[Posted 7:00 AM ET]
“Those inside our government who have shunned democracy in
Iraq, seek deals with the Mullahs in Iran, and want to
accommodate the Saudis say we must follow their advice in
order to preserve stability in the Middle East. But stability in the
Middle East gave us September 11. The work ahead is daunting.
But it’s even more daunting to think about living in a world in
which that work is not done.”
–Michael Barone / U.S. News & World Report
The events of this past Thursday certainly supplied more ample
evidence of the task facing the civilized world. Miraculously,
the missiles fired at the Israeli charter jet taking off from
Kenya missed, averting another disaster of immense proportions.
With the threats we face in this war against evil, we rely on our
leaders to act with wisdom and courage. I respectfully submit
that in the case of Saudi Arabia and Iran, President Bush needs to
rethink his strategy.
Russian President Putin, in his brief meeting with Bush in St.
Petersburg, attempted to buck up our President on the issue of
Saudi Arabia, very publicly reminding him where 15 of the 19
hijackers came from. Bush is vulnerable in this instance,
particularly in light of the new revelations that the Saudi royal
family ‘may’ have directly had a hand in channeling funds to
enablers of 9/11. Yet this week the President continued to praise
the Saudis for their support in the war on terror when the
evidence points to the contrary. For the sake of oil the U.S. is
performing this diplomatic high-wire act and there is no safety
net.
No one should have any doubts where yours truly stands when it
comes to the Kingdom and some of its representatives. I didn’t
label the Saudi ambassador to the United States “Prince Bandar
bin Dirtball” over a year ago without cause. And what should
sicken all of you is how Saudi spokesman Adel al-Jubeir
continues to get on America’s airwaves and proclaim, as he did
on “Today” the other morning, “We are being threatened by (al-
Qaeda) just like you are.” True, the royal family is threatened,
but they have chosen to dance with the devil rather than confront
it, while at the same time the U.S. is rapidly approaching the day
when leaders like George Bush will have to break with the past
and stick to the very ultimatum he gave the world in the days
following 9/11. “You’re either with us or against us.”
As for Iran, I complained last week that we are at an historic
crossroads in this country and the U.S. is not supporting the
student movement at its critical time of need. Here again,
America and its allies could pay a devastating price.
Last Sunday on “Meet the Press,” Florida senator and
intelligence committee co-chairman Bob Graham reiterated his
long held belief that Iranian backed Hezbollah is the bigger
threat to the U.S. than Saddam himself.
Which brings us to Iraq and the weapons inspections. Don’t
believe those who say the process could last well into next year.
We will be at war by February, regardless of the opinion of some
on the UN Security Council. When you have reports circulating
that Saddam is hiding key weapons components in citizens’
homes, you understand the futility of the inspections regime, but
President Bush still did the right thing in seeking UN support. I
also suspect the U.S. will receive the backing of more than just
Britain when the decision is made to go in.
Lastly, al-Qaeda is obviously doing its best to split any tacit Arab
coalition against Saddam by attacking Israeli interests outside the
country. We can only hope that as much as possible Israel
exercises restraint, recognizing how tough it is to do so. But
restraint is only warranted if the Sharon government is convinced
that the U.S. will shortly be striking Baghdad, and then possibly
other points, east, west and south.
Wall Street
Following are the closing averages for the key indexes.
October 9, 2002
Dow Jones…7286
S&P 500…776
Nasdaq…1114
November 29, 2002
Dow Jones…8896…+22%
S&P 500…936…+21%
Nasdaq…1478…+33%
This week the Dow Jones registered its 8th straight gain in
tacking on 1%, while the S&P 500 and Nasdaq added lesser
amounts. One can’t deny that much of the news on the economic
front recently has been better than expected. Figures for durable
goods and manufacturing revealed evidence of stability, if not
outright strength, consumer confidence rebounded some in
November, existing home sales continue at near record levels,
jobless claims are down and even some numbers on the
technology front, like chip sales for October, bounced back;
albeit in this latter instance less than 2% from September’s pace.
There are also those who now say the holiday season won’t be
quite as dire as initially thought.
But…you knew this was coming…even as third quarter GDP
was being revised upward to 4%, we learned that business
spending fell in the quarter, while ‘new’ home sales may finally
be peaking and ‘continuing claims’ for unemployment are at
record levels.
