transactions
actually took place up to two hours after the market close, and
after some important company specific information had become
available.
–Raymond James Financial admitted it had taken in at least $6.9
million more in commissions than it was entitled to by not
applying the appropriate breakpoints on front-end A shares.
Shareholders are being reimbursed.
–Shares in Research in Motion, makers of the BlackBerry
wireless devices, soared 50% after the company raised earnings
guidance. But they now go for $68 and earnings estimates for
the year ending 2/05 are all over the map…$0.55-$2.07. You
make the call.
–Here’s some good news. Argentina’s GDP is expected to have
grown at a solid 7% clip in 2003, with 5%+ projected for ’04.
The country deserves this and more, having suffered through its
gut-wrenching depression.
–The IPO market is finally beginning to stir, after a truly
desultory 3-year period. Check out this data from Thomson
Financial and Barron’s.
2001 – 97 total IPOs
2002 – 86
2003 – 73 (though the lion’s share was in the 4th quarter)
Now contrast this with the period 1991-2000, when the yearly
figures ranged from 365 to 864 (’96). So if you personally
thought we were headed back to even the 300 level, that
obviously bodes well for brokerage stocks. Of course if you then
purchased same you’d have to wash your hands, because they’re
dirty.
–My portfolio: I’ll share all my mistakes for 2003 next week.
For now, why the hell didn’t I buy China Life at around $23 in
the aftermarket? It’s $32 one week later.
–Next week, 2004…if you keep it where it is.
International Affairs
Pakistan: President Musharraf survived a second assassination
attempt in 11 days as two suicide bombers attacked his
motorcade. At least 12 bystanders were killed. The security
system surrounding Musharraf has collapsed and it’s only a
matter of time before he meets his end. The extremists in the
country have never forgiven him for his support of the U.S. in
Afghanistan.
In turn, Musharraf is pulling out his last stops, including the
promise to step down from the top military post by yearend
2004, while keeping his presidential slot until 2007. But this
compromise didn’t upset the plans of those who tried to kill him
the day after the announcement.
The army here is peopled with Wahhabists and we need to be
reminded that it also controls the 50 or so nuclear weapons
that the nation possesses. And it’s the same Wahhabists who
obviously won’t allow Musharraf to launch a final assault to
capture Osama bin Laden.
Iran: This is another good example of the tightrope that
Musharraf has been walking as incontrovertible evidence
emerges that Pakistan’s scientists have been directly involved in
speeding Tehran’s progress on the nuclear weapons front. As
I’ve noted countless times in the past, we will not get through
2004 without one of two things happening here. Either the U.S.
and Europe reach a more far-ranging agreement with Iran than
already exists to speed the day when the mullahs dismantle their
nuclear program or, more likely, Israel will feel compelled to
take out suspected nuclear facilities before it’s too late.
Libya: It has been a week now since Colonel Muammar
Qaddafi’s pledge to dismantle his weapons of mass destruction,
while submitting to intense international inspections. Both the
CIA and Britain’s MI6 deserve a ton of credit here, as well as
those diplomats involved. Qaddafi will meet with President
Bush and British Prime Minister Tony Blair sometime over the
coming months on neutral territory, though in the interim Bush is
correctly keeping the economic sanctions against Libya in place
until there is hard proof Qaddafi is complying with the
agreement. I just hope Bush refrains from excessive praise for
the man, not only in deference to the families of the victims of
Flight 103, but also because he has to remember we’re still
dealing with a terrorist.
That said, we all must hope the Libyan model of disarmament is
followed by the likes of Syria, Iran, and North Korea, but while
I’m increasingly optimistic Syria will cave under intense U.S.
and European pressure sometime in ‘04, I certainly don’t as yet
see as much cause for optimism regarding the other two. Plus,
you also now have a situation where the Arab community will
increasing apply heat on Israel to dismantle its own programs,
which of course is a non-starter but could elicit even further anti-
Israeli sentiment.
