[Posted 7:00 AM ET]
Last week I noted that President Bush’s most significant recent
speech was his commencement address to the cadets at West
Point on June 1st. This past week others picked up on the theme,
including this editorial comment from Monday’s Wall Street
Journal addressing the President’s notion that America must act,
preemptively if necessary in the war on terror, as well as on the
concept of a new Homeland Security department.
“The terrorist threat won’t be defeated by bureaucratic
reshuffling at home, however helpful that may be, but by
attacking the terrorists abroad, before they can strike us. That’s
the way to ensure real homeland security.”
President Bush has authorized a new policy of preemption,
“strike first,” which has everything to do with future action
against the likes of Iraq and North Korea. But there are risks to
neighboring countries…in some instances we may be using
tactical nuclear weapons, get used to it…and the President down
the road is going to have to communicate to the American people
(at least those who don’t read this column) as to why we are
initiating action in order to save our way of life.
On “Meet the Press” last Sunday, Tim Russert summed up our
nation’s dilemma succinctly in interviewing Tom Ridge. “Isn’t
this a race to get them (the terrorists or the nations harboring
them) before they blow a nuke?” Yes.
As for Iraq, I am a little more confident that we could see a move
by year end. Secretary of Defense Rumsfeld minced no words
this week in calling Saddam a “world class liar” when he denies
the nation is developing weapons of mass destruction, and it is
interesting that at least in the field of military cooperation, the
U.S. and Saudi Arabia may be resuming joint exercises in the
near future. Also, it shouldn’t be forgotten that for some time
now, every key military figure who would be involved in a
campaign against Iraq (except Tommy Franks) is supposedly in
the region.
On a slightly different matter, as you may have noticed over the
years, as some issues become over-saturated in terms of media
coverage, I tend to back off. The goal here is to be out front, like
I was last December with Enron, but when everyone else is
chiming in, including those far from qualified to do so, that’s the
saturation point and there is little I can add of value beyond a
point or two for the archives.
In my opinion we have now reached this level when it comes to
the issue of whether or not our civil liberties are being trampled
on by the war on terror. Let’s face it, despite the very vocal
critics who lament that the law may have been abused in a few
instances with regard to some of the detainees, over 80% of the
American people agree that this is the price we have to pay as a
society to help ensure our safety these days. There will be
individual cases where each of us may disagree with the
disposition of same, but for the purposes of this column going
forward, don’t look for a lot of commentary from yours truly.
Which brings me to the real point of this mini-diatribe, the
Maureen Dowds of the world. This week, in slamming the
White House, Ms. Dowd compared al Qaeda’s terror acts to
President Bush unnecessarily striking fear with the constant
alerts.
I have had a lot of discussions with my friends on this topic and I
imagine the vast majority of you have reached the same
conclusions. We’re all big boys and girls, fully capable of taking
the truth and then developing our own action plans. I want to
hear the warnings, and I also want to hear of our successes in
disrupting terrorist plans (at least that which they can tell us).
This doesn’t mean we run and hide. But it also means you
exhibit a little common sense. Personally, I obviously have no
trouble traveling around by myself to places like Turkey, but I
still wouldn’t recommend hopping on an American Express tour
bus in Italy this summer.
So arm us with all the knowledge you can impart, Mr. President.
We’re with you and, most importantly, we trust you are sincere
in your motives. As for critics like Dowd, I have reached the
saturation point. She’s now officially irrelevant.
Wall Street
Despite another Friday comeback, the major U.S. equity indexes
fell for a 4th week in a row, as the Dow Jones now sits at 9474,
off 1.2%, while Nasdaq dropped 2% to 1504. Just for
comparison, here are some key benchmark figures you may want
to keep in the back of your mind.
9/10: Dow Jones – 9605…Nasdaq – 1695
9/21: Dow Jones – 8235…Nasdaq – 1423
Unfortunately, this bear market just gets uglier and uglier.
