[Posted 7:00 AM ET…Laramie, Wyoming]
Commitment
Those of us who have long failed to see what was so great about
Jimmy Carter took note of the fact that it was Carter, with Bill
Clinton’s blessing, who botched the whole 1994 arms pact with
North Korea, wherein the North was to freeze its nuclear
weapons program..
Senator John McCain commented in a Washington Post op-ed
piece.
“The feckless pursuit of accommodation with regimes that scorn
our reasonableness and revile our purpose is no substitute for a
policy that matches the menace posed to America with the means
and the will to confront it…
“North Korea teaches us that if we sleep in the face of the Iraqi
threat today, we may be sleepless tomorrow.”
I have been writing the past few months about “commitment”
when it comes to our showdown with Saddam. The American
people haven’t always come through in this regard, thanks in
large part to a failure in leadership at the top. Now it’s time for
the U.S. to stand tall, starting with the U.N. Security Council.
The Bush Administration has sent out conflicting signals the past
few weeks and it’s hurt our efforts to obtain the appropriate
backing. Everyone, from the President on down, is to blame, to a
certain extent, but as many an editorial board noted this week,
it’s now time for the U.N. to put up or shut up.
With regards to France and Russia, as the Post opined, it needs to
be made clear to both that they “risk destroying the very
institution that serves them…Do they stand with the U.S. or
Saddam?” At last, however, it appears the bluff will be called
early this coming week, as hopefully President Bush maintains
the ability to act militarily should inspections fail, as we know
they will.
And if there was any doubt that Saddam will miscalculate again,
I present Exhibit A, the bizarre emptying of Iraq’s prisons. One
of my stops earlier in the week was in Woodward, Oklahoma,
which is near a state prison. There is a sign along the road,
“Hitchhikers may be escaped inmates.” In Iraq these days, that’s
clearly the case. Or, as NBC’s Keith Miller so aptly put it, “The
people of Iraq will be double-locking their doors.”
Aside from common criminals, though, Saddam also released the
very political prisoners who will undoubtedly turn against him.
But as we learned again this week in the Washington area, all
mass murderers/serial killers make the dumbest mistakes, and
Saddam just made another one.
As for commitment, the world, particularly the nations of the
Middle East, are waiting to see if the U.S. has it. If we do, then
as I’ve long argued, the people of Iran and others in the region
will eventually rise up. However, if we waffle and go about
things merely half-ass, it will come back and bite us in
incalculable ways.
Historian Victor Davis Hanson summed it up best in a recent
piece for the Weekly Standard.
“We should understand that sometimes temporary chaos may be
better than enduring stasis.”
Wall Street
The major market averages had their third straight weekly gain,
with both the Dow Jones and the S&P 500 each tacking on 1.5%
(to 8444 and 897, respectively), while Nasdaq continued its
surge, adding 3.4% to 1331, or just shy of 20% since the October
9 closing low of 1114.
But no ranting and raving from your editor this week. I’m Mr.
Broad Trading Range, after all, but I do have to take note that,
still, no one is really coming out in their earnings
pronouncements and saying that the coast is clear. To the
contrary, we continue to have key players like Texas Instruments
and Taiwan Semiconductor either reducing future earnings
estimates and/or cutting back further on capital spending.
I would also note that if you can trust the earnings, you’re a
better man than me. S&P, for example, is introducing a new
measurement, what it calls “core” earnings versus the more
commonly used description of “operating” earnings. Basically,
core includes options and pension-related expenses, operating
doesn’t. In case you don’t think this is significant, it’s the
difference between saying the S&P 500 collectively earned about
$44 over the past 12 months, versus S&P’s new ‘core’ figure of
$18. Granted, it’s going to take a long while before the Street
begins to incorporate the new definition, but with a current S&P
500 level of 897, you start doing the math.
The other issue is that with the recent rally, the market certainly
appears to be discounting what is already forecast to be a solid
2003 on the earnings front, with gains of 18-20%. I hope we get
there (since I’m not currently ‘short’), but I sure as heck don’t
see it, especially when recent earnings gains have largely been
attributed to price-cutting, not pricing power.
Merrill Lynch chief investment strategist Richard Bernstein (who
has been appropriately cautious) summed it up the other day.
He’s “not so sure” we’re out of the woods and investors should
expect basically flat returns over the next 12 months.
On the macro economic front, durable goods orders plummeted,
while the housing sector continued to post solid numbers. The
weekly jobless claims numbers were better, but this figure is so
full of errors (both ways), it would be better if they just released
it monthly as part of the overall employment report.
Meanwhile, the Federal Reserve handed out its latest Beige
Book, a broad survey of economic activity, terming it “sluggish.”
The Fed added that “retail sales (are) weak across the nation.”
