[Posted 4:00 AM PT…La Quinta, CA]
Wall Street
I couldn’t help but notice that tensions between the U.S. and its
two traditional enemies, China and Russia, are ratcheting up a
few notches. Granted, we are nowhere near the levels of the
Cold War but market participants would be foolish to ignore the
comments of China on the U.S. dollar or Russian President
Vladimir Putin’s intransigence on the issue of Ukraine. The
mood on Wall Street could change in a heartbeat as I’ll explain
in due course.
But for now all is well as the equity markets rose again on the
heels of mostly solid economic news, including better than
expected figures for consumer spending and personal income in
October, as well as stronger readings on manufacturing. Intel
also chipped in with a revised, upbeat forecast for 4th quarter
revenues.
And then you had oil. I can’t help but note something I wrote
just last week as the price of crude sat at $49.44. “I still believe
in the long-term case for oil…but over the next 6-12 months I
think we will catch a break. The inventory picture just isn’t that
bad.”
Lo and behold the inventory picture brightened even further,
across the board whether it was crude, gasoline, heating oil or
natural gas. Prices for all plummeted, including a whopping $7
on oil to $42.54 as speculators got their clocks cleaned. Some of
us know it was all so predictable. Wednesday’s decline of $3.60
was the prime reason why the Dow Jones staged its stupendous
162-point rally, though stocks failed to gain from further declines
in energy prices the balance of the week.
But while much of the week’s news was positive, readings on
consumer confidence continue to fall and despite an initial
bullish report on Black Friday’s sales picture, the Christmas
season would appear to be getting off to a sluggish start.
[I still say it will be a robust one when all is tallied up, but this is
the final splurge before the realities of huge personal debt levels
and zero savings hit home. In fact regarding savings Americans
are putting away the least since records started being kept on
such matters, way back in 1959.]
Lastly, the U.S. dollar hit another all-time low against the euro as
November’s jobs report came in far less than expected; a gain of
112,000 when 200,000 was the estimate. This week China’s
premier blasted the U.S. for not managing its currency better; a
funny thing to say when it’s China that’s manipulating its own.
What it does reinforce, though, is the concern that the dollar’s
decline will get out of hand. It’s too simplistic to just say ‘Well,
the U.S. remains the best game in town so foreign investors,
particularly central banks, will continue buying greenbacks with
their surplus cash.’ There is far more at work here and don’t put
it past China, or Russia for that matter, to sell massive amounts
of dollars at some point if for no other reason than for political
purposes back home. Both know they have the U.S. over a barrel
because of our soaring deficits.
Street Bytes
–The Dow Jones and S&P 500 each rose 0.7% on the week to
10592 and 1191, respectively, while Nasdaq advanced 2.2% to
2147. Except for Wednesday’s powerful rally the rest of the
week was largely a downer. Wal-Mart’s same-store sales for
November were up only 0.7% vs. an expected 2-4% increase as
the company was blindsided at its own game, deep discounting.
Wal-Mart thought it could get away with holding the line on
some prices and is now scrambling to compete in slashing them
anew on key items. Then again, some say that Wal-Mart having
problems of any kind is really a positive, if you’re a member of
the Wal-Mart bashing crowd. [I’m neutral in this matter.]
–U.S. Treasury Yields
6-mo. 2.38% 2-yr. 2.92% 10-yr. 4.25% 30-yr. 4.93%
Another wild and crazy week, with the 10-year trading up to
4.42% before collapsing in yield back to within the established
4-4.30% range. The weak employment report trumped any
incipient fears of inflation.
–Yes, the short-term case for oil is a shaky one but long-term it
remains solid. Energy expert Matthew Simmons has long argued
the world’s reserves are rapidly drying up. 20% of the supply is
coming from 14 giant oil fields with an average age of 60 and not
one new field of this magnitude has been discovered since the
1970s. [Barron’s]
Separately, the world’s six largest oil companies are expected to
reap record cash flow of about $150 billion in 2004, up 40%
from ’03, but capital spending will increase just 20% to $75
billion. No doubt this is still a hefty expenditure and the oil
service and drilling operators will benefit, but of this projected
figure most is representative of higher costs for existing projects,
not necessarily for new exploration and production. [Los
Angeles Times]
In other words, the big integrateds (like Exxon Mobil) retain
memories of the cyclical nature of the business and the plunge in
prices that transpired in the early 80s and late 90s; thus, they are
still loathe to commit new dollars and that, conversely, should
help establish a far higher floor for prices than the $10 level seen
in the industry’s two most recent crashes.
