Banana Republic

No, I'm not referring to some sweltering hamlet buried deep in the jungles of the Amazon. And I'm not referring to a formerly hip teenage clothier, either. What I am referring to is the United States of America. Yes, as hard as it is to believe, this once proud nation admired for its freedom, moral veracity and peaceful power transitions has been reduced to just another banana republic.

In other words, 200 years of perfunctory civility between the combatants for the highest office in the land (figuratively speaking, of course) is gone, as witnessed by the citizenry in Florida pumping fist and waving banner over the outcome of Tuesday's Presidential election.

Sadly, television pictures of this spectacle looked as if they could have originated in any third-world country where democracy is as fragile as a condor's egg, except these protesters were strangely more wrinkled and gray compared to your average instigator, which is indeed unusual considering mayhem is usually a testosterone-driven event.

The fact is, though, Florida's seasoned citizens had good reason to take to the streets, and that reason is they were victims of a complicated (and therefore fraudulent) voting system. Ask any Democrat and he will gladly tell you the voting system employed in Palm Beach county was as complicated as Einstein's Theory of Relativity, which is great news for the rest of us who thought this theory was hopelessly beyond comprehension. It turns out the theory is no more complicated than finding a political candidate's name on a ballot, then following an arrow from said candidate's name to a punch hole, and then punching out that hole with a small sharp instrument. Who'd have thunk such a thing?

All kidding aside, as we all know, the real victims of this election are not Florida's aged, though don't get me wrong, they are victims, but not for the obvious reasons. They are victims because they will be ridiculed for their inability to follow simple directions, which will be added to the ridicule they already receive for their unorthodox driving methods, such as covering vast distances with their left turn signal engaged, driving 20 mph slower than the flow of traffic and relying on kamikaze maneuvers to get in and out of parking spaces.

No, the real victims are us poor souls who look to the stock market for profit and fun.

Case in point. Early last week speculation of George W. Bush taking office had the broader market moving higher, but that quickly changed once the subsequent uncertainty and confusion surrounding the outcome of the election drove the major indices lower through the remainder of the week.

Hit particularly hard was the Nasdaq Composite Index (COMPX), which in addition to having to deal with the election mess, had to deal with Dell Computer's (DELL) less-than spectacular earnings report. The desktop computer giant reported it had earned $0.25 per share in the quarter, matching the First Call estimate. Revenue rose to $8.3 billion from $6.8 billion a year ago, a 22 percent increase. However, the company stated that it expects revenue growth of only 20 percent next year, below analysts' estimates of around 24 percent. Only two years ago, Dell was growing revenue at a 50 percent clip. The company finished the day down $5.38 to $23.00.

Needless to say, the volatile COMPX wasn't the place to be trading on Friday, or the entire week for that matter. The tech-heavy index was routed on Friday for 171.36 points, or 5.35 percent, to close at 3,028.99, only three points above its 52-week low of 3,026.11 set on October 18. And for the week, the COMPX shed 422 points, or 12.24 percent, after falling five consecutive days. This give-back was the index's biggest in nearly seven months.

The week's loss again means the COMPX is challenging support at the psychologically-significant 3,000 level, which it has done six times so far this year. It also means we are still stuck in this frustrating month-long 3,000-to-3,500 trading range.

If misery truly loves company, Dell investors shouldn't feel so lonely. Also tanking on Friday was Internet server king Sun Microsystems (SUNW), which lost $8.44 to $89.19, setting it back nearly $25 for the week. Meanwhile, long-distance carrier WorldCom (WCOM) lost $0.63 cents to $15.50, its lowest level in more than three and a half years, and Internet routing Cisco Systems (CSCO) dropped another $3.19 to $51.06 despite reporting stellar quarterly revenue and earnings growth on Tuesday.

Speaking of Cisco, it's been a while since we've examined the Triplets (Microsoft, Cisco and Intel) in this column. As I've said before, as the Triplets go, so goes the COMPX. And looking at the Triplets, it's no wonder the COMPX has been spiraling down. Since peaking at $76 in early September, Intel (INTC) has given back half its value and all of its premium to trade at a very pedestrian price-to-earnings (P/E) ratio of 25. Also fairing poorly over the past two months, has been Cisco Systems. Since peaking at $70 in September, the company has lost 29 percent of its value. However, unlike Intel, Cisco still sports a precarious P/E ratio of 123, so the company could still be vulnerable further selling pressure.

Bucking the sell-off has been Microsoft, which is trading near the same level it was two months back. In September, the software giant was trading at $70 a share. Friday, it closed at $67.50. However, that doesn't mean that Microsoft has flat-lined through September and October. In fact, during most of this time, Microsoft was selling off, trading as low as $49 a share on October 17th. Since then, the company has rallied on speculation the business-friendly George W. Bush will become the country's 43rd President and that the company will finally settle its legal wrangling with the Department of Justice.