Iraq: In the two weeks since the U.S. captured Saddam Hussein,
the coalition is seeing increased cooperation from the locals and
you have to be optimistic, despite the week’s casualties, that
progress is being made against the insurgency.
But with the turn of the calendar to 2004 the U.S. has but 6
months to oversee sweeping political change thanks to its self-
imposed deadline of July 1st when the Iraqi people themselves
become the governing authority. Unfortunately, there are
absolutely no guarantees the transition will go even remotely
well. What we do know is that given the differences between the
Sunnis and Shiites, let alone the nature of today’s Islam, it’s not
likely a Vaclav Havel type figure will emerge. Just as long as
it’s not a theocracy.
Then there is the issue of how the Bush administration is treating
its friends. I railed a few weeks back how Washington took over
6 months to bring the British into the post-war contracts process,
which was disgraceful, and now it’s apparent Poland is getting
stiffed, big time, despite its own significant troop contribution.
As Ralph Peters pointed out in a New York Post op-ed piece,
what’s particularly galling is the fact Poland recently bought 48
F-16s from Lockheed (rather than a European alternative) for a
cool $3 billion and for this loyalty Poland gets screwed. Then
again, these good people are used to it.
I agued long before the war even started that the United States
shouldn’t give a damn about how the spoils in Iraq, and
hopefully later Iran et al, are divvied up. You and I as
Americans should only care about winning the war, not whether
Halliburton gets to add $0.20 to its quarterly earnings. And you
can’t win without at least cooperation on the intelligence front
from both staunch allies, as well as pseudo ones such as Russia
and China.
It’s a similar situation with the issue of military pay in Iraq. If
Saddam hadn’t been captured when he was this would have been
a big story, that being the huge number of recruits already
leaving the Iraqi army because they were being paid $60 a
month. That’s also $60 a month to get shot at by insurgents.
For crying out loud, the American people are smart enough to
understand this part of the cost of reconstruction, so pay these
guys! [At last word the pot has finally been sweetened a bit.]
Finally, as many of you have addressed me, we’ll probably wish
that American soldier had actually tossed the grenade into
Saddam’s spider-hole when he had the chance. No one, not just
from France and Germany, but also including the U.S., is going
to like what Saddam has to say when he’s brought to trial. More
than a few red faces in some of the world’s corporate
boardrooms, I suspect.
China: Happy 110th birthday to Chairman Mao! At least the
Communist Party apparatus did all it could to acknowledge
Friday’s anniversary, and as the nation celebrated you also saw
an example of the two China’s now emerging; one of growing
capitalism, the other stressing fervent nationalism.
This week parliament approved a constitutional amendment to
protect private property, a significant, positive step. Heretofore,
you have to appreciate the risks entrepreneurs took here without
this safeguard. China also responded to President Bush’s
removal of U.S. steel tariffs by scaling back its own that had
been levied in retaliation.
But when it comes to the growing nationalism, especially among
China’s young people, the New York Times’ Nicholas Kristof
wrote in an op-ed:
“The rising nationalism warps Chinese decision-making and
risks conflicts with Japan, (for example), or miscalculations over
Taiwan.”
The leadership is promoting this nationalist glue to hold the
country together as the communist ideology dissolves. 1930s
Japan and Germany stand out as reminders of the dangers.
Separately, the horrific natural gas explosion, precipitated by a
drilling operation, has claimed 200 lives at last report and is a
further reminder of just how dangerous it is to work, and live,
in this country. For the period January through September,
10,000 a month were killed in work-related accidents.
Russia: I hope you took notice that Russia deployed new super-
duper nukes this week, in a long overdue move to modernize its
force. Which means that the generals who so loathe the U.S.
now have a more accurate toy to threaten Americans with at the
appropriate time. Meanwhile, former Yukos chairman Mikhail
Khodorkovsky, in prison since October 25, must now remain
until March 25, at the earliest, or conveniently after the March
presidential election. Khodorkovsky, who still doesn’t know the
exact nature of the charges against him, saw his fate determined
in a closed hearing, of course. The next day, President Vladimir
Putin warned the other oligarchs they could be next, which goes
against his October statement that Khodorkovsky’s arrest was an
isolated incident.
