[Posted from Boston, 7:00 AM ET]
Iraq…commitment
I thought some of the results from the latest Newsweek survey on
current attitudes were quite telling.
61% of Americans still believe the U.S. was right to take action
in Iraq, while…
60% say the U.S. should scale back the effort, and…
56% approve of keeping a large force in Iraq for 2 years or less.
This is what I’ve been referring to the past few months as soft
support. This is why President Bush, in prime time, must do a
better job of explaining the long-term mission.
Robert Kagan and William Kristol had the following thoughts in
the Sept. 1 / Sept. 8 issue of the Weekly Standard.
“We believe the president and his top advisers understand the
magnitude of the task. That is why it is so baffling that, up until
now, the Bush administration has failed to commit resources to
the rebuilding of Iraq commensurate with (the) very high stakes
(first and foremost being a safer Middle East).”
They add: “Business as usual is not acceptable. Getting the job
done in Iraq is our highest priority, and our government needs to
treat it as such….The President knows that failure in Iraq is
intolerable. Now is the time to act decisively to prevent it.”
I’m increasingly concerned with the impact of the presidential
election cycle. If we continue to see the kind of guerrilla warfare
we’ve witnessed the past 3 months, including acts such as the
horrific bombing Friday in Najaf, which targeted the U.S. in
name, along with the moderate Shiite leader, President Bush’s
advisers may urge him to make politically expedient decisions
versus the need to see the war through to its rightful conclusion.
The ill-timed “Mission Accomplished” banner of May 1st may
yet be 5 years from fruition and it will require keeping a large
force on the ground there for longer than that, I presume.
It’s frustrating to me, as a supporter of preemption and the
domino theory in the region, that shoddy implementation and
institutional arrogance, as best exemplified by Secretary of
Defense Rumsfeld, could keep us from accomplishing the goal.
Now the administration wants more foreign troops on the
ground, preferably Muslim ones from the likes of Turkey and
Pakistan, but these nations are asking, “You want us to do what?
No way, man.” And the UN isn’t about to cobble together a
force without some control of command, which the U.S.,
correctly, isn’t willing to give up. So we basically are going
around in circles at this point, while the average American thinks
it’s only a 2-year deal.
Finally, President Bush told his American Legion audience this
week “We will not wait for known enemies to strike us again,”
implying the likes of Iran and North Korea. Regarding the
former, as the Israelis have long warned Iran is clearly further
along with its nuclear weapons program than intelligence experts
in the West have deduced, while little progress was made in talks
this week involving North Korea. The President is back from
vacation and it’s time to get to work.
Wall Street…the Economy
Looks like I picked a bad time to be cautious, as for the last few
months I’ve been sitting with 80% or so in cash, just about 20%
in the market. And how ‘bout that economy, friends? It’s pretty
ludicrous to hear the Democratic presidential candidates talk
about a stagnant one when the revision for 2nd quarter GDP
showed growth of 3.1%, with 4% or higher for the second half
looking like a done deal. Why come Christmas, those with jobs
will be looking to buy the fattest goose in the butcher shop
window.
I mean, after all, the figures for manufacturing, durable goods
purchases, consumer and business spending are all coming in
better than expected, while the likes of Wal-Mart are raising
sales estimates with the kiddies backpacks filled to the brim with
more than schoolbooks as they trudge off to another year of
learning falsehoods in American history.
Of course there are a few flies in the ointment, with mortgage
rates now at 6.30% on a 30-year fixed vs. 5.20% less than 3
months ago. Applications for new mortgages are down 65%
while refinancings are off a whopping 80%. The question thus
becomes, can capital spending take over the leading role that
housing has assumed for the past few years, when the latter,
broadly defined, has represented close to 30% of economic
activity? Maybe it will. And maybe the consumer will continue
to pull his or her share of the load as well. And maybe the Bush
tax cuts will work their magic straight through to November
2004.
