[Posted Friday…Honolulu]
“I would remind you that extremism in the defense of liberty is no
vice!
“And let me remind you also that moderation in the pursuit of justice is
no virtue!”
–Barry Goldwater, in his Acceptance Speech for the Republican
presidential nomination, 7/16/64
I’ve noted this quote once or twice before in the 5+ years I’ve been
doing this column, and I couldn’t help but think of it again as President
Bush prepares the nation and the world for war this week with what
promises to be a titanic State of the Union address. Coupled with
the report of the UN weapons inspection team on Monday, which will
urge caution and call for more time to let the process continue, the
decisions that Bush and other world leaders make in the coming
weeks will likely shape world history for centuries to come.
Many of you know I am currently on the QE2, cruising from Los
Angeles to Sydney, via Honolulu and other points to be discussed in
coming weeks. The other day I was particularly frustrated with my
inability to get work done, due to an archaic computer system
onboard, and I gave up and decided to have a beer in one of the bars
here.
So I ordered up a Grolsch and stopped feeling sorry for myself (given
my surroundings, I had no right to be), when a little while later an
older gentleman sat down and told the bartender he had an upset
stomach, so she pored him some bitters. The fellow looked miserable.
“Where are you from?” I asked.
“Lakewood, Colorado,” he replied.
And so I happened to meet “Frederick the Barber.” It says so right
on his card. He’s in his 70s, cuts hair as he has for over 40 years,
and soon he was talking about how Cunard had boarded up the
portholes in his cabin due to the rough seas we were encountering. I
was thankfully 3 decks above him and it wasn’t necessary in my case,
but the point of him bringing this up was to tell me he was having
flashbacks from his experience in the Korean War due to his
windows being covered.
I didn’t pry too much, but Frederick was willing to tell me quite a bit
and clearly, as a medic it turned out, he saw some horrific things. It
was also evident to me that on a ship loaded with more than a few
pretentious sorts, this man was not only a war hero, he represented
the best America had to offer.
Frederick also said something that every American needs to keep in
mind as we face the challenges presented by the likes of Saddam and
Kim Jong-Il.
“If we had finished the job in North Korea back then, we wouldn’t be
having this problem today.”
IF…if we had finished off Saddam in ’91, the same would be true, I
added.
“And let me remind you also that moderation in the pursuit of justice
(in the defense of liberty) is no virtue.”
—
So on January 28 President Bush has to layout a final case against
Saddam for the whole world’s consumption. Of course he isn’t likely
to change the hearts of Germany and France, that’s for sure, nor will
some other members of the UN Security Council be persuaded to
join the “coalition of the willing,” which today includes Britain and
Australia, for certain, and possibly Italy and Spain, among others.
Our President also has to convince an increasingly restive American
public that by one poll shows approval for going after Saddam at 81-
14, but only if the U.S. gets UN backing. Support for going it
largely alone, on the other hand, is tumbling.
Of course we can also pray that Saddam’s regime, which British
Prime Minister Tony Blair said was “weakening” and “rattled,”
collapses from within, but no leader can sit back and count on this.
After all, this was the mistake in the aftermath of the first Gulf War,
and as President Bush himself said this past week, in commenting on
the pleadings of some for more time to allow the inspections to play
out, “This looks like a rerun of a bad movie.”
I want a coalition as much as the next guy, but it’s now time the U.S.
and the willing got it on.
—
More Thoughts on Iraq
–The Administration is frustrated in its efforts to reveal the real
secrets of Saddam’s weapons programs because it still needs to
protect its own sources and methods. But without divulging some of
it, the case for war is weakened.
–Turkey appeared to be caving in to pressure for allowing at least
15,000 U.S. ground troops, but then on Friday, de facto leader
Recep Erdogan blasted the Bush Administration. A bit unsettling, and
a major disappointment to yours truly. [Which is also another reason
why I sold my stock in this country until I saw how things shook out.]
–Those who doubted Colin Powell’s resolve must be having second
thoughts. He’s standing tall at the right moment and I’m proud to
have supported him while others questioned his motives.
–Gosh, I love the Aussies. They have their special forces ready to
join the war. And we thank again our good friends the British and
their leader, Tony Blair, as this nation prepares to send up to
30,000 ground troops.
–Donald Rumsfeld stirred up the pot quite a bit with his reference to
France and Germany being part of the “old Europe.” But there was
German Foreign Minister Joschke Fischer saying this week that “Iraq
has complied fully with all relevant resolutions.” Relations with some
nations in Europe and the U.S. are at their lowest point in decades.