Some recovery. Separately, Chairman Alan Greenspan once
again pounded the table on what a productive workforce we are,
while failing to note that this contributes to a moribund labor
market.
As for the consumer and the coming holiday season (if the West
Coast dockworkers allow any kind of Christmas), let’s face it, it
isn’t lining up to be a great one as it is, but if something happens
on the terror front, let alone still possible year end action against
Iraq, it could be a disaster.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.61% 2-yr. 1.98% 10-yr. 4.09% 30-yr. 5.08%
Interest rates stabilized, after the recent drubbing, largely due to
the fact that the Beige Book wasn’t conducive to growth and
stocks didn’t exactly skyrocket. All eyes are now on the Federal
Reserve and its next meeting on November 6. Like the election
the day before, no one really has a clue what the Fed will do.
–We still don’t care about Martha Stewart. I wasn’t doing
anything with pine cones this Christmas anyway.
–Energy: The price of crude, as measured by West Texas
Intermediate, fell from $29.60 to $27.05, primarily on talk of a
possible diplomatic compromise on Iraq, along with the more
fundamental fact that many energy companies have yet to see
any real turnaround in earnings. First, certainly lower oil is good
for the economy, and what’s good for the economy will create
demand for all things oily. Second, I still think you are a winner
either way in this sector. Either we get a huge war-induced spike
in prices (and share prices…though you’ll have to be nimble) or
the world will breathe a sigh of relief once Saddam is gone and
the economic outlook may brighten, again, spurring demand, or
both. As for my own stake in the oil patch, after a solid two-
week rally, my precious drillers took a header on Friday and I’m
reduced to living off the land during my second week of
traveling across America.
–You learn a lot just driving around new towns, like my visit this
week to Colorado Springs. On two occasions I passed a
mammoth Intel operation and the parking lot was one-third full,
at best. That tells you something. On the other hand, I went to a
mall anchored by Sears and J.C. Penney and there was hardly a
soul inside. But across the street was a Wal-Mart Superstore and
it was jammed. You know, some people charge good money for
insight like this.
–The State of Massachusetts is tightening its investigation of
CSFB and its investment banking/IPO practices. Meanwhile,
layoff announcements across Wall Street continue to be a daily
occurrence, one victim being CSFB’s chief investment strategist,
Tom “Wrong Way” Galvin, one of the era’s true shills.
–Nextel issued another solid report, along with AT&T Wireless,
so at least these two players appear to have a formula for survival
in this cutthroat business.
–Tyco, AOL Time Warner, and Bristol-Myers all were forced to
restate earnings because of past accounting transgressions, yet
the price in all 3 rose because they didn’t cheat as much as
expected. What a country!
–All of my hotel rooms thus far on the trip have had CNBC,
which can be a bad thing, especially when you see the following
graphic:
“The Dow fell 6.5% after the Pearl Harbor was bombed.”
You read that right. What a sad, freakin’ commentary on the
state of education in America. That was no mistake, folks. The
22-year-old college grad who wrote it has no clue what Pearl
Harbor was all about.
–Inflation Watch: Not that this is a surprise, but the College
Board reported that tuition at public colleges is up 10% over the
last year (and look what you get?). Coupled with the falling
stock market, this severely impacts the ability of the middle-class
to make ends meet, which also means it has a deleterious effect
on consumer spending. And even the Fed, as part of its Beige
Book report, finally acknowledged the rising cost of healthcare
and insurance premiums.
–IBM is laying off 2,100 in Hungary. Just another case of
globalization gone bad.
–Amazon.com issued its earnings report and said all was rosy.
Sure, if you like what is still a money-losing operation (by
generally accepted accounting standards). Amazon’s share price
is way overvalued, as Prudential recognized in issuing a “sell”
rating.
–Charles Gasparino wrote a piece in the Wall Street Journal
proclaiming that New York Attorney General Eliot Spitzer’s
probe is honing in on Citigroup chairman Sandy Weill’s own
culpability in the conflicts of interest scandal. Immediately,
everyone rushed to Weill’s defense and treated Gasparino like he
was a liar. There has been no doubt since Day One that Weill is
guilty of influencing Jack Grubman, but for his part Weill issued
a pitiful “I have never…” denial of any wrongdoing, just like Bill
Clinton and Robert Torricelli before him.
–Dow Chemical’s Union Carbide unit was hit with a $250
million asbestos judgment in West Virginia.
–EBay’s share price is over $60…as shorts are beginning to lick
their chops, I imagine. [Personally, I’d hesitate to short it myself
until after the Christmas shopping season.]
–Market guru Robert Prechter is still calling for a deflationary
depression greater than the 1930s, with Dow 4000 a possibility
over the next six months. Dow 1000 before it’s all over. Yup,
that would do it.
