Sam: BARRON'S: A. Abelson: FED WILL NOT RAISE INTEREST RATES:
Read on: Alan A's take on the market:
TA
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June 5, 1999
Tough Tony, Willy Wobbler
By Alan Abelson
"Don't wobble, George!"
That imperious injunction flew from Margaret Thatcher's lips to George
Bush's ear in late 1990, as momentum was building toward a confrontation
with Saddam Hussein. It was the Iron Lady's sweet way of striving to put a
little steel in Mr. Bush's spine.
Who ever would have thought that Tony Blair would emerge as Mrs.
Thatcher's spiritual as well as titular heir? Yet there he is, Labour's favorite
son, breathing fire and assuming a Maggie-like flinty stance toward the
world's current reigning bad guy, Slobodan Milosevic.
Mr. Blair lacks Mrs. Thatcher's gift for terse and pungent phrasing. But ever
since night and the bombs fell on Kosovo, he has been pelting Mr. Clinton
with words of advice, the pith of which is not to wobble. And even last week,
when the Serbians ran up a kind of off-white flag, the unremittingly bellicose
Brit warned foxy Milosevic not to get cute this time.
Of course, one needn't be an incorrigible cynic to note that it's easy for Mr.
Blair to talk tough, since the burden of the battle is being shouldered by the
U.S., not the U.K. And it probably wasn't entirely lost on Mr. Blair that his
Tough Tony image played very well with the voters.
But what also likely helped induce Mr. Blair to pound the martial drums so oft
and loud was fear that the President would wobble, since throughout his
public life Mr. Clinton has always been and remains to this day a world-class
wobbler. And this tendency can only have been exacerbated by the latest
Gallup poll showing a precipitous drop in his popularity, a drop widely
blamed on Kosovo.
More specifically, the President's approval rating dropped from 64% at the
beginning of May to 53% in the survey taken May 23-24. That's the first time
it has fallen below 60% since the start of 1996, more than enough cause to
give Mr. Clinton apollexy.
Another decline and we shudder to think what oscillatory extremes he would
have been driven to, which run the gamut from full-scale invasion of Kosovo
to an obfuscated but effective withdrawal. But Milosevic caved, and
presumably the President's popularity will rise again.
Unless, of course, Kosovo wasn't the real reason for Mr. Clinton's slip from
favor. For the slide in the polls coincided with a pronounced drop in the Dow.
The latest Gallup soundings were taken just as that venerable average was
completing a two-week, 600-point dip. And since the bull market has buoyed
Mr. Clinton through Monica and frayed credibility -- in other words, through
thick and thin -- it follows that he would very much feel its pain were it
rendered invalid.
But even here, Dame Fortune seems to have smiled on the President. (He
does have a way with the ladies, doesn't he?) The employment report for
May, while it showed a downtick in unemployment and an unexpectedly large
uptick in hourly earnings, also showed an underwhelming job gain -- a mere
11,000 -- and a wicked plunge in manufacturing payrolls that make a rate
hike at the next Fed powwow late this month less of a sure thing.
That, at least, was the market's rather tentative response on Friday to the
mixed bag of a report. Probably what kept its enthusiasm a touch restrained
-- besides the fact that the bulls apparently had chosen to steal away early
and stretch the weekend -- were suspicions that the job numbers were so
inflicted by revisions -- for benchmarks, for seasonal adjustments, for
arithmetic errors, for virtually every sin committable by statistical man -- that
they weren't worth diddly squat.
But in any event, the Fed is not due to act until June 28-29. Four weeks can
be an eternity, and any number of things might prove of greater moment than
May's murky job picture in determining what those stalwart guardians of our
monetary values do when they finally sit down to decide on the cost of credit.
Prominent among such things will be a couple of indexes: the consumer price
index, slated to be released on June 16, and the Dow Jones Industrials.
For above and beyond his other obligations -- fighting inflation, petting
congressmen, keeping the President cheerful and in a reappointing mood --
Mr. Greenspan is dedicated to preventing the bubble from going pfft on his
watch. Ergo, if the market's ailing, you can give odds and bet your bottom
dollar that interest rates will not be raised.