Regrettable, but c’est la vie!
—
Other International Affairs
North Korea: At least the new government in South Korea (officially
taking office next month) is supporting the presence of U.S. troops, as
is an increasing proportion of the overall population, though
personally, I’d still pull them out. But no matter how the Bush
Administration paints it, the U.S. is allowing North Korea to
blackmail it, as Washington offers food and other aid in exchange for
Pyongyang’s promise to keep the Korean peninsula nuclear-free.
Only one problem. Why would Kim Jong-Il do that? His nukes
remain his only leverage with the rest of the world.
Venezuela: President Chavez said his nation was effectively at war,
and there was a particularly telling incident a week ago when the
military took over a Coca Cola plant, which isn’t a good thing if you
want more foreign investment. Anyway, the action took place at
gunpoint, with the general in charge triumphantly swigging a locally
produced malt beverage. After downing it, he belched loud and long,
all for the consumption of a national television audience. Needless to
say, the normally civil Venezuelans were disgusted and grossed out by
this behavior. And so it goes in this land of oil, corruption and
poverty.
—
Wall Street
My comments will be brief this week, both because I wasn’t able to
follow events too closely, as well as the fact there is little new to say.
Yours truly told you long ago it was all about Iraq and until there is
some resolution to this issue Wall Street will be in a funk, as will
corporate executives.
This week saw more companies match or exceed earnings
expectations, but few were willing to accompany the remarks with
words of optimism. The tone remains “cautious” with few saying the
worst is over. And let’s face it, they’d be nuts if they did because no
one knows, including me. And it wasn’t just technology companies
who were declaring the future is foggy, the likes of Eastman Kodak
and Merrill Lynch were just as murky with their own guidance.
The only bright spot remains the housing sector, which by some
measures hit a 16-year high in December. With a consumer that has
taken on gas, this is now the only thing keeping the economy afloat.
And when you listen to the builders, who some of us should have
been paying more attention to (this is my cross to bear), they say
there are no real signs of a slowdown. Certainly, as long as mortgage
rates remain at historic lows, this could be the case, unless rates are
low because of Depression!
Which leads me to talk of the debt bomb. Jonathan Laing, writing in
the 1/20 edition of Barron’s, reported that the total debt in America –
household, business and government at all levels – now stands at $31
trillion. Remember, the U.S. economy is about $10.5 trillion. This
hasn’t been a problem, but when housing goes, as it inevitably will
some day, it’s over. And we could be talking, really over. In the
meantime, treat yourself to a cold frosty and enjoy the Super Bowl.
In other items of import, it needs to be noted that with regards to the
Bush growth plan, a WSJ/NBC News poll revealed that 61% doubt
it will do much to stimulate growth.
And there is the U.S. dollar, which continued to hit new multi-year
lows versus the euro, even though the European economies are worse
off than we are. Yes, record trade/current account deficits are finally
beginning to take a real toll and I will admit it is now time to begin to
worry about this. But…I also still say that a successful campaign in
Iraq will work wonders and the dollar could surprise all with the
strength of the rally in that instance. If it doesn’t go well… pour
yourself a second frosty.
For the week, the major averages plummeted to levels not seen since
the fall. In the case of the S&P 500 and Dow Jones, off 4.5% and 5.3%,
respectively. And so much for that early January rally. Both of these
two are now down on the year. As for Nasdaq, it fell 2.5% and its gain
for ”03 has been pared to 0.5%.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.18% 2-yr. 1.63% 10-yr. 3.92% 30-yr. 4.86%
Just when you thought it was safe to reallocate into stocks from
bonds, as all of Wall Street was telling you to do in December, bonds
have rallied back in a big way on fears of war and a renewed plunge
in equities.
–Deflation Watch: A Whopper at Burger King cost $1.40 twenty
years ago and today is just 99 cents. [Source: David Leonhardt / NY
Times] And with an American economy operating at well below
capacity, it’s tough to see where real price pressures will develop.
Even the inflation rate for the service sector is beginning to decline.
Yes, other measures, such as healthcare and property taxes, will
continue to rise, but I’m not sold on the reflation angle just yet, even
though Gold’s continuing rise offers support for that argument.
–Energy: Well, Russia and its energy giant, LUKoil, are back in the
fold with Iraq, signing a slew of new contracts, unfortunately.
Separately, Russia has been surprising the experts (including yours
truly) by discovering more oil than most felt it was capable of.
