[Posted 7:00 AM ET]
Iraq
It was not a good week, and it’s reality check time for some
Republicans. The United States and its allies are paying a dear
price for an ill-conceived post-war plan, if you can even call it
that. I have been highly critical of the Bush administration and
with good cause. This is one Republican who only seeks the
truth.
America’s brave soldiers have been ill-served. They masterfully
secured the oil fields, for example, only to see them plundered
and sabotaged solely due to lack of manpower. The electricity
level in Baghdad is still below 50%, due to sabotage and lack of
security forces. And now one can’t help but be extremely
concerned that Iraqis aiding the coalition are being targeted
themselves.
The U.S. has to get more forces in there, fast, and not hesitate to
seek the help of others. And whoever leads us to Saddam so we
can plug the bastard should be handed all the riches their heart
desires.
In the meantime, following are comments from other
Republicans I respect.
George Will, weighing in on the issue of weapons of mass
destruction.
“Americans seem sanguine about the failure – so far – to validate
the war’s premise about the threat posed by Hussein’s WMD, but
a long-term failure would unravel much of this President’s policy
and rhetoric.”
Senator Richard Lugar, visiting in Baghdad on Monday, urged
President Bush to describe the cost and commitment required to
rebuild.
“There now needs to be real truth-telling by the President.”
Senator Chuck Hagel, also from Baghdad.
“The administration has got to really come forward and explain
the breadth and depth of our commitment here.”
Let’s hope it does. The people are about to get restless.
Wall Street
“The Federal Reserve steps to the plate, bottom of the ninth,
bases loaded, two outs, down a run with the whole world
watching. Tax Kutz leads off 3rd, J. Lo Rates off 2nd, Weak
Dollar on 1st. A little flare over 2nd plates two and sends the
winners into the global leadership role they once so prominently
held. And the pitch….
“It’s a line shot to center, base hit, Kutz scores, here comes Lo
Rates with the winning run….oh, nooo…Lo Rates stumbles and
is gunned down at the plate. We’re headed to extra innings.”
“Murph, looks like a lot of the fans have had it right here.
They’re heading home before the final outcome.”
Sorry, friends, writers” block. But not far from the truth, as it
turns out, with the Federal Reserve opting to cut interest rates
only ¼ percent rather than the ½ many expected.
The Fed cited a firming in spending and labor markets that were
stabilizing as potential positives, though adding, “The economy,
nonetheless, has yet to exhibit sustainable growth,” but at least
inflationary expectations remain “subdued.” In fact in a highly
confusing statement from a syntax standpoint, it was still pretty
clear the Fed was concerned about deflation, even though no one
else is. So while it is doing everything it can to get the point
across that they aren’t raising rates until 2004 at the earliest,
those trading the long end of the yield curve, an independent lot,
took rates way up. The 10-year Treasury, for example, now
stands at 3.54% after hitting 3.09% two weeks ago. This isn’t a
disaster and I for one am not going to make a big deal of it until
the 10-year is substantially above 4%, but it doesn’t augur well
for the housing market should a true upward bias develop. And
after all, it’s just a matter of time before it does, anyway.
So suddenly, with the troika of low interest rates, a weaker $ and
tax cuts, two of the three are taking gas, as for its part the dollar
rallied strongly this week (bad for exports) to 1.14 to the euro
from a recent record level of 1.19. If this trend continues, that’s
then potentially the second leg taken away, leaving just the tax
cuts to work some magic, with many of us merely throwing ours
into the checking account, I suspect, to help take of higher
property taxes.
Yeah, a bit of the above is slightly facetious, but for every
positive economic indicator this week, such as soaring housing
and a decent reading on personal income, you got a weak
manufacturing number (durable goods) and a statement from the
likes of Advanced Micro that the June improvement in
semiconductor sales it initially anticipated “did not materialize.”
The problem is economists are calling for 3.5-4% growth for the
second half. If it comes in at that level, then profits should
mostly meet inflated earnings expectations, thereby providing
perhaps further upside for stocks. But if the growth doesn’t
materialize, back below 8000 for the Dow.
And if the situation in Iraq doesn’t improve, I can guarantee it
will be another market negative. So, heck, if you were in
equities to any great degree in the second quarter, take your
profits and head home. Why wait around for the result and get
stuck in traffic, only to see your sell orders compete with those of
the other schleps on the road.
