[Posted 7:00 AM ET]
I was watching a news story from Baghdad where this American
gentleman in his 20s was in town to lend his support in
protesting the pending war in Iraq, as well as volunteer to
become a human shield. “If one (Iraqi) civilian dies as a result of
collateral damage, it’s murder,” he said.
Along the same lines you have the European moralists who
refuse to acknowledge how Saddam has abused his own people,
or even to stand up to a Robert Mugabe, for that matter. It’s
sickening. Yet throughout world history, all too often we’ve
allowed this behavior to continue until a 9/11-type event occurs,
or some troops finally uncover a Dachau or a Shrebrenica.
Amazingly, though, within years many in the world forget these
lessons. I’ll never understand why, but the only option is to deal
with it.
So allow me to quote one who gets it, the courageous prime
minister of Australia, John Howard, who wrote the following as
part of an op-ed piece for the Wall Street Journal and which
totally reflects my own views.
“No one wants war. We all abhor it. Those who marched a
week ago in the cities of the world do not have a mortgage on
detestation of military conflict or of human suffering. They do
not exclusively occupy the moral high ground. Have they
seriously addressed the human suffering that could flow from the
world’s failure to deal once and for all with Iraq’s 12-year-long
defiance of the community of nations?
“Are they morally comfortable with the suffering Saddam
Hussein continues to inflict on Iraqi children through his
corruption of the UN’s ‘oil for food’ program? What do they say
of the torture and arbitrary executions that are a part of everyday
life in Iraq?”
But while a vast majority of people outside the U.S. line up
against war, at least President Bush has maintained a decent level
of support here at home. In fact a New York Times / CBS poll
from a few days ago showed 66% of Americans approve taking
Saddam out; 90% of Republicans, while Democrats are split
46/46, but at the same time 60% overall still want to give
inspections more time.
Time, however, is not on our side. The U.S. is pressuring the
UN Security Council again and I’ll hold off on the criticism this
week until we see what develops over the coming days.
President Chirac of France, for example, is under intense
pressure from his own party not to veto any resolution, because
these enlightened folks know it would severely hurt the nation’s
long-term interests, both in Iraq and the U.S., for starters. At the
same time Chirac is still holding fast and his position is best
exemplified by a quote from one of his ministers, “There cannot
be a superpower that runs the world’s affairs.”
For his part, British Prime Minister Tony Blair weathered his
political storm without having to sell out, thereby adding another
chapter to the future book titled “Tony Blair: Courage and
Conviction.”
And this week, as I told you would be the case, all manner of so-
called experts opined on my favorite topic, Turkey, and not one
tied the history of the nation to its importance today. It’s all
about Ataturk and his vision, not the Kurds as General Wesley
Clark would have you believe, and I would respectfully submit
that no other country in the world, including China and Mao, can
trace more of its current history to a figure from over 50 years
ago like Turkey can. [With regards to modern China, I’d say the
influential figure was more recent, Deng Xiaoping.]
If you are new to the site, scroll through my “Hott Spotts”
archives, beginning with 11/29/01, for a better sense of what I’m
talking about. Regular readers need not worry that I’m about to
rehash a lot of old material. Just suffice it to say that the heroic
Ataturk created a modern, secular, democratic state that we
should all pray succeeds, recognizing that success here, coupled
with Saddam’s removal, can truly begin to transform the entire
region and make the Western world more secure.
But am I happy the Turks haven’t moved quicker to allow 60,000
U.S. troops into their country for the northern front? No. Do I
understand why they are acting this way? Yes. And when it
comes to the costs, all we have witnessed is one giant
disinformation campaign on the part of the American media and
a vast majority of Democrats. The U.S. is not just handing
Turkey $20-$30 billion, some of it is up front, but a greater
portion is in the form of a loan. I said from Day One the costs of
war would be huge and that in a perverted way this would be our
sacrifice; rising deficits and, eventually, higher interest rates
instead of being asked to conserve energy, for example.
If we improve our national security by eliminating the threat
Saddam poses, however, how can one not agree it was worth the
cost? If Turkey becomes a true beacon of hope and a model in a
post-Saddam era, how can you say it wasn’t money well spent?
Oh, folks like Reverend Al Sharpton can gain a lot of attention
with sound bites like this recent one to the Democratic National
Committee, “We can’t find money for prescription drugs, but
they (the Republicans) can afford $26 billion for Turkey.”