As of today, I don't think there is much downside risk in either Microsoft and Intel. Cisco, though, is another matter. I still think the company is too-richly priced in this market. Out of the big-cap tech sector (Dell, Oracle, Microsoft, Sun Microsystems, Intel, WorldCom), it's the only company still commanding a triple-digit P/E ratio. I just don't think it will be able to demand such an accommodation much longer. The fact is, Cisco still needs at least another $20 haircut to bring its P/E inline with its siblings. For that reason alone, I'd be leery of buying, even though many technicians believe $50 is natural support for the company's stock price.

Another reason I'm in no rush to buy Cisco (and many other tech issues for that matter) is that 2001 profit growth forecast for the companies comprising the S&P Technology Index has been cut to 19 percent from 23.8 percent, according to Bloomberg. What's more, in January 1999 the stocks in this index sold at an average P/E ratio of 75 times recent earnings. That ratio has since fallen to 40 over the past 12 months. However, it's still 50 percent higher than the S&P 500's current P/E ratio of 20.

Obviously, the New Economy issues didn't fare well last week. So how did the Old Economy issues fare? Better, but not much.

Like the COMPX, the Dow Jones Industrial Average (INDU) tumbled Friday thanks to the Florida fiasco and Dell's disappointing earnings report. The INDU lost 231.30, or 2.13 percent, to close at 10,602.95. Slower growth in Dell's personal computers dragged down the blue-chip averages computer hardware components. Hewlett-Packard tumbled $3.81 to $39.13 while IBM tanked $6.44 to $93.00.

For the week, though, the INDU fared better than its tech- heavy counterpart, falling 215 points, or 2 percent. Losses in the INDU's tech components were offset by gains in its consumer products components, namely Proctor & Gamble (P&G), Coca-Cola (KO) and Philip Morris (MO). Unfortunately, these gains weren't enough for the INDU to maintain support at its 200-dma, which means the next significant level of support is 10,600. But since the average is only three points above that, 10,500 becomes the realistic support level.

As for broader market action, the S&P 500 (SPX) also sank on Friday. The broad-based index closed 34.16 points, or 2.44 percent, to close at 1365.98. For the week, the SPX posted a loss of 4.25 percent, which increased its year-to-date loss to 7 percent.

In economic news, there was little worth noting on Friday. With that said, the University of Michigan Index of Consumer Sentiment rose to 107.7 in its preliminary November posting, up from 105.0 in its final October reading. The index is a gauge of consumer outlook for the economy and has a base of 100. As you'd expect, this piece of minor economic data had zero impact on Friday's trading activity.

Looking ahead, it doesn't appear as if this week's economic data sets will have much impact, either. Retail sales for October will be released on Tuesday, with retail sales projected for the month to be flat at 0.0 percent, off sharply from a 0.9 percent increase in September.

The week's most important economic data releases will be issued on Thursday. The Consumer Price Index (CPI) is expected to have increased by 0.2 percent in October, off from a 0.3 percent increase in September. Core CPI (CPI sans food and energy) is also expected to have risen 0.2 percent for the month, off from 0.3 the previous month.

Also on Thursday, we get another Federal Reserve decision on interest rates. Look for the Fed to stand pat. With any luck, perhaps the Fed will finally lower its inflation bias to neutral, which could open the door to interest cuts down the line.

In earnings news, retailers will finally take center stage and could be either a saving grace or a final nail in the coffin of a disappointing third-quarter season. Pay particular attention to JC Penney (-$0.14), Target ($0.23), Home Depot ($0.28) and Wal-Mart ($0.31).

At this point, many traders are wondering if it's even worth getting out of bed on Monday. Call me crazy, but I think it is. I think too many market pundits are putting too much emphasis on the outcome of the Presidential election. Allow me to let you in on a little secret, it doesn't matter who wins. At this point, both parties are so ticked off at one another that you count on little bipartisanship once the matter is settled, which means two years of pure gridlock. Like I've stated in the past, gridlock is what we want.

Here's another interesting fact to hang your hopes on. In three out of the past four years, the stock market has encountered a crisis late in the year, which it inevitably rallied from. In 1997 it was the Asian Crisis, in 1998 it was the Long-Term Capital Management debacle, and this year it's the election travesty. So if past is prologue, don't be surprised if this latest wacky, totally unsuspected turn of events finally lifts the market out of its ten-week morass.

Still, if you want to trade this market, you'll probably want to stay focused on stock groups and individual stocks that show good relative strength, such as drugs, tobacco and food and beverage issues. In my opinion, it's too early to jump back into the tech sector with any abandon, particularly if you have a low threshold for pain.

Of course, that will all change once the Presidential election is settled. To expedite the matter, I'd be willing to let the lisping lumberjack and the mumbling malapropism settle their differences mano-y-mano (in fact, I'd encourage it). Why not return to the times of yore when men were men and no amount of IQ (or lack thereof) would stand in the way of a good physical confrontation (just ask Alexander Hamilton) to quickly and permanently settle a difference?

Unfortunately, I know the answer. Today we live in the litigious, gentrified world of Naomi Wolf and Gloria Allred where all alpha males must settle their differences in court under the guise of good manners and respectability, which means only the Lord knows how much longer the market must be forced to hang in limbo.