Longer-term, this is a good thing for the U.S. as long as overall
relations remain stable (following this bumpy patch over Iraq).
Successful Russian exploration had been stagnant since 1991.
As for Venezuela, it is still just producing 1/3 of what it normally does
due to the ongoing labor crisis.
–The National Bureau of Economic Research, the group which
formally decides whether the U.S. economy is in recession or not,
focuses on 4 measures – employment, industrial output, sales and
income. Only income has been an ongoing positive. The rest are
stagnant at best.
–Some Wall Street firms are trying to get their insurance carriers to
pay for a portion of the settlement costs resulting from the conflicts of
interest scandal. There is a rather harsh word to describe these
particular chieftains…bastards.
–The SEC and New York Attorney General Eliot Spitzer have
trained their guns on the hedge fund industry, as they investigate
whether or not short-sellers have been ganging up on some
companies. Well, of course they have, and any reading of history
reveals that this has happened many times before, particularly in the
1920s and 30s.
–I have been critical of many of the money-center banks for years
now, but despite all the special charges many of them have been
taking for litigation and bad investments, for example, one has to
admit their balance sheets are still strong. I just have a personal hang-
up concerning the derivatives exposure of some, because I know
many of these folks handling the potential hand grenades are simply
not that smart.
–Lucent and Nortel rebounded on prospects that the worst may be
over in the telecom equipment arena. For the sake of the employees
and retirees of both, I sure hope this is the case. Meanwhile, shares
in AT&T plunged nearly 20% on Thursday following its desultory
earnings report.
–My portfolio: I haven’t followed it too closely, but I should note
that when I mentioned last week that I had purchased shares in a
telecom stock with 6% of my assets, I acted like it wasn’t part of my
other 2% (now 3%) overall tech position. That’s because Mystery
Telecom Inc. is as much of a utility as it is a tech play. So I’m roughly
24% energy, 6% telecom/utility, 3% tech (TSM) and 67% cash.
Actually, I may be 66% cash because I’m spending $1 per minute
accessing the Internet on this freakin’ ship! Think about watching an
article slowly download…ka-ching, ka-ching.
–West Coast dockworkers formally ratified a new 6-year contract,
which is a good thing. Last year’s work stoppage was an underrated
factor in the ongoing slump in the U.S.
–McDonald’s reaffirmed it had a truly lousy 2002 and announced it
was closing more locations (while opening others, however). It also
warned that 2003 doesn’t look any better. Something about lousy
food and horrible service. [Paid for by fans of Taco Bell and
Wendy’s.]
–Amazon issued a solid earnings report and anticipates that revenues
in ’03 will climb about 15%. But goodness gracious, this stock is still
grossly overvalued. I will short it at some point this year, but you
can’t focus on these things while one is cruising the Pacific with a
faulty computer system. That’s the quickest way to lose a buck.
Random Musings
–An AT&T researcher has created quite a stir with his report on the
vulnerability of all standard locks, i.e., there is a simple code that
allows one to take a single key from an office building, let’s say, and
then come up with the master for an entire location. Sometimes just
filing it down a bit is all that’s needed. If you are in the security
business, this is obviously a nightmare and it doesn’t bode well in our
effort to combat terrorism, either.
–Al Sharpton formally filed his candidacy for the Democratic
presidential nomination. A Washington Post poll revealed that only
16% have a favorable opinion of him. Among black Democrats,
however, Sharpton draws a 48% favorable, with just 32%
unfavorable. The Bush education agenda was never needed more
than today.
–A recent Gallup survey has 31% of Americans saying the important
problem today is our fear of war. The economy is second with 26%,
terrorism 10%. Yours truly still puts terrorism at the top by a wide
margin, with potential Depression second.
–More on who pays what: The richest 1% in America (incomes
starting at $373,000) pay 25% of all taxes. The richest 20%
(incomes over $72,000) pay 68%. Of all transfer payments, though,
such as for Social Security, unemployment insurance and disability,
60% goes to the poorest 40% of Americans.
–In the past I’ve mentioned that one of the great lessons I learned
from one particular mentor was “the 24-hour rule.” When you’re
upset about something, or too excited about another, just wait 24
hours. I literally think of this every day of my life now. [Err, thanks,
Jack L.] And in the game of politics, it was never more evident than
in the excitement some of us felt over President Bush’s stance on
affirmative action in the University of Michigan case, only to see the
flip-flops in the Administration the following day, along with a weak
written brief. Yes, just wait 24 hours, friends.
