06/13/01 SEX, FISH, AND PACKAGED MEAT THE DAILY RECKONING PARIS, FRANCE WEDNESDAY, 13 JUNE 2001 * * * * * * * * * * * * * * * * * * * * * * * * * Dow up 23% in last 6 weeks - where to from here? Nokia loses connection... Global warming?... Fishmeal, sausage casings,
cybersex...and more!
* * * * * * * * * * * * * * * * * * * * * * * * * * * *** In June of 1995, the Dow was only at 4550 and the
Nasdaq was still under 1000. Investors were not unhappy.
Indeed, there were those among us who considered even those
levels as a kind of wishful thinking and dismissed stock
buyers as fools. *** Nevertheless, led by the Fed's 7 rate cuts over the
next 12 months, both the Dow and the Nasdaq took off. The
Dow rose 158% over the next 5 years. The Nasdaq shot up
450%...and then went up another 37% to over 5,000 in early
March, 2000. *** Then, on March 10th, stocks began giving up their excess
valuations. But after correcting more than half the
Nasdaq's gain and a bit of the Dow's, prices are once again
rising. The Dow is up 23% in the last 6 weeks, bringing the
current P/E for Dow stocks to 24. The Nasdaq is up 40%.
Investors losses, estimated at $4 trillion in March, have
been lightened to only $2.8 trillion. *** Richard Russell writes: "History has shown that when PE
ratios are as high as 22, the expected median return over
the coming ten years is five percent. What does median
mean? It means that there may be mini-bull and mini-bear
markets over the coming ten years, but when these are all
averaged out, the median will be below five percent." *** Where to from here? Let's see what happened today on
Wall Street. Eric Fry reports: Nokia told Wall Street, "Sorry, wrong number," and
investors promptly knocked its stock off the hook. The Finnish cell-phone company's shares dropped a
staggering 19% after warning that it would sell about
100 million fewer handsets this year than the 500
million it predicted it would sell just two months
ago. Nokia mentioned as well, that its earnings for
the current quarter might be about 1/4 less than the
Wall Street seers had been expecting. The unwelcome news sent the Nasdaq cascading about 3%
lower within minutes of the opening bell. But by
day's end, the gutsy index finished with less than a
one-point loss. The Dow likewise recovered from early
morning losses to gain about 26 points on the day. The on-again-off-again gold market was "on"
yesterday, gaining $3.60 per ounce to recoup most of
what it had lost on Monday. The barbarous, and ever-
perplexing metal, now stands at $271.75 per ounce.
Gold stocks gained about 3%. French prime minister, Lionel Jospin, mastermind of
the 35-hour work week, advocates yet another way to
undermine his nation's productivity - extend two-
weeks' paid paternity leave. I wonder if Jospin has
thought this through. A recent academic study from
the SUNY, Stony Brook determined that 55% of French
men report having sex two to three times per week.
Only 33% of American men boast of similar
frequencies. What chance does economic productivity
stand against the reproductive kind? (Bill, how do
you find the time to get your work done?) "Corporate America's Profits on the Skids," declares
a Reuters headline. "More than anything else, the
surge in the profitability of American corporations
has been the root of the U.S. stock market's
incredible run in recent years," commented Business
Week recently. Dr. Richebacher responds: "The U.S. profit miracle of
the late 1990s is just another fairy tale...The
reality of American business profits since 1995 is
that they increased at only about 6% per year. Wall
Street celebrated "a profit boom that never
happened," says Richebacher. (see:
The American Profit Myth) Profits are falling - even from the modest levels of
the last 5 years. Dozens of major corporations issue
profit warnings each week. There is no sign of an
improvement and the effects are far-reaching. "A
swift and severe ad slowdown has taken the breath
from more than one media executive," the Industry
Standard reports. The US economic slowdown may be cutting far deeper
than most folks believe. State tax receipts are
collapsing. It turns out that neither jobless
workers, nor investors without capital gains, pay
taxes. Here's a thought. If the consumer is willing and able
to spend us out of recession, why are so many credit
card company officers and board members selling their
stock? Is it not curious that the guys holding a
front-row seat for the consumer credit spectacle are
selling their shares so feverishly? "By far the heaviest selling occurred at Capital One
Financial," the Wall Street Journal reports. "Capital
One's chairman and chief executive officer, Richard
Fairbank, sold one million shares, and Nigel Morris,
the company's president and chief operating officer,
sold 878,146 shares...This year, Mr. Fairbank has
cashed in about $139.8 million of shares, and Mr.