I would just counter that if the economy now begins to chug
along at a 4% or greater pace for at least the next few quarters,
interest rates will climb, with it being a lock that the key 10-year
Treasury would then rise to well above 5%, this being a magic
number of its own for many of us skeptics. Such growth in the
economy would portend a significant increase in inflation (which
the action in gold seems to be sending an early signal of) and the
Federal Reserve would have to finally put on the brakes. That’s
when, if you aren’t paying attention, you just may hit the car in
front of you.
But for now, enjoy the better tidings and hope for a stronger
employment picture as you celebrate Labor Day. Personally, I’m
still not throwing caution to the wind as others seem to be doing.
Something about the hot spots around the world that has a way
of tempering enthusiasm.
Street Bytes
–The Dow Jones and S&P 500 have now risen 6 straight months,
to 9415 and 1008, respectively, while the Nasdaq has registered
7 straight monthly gains as it now sits at 1810, another 16-month
high. But will earnings come in at a pace to warrant now frothy
valuations? More next week.
–U.S. Treasury Yields
6-mo. 1.04% 2-yr. 1.96% 10-yr. 4.46% 30-yr. 5.22%
Fed Chairman Alan Greenspan gave what was billed as an
important speech on Friday, only to proclaim that the Fed will
not target a specific inflation rate. Traders yawned, for now, but
I suspect there will be more of a reaction next week after the
players have returned to mix it up in the pits.
–Dick Grasso, part trois. So, who wants to argue with me, now,
that New York Stock Exchange Chairman Richard Grasso isn’t a
smarmy dirtball, albeit a very wealthy one? It was just a few
months ago that we learned of the Dickster’s compensation of
$12 million for 2002, $15-$20 million in 2001. Now the
Exchange reveals that Grasso will pull out of his various
retirement accounts the tidy sum of $140 million, most of which
was for his work over just the past 8 years as chairman.
The explanation given by his buddies on the governing board for
such an outrageous figure is “you have to do what you can to
retain good people.” [Carl McCall] Us schleps, of course, are
expected to swallow this whole without getting sick.
Until they were forced to do so, the Exchange has tried to hide
this information from the public in order to protect the members
of this exclusive club with the secret handshakes. Grasso had to
reveal that aside from pulling his winnings out early – which
earned a guaranteed 8 or 10 percent per annum, according to
various reports, in a low interest rate environment – he also
signed a contract extension, at $2.4 million+ per annum, to
remain as chairman into 2007.
It’s this last bit, early withdrawal, that has many officials crying
foul. But then when it comes to issues like these, carnival
barker Grasso has always been tone deaf; witness his ill-fated
attempt to put Citigroup’s Sandy Weill on the board in the midst
of Eliot Spitzer’s investigation of Weill’s own conflicts of
interest.
The New York Stock Exchange, it needs to be pointed out, has a
rather important regulatory function, a role it failed miserably at
over the past few years. Then again, we do now have a strong
candidate for StockandNews’ “Dirtball of the Year.”
–Oooooo-klahoma where Bernie Eb-bers gets what he
deserves…
Memo to the SEC and Justice Department: Tarry not, or see
your power usurped. It’s time to mete out some punishment to
the MCI/WorldCom crowd, and thanks to Oklahoma’s attorney
general, it’s also time for some justice, Old West style. Put a
noose around Ebbers’ neck and kick out the chair, I say.
–Once again, China is trying to shore up the Big Four banks that
account for 70% of the lending and deposits in the country. Of
greater concern is the fact that with the huge currency flows into
China, the real estate bubble here is expanding, which means
some of the banks, already up to their eyeballs in non-performing
loans, could get hit doubly hard when the property market
crashes. Separately, the government is allowing foreign banks to
own a larger share of China’s banks…to share the coming pain, I
guess.
And on the jobs front, Intel announced it was investing $200
million in a new chip plant in central China, with another $175
million to follow. At least 700 new jobs will be created…
–…jobs not going to Eastern Europe, for example, which is
losing employment to China just as fast as we are in the U.S.
This is particularly disconcerting for the nations that are still
struggling to establish themselves in the post-Cold War era. In
most cases wages are 75% less in China, than, say, Hungary, and
the likes of IBM, Flextronics and Philips are bidding the region
adieu.