If Bill Clinton's luck holds, Kosovo may soon be consigned in the collective
American psyche to the place now occupied by Bosnia. In other words, we'll
all have to stop and think where it is and why the name seems vaguely
familiar. That doesn't mean, however, that Mr. Clinton will be free to devote
his energies to messing up his wife's political ambitions. For even if Kosovo
conveniently fades away, such annoyances as China and the Republicans will
most assuredly stay.
In fact, should Kosovo recede as a fit subject for political fulmination,
Republican rage is certain to be channeled toward China and the theft of
nuclear secrets. The Chinese, for their part, having already stolen the secrets
and staged the requisite protests against the bombing of their embassy in
Belgrade, have begun to make nice again.
Encouraging this renewed chumminess is that their economy continues to list
badly, unemployment is mounting and even the rather recently acquired
economic crown jewel, Hong Kong, is faring poorly. Nothing like growling
stomachs and idle factories to make a country put on a friendly face.
We have the impression that it's going to be a very hard sell for the Chinese,
especially if the Republicans think they've got a hot issue for 2000, and
particularly, as we say, if Kosovo turns into a plus for the Administration, as it
well may. The fear and loathing generated by the disclosures of atomic theft
laid out in the so-called Cox Report, so-called because it was compiled by a
panel headed by Representative Cox of California, is destined to crimp sales
of a number of companies that export computers and related equipment.
That's the essence of a recent commentary by Tom Gallagher, a seasoned and
insightful observer of the Washington scene, who has recently taken up
professional residence at International Strategy & Investment.
Tom cites the likelihood of a serious disruption in exports of widely available
computers to China and, for that matter, to many other countries as well.
Companies that wish to export computers to China and elsewhere must get a
government license if those computers exceed a certain performance level, as
measured in millions of theoretical operations per second, or MTOPS. The
sizzling pace of technological advance has carried a heap of PCs, servers and
computer chips past those MTOPS thresholds; hence, in order to qualify for
export, they now require a license.
Normally, this would be no big deal. The Administration routinely updates
standards from time to time to reflect changes in technology; such a revision
was supposed to happen last month. However, the changed political climate
ushered in by the Cox Report has made everyone from the President on
down so fearful of congressional fire that they've dragged their feet on
updating standards. Result: a growing logjam in license approvals.
What's more, Tom notes, once the Administration proposes raising the
MTOPS thresholds, the law mandates a six-month review period before they
go into effect. An Intel official warned Congress last month that if those
thresholds aren't raised soon, the company expects "millions of units to
become subject to highly disruptive licensing requirements by the end of the
year." Which, Tom says, is exactly what he thinks is going to happen and
which, to state the obvious, is bearish for Intel and U.S. PC makers, bullish
for their foreign rivals.
The Cox Report, relates Tom, "singles out supercomputers for damaging U.S.
national security interests" and strongly recommends stiff new measures to
track exports of supercomputers or that Congress simply ban such exports to
China. You don't need a whole lot of imagination to see that such restrictions
promise to be bearish for outfits like Hewlett-Packard, Silicon Graphics and
IBM. At the same time, they'll be bullish for Japanese competitors like NEC
and Hitachi, which aren't subject to bars, bans or barriers.
Up and Down Wall Street, Part 2
As noted, Tony Blair seems intent on giving the lie to the old stereotype of
the British as masters of understatement. There are other signs that the fabled
British cool no longer universally applies. For example, the London press and
TV are all in a lather over cellular phones. Or, more particularly, over the
possibility that promiscuous use of the ubiquitous little objects may cause
brain cancer.
That's not exactly a new notion, at least on this side of the Atlantic. There
have been a couple of unsuccessful lawsuits by purported victims. Our first
reaction was that the Mother Country was a laggard in rumors as in so many
other things. But on closer inspection, we discovered that what set the media
pack dogs to yapping are two new medical studies, one Swedish, the other
American.
The Swedish research was done at the Orebo Medical Center under the
direction of cancer specialist Lennart Hardell. And what it suggested was that
cell-phone yakkers were more prone to certain types of tumors than
non-cell-phone yakkers. The hitch was that it wasn't clear whether the critical
data were real or a statistical illusion.