Morris about $100.5 million." Hey, a man's gotta eat,
don't he? *** Hmmm, what else? Global warming, maybe? An article in
The American Spectator describes the work of an
oceanographer who found a way to "concoct a 3,000-year
record of the temperatures of the Sargasso Sea near
Bermuda." What did he discover? Temperatures were warmer in
the medieval era and then turned colder during the 'little
ice age" of the mid-1700s. It appears that the earth has
been warming since then. Maybe greenhouse gases are
accelerating the natural warming process. And maybe they're
not - no one knows. But the record shows that temperatures,
like markets, go up and down on their own. *** I had dinner with Martin Weiss last night. He was in
good cheer when I met him, but we had another bottle of
wine anyway. "Don't worry," said Martin, "the coming global
depression will reduce carbon dioxide emissions much more
than the Kyoto Treaty." That's a comfort. Bill * * * * * * * Advertisement * * * * * * * * * * * UNLIMITED PROFITS - STRICTLY LIMITED RISK We'll help you consistently beat the indexes, the pros -
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assassination, George W. Bush (the senior), fishmeal, cat-
fights between teenage girls, foot-and-mouth disease and
on-line smut have in common? The answer is no joke. In fact, it's a darn cheap stock
selling at just over 1 times sales - with $83 million in
the bank. We asked The Blue Team's Dan Denning to take a
look. SEX, FISH, AND PACKAGED MEAT
By Daniel Denning
In 1953, the eminent George Herbert Walker Bush, future
president and pŠre apparent, formed the Zapata Petroleum
Corporation - an energy company. In 1954, the corporation
created Zapata Off-Shore Company, later headquartered in
Houston, to drill for oil in the Gulf of Mexico.
As you might expect, the firm did well. Bush, president of
the drilling concern, sold out a few years later...and
Zapata became Bush the Elder's meal ticket to Texas oil
wealth. But not before some people think the company's
offshore rigs in the Gulf were used as a staging ground for
the CIA-sponsored invasion of Cuba in 1961. Who really knows about these things. But the Bay of Pigs
was known said to be known in CIA circles as "Operation
Zapata." And the names of two of the landing ships carrying
the 1,300 Cuban-American soldiers were Houston and Barbara
respectively. Coincidence? Maybe. Titillating though,
considering that Bush named his combat aircraft in WWII
after his wife. For New World order conspiracy theorists the Zapata story
only gets better. Zapata - and Bush - have reportedly been
linked to the assassination of John F. Kennedy in Dallas on
November 21, 1962. (One web site our researchers found even
suggests the Bush family fortune was made arming Hitler and
the Nazi's through a series of shell companies set up by
Bush's father Prescott and the white shoe New York law firm
of Brown Brothers Harriman.) From such illustrious beginnings, the Zapata story only
gets bizarre. By the 90's, Bush's connection with the
company long since dissolved, the company sold off its
energy businesses and came under the ownership of financier
Malcolm Glazer. Glazer's interests are many and varied. He's a private
investor with holdings in restaurant and food services
equipment, television broadcasting, baking, real estate,
and health care. He owns the Tampa Bay Buccaneers of the
National Football League. But Glazer's Zapata holdings are by far the most
interesting. Zapata owns 61% of an outfit called Omega
Protein Corporation, once a division of Zapata...now an
independent public company and the largest U.S. producer of
fish meal and fish oil. Both come from menhaden - an
inedible fish caught of the East Coast and in the Gulf of
Mexico. Fishmeal is primarily used as a protein additive for animal
feed. The fish oil gets exported to Europe for use in
margarine, shortening, and a handful of industrial uses -
which we could not discover. Admittedly, if odd, it's a short leap from oil rigs in the
Gulf to fish byproducts produced there. But that's only
Zapata's core business. Since Glazer came on board - along
with 14 other Glazers on the payroll - Zapata has launched
itself into businesses as diverse as on-line sex and food
casings for frankfurters, bologna, and salami. If the Glazers can be accused of anything, it's having too
much cash and too little sense. In 1999, at the zenith of