Street Bytes
–Stocks paused this week, as the Dow Jones and S&P 500 both
lost 2% to finish at 8989 and 976, respectively, while Nasdaq fell
1.2% to 1625. Nonetheless, a great quarter for stocks ends on
Monday, with gains ranging from 12-21% for the three major
indices thus far.
–U.S. Treasury Yields
6-mo. 0.94% 2-yr. 1.35% 10-yr. 3.54% 30-yr. 4.58%
–Bill Gates, in an interview with USA Today:
“Spending on IT gear is unlikely to ever in my lifetime achieve
the levels that it did in the late 90s. Anybody who’s got a
business plan where they’re holding their breath until those days
return is likely to die of asphyxiation.”
Those of you betting heavily on tech stocks at current high
valuation levels take note.
–Energy: Crude inventories unexpectedly fell, while the
aforementioned situation in Iraq lends further credence to those
believing oil can stay in the $28-$30 range for the foreseeable
future as Iraqi production is a long ways from attaining prewar
levels. As for natural gas the price declined, but the real story is
the concern at all levels for this coming winter amid ongoing
supply issues. Canada, for one, won’t be able to help the U.S.
meet increasing demand in any great way until 2008 at the
earliest.
–The European Union deficit targets remain a joke as it appears
Germany will be breaking it for a 3rd straight year. Chancellor
Schroeder, however, appears to be doing a little of what the Bush
administration is, by advocating an increased level of spending,
along with tax cuts, in an attempt to jumpstart a critically ill
economy.
–The Federal Energy Regulatory Commission ruled that $12
billion in energy contracts signed by Governor Gray “Fade to
Black” Davis at the height of the 2000-2001 crisis were valid, a
giant victory for those attempting to recall him, incidentally.
Separately, FERC stripped Enron of its right to sell electricity
and natural gas in the open market when it emerges from
bankruptcy, while the Department of Labor filed a lawsuit
against Enron for failing to protect workers’ retirement assets,
the largest action ever of its kind.
–According to the Federal Reserve (and Crain’s N.Y.), since
1997 the # of foreign bank offices in New York City has plunged
from 375 to 235, due in small part to mergers but mostly because
banks are focusing their efforts back home. Not a great trend for
the overall U.S. economy and financing of the federal deficit, to
extrapolate a bit.
–I continue to believe the impact of the dividend tax cut is way
overrated. Sure, I like dividends as much as the next guy,
especially at a 15% tax rate, but just take a look at one example,
Goldman Sachs. This week the company announced a hefty
increase in the payout from 12 to 25 cents. With the shares
trading around $82, though, that’s a yield of just 1.2%. Like
whoop-de-damn do. The stock is still going to rise and fall on
earnings, and on any shortfall in same the $1 dividend won’t
supply as much of a cushion on the downside as you’d think. I’ll
have more on this in coming weeks.
–Freddie Mac admitted for the first time it manipulated earnings
to aid the share price, but since we already suspected that, more
importantly officials also acknowledged they didn’t know how
all of their derivatives would actually perform given some worst
case scenarios, and that’s what should give market regulators the
willies.
–Investors who were screwed in the IPO craze of 1998-2000
may be able to recover a few Turkish lira as part of a proposed
class action settlement between investors and 308 companies
who are admitting wrongdoing. The real targets, though, are the
investment banks who underwrote the issues, which means more
trouble for the likes of Credit Suisse First Boston as this unfolds
over the coming years.
–China: Even with SARS-related shortfalls, Chinese exports to
the U.S. are still projected to be up another 35% this year. The
U.S. has to step in to halt some of the dumping, as is its right
under the trade accords. Meanwhile, audits in China continue to
uncover massive fraud in the banking system, a fact that
threatens world financial markets, even if only a handful of folks
seem to be cognizant of this. S&P estimates 50% of all bank
loans here are underperforming, when 5% is the normal target
level.
–Argentina: The Economics Minister wants to impose
restrictions on foreign capital flows, a controversial move for a
country still clawing its way back from depression. But all he is
trying to do is prevent George Soros types from wreaking havoc
in the currency markets. It’s a fine line, however, and bears
watching over the coming months.