–Some officials in the White House are urging President Bush to
roll back the steel tariffs imposed last year, especially as a
deadline for massive European Union retaliation nears. Higher
tariffs, while protecting U.S. steel producers and jobs, also led to
higher costs and losses for other U.S. manufacturers, with the net
effect undoubtedly being a loss in jobs overall.
–It’s going to be interesting to see how the European Union
deals with Germany and France, both of which are significantly
exceeding the mandated 3% debt limit on GDP. The
governments argue that adopting growth policies, such as tax
cuts, take precedence over deficits, and that this is the only way
to spur employment. I can’t say I disagree, but it just points out
how hard it is going to be to maintain a united front in terms of
the currency.
–Ad spending is up 7% in the 1st half of 2003, solid evidence of
a recovery in the overall economy.
–Business Week ran a cover story on memory loss and the
encouraging development is that at least 60 pharmaceutical and
biotech companies around the world are working on memory
enhancing pills.
–Related somewhat to the above, biotech giant Chiron was the
victim of 2 bombs (no one was in the building at the time),
apparently set off by animal rights activists who have targeted
the company because it uses animals in its testing. The dirtballs
perpetrating such acts need a memory pill of their own to remind
them that humans are ahead of animals, at least on the charts I
grew up with.
–According to the Washington Post, the good folks at
Halliburton have received contracts in excess of $1.7 billion for
reconstruction efforts in Iraq, some of which was garnered
without competing bids. Nothing like having a former chairman
as Vice President of the U.S. of A.
–The FBI has identified an 18-year-old as being responsible for
a variation of the debilitating “Blaster” computer virus. The kid
bears a slight resemblance to Lumpy from “Leave It to Beaver.”
We wish him a miserable life.
–Microsoft issued 72 security patches for Windows in 2002, 32
thus far in 2003. Great job, guys. [Source: USA Today]
–Remember, sports fans; some of our leading corporate dirtballs
were also major philanthropists, whether it was top executives at
Enron and Adelphia, or the likes of Sandy Weill, Dennis
Kozlowski, and Dick Grasso. They hide behind this cloak of
charity, while screwing hundreds of thousands. When this crew
meets their maker, my God will cut the elevator cable before
they reach the top floor.
–The NASD is demanding that the brokerage industry clean up
its act when it comes to the issue of mutual fund sales and
commission breakpoints. But an article I read said, “Regulators
don’t believe the mistakes are the result of widespread deception
by the industry.” Ha! The firms now must go back and
recalculate those trades in which the clients were duped and
make them whole, with interest. Actually, I’ve always felt that if
you’re going to get screwed, make sure it is with interest.
International Affairs
North Korea: Thankfully, the Bush administration isn’t naïve
when it comes to the issue of Pyongyang and its nuclear toys.
Unfortunately, the U.S. and its allies haven’t come up with a
solution, as the North threatens to detonate a bomb as a way of
declaring itself a nuclear power, or at least launch another long-
range missile over Japan to show off its capabilities. If they
choose either route, it may happen in the next few weeks.
The 6-nation talks held this week in Beijing produced little,
but it would be unfair to say there weren’t some encouraging
developments. China, for one, took its role as host to heart and
there could be a growing consensus at last between the U.S.,
Russia, Japan and China that may see the issue finally presented
before the UN Security Council as a way of further pressuring
Kim Jong Il.
China obviously doesn’t want to see a nuclear power on the
Korean peninsula for selfish reasons, as well, since Japan would
likely then follow suit, as could South Korea and Taiwan, and the
nuclear arms race in Asia would be on.
China is also currently bound by treaty to defend North Korea if
the latter is attacked, though there is zero chance of Beijing
honoring the pact.
There are a ton of other side issues, including South Korea’s
puzzling behavior, and general lack of support, but the bottom
line for now is this. Kim will not give up his nuclear deterrence
no matter what kind of security guarantees he receives from the
U.S. And it’s difficult for the U.S. to launch a preemptive strike
when we don’t know the location of all the North’s facilities.