–Yukos appears to be abandoning its survival plans, despite
what executives may be saying from exile in London. A
December 20 meeting is slated for the purposes of announcing
bankruptcy or liquidation. And it’s all due to those wonderful
people in the Kremlin.
–Economist David Hale had an interesting piece in Barron’s
concerning the Muslim world. 49 predominantly Muslim
countries have 18% of the world population but only 8% of the
exports (and 20% of this figure is from Malaysia). In fact,
excluding oil, the Muslim nations of North Africa and the Middle
East have exports of only $30 billion.
–George Will had a brilliant idea. Name Alan Greenspan as the
next Treasury Secretary to tackle Social Security and the deficits.
–U.S. News and World Report had an extensive piece on the real
estate bubble in this country, while the Star-Ledger of New
Jersey surveyed price appreciation the past four years and found
that at least 15 shore communities have seen jumps in excess of
100% over that time frame.
–Of course the property bubble isn’t limited to the U.S. The
Australian housing market, for example, is exhibiting further
signs of softness and the economy here overall is cooling.
Meanwhile, industrial production in Japan fell in October and
consumer spending is slowing; while across the pond the
European Central Bank has lowered its growth forecast for 2005
to just 1.9%.
–But back to real estate, I just can’t believe the scene out here in
the Palm Springs, CA area, especially as I walk the golf courses
of the PGA West development in La Quinta. Unit after unit
being built and the selling prices are astronomical; mostly in the
$1.2 to $1.8 million range. I mean they are well-situated on
beautiful parcels of land but the homes for the most part aren’t
that big and judging by how quickly they are going up, I question
the quality. But damn, I’d love to own one myself. Steve G.
tells me far cheaper properties in the region can be had but I want
to be on the Stadium Course and ride my golf cart all over the
place.
–Here’s another tidbit, re: the bubble. The top few floors of the
St. Regis Hotel in Manhattan are being converted to apartments.
One bedroom will set you back $3 million. But you get
turndown service! For a price, of course.
–Bonuses for investment bankers are expected to be 10-15%
higher this year, in case you are wondering who will be buying
the apartments at the St. Regis.
–Here I wrote of the credit card industry last week and the next
day I received a note from my Citibank Master Card. They were
giving me a new one, one I hadn’t asked for, and it required me
to change the card on 7 subscription services I was using the old
one for. Now the last thing I wanted to do was spend two hours
switching things around. Citibank thus becomes a prime
candidate for “Corporate Dirtball of the Year” and at some point
I will gladly abandon them.
–The job of Commerce Secretary is normally an inconsequential
one but in the case of the recently nominated Carlos Gutierrez,
Kellogg Co.’s CEO, an exception can be made. I was surprised
how no one in the press seemed to recognize that if President
Bush were to let the Cuban-born Gutierrez loose in Latin
America, he could do a world of good in helping reestablish
tarnished relations across the region. Gutierrez has huge
potential to be a real heavyweight in this administration if the
White House will let him.
–Inflation Update: Thanks to Mark R. for passing along the
PNC Advisors’ Christmas Price Index, though as Mark adds this
proves PNC has nothing better to…….oops, Mark works there.
Anyway, PNC is known for producing the actual costs for the
“12 Days of Christmas” and what we find is that when it comes
to ladies dancing and lords-a-leaping, both skilled workers,
wages are up; but the unskilled, yet highly attractive maids-a-
milking saw flat earnings for ’04, including tips.
OK, so I took some liberties here in drawing my conclusions but
the real message is ‘stay in school and once in the labor force
pick up as many extra skills as you can.’ As for the maids-a-
milking, the Labor Dept. would tell them there are plenty of job
retraining programs available if they’d only ask.
Foreign Affairs
Ukraine: Russian President Vladimir Putin is really making a
mess of things in interfering directly in the Ukrainian election
dispute. Going back to last weekend, picture that Moscow
Mayor Yuri Luzhkov attended a rally for Prime Minister
Yanukovych, the original disputed winner, while President
Leonid Kuchma made an emergency trip to Moscow for
consultations with Putin; this after Kuchma had sided with
Viktor Yuschenko and his call for a new vote. On Friday Putin
blasted the U.S. and the West in general for its “dictatorial”
actions in pressuring Ukraine; Putin’s position being that the first
vote was valid. If it wasn’t so serious it would be almost funny.