Yes, no doubt the positives outweigh the negatives for now, but
if you’re a Big Picture guy, and are capable of reading at a 3rd
grade level, you still can’t possibly ignore the geopolitical risks
and the adverse short-term impact, at least, of the impending
actions on the military front. Believe me, I would love to turn
bullish, and in my own little way I did register a vote of
confidence by purchasing two new Dell PCs this week for the
business, but this had more to do with a new venture I’m
working on (more at year end) than anything else, though I admit
I’m hearing rumblings that the long hoped for PC upgrade cycle
may be upon us.
Every few weeks, though, it’s necessary to look beyond the
month-to-month noise and focus on the real economic issues
facing Americans. For example, I received my health insurance
renewal notice and was told my premium was rising from $440
to $550 a month…$360 to $550 in two years. As you all know
this is the norm on this front. There may be outright deflation, or
disinflation, in items such as PCs, clothing and autos, but the cost
of many non-discretionary items beyond our control are soaring.
Another example is the new 18% property tax hike imposed on
the residents of New York City, as well as the huge increases on
the property/casualty front.
Americans are getting pinched from all sides, and with 1%
interest rates on your money market and savings accounts, we are
being encouraged to take risks, when perhaps the better strategy
is to continue to “ride it out” until there is a bit more clarity on
both the economic and political fronts. But that’s why we’ll
keep banging away at StocksandNews, in our ongoing attempt to
stimulate thought and, at worst, preserve your capital.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.30% 2-yr. 2.06% 10-yr. 4.21% 30-yr. 5.04%
Rates were basically unchanged, despite the stronger news on the
economy. The Federal Reserve’s own regional survey of
business activity did reveal, however, that growth was still at a
slow pace.
–The probe into Computer Associates’ accounting practices has
widened once again, in case you were wondering why I was so
hard on retiring founder Charles Wang last week.
–The Wall Street Journal reported that the recent uproar over
underfunded corporate pensions is overblown. True, if the equity
market continues to recover and we enter a new bull market, then
the problem largely goes away, but in the meantime, you can not
paper over the fact that earnings for many old-line companies, in
particular, will be negatively impacted.
–Another hopeful sign on the technology front, as global mobile
phone sales perked up to the tune of 8% in the third quarter. The
fact that you still can’t get connected or understand the person on
the other end is beside the point.
–China: Exports are up a whopping 20% from a year ago, which
means China is exporting deflation at an accelerating pace.
–Argentina: Correction…last week I said the government was
again limiting cash withdrawals from bank accounts, but this
applies only to long-term CDs and deposits, though this is also
where most of the savings are held. Meanwhile, computer
distributor Tech Data announced it was closing its operations in
Argentina, another small but important sign that foreign
investment, not just in Argentina but elsewhere in Latin America,
is drying up.
–States like New Jersey that have seen their pension portfolios
decimated by the likes of Tyco and Qwest are now going after
these companies with a vengeance.
–Shares in Sealed Air soared on Friday as the company
announced it had reached a final settlement on asbestos-related
claims against it. Others facing similar suits rallied on the news.
–Citigroup’s Salomon Smith Barney unit announced it was
withdrawing from an IPO of National Financial Partners because
NFP’s president is Jessica Bibliowicz, daughter of Citigroup
Chairman Sandy Weill. This avoided more conflict of interest
charges against Weill, but it really wasn’t as big a story as some
in the media made it out to be. It does, however, afford me the
opportunity to bring up something that has been on my mind
from time to time as I’ve severely criticized Mr. Weill. In my
days in the mutual fund business I got to know Ms. Bibliowicz
well and she is a class act. Nonetheless, I still have to call ‘em as
I see them.
–McDonald’s will soon allow purchases to be made by credit
card, meaning customers could qualify for incentives such as
frequent flyer miles. Of course this also means that if it takes
20,000 miles to receive a free round trip, this would equate to
about 8,000 Big Macs. So if you ate 2 a day, minus
Thanksgiving, it would take you over 10 years to earn the
reward, assuming both you and your airline are still alive at that
point.