International Affairs
Russia: In May 2001, I arrived in Istanbul, checked into my hotel
room, flipped on CNN and lo and behold, some Chechen rebels
had taken residents of another hotel located just a few blocks
from mine hostage. Huh, I mused. The drama lasted just a few
hours, the hostages were released unharmed, and I found out
later that the Chechens often do this in Turkey, just to draw
attention to their cause. [The Turks, in turn, usually let the rebels
“get away,” as long as no one is hurt.]
But, alas, we are all just learning of a deadly end to the latest
Chechen terrorist act, this time in Moscow. It would be foolish
for me to comment any further right now, but you can be sure I
will next week when the details emerge. After all, I’m
supposed to be in Moscow November 12 and, dammit, I”m going
to the theatre.
Turkey: Government officials took some steps that I disagree
with, namely the move by a chief prosecutor to outlaw the AKP,
the Islamist party leading in the polls. They are accused of
inciting hatred, a charge consistently made over the past six
years. The problem is twofold. (1) Nothing will happen until
after November 3rd’s vote and, (2) This will only solidify the
AKP’s support. It is a very complex situation, with the military
once again waiting in the wings to move against the Islamists.
But this is not a case of banning a Nazi party, as I see it, and
Turkey is supposed to be a democracy. I have written over the
years how much I admire its kick-ass soldiers, but I’m
uncomfortable with how this current situation may play out,
and it’s an obvious reason to wait before placing a bigger bet in
the country. [For new readers, 4% of my portfolio is invested
here]
Meanwhile, ailing Prime Minister Ecevit (who doesn’t have a
chance in the election), wants the U.S. to “make up its mind”
when it comes to Iraq. He has a point, due to the aforementioned
conflicting statements made by the Administration the past few
weeks. The Turks continue to be worried about the issue of the
Kurds and possible statehood for them.
Lastly, Irish voters passed the referendum allowing the
expansion of the E.U. (63% in favor), which indirectly helps
Turkey’s efforts in this regard. But while the Bush
Administration is pressuring the E.U. to accept Turkey’s
candidacy when they meet in December, Bush personally can’t
jump all over the E.U. until he gets his way on Iraq, let alone
dealing with the aftermath of the election.
Brazil: Luiz da Silva wins the election on Sunday and then
investors (read lenders) hold their breath over the coming weeks
to see what kind of economic policy he actually adopts.
Random Musings
–Robert Samuelson (Washington Post), discussing our new era
of “risk.”
“The 1990s were a period of profound self-deception (ed.
blaming everyone else for our problems, be they international or
market oriented). We were not (and are not) reshaping the world
in our image…
“We can not know the future, but we do know that it will be full
of new risks – some of which we will come to understand and
manage and others that, sadly, we won’t.”
–From Interpol: Terrorists are waiting for the world to let down
its guard before launching something bigger. This is what we all
fear, and is part of the conclusion of the important Hart-Rudman
report as well.
–Driving along Route 50 through Kansas and Colorado this
week, it was amazing to turn a corner or climb a hill and
suddenly see thousands of cattle, either on the plains or in a
stockyard. All of the towns along the way are, of course, largely
dependent on beef for their livelihood, so I couldn’t help but
think how one case of mad cow in this country would devastate
the entire region, let alone the obvious national implications.
–As seen at the ProRodeo (sic) Hall of Fame on the plaque of
Malcolm Baldridge, the former commerce secretary under
Reagan (and namesake of the Baldridge Awards for excellence).
“Success is finding something you really like to do and caring
enough about it to do it well. Sticking your neck out if you’re
sure you’re right and getting lucky.”
–The increase in Social Security benefits for 2003 will be just
1.4%, with much of that erased by an increase in Medicare
premiums. In other words, in this low interest/low savings
account rate era, those on fixed income continue to get slammed.
–Less than two weeks before the election, and it’s still far too
close to call. For those who care it will be a good civics lesson.
It is also complicated by the tragic death of Senator Paul
Wellstone. I seldom, if ever, agreed with the man, but you had to
respect him for sticking to his beliefs (just as in the above
Baldridge quote). Without a few mavericks like him, political
debate in this country would be incredibly dull, and, ironically,
perhaps not as stable.
–A new survey of high school students reveals there is a
continued decline in moral values among them, as more are
lying, cheating and stealing than ever before.
–I have reached the conclusion that as I age, I really should be
living in the Central time zone. I have trouble staying up past
11:00 as it is, so I miss Leno and Letterman’s monologues, I can
never stay awake for the second half of Monday Night Football,
and I miss the end of some baseball playoff games.
Ah, but in Central time, all is possible. Plus, you have national
news at 5:30 p.m. and the stock market is open at 8:30. It just
doesn’t get any better than this. As for Mountain time, where I
am now, 2 hours is too far the other way. West Coast time?