2000: DJ (-4.6%), S&P 500 (-9.1%), Nasdaq (-39.3%)
2001: DJ (-5.4%), S&P 500 (-11.9%), Nasdaq (-21.1%)
2002: DJ (-5.5%), S&P 500 (-12.3%), Nasdaq (-22.9%)
As indicated above, however, the results on the week could have
been far worse as a sudden plunge in consumer sentiment for
June was released shortly after Friday’s opening and the Dow
Jones dropped more than 200 points, exacerbating a negative
trend that was precipitated by another warning in the tech sector,
this time from Sprint. But the Dow ended up losing only 28 on
the day and Nasdaq actually closed up, after coming within
earshot of the September lows.
Earlier in the week it was a negative shock on the retail sales
front, particularly worrisome since the American consumer has
been basically carrying the world on its shoulders the past few
years. After a while, you get tired from the heavy burden,
especially if you’re also loaded to the gills with debt.
It also didn’t help matters when the latest poster boy for
corporate malfeasance, Dr. Sam “psst…over here” Waksal was
arrested for insider trading in shares of his own company, the
once high-flying biotech, Imclone. Martha Stewart, friend of Dr.
Sleaze, may also have her, ah, in the wringer, as she conveniently
sold her own Imclone shares the day before some very negative
news.
Add it all up, folks, the economy, consumer sentiment, still
falling capital spending in the technology sector (which was to
lead us to the promised land), and our mob culture in the
corporate boardroom and it isn’t a pretty picture. A lot of
damage has been done…and there’s also a war on, the financial
costs of which will be staggering.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.79% 2-yr. 2.89% 10-yr. 4.31% 30-yr. 5.42%
Another huge rally in Treasuries as weak economic data
combined with the sell-off in equities and the Karachi bombing
to lead to another flight to quality.
On the inflation front, noted economist Ed Hyman of ISI sees a
rate of zero by yearend, while one look at the current figures
obviously points to a Federal Reserve that will be sitting on its
hands when it next meets June 26. The latest consensus also has
the Fed twiddling their thumbs until September, and, quite
possibly, well beyond that, particularly if further weakening or
another attack occurs.
As for Alan Greenspan, U.S. News reports that he will leave
after the midterm election, but only if Republicans regain the
Senate, thereby ensuring that President Bush gets to seat
someone of his choosing.
–Europe: For those who are perplexed as to why the U.S. stock
market isn’t responding to economic growth, one need only look
at Britain for a further example of why this isn’t always
necessarily so. The recovery there is under way and domestic
demand has been hot, while housing prices in London are now
expected to rise an astounding 20% this year. So what’s the
problem? The very same issues. In areas like housing it’s
simply too hot, and the Bank of England will soon be forced to
raise interest rates in an attempt to cool things down a bit. Ergo,
the London market is focusing on this last prospect, rather than
the otherwise good news. That’s a lesson to be learned when
looking at our own situation in the U.S.
Separately, media giant Rupert Murdoch (who owns Britain’s
Sun and Times, among others) has threatened to run a campaign
against the euro.
–Latin America: Meanwhile, south of the border, Venezuela’s
President Chavez could be removed from office in a coup, again,
any day now as the country’s economy implodes and
unemployment hits 15%. While in Argentina, the jobless rate
remains around 16%.
Then there is Brazil. For months now, ever since Argentina
cracked, most market experts have said there would be no
contagion throughout the region. I found this to be an interesting
concept…at best. Well, Brazil is now breaking down and despite
a little comeback at week’s end, the big concern is the
presidential election in October, where a left-wing, big
government candidate could emerge victorious; not the kind of
thing that stock and bond investors like to hear. So if you’re
“long” Latin America, you have my sympathy.
–Jim Grant of “Grant’s Interest Rate Observer” on Dennis
Kozlowski and the other scumbags.
“The social contract implicitly struck in a capitalist society is that
the rich can become as rich as they want as long as the poor can
become rich, too. The contract is violated when the rich take
what isn’t theirs.”