But detonating a nuclear weapon in order to prove North Korea
has “arrived” would at least unite its neighbors in seeking regime
change, though going that route could be a bloody, and
depressing, affair.
China: Meanwhile, U.S. Treasury Secretary Snow is about to
visit Beijing to discuss the overvalued Chinese currency with his
counterparts. But in preparation for the trip, Chinese officials
asked reporters accompanying Snow to submit everything
they’ve written about the country. A senior administration
official told U.S. News “this is outrageous.” The Chinese backed
off. Kind of makes you wonder how yours truly would fare,
doesn’t it? I’ll have to test the waters over the coming year.
And then there’s this new spat between China and Taiwan,
having to do with a people-smuggling operation gone terribly
bad. Smugglers looking to bring about 25 people from the
mainland to Taiwan dumped everyone overboard when they
were spotted by Taiwanese authorities. 6 women, seeking work
on the island, died. Taiwan’s President Chen Shui-bian said
China bore some of the responsibility because of the oppressive
conditions that forced the people to flee, and the war of words
heated up from there.
Israel: More violence as the road map exists in name only. And
this week Yassir Arafat asked us to take him seriously when he
said he would crack down on terrorists if Israel would stop its
attacks. So most of us had a good laugh, hoping that Israel
would swoop in, plop him in a dingy without food or water, and
set him adrift in the Mediterranean.
Afghanistan: U.S. and Afghan forces launched bold
counterattacks against the Taliban with solid success. And in a
further display of the warming relationship between the U.S. and
Germany, Germany said it was willing to add more troops in the
country if the UN mandate expands beyond Kabul. On the
negative side, ratification of a new constitution for Afghanistan
has been delayed at least 2 months, primarily because with
peacekeeping limited to the capital, it’s impossible to get the
tribal leaders to give up their power for the good of the whole.
Britain: Prime Minister Tony Blair was finally called before the
judiciary panel that he himself established to look into the prewar
buildup of the threat posed by Saddam’s regime, along with the
circumstances leading to the apparent suicide of arms expert
David Kelly. Blair insisted that if claims his cabinet had “sexed
up” the key dossier were true, as the BBC alleges, he would be
forced to resign. Blair added that he took full responsibility for
naming Kelly in order to avoid appearances of a cover-up, while
he denied inserting a claim that Saddam could have his weapons
of mass destruction ready in 45 minutes. Then on Friday,
indispensable aide and chief spokesman Alastair Campbell fell
on his sword and resigned.
A huge majority of the British people don’t believe Blair and his
bottom line that the crucial dossier wasn’t politically driven. But
the prime minister is lucky there is no viable opposition that
could force him out of office at this time, though there will be
more details to report on this coming week that could cripple him
further.
India: Prime Minister Vajpayee has thus far exercised restraint in
light of the bombings in Bombay (Mumbai) that killed over 50.
Vajpayee is still focused on achieving some kind of peace
breakthrough with Pakistan over disputed Kashmir before he
exits from the scene and, frankly, it’s still not clear exactly who
perpetrated the heinous act. In this nation, it could just as easily
be more of a regional issue between Hindu and Muslim militants
and the fate of holy sites. That said; the real worry is that there is
some al Qaeda connection, since the group would like nothing
more than to develop a Muslim theocracy in Kashmir that would
have Pakistan’s tacit approval.
As for my own small investment in India, it dropped just 2.5%
the day of the attacks and rallied strongly thereafter. This
country has displayed amazing resilience in the face of numerous
terrorist incidents.
Saudi Arabia: I try to be as balanced as possible each week and I
am slightly encouraged by ongoing signs some in the Kingdom
have finally gotten the message, with the latest decent news
being the launching of a joint effort between U.S. and Saudi
intelligence to crack down on the terrorist money trail. Success
depends on the Saudis releasing previously secret documents and
we’ll know shortly whether or not the effort is a sincere one.
Liberia: The situation in the capital of Monrovia continues to
improve though there is still some fighting outside of it. I was
ticked, however, to see 150 of the 250 U.S. Marines return to
ships offshore. Military officials say they can be more quickly
deployed to hot spots in the country as needed, but clearly we are
cutting and running, just when we were beginning to build up
some real goodwill on the ground.