Sorry, Rev., that’s cute and may get you a delegate or two, but
this is about life and death, and while there are no absolutes, if
Turkey’s model fails, the future for the entire region, even
without Saddam, is bleak.
—
North Korea
Some of us continually bemoan the fact that the U.S. didn’t act
sooner regarding Iraq, long before the September decision to go
to the UN, which I admittedly approved of, because chances are
good we wouldn’t then be facing the crisis we have on the
Korean Peninsula. But Kim Jong-Il has skillfully played his
cards thus far and he has the U.S. and its allies jacked up against
the wall.
This week, just hours before Roh Moo Hyun (I think his first
name is pronounced “Noh”), the new president of South Korea,
was to be inaugurated the North launched a missile into the Sea
of Japan. Markets across Asia shuddered, while the U.S.
pretended not to be concerned. Then a few days later Pyongyang
announced it was restarting the contested nuclear plant, the one
capable of processing at least 6 nukes this year alone, some of
which could be handed to other rogue nations or terrorist groups
just in time for Christmas giving.
To compound matters, Roh has embraced North Korea and the
“sunshine” policy of his predecessor, while at the same time
complaining the U.S. is “bossing” the South around. The lack of
trust on the part of Washington is mutual. This is not a good
man when it comes to U.S. interests but we can pin some hope
on the fact that he faces an opposition-controlled parliament
which is not ready to roll over and accept the premise that
sunshine is the path to peace. In the meantime, what many forget
is not the fact the U.S. has 37,000 troops in South Korea, but that
many of them are in a giant base in the heart of Seoul, a vestige
of the post-Korean War past and a lightening rod for both home
grown criticism and bombs should the North decide to commit
suicide by starting a war. The U.S. is evidently preparing to pull
out of this base, at least, on a moment’s notice…the sooner the
better.
Wall Street
As we all play the waiting game, most of the economic and
company specific releases take a backseat to the war.
Nonetheless, you can’t help but note that 2 out of 3 key measures
of sentiment were at multi-year lows (the other was largely
unchanged) for both the consumer and investor, while the weekly
jobless claims report was worrisome and housing starts took a
tumble. The latter, in particular, bears watching and I’m ready to
pounce on the first follow-up to this week’s figure if it shows a
similar pattern.
The soaring cost of energy is also definitely having a negative
impact on global activity and if Americans think it’s tough here,
they should take a look at some other nations, such as South
Korea, that are totally dependent on foreign sources of oil. And
to digress a bit, looking out 5-7 years the tightening supply
situation paints a scary geopolitical picture for regions like Asia.
Why? When the economies pickup again – and it will happen
someday, I swear – especially with China’s projected growth,
severe shortages of oil could lead to some rather destructive
conflicts, as each nation scrambles for its share of dwindling
resources. Even back around 1995, many experts were looking
ahead to the 2007-2010 time period as one of worry in this
regard.
Street Bytes
–For the week the market lost a little ground on continuing light
volume with the Dow Jones falling 1.6%, back below 8000 to
7891. The S&P 500 and Nasdaq lost less than 1%, with Nasdaq
closing at 1337.
–U.S. Treasury Yields
6-mo. 1.18% 2-yr. 1.51% 10-yr. 3.69% 30-yr. 4.67%
A big rally at week’s end, primarily due to war fears, led to near
record-low levels. PIMCO’s Bill Gross offered up his latest
missive and he merely reiterated that the big bull market in bonds
is over, but rates aren’t about to go rocketing skyward either, i.e.,
those of you who have followed my advice on the PIMCO Total
Return Fund will still do just fine. At worst you should beat
inflation. 2004 and beyond, though, may bring a slightly
different story, but we’ll have plenty of time to examine this
before pressing the panic button.
–Energy: As crude oil flirted with the $40 level and natural gas
$10, I was reminded of the Jimmy Stewart line from the movie
“Shenandoah.” “Ah, ah, ah, ah, now it concerns us.” Of course
the moves are not just tied to the pending conflict with Iraq, and
fears that Saddam will torch his fields and that of his neighbors
before the U.S. military has the chance to secure them, but it’s
also a result of the failure of both Democratic and Republican
administrations to come up with balanced, sane energy
policies…increasing fuel efficiency, drilling in areas like the
Arctic National Wildlife Refuge, and hammering out fair
initiatives with the environmentalists when it comes to
exploration, particularly for natural gas, in the U.S. (and Canada,
for that matter).