–General Motors’ gigantic debt offering, most of the proceeds of
which are targeted for shoring up the company’s pension plan,
exceeded $13.5 billion, plus another $4 billion in convertible
securities. The 10-year bonds went off at 7.22%, a very nice
return if you believe GM will survive over that period.
–Heineken warned that beer sales were disappointing in the
second quarter, blaming the war (bogus) and bad weather, as in
the northeast (legit….sidewalk café business has been non-
existent). *My own beer consumption will, however, meet Wall
Street’s expectations when I announce the figures in mid-July.
–Former Tyco CEO Dennis Kozlowski and CFO Mark Swartz
will stand trial in September, so, coupled with Frank Quattrone’s
big show the same month, we should all be thoroughly
entertained next fall.
–Margin debt is rising again, no big surprise given the market’s
rebound, but before you scream “CRASH!”, at $146 billion it is
far from March 2000’s record $278 billion level. But the trend is
worrisome.
–The Senate continues to make progress on the asbestos front,
specifically the parameters of a trust fund from which damages
would be paid. Again, this would be as important to the U.S.
economy as just about any other action Congress could take all
year since in most cases it would save those corporations already
teetering on bankruptcy, while fairly compensating true victims,
not the sham cases we’ve seen.
–I was reading a piece by economist Robert Samuelson on air
travel and the following stats are worth noting. From 1981-2000,
global air travel rose 5.1% annually. It was down 3% in 2001
and flat in 2002. There are no indications a significant rebound
back to ’81-’00 levels is underway, especially with business
travel, yet airline stocks continue to soar, with AMR this week’s
big star. Back on March 12 the shares could be had for $1.25.
They closed Friday above $11. Irrational exuberance, my
friends.
–An IRS study revealed that the top 400 taxpayers in America
for 2000 reported total income of $70 billion. To qualify for this
list one needed adjusted gross income of at least $86 million. I
just missed it. How ‘bout you?
–My portfolio: Due to travel, I didn’t make any moves and
remain 15% equities, 85% cash. My position in India is now up
20%+, however.
International Affairs
Israel: There were three main events this week. First, Israel’s
Ariel Sharon told his cabinet that the nation should keep building
settlements, but “quietly.” Second, Palestinian Prime Minister
Abbas supposedly brokered a truce between terrorist groups
Hamas, Islamic Jihad and Yassir Arafat’s Fatah goons. Third,
Israel agreed to pull out of the Gaza strip in exchange for
assurances that the Palestinian Authority would prevent terrorist
attacks. So we sit back and see what happens next, with any
feelings of optimism in check.
Pakistan…and Iran: President Bush met with Pakistan’s General
Musharraf at Camp David, quite an award for a head of state
whose true cooperation in the war on terror is often suspect. Of
all the world’s leaders, Musharraf has perhaps the most difficult
balancing act to pull off. How to crack down on extremist
groups without he, himself, becoming a victim. There are tribal
regions in his country where until recently the military has never
ventured in search of Osama bin Laden, for example, while there
is every reason to believe that his intelligence network is still rife
with those espousing Wahhabism.
At the same time President Bush laid down strict conditions on
further economic aid, confronting Musharraf on the weapons
proliferation front, particularly as it pertains to North Korea. But
lastly, the whole visit just goes to show you how a little nuclear
intransigence can still go a long way. Here is Pakistan’s leader,
scorned by the international community after entering the nuclear
weapons camp, now being feted by an American president. This
is what Iran sees. This is why it’s rushing to have its own bomb,
and why we have to do all we can to foment revolution there.
Russia: I imagine President Putin thoroughly enjoyed his state
visit to Britain, the first for a Russian leader since 1874,
incredibly. I didn’t hear if Prime Minister Blair confronted Putin
on the closure of Moscow’s last independent television station on
Sunday, however, just in time for the upcoming elections. How
conveeeenient.
Saudi Arabia: The good news is the Saudis reportedly captured
the top suspect in the recent Riyadh bombings. But the bad
news, potentially, could be contained in the 9/11 congressional
report that is to be published in the near future. The intelligence
community is split on what to reveal about Saudi involvement in
the support and financing of the hijackers and al Qaeda in
general.