–I like what Japan has just done with the UN. The country figures it
is down to 14.4% of the global economy, yet it pays 19% of total UN
dues. So it said it’s cutting back. Good for them. For the record,
the U.S. accounts for about 30% of world GDP and pays 22% of the
dues…not that there is anything wrong with this.
–The U.S. and Britain are increasingly worried about terror attacks
on the food and water supplies at their military bases, both at home
and abroad.
–Two of my dinner companions are from Illinois and boy are they
pissed with Governor Ryan’s decision to commute the sentences of all
those on death row. Ryan is no hero. He’s a despicable coward.
–Lastly, I have a policy of being “brutally honest” and I have to tell
you, I was not a happy camper this week. We left Los Angeles on
the QE2 Saturday evening for Honolulu, the first stage of the trip, and
the weather was so-so on Sunday. Then Monday through
Wednesday it was awful. When it wasn’t raining it was dangerous to
even stand outside and at one point on Tuesday the captain came on
and said, “Stay off the decks!” as we were dealing with winds in
excess of 70 mph (compounded by the speed of the boat, for the
physicists out there).
But the real issue on this trip the first week is the computer room.
Folks, I mean to tell you it’s been a nightmare. Since you can’t
access the Internet in your room, the laptop becomes largely
ineffective and posting documents for my site has been a mess. In
fact, if it wasn’t for Kinko’s here in Honolulu, where I’m banging
away now, this column may not have been completed.
Well, the boys back in New Jersey and I are working on something
for next week. Just know I’m trying to do my best. And now you
also see a small reason why I don’t charge for StocksandNews. If I
did, after this past week I’d have had a nervous breakdown.
But, alas, this is the QE2, after all, and I will enjoy most of the next
few weeks (but ask me in 24 hours!). First off, the cabin stewards
and staff are superb and I’ve enjoyed talking to this very international
crew. My waiters / waitresses are from India and Czech Republic,
for example, and the sommelier is getting a kick out of my rotating
from beer to wine with each dinner. I’m the only beer drinker in the
entire dining room, that”s for sure.
As for the food, it’s out of this world, and conversation at the table is
fun. One gentleman is a retired Eastern Airlines pilot, so I asked him
about air accidents. I mean to tell you, this may sound like a
morbid conversation but Bob knew every detail from every crash of
the past 20 years. Fascinating stuff. It’s almost always pilot error, by
the way.
Since I’ve been wasting too much time in the computer room, I
haven’t attacked all the books I brought along, but at least at night
I’ve been treating myself to a session at the Blackjack tables, where
my fellow players are a pretentious bunch that I would never normally
think of having a beer with…actually, they wouldn’t invite me for
one…but the dealers are great fun and I’m winning.
Tonight we are off to Tahiti, from where I pray I can do my next
“Week in Review.” Incidentally, the only television is through the ship
satellite, so when it goes down, no CNN. And I won’t be catching
the Super Bowl. But the running joke on board is “bridge-cam,” a
camera from the bridge of the ship. Mostly, it just shows murky
water out front, but with the stormy seas we were encountering, it
was quite fascinating as the waves crashed overboard. Also, I realize
many of you have been out to sea like this, but I hadn’t in 30 years
and it really does give one an appreciation for what those brave chaps
did hundreds of years ago. Amazing heroes and pioneers, that’s for
sure. Then again, the grog was far more powerful then so they not
only didn’t know what they were up against, they couldn’t possibly
feel any fear even if they did, or so I imagine.
–Lastly, a special thanks to family friend Dan D., who drove me
around Honolulu yesterday. Dan and I had a putting contest at the
beautiful Ko’olana Resort. I told him I hate to do this, but I need to
report I beat him 1-up.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $368…6-year high.
Oil, $33.28
***Much of the following will be added later.
Returns for the week, 1/20-1/24
Dow Jones -5.3% [8131…worst week since July.]
S&P 500 -4.5% [861]
S&P MidCap -3.4%
Russell 2000 -3.4%
Nasdaq -2.5% [1342]
Returns for the period 1/1/03-1/24/03
Dow Jones -2.5%
S&P 500 -2.1%
S&P MidCap -2.7%
Russell 2000 -2.1%
Nasdaq +0.5%
Bulls 50.0%
Bears 28.3% [Source: Investors Intelligence. Thanks, George.]
Friends, have a great week. Watch our President…and make sure
your kids do, too. Me? I’ll have to pull up a transcript.
Brian Trumbore