–Shares in Tyco traded as low as $8.25 on Tuesday, but then
rallied up to $13.80 by the close on Thursday, finishing the
week at $13.50. The stock turned when the company received
approval for the spin-off of its CIT financial unit in an IPO.
–Good news! The strike at Hershey Foods is over! There will
be no chocolate shortage come Halloween, though as my
Canadian friend Harry K. continually reminds me (slight
exaggeration), Canada has superior candy.
–More good news. Discount air carrier Ryanair continues to
kick butt on soaring European demand. I remember sitting at
Shannon Airport years ago, waiting to board my overpriced, poor
service Aer Lingus flight, staring out at the runway, transfixed by
a plane with “Ryanair” emblazoned across it. What the hell is
that? I thought then. Why didn’t I see this would be a great
investment? I think today.
–Abby Cohen is bullish! [Stop laughing.]
–Schwab warned for its coming quarter as trading volume is off
some 25% from year ago levels. But I have to throw my 2 cents
in on the “controversial” Schwab commercial where the branch
manager tries to get his sales force to unload a loser stock on
unsuspecting clients, with playoff tickets as an incentive. “Let’s
put some lipstick on this pig.” CBS refused to air it, because of
the advertising dollars it receives from Merrill Lynch, though
you’ll never get CBS to admit that. But I have to tell you, I’ve
been there and the commercial depicts exactly what happens in
some firms.
–Energy: Oil rallied back some after a 3-week losing streak as
the volatile inventory picture turned back in favor of the bulls.
FYI…the U.S. now pumps 24% of its energy needs from the
Persian Gulf, the highest percentage since 1992. Pitiful.
–I was reading an industry publication and saw a quote from an
individual I know well from my prior career. President of the
firm, he urged his reps to do something with their clients cash.
“Sitting in cash is, to some extent, irresponsible,” he said. It
wasn’t the last 2+ years, my man.
–In January 2001, Lucent had 106,000 employees. By this
coming September, the company will have pared back to just
50,000. Lucent issued its 98th revenue warning this week.
–Online retail sales are now known to have risen to $51 billion
in 2001, but this represents only 2.4% of total retail sales of
$2.16 trillion. The figure should exceed 3% in 2002, still a far
cry from the Net wizards’ original projections of just 3 years ago.
–There is some good news, if you’re a contrarian, in the
sentiment readings, as exhibited below in my weekly bulls /
bears data. It is deteriorating rapidly.
–My portfolio: Recently I made a few changes, which dropped
my equity exposure to 20%. Well, now it’s around 15%, and
that’s not because I sold anything else, but rather the fact that the
few stocks I still own have been whacked right along with the
rest of the market. As for the now 85% in cash and bonds, the
bond portion is down 1.5% this year since I’m invested in good,
old-fashioned junk. Now losing 1.5% on a portion of the
portfolio isn’t all that bad these days, actually, but I’m a little
disappointed in my own judgment. So I’m trying to rationalize it
all by saying I have effectively hedged my otherwise gloomy
outlook on the U.S. economy; junk responding well in times of
economic growth, normally. Thanks for allowing this bit of self-
analysis. It’s cheaper than seeing a shrink.
International Affairs
India / Pakistan: The much-maligned U.S. State Department
deserves more than a bit of credit for helping to stave off full
conflict here. First it was Colin Powell and his diplomatic high-
wire act earlier in the year. Then it was our new main man,
Deputy Secretary of State Richard Armitage, whose no B.S. style
won him praise from the leaders of both nations. Of course, as
Friday’s terrorist bombing in Karachi reminds us all, true peace
in this region is unattainable. What we should be hoping for is
just enough stability, both here and in the Middle East, to allow
the U.S. to focus most of its attention on the coming battle with
Iraq.