In like equivocal vein, the U.S. study also found no definitive link between
brain cancer and cell-phone use, but it turned up indications of a conceivable
connection with neurocytomas (rough translation: tumors of the central
nervous system). As the British scribblers and talking heads were quick to
point out, this work was sponsored by Wireless Technology Research, whose
daddy is the wireless industry, which presumably is not partial to so much as a
hint that cell phones are bad for you.
The London police, whom we always thought of as the epitome of the strong,
silent type but apparently babble incessantly on their cell phones, have
advised any worried bobbies to use an earpiece.
The fallout from the resurrected cell-phone health scare was felt as far away
as Helsinki, where selling hit Nokia, the Finnish telecommunications giant.
Motorola, we're happy to report, seemed impervious to the fuss, either
because it wasn't widely reported here or because the company's mobile
phones, by one measure of safety, rank No. 1.
In fact, although you'd never guess it from media hype and market jitters, the
findings of both studies scarcely fell into the bombshell category. Rather, they
yielded a much more modest and unexceptional conclusion -- that further
research was in order.
As it happens, a comprehensive study, encompassing 3,000 patients, has
been launched in Europe, but results won't be known for several years. So
stay tuned -- but not necessarily on your cell phone.
Lest we be accused of willful neglect, we feel obligated to give a brief
progress (or what ever) report on a company we've followed with awe and
interest over the years. Awe because it manages to chug along even though
it's awash in red ink. Interest because its ballyhooed product seems to be
taking its own sweet time in realizing commercial promise.
The company is Organogenesis, which, true to form, suffered another big loss
in the first quarter. The product is Apligraf, whose rather unimpressive sales
seem to be flattening out. To wit: From 391 patches sold in December, the
number rose to 607 in March. In April, alas, the total dipped to 604 and
dipped again in May to 552.
More whatever than progress, we guess.
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You said
To: hoffy (20327 )
From: sam
Saturday, Jun 5 1999 10:25AM ET
Reply # of 20436
There are far too many posts to wade through, so if my opinions have been covered
before -- I apologize. First, stock market moves RIGHT NOW, are all about
perception. It's that simple. The perception is that the FED WILL raise interest rates.
So the market -- in general -- will continue to trend down until (1) data proves that
inflation is NOT a problem; important data shows the economy is slowing; (3) interest
rates are raised; or the FED lowers its bias. And this trending will likely continue even if
the market gets punished more than most of us can tolerate. Why? Because the major
market players need an impetus to take their large positions. And the impetus will come
directly from the FED. And right now, the perceive that a hike is coming. That doesn't
mean stocks won't be trading in ranges. They probably will. But we could see some
lower highs and lower lows in the meantime. Internet stocks will be especially vulnerable
because they are perceived as overvalued. The brokerage houses will try (are trying) to
foist "cyclicals" on their retail clients to keep their machine rolling. Like it or not this is
the environment we find ourselves in now. It will change soon enough. But it hasn't
changed yet. Second, some stocks will be strong (or weak) enough to diverge from the
market pattern. If ATT is forced by the judiciary to open the pipes to AOL and others,
AOL WILL diverge and rally fiercely because shortsellers will not want to chance
getting caught in a strong rally -- regardless of what the rest of the market is doing. And
remember, there are about 50 million shares shorted in AOL. AOL has corrected
enough so that the smarter shortsellers won't want to chance the profits they already
have (and they are quite sizable)...and AOL has thus far shown no real signs of breaking
under 105. In the meantime, ATHM will suffer. Third, ATT WILL appeal the Oregon
ruling. And though it may only involve one district in one state, the appeal will likely get
some serious scrutiny from the appellate court and -- if asked -- the Supreme Court
MAY even decide it wants to be heard on the issue, too. Lot of uncertainty here. But,
rest assured, if the Supreme Court rules against ATT (and I am not arrogant enough to
presume to know what the Supreme Court will or will not do), the effects will be far
greater than if the FTC or FCC were to act on their own authority. Personally, I will be
trying to get my hands on the docket to see if there are issues the court may like to hear.
But until that time, shortsellers may not want to "chance" a ruling against them which will
likely vault AOL to new highs. I'll stop here...for now. All, jmo.
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