This week’s chief fear was that the spike in natural gas is but a
harbinger of things to come, but when you hook up every new
office and condominium development to the source, while failing
to offer incentives or reduce regulations that keep the producers
from investing in new wells, you’re going to have this kind of
problem. So now we’re faced with potentially crippling supply
shortages. [Great for my drillers down the road, though! Sorry,
that was selfish.]
With regards to oil, the worry here is that Saudi Arabia and other
large producers have a more limited ability to meet any Iraqi
shortfall than was once thought and while U.S. Energy Secretary
Spencer Abraham made it clear the nation’s Strategic Petroleum
Reserve could be tapped at any minute, there are many who are
leery of tinkering with this safety net until we truly have an
emergency, and today’s conditions don’t warrant the move.
Finally, the talk of price gouging, as well as from those who say
the war is only about oil continually cracks me up. If you
believe either, you are sadly mistaken. In terms of price, a gallon
of gasoline is and has been the best value for your $…as long as
we don’t go to $3 or $4. Ol’ Dan D. reminded me that when he
was tooling around Pittsburgh in 1950, a gallon of gas cost 20
cents and an ice cream cone a nickel. Today, gas is on average
about $1.60 and the ice cream $2. Simplistic, yes, but you can
draw similar comparisons with virtually every other product in
that timeframe. [Actually, you could drive around for 20 miles,
stopping at every ice cream store, and probably spend $40, all on
that $1.60 gallon. Well?]
–Taiwan Semiconductor, a previous holding of yours truly,
received permission from the Taipei government to invest $900
million in mainland China, the largest such approval yet and a
strong sign of the rapidly growing business ties between the two
countries (oops, I’m not supposed to say Taiwan is an
independent nation…and there’s a knock at my door). I
understand why some view this as a huge positive, but I still need
to wait a while and monitor future developments before making
such a pronouncement. If we’ve learned one lesson from recent
history it’s that business leaders don’t always act in their peoples
best interest.
–One other potential positive regarding China is the fact it is
allowing New Jersey investigators to interview 12 citizens
suspected of industrial espionage against Lucent. This is a first,
though it’s not like the American officials will be allowed to drag
them back to Newark to stand trial; at least that’s my reading of
it.
–Informed sources tell me that the downsizing on the Street has
heated up once again with a vengeance, though the firms
themselves are trying like hell to keep it all quiet. First and
foremost, aside from the human aspect, this is doing a big time
number on the City of New York’s finances.
–The biggest European accounting scandal to hit the continent
emerged as Royal Ahole, the 3rd largest grocer in the world
(“Stop ‘n Shop”), announced it was cooking the books. The
stock promptly dropped 2/3s in one day. Of more import,
though, is the fact that this episode shines a light on Europe’s
own accounting mess, while the battle between the regulators on
both sides of the pond is heating up when it comes to the issue of
whose standards will prevail.
–Meanwhile, the Financial Times reported that Citigroup is
headed towards a heavy fine for its Enron involvement. As
reader Craig N. complained, hey, fines just hurt the little guy, the
shareholder. We both want jail terms, which unfortunately in the
case of the investment banks are unlikely.
–The Japanese government picked a 67-year-old to head up the
central bank, disappointing markets which viewed this as more
of the same. Not that there is anything wrong with 67-year-olds,
mind you.
–President Bush’s approval rating on the handling of the
economy is down to 43%, with 48% disapproving according to
one survey. I wonder what John McCain is thinking these days?
–USA Today cited the Brookings Tax Policy Center and its
projection that with regards to the alternative minimum tax 2.6
million will be hit in 2002, but this could easily climb to 35.6
million by 2010. Given the new deficit environment, it’s going
to be tough for Congress to remedy the situation.
–It’s time for my semi-annual primer / warning on investing in
bonds. If you are new to the game and chasing yield, just make
sure you understand the concept of ‘duration’ and the risks
involved if the trend in interest rates begins to go against you,
i.e., rates begin to rise. Also, remember that Treasuries can act
differently than Corporates. If you are an investor in the latter,
you want a stronger economy (though the past few months they
have acted superbly without one), while in that same scenario
Treasuries could get hit as inflation fears emerge. If your
financial advisor can’t explain duration and other simple
concepts, find another one.