And if you saw the story that a joint U.S.-Russian task force
spirited out highly enriched uranium from a Bulgarian reactor
(with Bulgarian approval), don’t get your hopes up too much.
Not only was the potential bomb material moved to Russia for
“safekeeping,” but such cooperative efforts do zippo to address
the existing chemical and biological stockpiles in Russia that
were to be destroyed under agreements such as Nunn-Lugar.
North Korea: The U.S., Japan and South Korea will be meeting
this coming week in an effort to jumpstart talks, but a legitimate
question these days is, does Pyongyang want to wait until after
the U.S. presidential election in order to get a better deal? This
would also mean that by stalling Kim Jong-Il’s Orcs would have
an opportunity to produce another 3-4 nuclear bombs, thus
giving the North even more leverage. It’s also worth reminding
everyone that the U.S. and South Korea would probably receive
no more than 2 days notice of a North Korean preemptive strike
of their own, such is the existing positioning of their forces. I
can’t imagine the earthquake in the financial markets worldwide
that would occur should a headline like this flash, “U.S. suspects
North Korea is preparing to attack.” Just one reason why your
editor always sleeps with one eye open.
Afghanistan: Finally, the U.S. announced it will set up new bases
where the Taliban has been conducting operations. This should
have been done long ago, in coordination with our NATO allies
already there.
Turkey: Defense News reports that the tension before the
Islamist government of Prime Minister Erdogan and the military
is escalating in the wake of the Istanbul bombings because
Erdogan refuses to use the words “Islam” and “terror” together in
the same sentence. The generals say he is only encouraging
terrorists and I would venture should Turkey be hit with another
wave, Erdogan could be deposed, though the government
announced on Friday it had crippled the al Qaeda cell responsible
for the attacks.
Egypt: In a true sign of the times, Egypt’s foreign minister was
attacked by Palestinians at Jerusalem’s al-Aqsa Mosque for his
efforts to further negotiations between the Israelis and
Palestinians; another mission for peace gone bad.
Random Musings
–Dirtball of the Year: Zimbabwe’s Robert Mugabe captured the
title in 2000 and 2002, Osama bin Laden in 2001. And for
2003, we have co-winners…Saddam Hussein and bin Laden.
Nothing more needs to be said, except we pray bin Laden doesn’t
ever become a 3-time winner.
–Man of the Year: The first year I adopted this category was
2001 and it went to President Bush. But in 2002 I opted not to
hand it out to anyone, citing “unfinished business in Iraq.” This
year I’m doing something different, but to set it up I need to take
Time magazine to task for its pick of the American military as
People of the Year. “What?” you might be thinking. Why
would I, a huge supporter of the U.S. armed forces, specifically
the grunts, not fail to see the virtue in recognizing them for their
spectacular service to both America and the world, even if the
latter doesn’t always appreciate it? Because, first, I honor them
every week, and second, this is their job and I suspect if they
were surveyed on Time’s selection they would say something
like, “Of course we’re honored and humbled, but it’s the
commander in chief who deserves it.”
Thankfully, in a democracy the military does not act without the
approval of a civilian leadership, elected by the people, and it’s
this check and balance on power that has held many of us in
good stead for a long time.
But it’s only truly successful with an enlightened leadership and
President Bush now deserves the award I hoped to hand him a
year ago. Yet as much as America has taken the lead, I know
that most of you would agree that the contributions and political
support of many other leading nations was especially important
in those days leading up to actual conflict. Each one of these
leaders, such as Spain’s Aznar, Poland’s Kwasniewski and
Italy’s Berlusconi faced stiff opposition on the home front and
each was a profile in courage in their own right.
But I can’t name 5 or 6 individuals without this becoming
something of a farce, while also acknowledging further
contributions in Iraq from the likes of the Netherlands, South
Korea and Ukraine. So with deep respect 2003’s “Men of the
Year” are President Bush, British Prime Minister Tony Blair, and
Australian Prime Minister John Howard for their soaring
leadership.