Putin is spinning wildly out of control and the West, particularly
President Bush, must make it clear that unless he stops both
Putin and his nation will pay a heavy price. For starters, I agree
with the editorial board of the Wall Street Journal that Russia
should be expelled from the G-8.
But Putin holds a wild card I have long written of. No, not
Russia’s huge Treasury holdings (or its nukes…we’re past that,
one hopes), but rather energy giant Gazprom. This week we
learned that Deutsche Bank, financial advisor to Gazprom, is
urging the company to buy up not only Yukos’ key assets but
also other privately held ones in Russia, thus taking a giant step
toward a Soviet state-controlled economy. Putin would love this,
of course, but as for Deutsche Bank, every American investor,
investment bank and corporation should steer clear from working
with these dirtballs. It is unbelievable what they are doing; but at
the same time, in today’s corrupt world one really shouldn’t be
that surprised, I guess.
So what does this all mean? Gazprom, the world’s largest
supplier of natural gas, let alone to Europe, can turn off the taps
any time Putin decrees it. Much of the continent could be held
hostage and, coincidentally, most of Europe’s energy flows
through Ukraine.
Finally, at last word Ukraine’s Supreme Court has ruled the
original presidential vote was invalid and it’s insisting on a run-
off by December 26. To be continued.
Iran: The U.N. and its International Atomic Energy Agency
(IAEA) passed a resolution on Monday approving of Iran’s
pledge to cease attempts to enrich uranium, as Tehran backed off
a demand that it be allowed to retain some centrifuges that could
have been used in the weapons process. The IAEA called the
document an “important milestone,” even as the U.S. was furious
that Iran was granted a concession whereby it could claim the
suspension was a “voluntary, non-legally binding, confidence
measure.” But while the U.S. has serious doubts about Iran’s
sincerity (to say the least), it felt it had no other choice but to
approve the measure negotiated between the mullah’s and our
allies; Britain, Germany and France. [In the case of the latter I’m
using the term loosely.]
At week’s end, however, the IAEA was back playing the bad
cop, insisting on access to two previously off-limit sites that it
suspects are being used in the nuclear weapons process. And so
it will go until one day Iran either announces it has the bomb or
the West comes to its collective senses. As for those saying the
Iranian people themselves may take care of the problem by
toppling the regime, fat chance for now. We had our shot in
2002 and the White House blew it, as documented in this space
at the time.
Iraq: Of course the only way we can even contemplate a popular
uprising in Iran is if free elections are pulled off in Iraq.
Towards that end Grand Ayatollah Ali al-Sistani, the leading
majority Shiite cleric, is urging his followers to support the vote,
which only makes sense when your people comprise 60% of the
electorate. We all pray the election comes off, but the security
situation is still dire and only now, belatedly, has the Bush
administration agreed to hike the U.S. force in Iraq from 130,000
to the 150-160,000 level. This comes as tens of thousands of
troops who had already served out their one-year tour of duty in
Iraq are being told their terms are being extended, after being
promised this wouldn’t be the case. Not a great thing for morale,
as you can imagine…especially at this time of year.
Finally, as a point of record it needs to be noted that 139
Americans were killed before President Bush’s “Mission
Accomplished” speech of May 1, 2003 in which he announced
major combat operations were over. You know where I stand on
Iraq and I still fully support the war, but the fact is over 1,100
have been killed since as President Bush and Donald Rumsfeld
stubbornly clung to the belief that we had enough boots on the
ground. To be fair, though, in the end it’s all about creating a
democratic country, whether it’s 2005, 2006 or beyond. That’s
how history will grade our president, despite his mangling of the
post-war phase.
Israel: As Prime Minister Ariel Sharon struggles to put together
a new ruling coalition, he received a shot in the arm from an
unlikely source, Egyptian President Hosni Mubarak. Mubarak
urged the Palestinians to work with Israel, adding “Sharon has
the ability to move along the peace process.”
But the Palestinians now have their hands full with internal strife
as out of nowhere jailed Fatah leader Marwan Barghouti
suddenly reversed course and said he would run for president in
the Jan. 9 election after all. Fatah’s central committee is deeply
distressed, having already selected Mahmoud Abbas. Barghouti
appeals to younger Palestinians as well as some radical (read
terrorist) elements. But he is also on record as advocating peace
with Israel, which is what makes him such an intriguing figure.