–Speaking of airlines, and survival, UAL’s mechanics rejected a
plan to reduce their salaries by 7%. In doing so, aside from the
fact that UAL will now most likely go into Chapter 11, the
mechanics and all other employees (most of whom had approved
similar givebacks) could lose everything, including the shares
they once fought so hard to obtain. In other words, an incredibly
stupid move.
International Affairs
Israel: Prime Minister Ariel Sharon handily won the nomination
of his Likud Party, besting Foreign Minister Benjamin
Netanyahu. The general election is slated for January 28 and as I
noted weeks ago, and as we witnessed firsthand on Thursday
with the attack on the polling station in Israel, the timing of this
unnecessary vote couldn’t be worse.
Turkey: I was reading an article by Dexter Filkins in the New
York Times and I have to take issue with one of his conclusions.
In discussing a potential strategy whereby the military would
move 60 miles into northern Iraq, in an attempt to stem the flow
of Kurdish refugees into Turkey, as well as prevent the
establishment of a Kurdish state in a post-Saddam world, Filkins
wrote that this plan is “giving rise to fears that it could be used as
a cover for the Turkish military to snuff out any attempt by Iraqi
Kurds to set up their own state if President Saddam Hussein falls
from power.” Let me remind Mr. Filkins that nowhere in history
have the Kurds ever had an independent state nor do they deserve
one. Plus the U.S. has consistently stated that while the Kurds’
rights must be protected, independence is off the table.
Meanwhile, Deputy Secretary of Defense Paul Wolfowitz is
back in Turkey to enlist the new leadership’s support for a
northern front against Iraq, which would be a huge assist in
shortening any conflict. The Bush Administration needs to offer
$billions in return. Lastly, negotiations over divided Cyprus are
progressing. A solution here would greatly enhance Turkey’s
European Union prospects.
North Korea: Does it have the bomb? The CIA says the country
is still years away, which is disturbing to yours truly since the
CIA’s work over the years in cases like this leaves a little to be
desired. Of equal importance in the short run, though, is South
Korea’s December 19 presidential election. The conservative
candidate who favors a big stick approach to Pyongyang was
leading in the polls until a moderate 3rd party candidate (the
manager of the nation’s successful World Cup soccer team)
threw his support to the other moderate, both of whom favor
negotiating with the North.
China: As expected it is now clear that Jiang Zemin will be
retaining control of the military for some time to come, even as
he relinquished the reins of the Communist Party. I only note
this because of something I read this week, not related to China
but with direct applications to it. During the Gulf War a U.S.
aircraft carrier was capable of destroying 162 targets in a day.
Today the same carrier could hit 700. [Source: Wall Street
Journal] What does this have to do with China? Simple. One
aircraft carrier could take out all the missiles the mainland has
pointed at Taiwan. If I’m responsible for strategic planning in
Beijing, I’d have to throw this into the mix, and you can see why
it’s vital for the U.S. to project this kind of power in the region.
It’s also an example of why defense spending in America will
remain at existing levels, if not higher.
Kashmir: Not for nothing, but violence has picked up in the
disputed territory once again. The world’s preeminent “hot spot”
often gets lost in the other news of the day.
Russia: President Putin vetoed legislation that would have
drastically restricted the media coverage of terrorist acts, an
encouraging step. But on the Chechen front, Russia is now
forcing Chechen refugees in neighboring Ingushetia to go back
home, where their prospects are even worse. Human rights
activists will have a field day with this, as they should.
Nigeria: It has always been the hope of the Bush Administration,
and those who preceded it, that Nigeria would emerge as a
bulwark of democracy and a model for all of Africa. Those
dreams have been shattered, as a religious war between
Christians and Muslims seems almost inevitable. Also, the
reporter who wrote that if Muhammad were alive “he would
probably choose a wife from one of (the Miss World
contestants)” is now under a death sentence, a fatwa. The rioting
that followed this remark killed 215.
Zimbabwe: Unless someone shows Robert Mugabe the door,
some aid workers now say half the population will face
starvation by February. He is as much a terrorist as anyone else
on the planet today and should be treated as such.
Austria: Just as quickly as the surge in right-wing political
movements on the continent took hold a few years ago, it is
petering out, the latest example being the performance of Jorg
Haider’s Freedom Party in last Sunday’s general election. It
garnered a mere 10%, compared to 27% at its peak. Austrian
Chancellor Wolfgang Schussel remains in power.
