|
Co-brand
Partnerships
| |
|
|
|
|
| |
|
Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
|
BALTIMORE, MARYLAND
WEDNESDAY, 25 JULY 2001 |
|
|
Today:
Negotiating
The "Bride Price"
|
*** A major watershed: Amazon, the "pro forma" company,
discovers the real world...
*** 401(k) reports full of woe...investors discover a
real bear market...
*** Junk bond investors get 12 cents on the
dollar...Lucent needs a 12-step program...and Baltimore
is no longer dowdy. Uh uh. Noooo...
|
Amazon, the 'pro forma' Internet retailer, was
attacked by investors yesterday. The mob rushed the
stock and knocked it down 25%...They must have figured
out what 'pro forma' means.
American investors, meanwhile, seem to be figuring
out what a bear market means. "I wish I'd taken your
advice last year," said a colleague from across the room
yesterday, graciously forgetting previous years.
"I should have sold everything," she added, as she
looked at her account statement.
She is not alone. "401(k) Reports Full of
Heartache," declares a Business Week headline. "No doubt
about it, the bear market's claws have shredded dreams
of an earlier and richer retirement for millions of
Americans."
Yesterday, alone, Mr. Bear must have postponed a
few retirement dates. Stocks fell; bonds rose. Nothing
seems to be working the way it should. Stocks should be
rallying. It's summer...the second half...and subsequent
to 6 rate cuts!
And bonds should be going down; they should be
worried about the inflation caused by lower rates and
liquidity in full flood.
Commodities should be rising in price - signaling
an advance of inflation. Instead, they are falling.
Signs of a global deflationary meltdown - which began in
Japan in 1989 - are showing up everywhere.
The Commodity Research Bureau's Futures Index was
down last week - to it's lowest level in a year and a
half. Energy and metals were both down. Cotton is at 15-
year lows. Coffee has collapsed. Palladium, recently
$1,000 an ounce, is now half that. Copper is at a 2-year
low.
Like the bond market, commodities are telling us
that times ahead are going to be tough. U.S.A. Today
reports that high-end home sales have become 'squishy' -
$1 million house sales are off 15% in the first 5 months
of this year.
It is as if some major watershed has been reached.
Instead of flowing down to a bright, sunny Pacific...all
the news seems to drip towards a dark and stormy
Atlantic of financial calamity.
But let's check in with Eric and see what else
happened on Wall Street yesterday:
*****
- Bill, if I'm suffering from depression, I never want
to be happy again. To be sure, it's not easy making
money in a rocky stock market, but bear markets do
cleanse the air. This one has been particularly
enjoyable - it's been exposing the idiocy of the bubble
era for what it was. Names like Blodget and Meeker -
once synonyms for genius - now stand for something far
less esteemed. Wall Street is a nicer place when
stupidity fails to make a buck.
[Eric has found the silver lining in the bear market
cloud; people are getting what they deserve...not what
they expected or hoped for. It is always gratifying to
see people get what's coming to them.]
- The Dow tanked another 183 points on top of Monday's
152-point fall. The Nasdaq surrendered 29 points to
1,959.
- Not to worry however, one of the talking heads on CNBC
assured viewers yesterday, "No one I'm speaking with is
talking about a retest of the Nasdaq low at 1,635." Give
it time.
- Sometimes we just get so busy with our own bear market
that we forget about the bear markets of others, like
Japan's for example.
- Last week, the plummeting Nikkei finished erasing the
so-called Koizumi rally - the springtime jump in share
prices that accompanied the new prime minister's first
few weeks in office. This week, the Nikkei Average
tumbled to a fresh 16-year low.
- The phrase "mired in a recession" seems to understate
Japan's economic predicament. Twelve years after the
Nikkei bubble burst, the economy can't seem to get out
of its own way.
- But the Japanese economy is nothing if not
schizophrenic. "Tumbling industrial production, falling
business sentiment and plunging exports may keep
economists and company managers at midnight," the Far
Eastern Economic Review reports. But despite sluggish
economic activity, the Review observes, the middle-class
seems unperturbed. "The line snaking through Tokyo's
Tony Ginza district on June 28th was not in front of a
government office providing assistance to the needy or
unemployed...This line hugged the newest outlet of
French luxury retailer Hermes..."
- Meanwhile, back in the States, about 2,300 US
companies will report earnings this week - including
one-third of the S&P 500 - and you can bet that very few
of them will be crowd-pleasers. As we've been observing
for months, it's tough to grow earnings when neither
consumers nor corporations possess the means to spend.
- That's not to say both groups wouldn't be delighted to
spend more - if only they could borrow more. But it's
starting to get tricky to pile debt on debt. For
example, telecom carriers added $255 billion of debt in
1998, $326 billion in 1999 and $655 billion in 2000. Now
that the telecom bubble has burst, many are unable to
pay the money back. Pity the bondholders of bubble-era
debt claims.
