first majestic silver

Crumbling at the Edges

February 17, 2000

This market may be frustrating and plenty difficult to trade, but it's easy enough to hate. The rallies look like hell, breadth has been shrieking "disaster!!!!" for months, and key bellwethers like Microsoft and Dell look like they've just about had it. That leaves Cisco alone to carry on its broad back Wall Street's burden of dreams. But I doubt even that can last for much longer. Factor out the tax finagling in the company's last quarterly report and it brings you inescapably to the conclusion that earnings from growth have turned flat. This is a first for Cisco -- ever -- and its implications cannot have eluded the steel-trap minds of the Street's best and brightest. They are undoubtedly scudding quietly toward the exits now, even as the herd awaits the fresh burst of energy that presumably will carry Cisco above the all-time high that was notched last Thursday nine points above current levels. The stock has been flagging steadily lower for a week, but if and when it finally looks to be getting traction, I'll be a cautious bull at best. Concerning the vast universe of other stocks, unlike Cisco they are beyond rationalizing.

I wrote a few weeks ago about the stupidity and hubris of a lead story in the Wall Street Journal that took a remarkably sanguine view of $30-a-barrel oil. "We're a service economy now, so it's no big deal" is what the article said, in essence. Indeed, we are. But in the process of doing each other's nails and cutting each other's hair, we surely do a lot of flying around and driving. And the trucks and trains that bring us every little thing we need -- mostly by way of container ships originating in China -- are notorious consumers of diesel fuel. Ditto for the four-ton suburban wagons that many of us use to transport a head of lettuce and a carton of eggs from the grocery store. Anyway, crude oil prices continue to waft relentlessly higher, and with them the price of all services and goods that use petrol.

I don't recall what the Journal's take on the airlines was, but whatever reasons the article may have given to dispel economic anxieties surely did not stick to my ribs. I'd guess they talked about how fuel-efficient today's fleet is, and how clever the airlines have gotten at filling each and every seat with the highest-paying passenger in all of America. But it is at the margin that airline revenue calculations fail -- and economic booms turn to bust. For some would-be fliers, the $20 fuel surcharge that most airlines have slapped on tickets is enough to force the postponement or cancellation of a trip. Business fliers can undoubtedly take a little more pain, but when the surcharge rises to $40, even they will start substituting conference calls for the unnecessary business trip. Meanwhile, gasoline prices have recently pushed above $1.41 at the pump, and Americans may be starting to feel just a bit queasy about it. Already there is talk that it could crimp a lot of summer vacation plans. Or much worse. In this land of plenty, amidst unprecedented affluence and prosperity, the pinprick of higher fuel prices may be all it takes to pop the balloon. The Associated Press put out a story on Wednesday that said $1.60-a-gallon regular gas is on its way. It's been higher than that in the past, of course, but never in the past were there so many Winnebagos and four-ton passenger cars on the road. "It certainly does hit you in the pocket," said one Lydia Gamos to an AP reporter as she filled up the tank of her Honda with $1.45-a-gallon fuel. Okay, the fat cats won't feel the pinch, even if gas goes to $3.00 a gallon. But even in these prosperous times, there are 50 Lydia Gamoses for every fat cat. And that's why we should worry when the likes of Lydia tell us, as she did, that she plans to cut her driving "to just the least until it gets a little cheaper." Lydia lives at the margin; Lydia is the U.S. retailer's mine canary, if not yet Wall Street's.

A further disconcertment is that the projected $1.60 pump price supposedly will continue to bear down on us regardless of what OPEC does. We are told that the oil producers are by now sensitive to the possibility that still higher prices could kill the global economy. Without a doubt. But does anyone think the OPEC ministers can fine tune the equation, or that prices will drop back quickly if production quotas are increased, as reported, by 1.6 million barrels a day? No, the damage is done. And regardless of whether OPEC turns generous, America and the world will still have to watch wholesale and retail prices continue to ratchet higher for the next six months. I have my doubts that the financial and equity markets will sit patiently by as this scenario comes to pass.

With gold stolen by Conquistador Francisco Pizarro from the Inca Empire in 1532, Spain financed its conquest of Europe.
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