–Monster.com warned its subscribers to be aware of job sites
that could be used for the purpose of identity theft.
–Fraud watch: Aside from the Royal Ahold (the real name,
incidentally) debacle, some Kmart and Qwest executives were
indicted for fraud, though in the case of the latter we eagerly
await the same treatment for former CEO Joseph Nacchio, one of
the biggest dirtballs of this era.
–Inflation Watch: Mark R. reports that ticket prices for the new
Phillies ballpark, which won’t open until 2004, will be up
anywhere from 25-100% compared to today’s levels. The
Treasury market hasn’t reacted to this news as yet…but when it
plugs the info into its models, look out!
–IDT, a locally based telecom operation, is bidding for the
remains of Global Crossing in the interest of national security,
due to the fact that the defunct company has contacts with
various government agencies like the FBI and CIA. IDT is
correct in its assumption that it could be dangerous for GX to fall
into the hands of a foreign buyer.
–The mutual fund industry witnessed net withdrawals in equity
funds for the month of January, a historically strong month, for
the first time since 1990. Just another sign that the little guy is
not about to rush back in for, potentially, years to come, and as
you all have pointed out to me, what funds are left are going into
the house.
–Hewlett-Packard reported that earnings rose 49% but they
missed on revenues and the company’s pronouncements on the
future were as bad as most of the others in the sector, ergo, the
stock dropped about 15%.
–The New York Times reported that Arby’s has come up with a
new animated character in the form of an oven mitt to promote
the brand. So I’m thinking, too bad Senor Wences isn’t still
alive.
–My portfolio: My energy issues finished up slightly in a
volatile week, but my Telecom New Zealand play fell victim to
the double whammy of (1) seeing Team New Zealand humiliated
in the America’s Cup (down 4-0 as of this writing) and (2) the
serious terrorism threats aimed at the event. I told you that my
purchase about two months ago was partially a bet on the
outcome of the races and, truthfully, losing the Cup hurts the
New Zealand economy to the tune of $650 million, a large
amount for this nation. The stock lost about 5% on the week, but
I’m holding for now. Having been on the scene just three weeks
ago, I have empathy for the Kiwis.
–I am still very confident we can get a nice bounce in the market
once the war starts, but to place a heavy bet on a successful
outcome at this time is still financial suicide, in my opinion.
International Affairs
Israel: In President Bush’s key speech to the American
Enterprise Institute, he sought to tie Saddam’s removal with
peace between Israel, the Palestinians, and the rest of the region,
while coming down hard on the settlement issue. For his part,
though, it appears that Prime Minister Sharon has put together a
hard-line coalition in parliament, including some factions that
favor expanding settlements. Sharon also booted his chief rival,
Benjamin Netanyahu, from the foreign ministry post, not a big
surprise.
Meanwhile, various Palestinian factions are beginning to favor
an Egyptian cease-fire plan, which would be a positive, while
some believe Chairman Arafat will appoint a prime minister later
in the year who already has a decent relationship with Sharon.
But before we get too hopeful, let’s see how Saddam reacts when
the shooting starts.
Afghanistan: Many experts are worried about a new spring
offensive here on the part of the remnants of the Taliban and
other extremists.
Venezuela: With the explosions at the Spanish and Colombian
consulates this week in Caracas, both countries being anti-
Chavez, the conflict in this nation has reached a new, highly
dangerous level.
Zimbabwe: President Robert Mugabe, the thug and murderer,
blasted George Bush and Tony Blair this week, while the rest of
Europe remained silent, let alone Mugabe’s sycophants in Africa.
Northern Ireland: A potential piece of good news here as the
largest Protestant paramilitary announced a cease-fire.
Philippines: Not so fast, Mr. Editor. The government here is
debating the role of U.S. troops, due to limitations in their
constitution.
Random Musings
–Commentator George Will on European demonstrators against
the war.
“This moral infantilism…willing an end while opposing the only
means to that end…reveals that the demonstrators believe the
means are more objectionable than the end is desirable.”
–The U.N. reduced its population forecast for 2050 by 400
million due to AIDS and declining birth rates. This revision
comes just two years after its big millennium study.
–One of the best examples of my “wait 24 hours” dictum was
the Warwick, Rhode Island nightclub fire. Everyone jumped to
various conclusions in the first days, but it took a while longer
for a clearer picture of responsibility to emerge with the release
of the videos from bands other than Great White that had used
pyrotechnics in the club. That doesn’t absolve the band by any
stretch, but it does prove to me that the club owners are guilty.