China / Taiwan: Taiwan holds key legislative elections on Dec.
11 and President Chen Shui-bian said he is sticking with his
timetable of holding a referendum on a new constitution in 2006,
a move tied to a possible formal declaration of independence.
Should parties aligned with Chen win on the 11th, Beijing will
undoubtedly have something bellicose to say.
Meanwhile, up to 7,000 miners are killed each year in China, a
total disgrace, with at least 166 dying in the latest incident this
past week. And the communists have been blocking a Google
site recently. Nothing like a little freedom of the press, eh?
Philippines: A series of typhoons has killed up to 1,000, but to
compound matters, when the army sent a group of soldiers on a
relief mission they were ambushed by terrorists. At least 10
were killed. There is a special place in Hell for people like this.
Burma: As there is for the junta in Rangoon. So much for the
release from house arrest of 1991 Nobel Peace Prize winner
Aung San Suu Kyi. Now the dictators here said her term has
been “extended.”
Random Musings
–I’ve said my piece on the issue of steroids and the likes of
Barry Bonds on numerous occasions elsewhere on this site.
Those who tarnish the baseball record book so many of us hold
dear should be banned from the sport. Unfortunately, given
baseball’s refusal to deal with the issue in any serious way thus
far this isn’t even remotely possible. So instead some of us wish
Bonds the worst and I would hope his life, as well as that of the
other scumbags, becomes a living hell.
By contrast, I’m out in California attending the PGA’s Q-School,
or Qualifying Tournament. Talk about sport in its purest form,
this is it…possibly the best, least known event in the country.
No guaranteed contracts with this group, that’s for sure. Those
who didn’t finish in the top 125 on the money list have to go
back to school to regain their playing privileges, while others,
looking to move up in the rankings, get a shot at earning their
way to the top.
Of 169 golfers in the field, 30 get their PGA card and another 50
become exempt for the Nationwide Tour, the equivalent of AAA.
[Over 1,000 others failed to advance this far in earlier qualifying
rounds.]
The pressure on many of the golfers is unreal and as a spectator
you get a good sense of it. I’ve also had the opportunity to meet
some of the parents, like the father of an Aussie participant,
Cameron Percy from Melbourne. What a delightful fellow.
And on Friday I walked with the parents of Roland Thatcher,
who played the tour last year, failed to make the top 125, and is
now trying to get his card back. Their stories are all great ones.
But my six days here (it’s six grueling rounds for the
competitors) will be spent mostly following Bill Haas, a fellow
Wake Forest alum who graduated this past spring and is the son
of tour veteran Jay Haas. I didn’t initially intend to walk with
Bill as much as I will end up doing but the first day we had a
pleasant chat on the range, he’s a good kid, and he has immense
potential. He also has to earn his tour card just like the others.
So far after three rounds he’s one stroke back of what would be
the top 30 cutoff.
Yes, this is far from the world of Barry Bonds, or Tiger Woods
for that matter. Sport, and competition, the way all of us like to
think it is, all the time. But nothing’s simple anymore and the
likes of Bonds have a way of intruding on the innocence. Barry
often tells reporters to get out of his face. I just wish he’d never
come into our lives.
–Conservative commentator Ralph Peters is one of the neocons
climbing on the “dump Rumsfeld” bandwagon, writing
Rumsfeld’s “arrogance is unbearable.” I would have added he’s
also a flat out liar. Yet the president wants him for a second
term.
–Well, President Bush survived his trip to Canada with good
humor. Hopefully he allayed any fears of an imminent U.S.
invasion of Canada’s oil sands region. Our military is stretched
thin as it is.
–As expected New Jersey Senator Jon Corzine formally
announced he is running for governor. I was walking the golf
course here on Thursday when I started talking to one of the
marshals about living in such a beautiful spot as La Quinta while
mentioning I lived in New Jersey. “Boy, you guys sure have
problems,” he said as he proceeded to discuss former Governor
McGreevey as well as the money Corzine spent on his senate
race. In fact this gentleman knew the exact amount, $64 million
(as compared to the $6 million spent by my man Bob Franks).
Geez, I was proud of the old chap and it warranted a high-five.
–You know who I always thought was a decent guy? Kweisi
Mfume of the NAACP. But why he wasted so many years at this
backward institution I’ll never know. Mfume finally saw the
light and quit.