- "During the first half of 2001," the Wall Street
Journal reports, citing Ed Altman of NYU, "investors
owning defaulted telecom junk bonds recovered an average
of 12 cents on each $1 of face value, down sharply from
25 cents on the dollar in 1999 and 2000."
*****
Back to Bill in Baltimore...
*** The New York Times reports that "Dowdy Old Baltimore
Turned Fashionable." Thanks to the movie director, Barry
Levinson, novelist Anne Tyler, and a spiffed up
downtown, Baltimore is now hip. Or so they say.
*** But on Friday night, I took the family to see "Kiss
Me Kate" at the Kennedy Center in Washington. Maria
looked startlingly grown up in her theatre gown. Sophia
too, but I've gotten used to the idea of Sophia as a
young woman. (I don't think I'm ready for Maria to reach
adulthood.)
*** A very cute production, "Kiss Me Kate" is the story
of a theatre company that performs a musical version of
Shakespeare's 'Taming of the Shrew,' with lots of gags
and guffaws of modern theatre life. The play takes place
in Baltimore, leading to such memorable exchanges as:
"Hey, Pat, can you lend me $2?"
"If I had $2, do you think I'd be in Baltimore?"
* * * * * * * * * Advertisement * * * * * * * * *
URGENT DISPATCH DELIVERS 4,000% PROFITS!
Late last year, an urgent dispatch notified a select
group of investors about a few 'special situation'
stocks that were about to fly. Those who bought the
stocks at the recommended prices are now sitting on
average gains of over 400%. One pick alone returned
4,000%!
You are invited to join this private group of investors
and share in the profits from one of the most lucrative
private investment services you'll find anywhere. Learn
about three special situations poised to deliver Super-
Profits. For more information click here:
http://www.agora-inc.com/reports/CASE/ExcitingTimes
* * * * * * * * * * * * * * * * * * * * * * * * *
The Daily Reckoning Presents: A Wednesday Guest Essay in
which the author braves the wilds of Central Asia in
search of tasty dish of... Qazy?
NEGOTIATING THE "BRIDE PRICE"
By Dan Denning
"If you're not a fan of endless semi-arid steppes and
decaying industrial cities, Kazakhstan may seem as bleak
as a month old biscuit," opens the Lonely Planet guide
book on this Central Asian gem... "if sometimes it looks
like the landscape has suffered from hundreds of nuclear
explosions, well, parts of it have - ever since Russian
rocket scientists started using Kazakhstan as a sandpit
in the late 1940s."
Okay. So it's not Poughkeepsie. But it isn't Baghdad,
either. And that's an important distinction - within the
Kazakh border resides the formidable Tengiz Oil field.
When it goes live, the Tengiz Field will unleash the
largest single injection of oil into international
markets in 25 years. It's estimated that the Tengiz
field alone contains 6 to 9 billion barrels of
recoverable reserves. And right behind it? Another oil
field may contain as much as 10 billion more barrels.
At stake are billions in profits - for a handful of
international conglomerates - and an even smaller number
of Western-listed companies.
What's more, next month, the Caspian Pipeline
Corporation will open the it's 982-mile pipeline between
the Tengiz oil field in western Kazakhstan and the
Russian Black Sea port of Novorossiisk. The pipeline
will start off with a 560,000 barrel-per-day capacity...
a figure that will reach 1.5 million very quickly.
That's a lot of oil a day, especially when you consider
global demand is about 75 million bpd.
Hmmn... Kazakhstan. Risky? Perhaps.
But here at the Daily Reckoning, we like to overturn the
occasional emerging market rock to discover what
slithery creatures lie beneath. Just a few months back,
we took a peek to see if the light of progress had
penetrated the Dark Continent...today, we peer into the
heart of another beast: Central Asia.
Many Kazakhs are nomads... they move herd, yurt and
flock from collective farms to fresh summer pastures
each year. Their affinity for horses shows in sports
like Kopar, a wild-free-for-all ancestor of polo where
the headless goat's carcass is used as the ball, and qyz
quu, a boy-girl horse chase - if a boy catches a girl he
kisses her... if she catches him, she gets to beat him
with her riding whip.
Indeed, Kazakh women are confident... despite the
lingering custom of wife stealing, whereby a man simply
kidnaps the woman he wishes to marry - and forces her
parents to negotiate the 'bride price.'
Today Kazakhstan is grappling with "an enthusiastic
brand of deregulation that tends toward anarchy," and a
growing GDP of roughly one tenth the size of GE's market
cap. But under the hopeful stewardship of the former
communist president, Nursultan Nazarbayev, the country
is fashioning dreams of becoming Central Asia's economic
tiger.
But unless they're expecting a world-wide surge in the
demand for smoked Qazy (horsemeat sausage), they'll have
to maximize the only resource the Western world can't
live without - oil.
The key to Kazakh oil has nothing to do with geology. It
has everything to do with geography. This endless semi-
arid steppe is NOT in the Middle East. And the country
is NOT a member of OPEC.