Israel: The Bush Administration as early as next week may be
calling for a “provisional” Palestinian state, with details to be
worked out later if true reform takes place in the Palestinian
Authority, i.e., Arafat and crew exit stage left. President Bush
still refuses to set a timetable, but Egypt and Saudi Arabia,
among others, will probably go along with the proposal. We’ll
see if the Sharon government does, too.
Turkey / Cyprus: Watch this one. It may not be a market moving
event, but the UN has given Greece and Turkey until June 30 to
work out a final solution for the crisis that dates back to 1974.
This is a divided country, with a Turkish-Cypriot sector
recognized only by Turkey itself. But whereas there was some
cause for optimism earlier in the year, recently Turkey has been
shipping more troops onto the island and now has 40,000
stationed there. I’m a supporter of Turkey and sympathetic to
most of their problems, but to act rashly on Cyprus would be a
gigantic mistake and place in jeopardy the IMF money they so
desperately need. [Meanwhile, the Greek-Cypriot “true” Cyprus
will be admitted to the EU in 2004.]
Russia: The riot following one of Russia’s World Cup matches
cannot just be sloughed off as a bunch of drunken fans brawling.
Police didn’t show up for about an hour and two foreigners were
killed, continuing a pattern of extremist action against those who
aren’t of Russian extraction. As much as I’ve been praising
President Putin’s pragmatism the past year, the incident points
out the many internal problems he still faces, particularly in
terms of the ultra-nationalists who perceive Putin as caving into
the West.
France: With one more round of parliamentary voting to go, it
appears that President Chirac will have a substantial majority and
won’t have to deal with any power sharing arrangements. A
good thing. I’m optimistic that Chirac will finish off his
miserable career on a high note. Separately, France arrested 5
individuals this week who are suspected of collaborating with
shoe bomber Richard Reid.
Afghanistan: Well, the Loya Jirga went off without much of a
hitch and we congratulate Hamid Karzai on being selected
Afghanistan’s official leader. The man has done an exemplary
job in his interim role, but everyone has also forgotten he once
supported the Taliban.
Philippines: Our heart goes out to missionary Gracia Burnham, a
real profile in courage, who lost her husband to the Abu Sayef
rebels and was injured herself in a failed rescue operation.
Random Musings…Special Saudi Arabia Edition
Bad spell for them…to wit.
–World Cup: Germany 8 Saudi Arabia 0…Cameroon 1 Saudi
Arabia 0…Ireland 3 Saudi Arabia 0…12-0…See ya!
–3 Saudis get caught by Moroccan authorities while plotting to
kill U.S. and British personnel. Morocco thus vaults into the
editor’s Top Ten Nations List.
–Saudi wannabe, Jose Padilla, is caught.
–19 Saudis die from drinking cologne (a common substitute in
the country for alcohol, use of which is prohibited). Let us pray
this is the intelligence level of some of those plotting against the
U.S. [Must have been Aramis.]
–Prince Ahmed bin Salman sees his horse, War Emblem, lose
out on the Triple Crown. Now, personally, I wanted War
Emblem to win for the good of the sport, but I found it
unbelievable when trainer Bob Baffert said before the Belmont
that he had been “kept out of the loop” and hadn’t communicated
with the Prince, a member of the Saudi royal family, all week.
The Prince said he had family obligations. Of course the real
reason behind his absence was the fact that he was scared the
New York crowd would give him grief for his nation’s
culpability in 9/11. Which once again shows you how the Saudis
misjudge Americans. Those folks at the event couldn’t have
given a damn about Ahmed bin Dirtball. They were simply there
to maybe catch a bit of racing history and party, which is what I
would have done had I been in attendance.
Random Musings, Part Deux
–Frank Rich writes a biweekly op-ed piece for the New York
Times and, while I may only agree with him about a third of the
time, it is worth reading. So last Saturday he blistered Vice
President Cheney, not only for his Halliburton stewardship, but
for his efforts on the security task force he was assigned to chair
going back to May 2001. You can be a huge Cheney supporter,
as yours truly is, but you can’t help but see the potential
problems developing come 2004. Of course the world could
change twice over by then. [Mr. Rich, while liberal, is also a
huge Giuliani supporter.]