–On a scale of 1 to 10, 10 representing total security, I’d say
departing Homeland Security chief Tom Ridge is leaving our
nation at a level of 4, up from the ‘1’ he inherited. Anyone who
says we aren’t better off is simply being an idiot but a 4 is
obviously a long ways from a 9. [10 is unattainable in this
game.] As for Bernard Kerik’s being named to replace Ridge, all
I can ask is ‘why?’ If as Tim Russert surmised this was a sop to
Rudy Giuliani, what a mistake. Get a heavyweight in there, for
crying out loud. Do you really think Kerik will be able to rattle
the cage when need be? I hope I’m wrong.
–The biggest blow of the week was losing John Danforth as
ambassador to the U.N. This man is a giant, but he was
underutilized. It’s not a great sign he left after just six months.
–I received some harsh criticism for my comments on Dan
Rather last week and perhaps I was slightly over the top.
Actually, all you really needed to know is a comment Tom
Brokaw made this week on “Hardball.” When Chris Matthews
raised the issue of Rather, Brokaw spoke volumes when he said
“there were some stories (of Rather’s) when I’ve raised my
eyebrows.” I can’t recall one Brokaw report where I felt that way.
And let’s get off this silly conceit that longevity somehow
always equals good work. That’s really what many Rather
supporters are saying. Hey, the guy has been around for 40 years
so he must have done something right.
–Speaking of Tom Brokaw, what a classy ending to a
distinguished career in the anchor chair.
–Amidst the calls to remove U.N. Secretary General Kofi
Annan, I can’t help but note I mentioned Vaclav Havel’s name as
a potential replacement way back on 2/8/03 in this very space, or
almost two years before anyone else thought of it. But I also
said in subsequent comments that it was unrealistic to expect he
would take the job due to his health, something those touting him
today fail to take into account.
–Now for another irregular chapter of “If I could do it all over
again.”
If I could do it all over again I would have found a way some 15
years ago to acquire McIlhenny’s Tabasco Sauce. All this
condiment needed to achieve total greatness was some good
marketing, yet it still isn’t being sold the way it should be.
–So I’m watching this commercial for the new “Spiderman II”
DVD and it says it’s packed with 10 hours of features. This kind
of thing always cracks me up. Why would you want to watch
anything but the actual flick? Who wants to know how they did
the special effects? I thought that was the point of a movie…to
be transported to a different world, or to just escape the daily
drudgery for a few hours.
–I see the Roman Catholic Diocese of Burlington, Vermont
banned the practice of shaking hands during flu season, as well
as sipping from the chalice. Good for them. This has always
been a pet peeve in our family.
–I’m a fan of conservative commentator David Brooks of the
New York Times but I take issue with a conclusion he had in an
otherwise excellent piece on globalization and how it has
positively impacted worldwide wealth creation the past few
years. Poverty rates, for example, are plummeting. But Brooks
adds “Just once, I’d like to see someone like Bono or Bruce
Springsteen stand up at a concert and speak the truth to his fan
base: That the world is complicated and there are no free
lunches.”
Hey, I’ve already said my piece about Springsteen, but to lump
Bono and Springsteen together is flat out wrong and reveals Mr.
Brooks’s ignorance when it comes to this topic.
I’ve been a huge fan of Bono for years and in this post-9/11
world Bono has been one entertainer unafraid to celebrate the
virtues of America. Aside from the fact he recognizes a good
business opportunity when he sees one, he has sincerely come to
America’s defense when his fellow Europeans have heaped scorn
on us.
But what I appreciate most about Bono is the fact he is a man
who takes the time to learn the issues. He understands global
trade and the fight against poverty and in his own way he has had
a positive impact. Conservatives need to get over the fact his
views may not always dovetail with theirs. Bono is a force for
good. Rock on!
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $457
Oil, $42.54
Returns for the week 11/29-12/3
Dow Jones +0.7% [10592]
S&P 500 +0.7% [1191]
S&P MidCap +0.7%
Russell 2000 +1.8%
Nasdaq +2.2% [2147]
Returns for the period 1/1/04-12/3/04
Dow Jones +1.3%
S&P 500 +7.1%
S&P MidCap +12.0%
Russell 2000 +15.3%
Nasdaq +7.2%
Bulls 57.3
Bears 22.9 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