South Korea: What was long suspected now appears to be fact,
this being that former President Kim Dae Jung and his
government funneled $100s of millions to North Korea ahead of
the historic summit between the two nations. This dwarfs any
controversy Washington has seen over the past three decades, be
it Watergate, Iran Contra or Clinton’s lack of respect for the
American people. Kim should obviously be forced to give back
the Nobel Peace Prize he was awarded for his efforts at the time.
Africa: President Bush, who will be traveling to the Dark
Continent shortly, called for Liberian henchman Charles Taylor
to step down as his nation’s president as heavy fighting in the
capital of Monrovia took hundreds of lives this week, including
refugees seeking safety in the U.S. embassy compound. By all
accounts the shelling of the ‘safe haven’ was a scene of
unspeakable horror.
While the term ‘Dark Continent’ isn’t politically correct these
days, give me one reason why it doesn’t best describe the human
tragedy that is Africa. Liberia, Congo, Zimbabwe…things are
spiraling out of control across the board. President Bush’s trip is
a gutsy one, but fraught with danger.
Zimbabwe: Meanwhile, Secretary of State Colin Powell blasted
President Robert Mugabe in an op-ed piece for the New York
Times, placing much of the blame on Zimbabwe’s neighbors for
not acting more forcefully, adding, “We can rescue the people
… this is a worthy and urgent goal for us all.”
Australia: Damn, I love these folks. Foreign Minister Alexander
Downey labeled the UN “ineffective” and said his nation will
increasingly rely on new coalitions, like that which waged war in
Iraq. This is what your editor has called for, beginning with a
new super coalition consisting of the U.S., Britain, Australia,
Japan, and, perhaps, India.
Burma: Britain and Japan have tightened sanctions against the
heroin traffickers that inexplicably rule here following word that
Nobel Peace Prize winner Aung Sun Suu Kyi was moved to a
notorious prison. As of this writing, no one from the outside has
been permitted to visit her since being relocated. An Aussie-led
operation (largely because of its proximity) could take care of
this situation in 48 hours if the U.S. would support it, not that I
meant to volunteer my Aussie friends for such an effort without
checking first. [Separately, Australia announced a move to lead
a force that will bring stability to the troubled Solomon Islands.]
Britain: Prime Minister Blair’s popularity continues to plummet
on the heels of the parliamentary battle over prewar intelligence
and the issue of weapons of mass destruction.
India: Prime Minister Vajpayee added to his peacemaker legacy
as he took a historic trip to traditional enemy China. There is
nothing to be worried about here. You don’t want tension
between these two, that’s for sure. Of course they could team up
and destroy the West, economically, at some point, but that’s a
tale for a different day, boys and girls.
Random Musings
–I forget the source, but I heard of a poll this week that revealed
that 66% of Americans can’t name one Supreme Court Justice,
an incredible statement, especially since every now and then the
Court reminds us all of its indelible impact on the conduct of
our lives in more ways than one, such as this past week. The two
biggest rulings concerned affirmative action and gay sex. The
former was a mess and promises a plethora of new lawsuits, not
what you’d think the Court intended in ruling against a
University of Michigan point system favoring minorities for
undergrad admission, while saying that the law school there
could still use preferences. I side with George Will on this one;
no one disputes it’s important to have a diversified workforce,
but it will happen, naturally.
In support of this view you had these results of a CNN / Gallup
survey.
44% of whites, 70% of blacks favor affirmative action in general.
49% of whites, 21% of blacks oppose.
But when it comes to college admissions, 75% of whites say it
should be merit-based, 44% of blacks. This last figure surprised
me and speaks volumes about the progress that has been made.
Coincidentally, I was in Branson, Missouri this week. Branson,
as some of you may not be aware, is a town in the Ozarks that
has become a sort of Nashville, Jr., with tons of theatres and
country music performers.
Tuesday night I saw Charley Pride in concert. Pride is the Jackie
Robinson of country, having scored big in 1967 and later being
selected as Country Music Entertainer of the Year. He never
spoke of prejudice in his field before, and on Tuesday he made a
special note of the help he received early in his career from
Ernest Tubb and Buck Owens. [Is there anyone better than
Owens, incidentally?] Then Pride pointed to the audience and
said, “Unless they (meaning the industry) were doing it behind
my back, no one ever said anything to my face that hurt me.”