Random Musings
–New York third party gubernatorial candidate Tom Golisano
spent a record $75 million (!) on his race this fall, more than any
other U.S. politician, ever, for a non-presidential contest. By
comparison Governor George Pataki spent $45 million. I was
watching some local television reaction to this news and many
folks had it right…that kind of dough could have really done a
lot of good. Instead it was wasted.
–Meanwhile, across the Hudson River, New Jersey Governor
Jim McGreevey was blasted for spending over $100,000 in state
funds on a trip to Ireland this summer, which he had touted as a
way to drum up business for the Garden State, while initially
estimating the cost at $20,000. If the Star-Ledger newspaper
hadn’t dug up the details, McGreevey never would have fessed
up. Now the state Democratic Party will pick up at least $70,000
of the tab, while property taxes soar ever higher for the rest of
us schleps who elected this scum.
–The disclosure of the massive identity theft ring this week is an
example of everyone’s worst nightmare. The ringleader faces 20
years in prison, but this is such a premeditated crime that it
should carry a mandatory life sentence without parole.
–On Friday, Pope John Paul II gave a speech wherein he urged
Christians to “be men of dialogue and work against that clash of
civilizations that at times seems inevitable.”
–Due to the AIDS pandemic, the life expectancy in sub-Saharan
Africa is 47. 44% of pregnant women in Botswana have HIV.
–President Bush’s speeches in Lithuania and Rumania before
adoring crowds last weekend were heartwarming, but I was
distressed to see that in Vilnius the President wasn’t speaking
behind bulletproof glass.
–Speaking of security, you want to know my real concern when
I traveled to Moscow about three weeks ago? It was Chechen
rebels firing missiles at my Delta plane as I landed or took off,
the Chechens having shot down innumerable Russian Army
helicopters in this manner. That’s also immediately what I
thought of when I heard of the incident in Kenya.
–Business Week ran a cover story on the “new philanthropists”
and the impact some of them are having, such as Bill Gates and
his work on the AIDS front. But the article said nothing about
the crooks and how many executives used corporate funds, or hid
behind their charitable contributions, even as they were
deceiving the public, a la Tyco, Enron and Adelphia. Business
Week did point out that some of America’s wealthiest, though,
are doing little with their money to help or enrich mankind; men
like Warren Buffett, who says it’s more important that he amass
as much wealth as possible to be given away upon his death,
ignoring the fact that he would have little control over whether
he has really made a difference.
Another billionaire who was criticized for his miserly donations
was Oracle’s Larry Ellison, though while I have never written
anything good about this man, I can’t argue with his logic that
“Until you start solving problems…what difference does it make
how much you give?”
–Social Security represents 80% of the retirement income for
the elderly.
–Winston Churchill won the BBC’s extensive contest for the
greatest Briton, though the results for 2nd and 3rd were suspect.
Isambard Kingdom Brunel (1806-59), a leader in engineering
(suspension bridges and ships) took second due to an organized
campaign on the behalf of a university, while Princess Diana
finished 3rd. Oh brother. At least Billy Shakespeare was 5th,
John Lennon 8th.
It makes you wonder, though, what Americans would do when
faced with a similar question these days? Would George
Washington or Abraham Lincoln finish first, as either of them
should? Would FDR be in the top 5? Remember how Time
magazine selected Einstein as the “Person of the Century”?
Where would he place in a survey of all Americans today?
Frankly, I’m sure most of us wouldn’t want to see the results, as
distressing as they would undoubtedly be. Then again, as long as
Johnny Carson and Arnold Palmer were in the top ten, I’d be a
happy camper!
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $318…an incredibly tight range the last 3 months.
Oil, $26.86
Returns for the week, 11/25-11/29
Dow Jones +1.0%
S&P 500 +0.6%
S&P MidCap +0.9%
Russell 2000 +1.6%
Nasdaq +0.7%
Returns for the period, 1/1/02-11/29/02
Dow Jones -11.2%
S&P 500 -18.5%
S&P MidCap -11.7%
Russell 2000 -16.8%
Nasdaq -24.2%
Bulls 48.3%
Bears 25.3% [Source: Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