–Al Hunt on “Capital Gang” first exposed the fraud that passes
for presidential candidate Dennis Kucinich. Kucinich, who gives
worms a bad name, totally flip-flopped on the abortion issue
upon announcing his bid. He’s also ranting about how the war is
all about oil. I give him until August.
–Interesting cover story in the 3/3 edition of Newsweek,
reported by Ellis Close, on the gender gap in Black America.
Female professionals, who are making far faster strides than their
hip-hopping male counterparts, are finding it harder and harder
to find a compatible mate. For example, 47% of black women
between age 30-34 have never married, compared to 10% of
white women in that category.
–Charles K. wrote that Saddam’s behavior on the inspections
issue reminds him of Jack Benny’s famous reflection when
approached by a robber. “Your money or your life!…..Well?
…….” “I’m thinking it over.”
–It’s already apparent this year’s Masters golf tournament is
going to be one ugly affair thanks to the gender issue. I’m
about to explode, but I’ll hold it in as long as possible.
–I watched more talk TV this week than I normally do in an
effort to catch up after my 5-week trip and so I flipped on
“Crossfire” Tuesday evening, just in time to see a totally out of
control James Carville. It’s flat out uncomfortable watching this
lunatic.
–Here’s something that will blow your mind. Pioneer 10 (the
little satellite the size of a man), sent its last signal to earth after
31 years in space. One of the great scientific successes of any
kind, this craft initially was slated to operate about 21 months.
Pioneer is now 7.6 billion miles away and its next stop is the red
star Aldebara, some 68 light years distant, meaning it will reach
this destination in about two million years. Of course over this
same period only two things back on earth are certain; the Cubs
and Red Sox still won’t have won a World Series.
–Lastly, it was a tough week for the Trumbore family. I lost my
godmother, Anna Marie, after a long bout with cancer and my
brother is in the hospital with a serious illness. Anna Marie was
one of those people who shared her joy of life with everyone she
came in contact with and we all loved her dearly. I’ve got a
smile on my face writing this because I realize she’ll be with me
the rest of my days, and then I’ll join her and we’ll share a ton of
laughs.
As for my brother, ordinarily I would keep something like this
private, but it’s hard to do so when he’s part of the site as our
“Lamb in Command” creator and suddenly you don’t see any
new cartoons, so I feel like you all are owed some sort of
explanation. All I can say for now is that he came down with
a disorder that severely impacts his muscles and coordination.
It could get rough for him before he turns the corner, but while
everything is going to work out just fine, don’t expect the
strip’s revival anytime soon.
Back to Anna Marie, it was also a little ironic that Fred Rogers
passed away this week. While I was already 10 when his
program started in 1968, and thus didn’t watch Mr. Rogers, nor
do I have children of my own who would have, Fred grew up
less than 10 minutes from where Anna Marie, my mother and her
extended family were raised. Coupled with the University of
Pittsburgh connection that so many in my family shared with
him, Anna Marie, a Pitt professor, was a huge fan of this gentle,
kind man.
—
God bless the men and women of our armed forces. We also
acknowledge the loss of Rodrigo Gonzalez-Garza, Timothy
Moehling, John D. Smith, and William J. Tracy, killed in a Black
Hawk accident in Kuwait. Heroes all.
God bless America.
—
Gold closed at $350
Oil, $36.60…profit-taking Thursday and Friday from the $40
level.
Returns for the week, 2/24-2/28
Dow Jones -1.6% [7891]
S&P 500 -0.8% [841]
S&P MidCap –0.7%
Russell 2000 -1.1%
Nasdaq -0.9% [1337]
Returns for the period, 1/1/03-2/28/03
Dow Jones -5.4%
S&P 500 -4.4%
S&P MidCap -5.4%
Russell 2000 -5.9%
Nasdaq +0.2%
Bulls 40.4
Bears 36.0 [Source: Investors Intelligence. I have part II of my
sentiment article up on my “Wall Street History” link.]
*Also, check out “Hott Spotts” for the first in my two-part series
on appeasement and World War II. Obviously, there are some
lessons for today.
Have a great week. I appreciate your support. Thank you, Harry
K., for your kind note.
Brian Trumbore