–At the start of the war this spring, I quoted Alexis de
Tocqueville. 9 months later, it bears repeating.
“America is great because she is good, and if America ceases to
be good, America will cease to be great.”
–The following is from Princeton professor Michael Scott Doran
and an op-ed in the International Herald Tribune.
“Wahhabism is the foundation of an entire political system, and
everyone with a stake in the status quo can be expected to rally
around it when push comes to shove. The United States has no
choice but to press hard for democratic reforms in both Iraq and
Saudi Arabia. But the very attempt to create more liberal
political orders will set off new disputes, which will inevitably
generate anti-American feelings. As Washington struggles to
promote democracy in the Middle East, therefore, it will find
once again that its closest Arab ally is also one of its most bitter
enemies.”
–While the polls are now pointing to a solid Bush victory in
2004, with approval of his handling of the economy up to 55%
from 46% (ABC News / Washington Post), and with Bush
defeating Howard Dean in a match-up, 55% to 37%, you still
have the 46 / 46 dead heat when voters are asked if Bush should
be re-elected? [Newsweek] In other words, Republicans can’t
afford to take anything for granted.
–As for the Democratic field, here were Newsweek’s latest
findings among potential Democratic voters.
Dean 26%, Clark 15%, Sharpton 7%, Lieberman 7%…Edwards,
Gephardt, and Kerry all below 7. Incredible. Al Sharpton at
7%?! I pity Gephardt in particular. 30 or so years of
distinguished service (whether you agree or disagree with him is
not important) and a freakin’ charlatan who ought to be in jail is
beating him. These voters are absolutely nuts.
–A New York Times / CBS News survey revealed that by a
55 / 40 margin, Americans favor a constitutional amendment
allowing marriage only between a man and woman.
–Not a good time to be a chicken, goose or duck in South Korea.
Thanks to the bird flu outbreak, the toll is now up to 2.5 million,
slaughtered, to prevent the disease from spreading to the human
population.
–Los Angeles Police Chief William Bratton is a flamboyant
sonuvagun who also gets results wherever he goes. Now it
appears the murder rate in L.A. will be down about 25% in his
first full year. Good for him, good for the people.
–Boy, Al Gore has done a great job with Albert III, hasn’t he?
And sorry, sports fans, but I don’t feel sorry for either parent or
child in this instance.
–Johnny Mac and I were talking about the Texas A&M
researchers who have now cloned a deer. “Oh yeah,” J. Mac
mused, “there’s something in short supply.”
–Which leads me to our last yearend award, “Animal of the
Year.” In 2001 it was rescue dogs for their work at the sites of
the terrorist attacks and last year I selected dolphins because of
their work with the Navy in protecting our interests in the
harbors and on the seas. But later we learned the dolphins fell
down on the job, so to speak. Others went AWOL.
I was going to have a tough time with a selection this year, but
unfortunately the earthquake struck in Iran. Soon we will see the
pictures of crews and their dogs being flown in and man’s best
friend will once again perform heroically.
—
God bless the men and women of our armed forces. Lord protect
them.
God bless America.
—
Gold closed at $412
Oil, $32.86
Returns for the week 12/22-12/26
Dow Jones +0.5% [10324]
S&P 500 +0.7% [1095]
S&P MidCap +0.8%
Russell 2000 +1.5%
Nasdaq +1.1% [1973]
Returns for the period 1/1/03-12/26/03
Dow Jones +23.8%
S&P 500 +24.6%
S&P MidCap +33.2%
Russell 2000 +44.9%
Nasdaq +47.7%
Bulls 58.3
Bears 19.4 [Source: Chartcraft / Investors Intelligence… one of
these days these numbers will matter, I promise.]
Happy 76th birthday to our own Dr. Bortrum.
Once again, StocksandNews is holding the line on any price
increases in 2004.
Here’s to the New Year. My, the challenges will be immense,
the rewards, if we’re successful, great.
Brian Trumbore