Forget it. I am not in the mood to watch NFL football at 10:00
a.m.
–I stopped by the Air Force Academy the other day. What an
awesome institution. Boy, if I were advising my son or daughter,
I’d urge them to shoot for this school. And, as you’d expect, the
few cadets I had a chance to speak to were the most impressive
bunch of men and women our nation has to offer.
–Richard Harris, RIP. This guy sure burned the candle at both
ends.
–There are some matters I find useless to go into in any great
detail, such as a natural disaster or accident, or, in the past few
weeks, the sniper case. My attitude has always been there’s
nothing I can really add, plus, in the case of our law enforcement
officials, who am I to question their ability? Thus, you’ve
noticed I’ve said little on this matter. In hindsight I certainly
look better than the babbling idiots who were foaming at the
mouth. As for Chief Moose, there is no more caring soul on this
planet, and it’s obvious he did the best possible job he could
under incredible pressure. We salute you, sir. You represent the
best of America. [It does need to be noted, however, that now
the prosecutors are competing against each other for political
purposes…disgraceful…and the worst of America.]
–Finally, back on October 11 I arrived in Oklahoma City for the
second time in two years and was immediately struck by the
diverse population at the airport, even compared to my earlier
trip. Driving to the hotel I noticed Vietnamese and Chinese
restaurants that I hadn’t seen before and at my hotel, the vast
majority of the waiters and hotel staff were from India.
I have written from time to time of my thoughts on immigration,
particularly as it pertained to New York City. I have also
discussed my feelings since 9/11, how somehow we have to
balance the need for an ever-increasing labor force with the
profiling that must take place at our borders and airports. It’s not
easy, but as a society we need to work through it.
Last Sunday I had a great visit with my friends who live in the
Oklahoma Panhandle, just a few miles from the Kansas border,
and I asked Gene and Karalee about the immigration issue and
how it impacted them and their surrounding communities. The
response was, “Thank God they’re here.” In the case of the
mostly Mexican Hispanic migration, regardless of what part of
the country you live in you recognize they are taking the jobs
that most whites and blacks don’t want, because for the latter
two, it is now “beneath them.”
It’s hard to describe to you the relationship I have with Gene and
Karalee, we’ve known each other only about 2 ½ years, but
suffice it to say they are small farmers and many of you have
more in material wealth than they do, while at the same time you
never saw so much love as is in their family (they have 5 kids, 4
of whom were there on Sunday). And for them, work is work,
nothing is beneath them.
In fact, when I asked them about how the Mexicans were
accepted in towns that were until recently basically all white, the
response was telling. There are far more whites “gaming” the
system, for example, than are Mexicans.
I don’t need to tell you that the composition of this nation is
changing quickly, before our very eyes, and the long-range
implications are profound. Forgive me if we differ on this issue,
but White America, and Republicans, better learn to adapt, and
embrace, the new reality, or they could be marginalized very
quickly. Multiply what has transpired in Little Havana, for
example, by 200, that’s what you’re likely to see.
I noticed the trend through my drive on Route 50 as well, and
after talking to some bright-eyed Hispanic waitresses in Dodge
City, it suddenly hit home. If Condoleezza Rice isn’t our first
black president, the first minority to receive “Hail to the Chief”
will be a Hispanic.
I also have to add some other thoughts from my friends, who
were sharing the views of their community. There is a palpable
sense among the farmers in this area, at least, that our nation is
headed for depression, for reasons I’ll incorporate over the
coming weeks. There is also a growing sense that when it comes
to our nation’s moral values (as in the above high school survey)
our nation is going to hell.
Most of you, as best as I can ascertain from your comments to
me over the years, share this belief. Our society is simply
breaking down and in many respects it all boils down to a lack of
respect.
Personally, it’s also why I take these little journeys, to learn more
about people from all walks of life, as well as other nations. Oh,
how I do wish that one day the meek would inherit the earth. In
the meantime, thanks for sharing the ride with me.
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $313
Oil, $27.05
Returns for the week, 10/21-10/25
Dow Jones +1.5% [8444]
S&P 500 +1.5%
S&P MidCap +1.3%
Russell 2000 +2.6%
Nasdaq +3.4% [1331]
Returns for the period, 1/1/02-10/25/02
Dow Jones -15.7%
S&P 500 -21.8%
S&P MidCap -15.7%
Russell 2000 -23.7%
Nasdaq -31.8%
Bulls 40.8%
Bears 35.7% [Source: Investors Intelligence]
Note: On to Casper, Wyoming…Hardin, Montana…Medora,
North Dakota and then points south, if the weather holds up.
No way my Mustang is going to make it in snow and ice,
especially with a wimpy driver.
Have a great week. As always, I appreciate your support.
Brian Trumbore