And what makes the proposition even more intriguing:
Kazakh pension funds are sitting on $US 1 billion. Right
now, pension fund contributions are being funneled into
bonds. The result has been a bull market in debt.
At a certain point, it's not healthy to have a large
portion of debt assets on debt only. Trouble is, there
aren't a lot of liquid Kazakh shares to buy. In late
June, Moody's upgraded the foreign currency deposit
ratings of several Kazakh banks. One of the banks,
Kazkommertsbank, more than tripled last month, from 4
euros to 14.
But other than KKB, it's very hard for U.S. investors to
buy local Kazakh shares. Aside from the procedural
difficulties, there is no free float in attractive
stocks. So what to buy?
"Hurricane Hydrocarbons and Nelson Resources have
substantial ties to ruling Kazakh elites," says James
Passin of Firebird Global Small Caps Fund. Some
companies exist so that their owners can strip the
assets from the company and sell them for cash. But "if
you steal a dollar, you only have a dollar," says
Passin.
These clans have a vested interest in building up the
value of the company for shareholders, rather than
stripping it out by raiding the companies' coffers.
And so far, those interests have worked out fairly well.
Hurricane is up from a low of $US 0.25 in 1999 to $US
12.00. What's more, they've just declared a dividend of
"subordinate debentures" worth C$4 per share that will
be paid on August 2nd, 2001.
"CAIH, a Netherlands-domiciled company 'associated'
with KKB, owns 30% of Hurricane," Passin reports. "But
CAIH just lost a fight to acquire a controlling stake in
Hurricane.
"Nevertheless, CAIH is controlled by extremely
influential and intelligent Kazakhs, who are associated
with one of the clans. CAIH also owns 35% of Nelson.
IEI, another offshore vehicle, is associated with Halyk
Savings Bank, which is merging with KKB in a few weeks.
IEI and Halyk are both allegedly controlled by Timur
Kulibaev, the President's son-in-law.
"Kulibaev also controls KazTransOil, the domestic oil
pipeline monopoly. Kulibaev is associated with the
'Nazerbaev Clan,' i.e., the President's 'family'."
All of which is just a complicated a way of saying that
Nelson looks suspiciously like THE vehicle for the son-
in-law of Kazakh President Nursultan Nazerbaev to cash
in, once the pipeline starts flowing. The Kazakhs
reversed very attractive hydrocarbon licenses into
Nelson in exchange for a 70% stake.
While Nelson is very small, and the stock much more
volatile, it's got the solid backing of powerful people
interested in seeing it succeed.
Yesterday, OPEC President Chakib Khelil announced that
he expects OPEC to cut oil output by 1 million barrels a
day to shore up prices. OPEC wants high prices. But
they'll have trouble keeping them high if another 1.5
million barrels per day comes on-line from Kazakhstan.
And who knows... the savvy investor may be able to
"steal" a piece of these clan holdings... negotiating a
handsome bride price, indeed.
Yours,
Dan Denning,
The Daily Reckoning
Dan Denning is the editor of The Daily Reckoning
Investment Advisory.
James Passin manages the Firebird Global Small Caps Fund
for Firebird Management in New York. In the interest of
disclosure, Mr. Passin is a shareholder in both Nelson
Resources and Hurricane Hydrocarbons. If you have more
questions about Firebird or investing in Russian and
Kazakh stocks, you can call James directly at 212-698-
9260.
* * * * * * * * * Advertisement * * * * * * * * *
BEST BEACH BUY IN THE CARIBBEAN
Talcum-powder fine, bleached white, and deserted...
fringed by clean, clear turquoise water...these beaches
are among the most spectacular in all the Caribbean.
Plus...these islands are safe, friendly, easily
accessible... and cheap. Indeed, this is the best deal
going in the Caribbean today. Details in your FREE
report. For more, click here now:
http://www.agora-inc.com/reports/ipr/wdr32
* * * * * * * * * * * * * * * * * * * * * * * * *
|
|
|
| About
The Daily Reckoning: |
|
Daily Reckoning
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoning—his take on the financial markets and what’s going
on in the world—and sends it off by e-mail before most Americans’
alarm clocks have buzzed. Many readers say it's the first thing they want
to read when they get up—not only because it's informative and thought
provoking, but also it's inspiring, in its own quirky and provocative way.
Of course, there's
much more to Bill than his daily market commentary. He's also the founder
and president of Agora Publishing, one of the world's most successful
consumer newsletter publishing companies. Bill's passion for international
travel and big ideas are reflected in the company he's successfully built.
In 1979, he began publishing International Living and Hulbert's
Financial Digest . Since then, the company has grown to include
dozens of newsletters focusing on health, travel, and finance. Bill has
vigorously expanded from Agora's home base in Baltimore, Maryland since
the early ’90s—opening offices in Florida, London, Paris, Ireland, and
Germany.
Agora's publication
subsidiaries include Pickering
& Chatto, a prestigious academic press in London and Les
Belles Lettres in Paris, best known as a publisher of classical
literature in bilingual editions.
|
|
|
|