I don’t know how many of my fellow concert-goers caught the
irony of the timing of it all, the day after the Supreme Court
ruling, but it was a moment I won’t soon forget.
And then you had the Court’s other historic decision as it struck
down a Texas ban on gay sex, Texas being one of 13 states with
anti-sodomy laws still on the books. While I agree with the
decision, it’s not the court’s right to involve itself in a state
matter such as this. It’s up to the voters, working through their
state legislatures, to do so, in my humble opinion. The result of
the Court’s ruling will be a new militancy on the part of Gay
Activists that promises to divide America more than ever on this
issue, hurting the standing of the vast majority of gays at the
same time.
So after this week, you can now see how incredibly contentious
the battle over the next Supreme Court nominee will be, which
increasingly looks like an ’04 event as a resignation appears
unlikely this year, or at least in time for ’03 hearings on a
replacement. Start stocking up on your favorite beer. It will be
most entertaining viewing, though often ugly, and I guarantee by
the end of the process more than 34% of Americans will be able
to identify one Justice.
–On the terror front, Jessica Stern, an expert on the topic, has a
disturbing piece in the July / August issue of Foreign Affairs.
Among the dangers these days is the proliferation of ‘lone
wolves,’ which gives me an excuse to support Attorney General
John Ashcroft and his efforts. While others whine, when it
comes to this war we all have to put up with a certain amount of
Big Brother surveillance, though as I’ve written before, when
individuals are wronged, the government must issue more than
fair compensation, and quickly.
But on a different matter, Ms. Stern writes of the goings on in the
“triborder” region of South America, the area where Argentina,
Brazil and Paraguay meet. This has become the world’s new
Libya, she notes; the gathering spot for Colombian rebels,
Hamas, Hezbollah, even American white supremacists, as they
swap tradecraft. And up in Venezuela, President Chavez has
allowed Islamist groups to operate in his country, according to
credible reports. The island of Margarita is the haven of choice,
incidentally.
–The European Union claimed that it finally overhauled its farm
subsidy policies and called on the U.S. and Japan to do the same.
But the new plan does nothing for the poorest nations who
continue to take it up the butt (hey, the Supreme Court ruled I
can write this). The E.U. will still heavily subsidize farmers, as
best I can see, while the U.S. and Japan are far from blameless
themselves in this regard, especially with the Bush
administration’s own irresponsible $170 billion farm bill.
It’s also interesting to note that the average cow in Europe still
earns $2-$2.50 per day in subsidies (in Japan it’s $7.50),
compared to the $1 per day wage of most humans in sub-Saharan
Africa, and the new E.U. effort will do nothing to aid African
exports that will continue to be uncompetitive on the world
market.
–No secret I like polls, so I present the latest nationwide
CNN/USA Today/Gallup survey of Democratic voters.
Lieberman 21%
Gephardt 17%
Kerry 15%
Edwards / Sharpton 7% each
Graham, Braun, Dean 6% each
These #’s, regardless of how insignificant they may be at this
point in the game, still have to be particularly distressing to John
Edwards. But Sharpton and Braun with 13% combined?!
Goodness, gracious, some Americans are idiots.
And speaking of idiots, I missed Howard Dean’s performance on
“Meet the Press,” but I just read the full transcript. Talk about
painful reading.
–Only 57% of checked bags are being screened at U.S. airports,
0% of cargo. Enjoy your flight.
–According to a study, deforestation in Brazil increased an
amazing 40% between ’01 and ’02. President Lula has his work
cut out for him, as it’s all about corruption. Then again,
corruption is what makes the world go ‘round.
–Thanks to John T., long-time reader and Vietnam Vet, who
wrote in from Ho Chi Minh City where he is trying to spread the
virtues of capitalism. John admits it’s been real tough, but he’s
making progress.
–Harry Potter outsold Hillary by 25 to 1 in its first day, just as it
should be. But author J.K. Rowling told an audience Thursday
that Harry could die in Book 7.