–Permanent repeal of the death tax was defeated in the U.S.
Senate, so after 2010 we revert back to the old schedule before
the 2001 tax cut plan took effect. To me this seems like such an
elementary issue of simple fairness. It isn’t about protecting the
wealthy and their ability to pass on the bulk of their assets, it’s
about the fact that this money has already been taxed a gazillion
times. Every American should be outraged and I think the Bush
Administration makes a big mistake when they keep harping on
the family farm angle, while ignoring the bigger picture.
–Recently, Harvard’s faculty chose the president of the Harvard
Islamic Society to give a commencement address titled
“American Jihad.” As Daniel Pipes pointed out in the New York
Post, the speaker, Zayed Yasin, is nothing more than a militant.
So we wonder, of course, just whose side many of the faculty at
our esteemed institutes of higher learning are on? For a nice
contrast, however, my own alma mater, Wake Forest, had
Senator John McCain send off the students. Check out my “Bar
Chat” link for the text.
–In this week’s installment of “Lynne Cheney: Great American,”
as a service to parents we list Ms. Cheney’s top 3 children’s
books: “The Little Engine That Could,” “The Giving Tree,” and
“Johnny Tremain.” Of course she has a best-seller of her own
these days, “America: A Patriotic Primer,” which will now
become my gift of choice for friends who have a newborn,
replacing Bill Bennett’s “Book of Virtues.”
–Speaking of Mr. Bennett, in a review of his latest tome (the title
of which escapes me, sorry), Senator Jon Kyl highlighted a
brilliant line.
“What is not taught will be forgotten, and what is forgotten
cannot be defended.”
–The glorification in these parts of the death of John Gotti is
really despicable. What’s even worse are the pictures of the 14-
and 15-year-olds hanging out at Gotti’s old clubhouse, the Mob
wannabes. This guy was nothing more than a killer. Of course I
also still reserve the right to call “The Sopranos” my favorite
television program.
–Look for Dennis Kozlowski to assume control of the Gambino
crime family in the near future, at least until he is incarcerated at
Allenwood.
–So Sam Waksal once dated Martha Stewart’s daughter. What a
pig.
–Watch for a story on potato chips. The World Health
Organization has called an emergency meeting after 3 European
studies revealed that chips are the most carcinogenic food in
existence. The FDA, however, is avoiding the issue.
–The drought is over in the New York area, though officials
haven’t declared it so as yet. Unfortunately, the same cannot be
said for the Western U.S. As for the Colorado fire that threatens
Denver’s suburbs, from what I understand it was started by some
jerk who set an illegal campfire. So since we can’t put the idiot
to death, I’m sure 99% of Colorado residents wouldn’t mind
seeing the guy shipped to Karachi, with a New York Yankees
cap glued to his head.
–Have you seen the ads for the new Disney film “Lilo &
Stitch”? Whose brilliant idea was this one? That creepy
character (Stitch) is already giving me nightmares.
–Speaking of nightmares, Bill Clinton earned a cool $9.2 million
in speaking fees last year.
—–
We pray for the 3 Americans who lost their lives in the military
plane crash in Afghanistan; Sean Corlew, Anissa Shero, and
Peter Tycz.
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $320
Oil, $25.94
Returns for the week, 6/10-6/14
Dow Jones –1.2%
S&P 500 –2.0%
S&P MidCap –2.7%
Russell 2000 –2.4%…small caps have deteriorated badly.
Nasdaq -2.0%
Returns for the period, 1/1/02-6/14/02
Dow Jones -5.5%
S&P 500 -12.3%
S&P MidCap –2.5%
Russell 2000 –6.0%
Nasdaq -22.9%
Bulls 42.9%
Bears 34.7% [Source: Investors Intelligence]
Note:
I have President Bush’s key June 1st policy address on my “Hott
Spotts” link.
Have a great week.
Brian Trumbore