the Internet boom, the Glazer's launched Zap.com and
suffered the fate of so many future failed on-line
entrepreneurs. In the heady days of Internet start-ups, theory was all
that mattered. Even if by experience Zapata was a fish-meal
company, they could theoretically still make a fortune by
tacking a ".com" on to the company's name. The goal of
Zap.com? To become "...a leading advertising and e-commerce
platform by aggregating Internet users through a network of
independent third party websites." Huh? The company added: "We do not have any significant assets
or a network in place and we have not formally entered into
any strategic relationships nor generated any revenues." As
to those (non-existent) revenues, the company stated
"Zap.com will...seek to generate revenues from the network
through advertising, e-commerce, sponsorships, and other
means." Only later would it become clear what the "other means"
might be. But the company was optimistic. "Zap.com is
focused entirely on the future - a future in a global
Internet marketplace whose limits are not yet visible." There aren't too many web sites that people will pay to
see, unless the goodies on the site are especially
valuable...or just plain raunchy. Zapata's first bid for
on-line site was a hip, smart, and sexy San Francisco-based
website called Bianca's Smut Shack. We paid a visit to the Smut Shack...in the interest of
research, of course. We wanted to see what kind of asset
Zapata tried to acquire. No less an authority than Wired
magazine called the Smut Shack "an on-line community of the
Web's naughtiest intellectuals - it's smart, high-minded, a
peep of class amidst orgiastic moans of crass." Bianca,
founded in 1994, was one of the first on-line sites
dedicated to the not-so-sophisticated art of cyber sex. Zapata backed out of the deal. They opted instead for a
quartet of different sites designed to cater to niche web
markets. The most interesting of these four... a site
called: www.sissyfight.com. "Sissyfight" is an interactive
game played mostly by teenage girls on-line. The website describes the game as "an intense war between a
bunch of girls who are all out to ruin each other's
popularity and self-esteem. The object is to physically
attack and majorly dis (insult) your enemies until they are
totally mortified beyond belief." Like, a totally awesome
business model. Totally. Our experience is that teenage girls do this quite well in
real life, without the help of the Internet. Yet The New
York Times called Sissyfight "fascinating." And it was
favorably reviewed in such august publications as Wired,
Salon, Details, and Seventeen. Alas, the "visibility" thing caught up with Zap.com...and
all was for naught. In December 2000, Zapata shut the site.
The owners concluded: "operations were not likely to become
profitable in the foreseeable future." Zapata has since
moved back into the two businesses it knows: fishmeal...and
sausage casings. Zapata's other main holding is a 38% stake in Viskase
Corporation. Viskase makes "casing solutions." That is,
they make "cellulosic casings" used for packaged meat.
Things like ham, bologna, and "other" processed mystery
meats...a useful business we're inclined to believe very
few people know how to do profitably. Viskase is modest, but respectable - with over $48 million
in sales in the first quarter of 2001... down7.2% from the
year before. The main drag on earnings attributable to a
decline in European sales in the wake of the foot-and-mouth
and mad cow scares. Right now, Viskase has a market cap of $17 million with $20
million in cash. The current share price of $1.11 is just
off the 52-week low of .90 cents. What remains attractive about the parent company, Zapata -
is the $83 million in cash it's sitting on. To what extent
is the Glazer family a liability? Who knows...but the real
question seems to be - is that much cash too good to pass
up at the current price of $21.25? With a pedigree as diverse as this one... Zapata might just
be one for the trophy shelf. Regards,
Dan Denning,
On the prowl for cash-rich survivors...
Daniel Denning is the editor of The Daily Reckoning
Investment Advisory. If you're interested in investment
ideas and insights consistent with those you read in the
Daily Reckoning please enroll in - The DR Blue Service
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