–Speaking of books, I was in the Truman Library last weekend
and there was a wall of magazine covers from his years in the
White House. I couldn’t help but notice a Life cover from
6/23/52. “Mickey Spillane: 13,000,000 Books of Sex and
Slaughter.” Pre-Bill and Hillary, mind you.
–NBC reports that the Asian Carp continues to eat its way up the
Mississippi River. If it reaches the Great Lakes, though, it could
snuff life out there, then advance on to Ottawa, where it would
destabilize the government, at least that’s my reading of the
situation.
–To give you a sense of just how awful the next few months are
going to be as mosquito season heats up, in one state-monitored
trap in New Jersey, normally 25 are caught in an evening. The
other day 700 were!
–Finally, as part of my trip to Missouri this week, I stopped into
the aforementioned Truman Library in Independence. For
starters, the presentation of this man’s incredible time in the
White House was balanced and I don’t care how much you think
you know; there is nothing like a great museum to reinforce
one’s knowledge.
There was a vast display on the dropping of the atomic bomb, of
course, and I was surprised by some of the comments in a book
for visitors to express their feelings. A vast majority I read were
against, as I wrote simply, “It was the right thing to do.”
Truman himself wrote a letter a few days after the bombs on
Hiroshima and Nagasaki to the Federal Council of Churches,
which read in part:
“When you have to deal with a beast you have to treat him as a
beast.”
This is the picture most of us have of the man. But there was
another side on display in the form of a letter and medal from the
father of George Banning, a young man killed in Korea.
“Mr. Truman,
“As you have been directly responsible for the loss of our son’s
life in Korea, you might just as well keep this emblem on display
in your trophy room, as a memory of one of your historic deeds
….
“Singed (sic)
“William Banning”
Incredibly, Truman’s staff found both items in his office drawer
when they were looking through it following his death in 1972. I
stared at this exhibit for what must have been five minutes.
I also went to Missouri to see for myself the devastation wrought
by the tornado in Pierce City. Believe me, it’s not my habit to
gawk at such things. I still haven’t been to Ground Zero, for
example, despite about 20 trips to New York since 9/11. But I
hoped to spread a little cheer, as I wrote in this space last month
following the early May disaster.
Pierce City is the place you all saw on the news, as the networks
rushed to film the quaint commercial district that was turned into
rubble in this town of 1,350. It’s about 15 miles off I-44 and
when you get 5 miles from town there is a sign warning of a
detour ahead, which added a little to my anxiety. Then less than
a mile from what I thought would be the outskirts, you crest a
hill and see nothing but downed trees. A half mile later there
was a roadblock and you’re staring at what you had seen earlier.
Excuse the language, but all I could do was shake my head and
go “Holy s—.” It breaks your heart. You’re then taken on a
long detour until you wind back to the other end of the business
area, passing what seemed like another 50 downed structures.
I was hoping to attend a church service there that Sunday
morning and talk with people afterwards. Maybe there was
someone who needed my help, I thought, but what churches I
passed were badly damaged.
It was about 10:30 and I saw just a few folks working on homes
that I viewed as a total loss. Out of respect, I opted not to stop
after all.
And then that night I was watching the local news and found out
that on Monday a company from Minnesota was going to begin
formal demolition.
The people say they are going to rebuild, and some state and
federal funding is in place, but the devastation was so total that
you can’t help but wonder who will really stay. I’m not so sure
I’d be able to.
I wish I had something more profound to say in wrapping this up,
but I don’t. I’ll find a way to help in my own way, but in the
meantime all I can do is offer my prayers. Next time disaster
strikes, I know you all will do the same.
—
God bless the men and women of our armed forces. Protect
them, Lord.
God bless America.
—
Gold closed at $345…big drop
Oil, $29.27
Returns for the week 6/23-6/27
Dow Jones -2.3% [8989]
S&P 500 -2.0% [976]
S&P MidCap -0.4%
Russell 2000 -0.2%
Nasdaq -1.2% [1625]
Returns for the period 1/1/03-6/27/03
Dow Jones +7.8%
S&P 500 +11.0%
S&P MidCap +12.2%
Russell 2000 +17.1%
Nasdaq +21.7%
Bulls 59.4%
Bears 17.7% [Source: Investors Intelligence / Chartcraft]
Have a great week. Enjoy the Fourth.
Brian Trumbore