Australia: Kudos again to our Aussie friends for their ongoing
efforts at maintaining the peace in the Solomon Islands and East
Timor. It may not sound like much to some in the West, but
these are key steps in the overall war on terror. It’s also a
further sign of this nation’s emerging clout and influence. Buy
Aussie products as a small way to show your appreciation, my
fellow Americans.
Random Musings
–In a scathing report on the Columbia shuttle disaster, NASA
was blamed for both negligence and its institutional arrogance.
The study found that the agency was reckless in its disregard of
previous shuttle damage, but what I focused on was the issue of
outsourcing going back to around 1995. Whether it’s Donald
Rumsfeld’s plans to outsource vast parts of the U.S. military,
Microsoft’s outsourcing of computer programming to foreign
lands, or NASA’s move to relegate some safety responsibilities
to outside companies, you have a loss of accountability, and in
all 3 cited examples the dangers of adopting such a policy these
days are too great for comfort.
–When it comes to the environment, as President Nixon first
said, clean air and clean water are our birthright. But our current
president is tone deaf when it comes to these issues, as the
administration insists on kowtowing to big business. President
Bush’s decision to repeal a section of the Clean Air Act to allow
industrial sites to make major upgrades without installing new
pollution controls is outrageous, and awful politics. As he
crisscrosses the West promoting better forest management,
which let’s face it impacts probably 2% of the population, max,
he shows a total disregard for the other 98%. And don’t give me
this b.s. that costly upgrades would throw workers into the
streets.
It’s the same thing with the administration’s hands-off treatment
of the auto industry and emissions standards. Tell them you have
to be at ‘X’ by ‘Y’ date or face stiff fines and public disapproval
and the car companies would hit the targets to stay competitive.
Bottom line, Bush gets a big fat ‘F’ on this topic and according
to a Newsweek poll, only 29%, overall, would give him a
passing grade as well.
–Speaking of air quality, there is no doubt in my mind someone
high up in the White House told the EPA to downplay the
dangers in lower Manhattan following 9/11. As I wrote a few
weeks ago (and immediately after the attacks), my friends who
continued to work and live in the area were subjected to toxins
and not given proper warning, but the pressure was huge to
reopen Wall Street, in particular.
Look, I understand the whole cost / benefit analysis at that time,
but it’s criminal that residents and office workers, including
those in Brooklyn and Staten Island that were often in the cloud’s
path, weren’t told the truth so they could at least take appropriate
precautions. The current danger is that apartment dwellers had
their places improperly cleaned and may still be eating asbestos
flakes for breakfast.
–Islamic scholar Bernard Lewis, the best in his craft, is
convinced Osama bin Laden is dead. That I had to read of this in
Parade magazine is kind of embarrassing, however.
–Writing in Newsweek’s “My Turn” column, Muslim attorney
Randall Hamud said “The Bush administration is playing fast
and loose with our rights,” yet earlier in the column he noted,
“Today, Islam in America is much more fundamentalist. The
imams wear tunics and conduct services in Arabic.” So, ah, Mr.
Hamud, what’s your point? Seems to me Attorney General
Ashcroft and team are doing what they can to protect Americans
from this internal fundamentalist threat. Or as Dennis Miller
likes to say, the one right I care about most is the right not to be
blown up.
–Commentator George Will had a piece on last Sunday’s “This
Week” discussing the fact that Europeans love to complain about
America’s economic power, yet they should probably look no
further than their own work habits, specifically the 35-42
vacation days that most in Continental Europe receive. This is in
comparison to the average 16 days in the U.S.
I got a particular kick out of this because the day before I had
gone to my Korean dry cleaner, a nice man I’ve been taking my
business to for over 9 years. We don’t say much to each other
beyond a discussion about the weather, but last year it hit me I
had never seen him take a vacation. So it was around Memorial
Day and I asked him if he was taking any time off. Maybe a day
to go to Washington to visit his daughter in school there, he said.
Turns out he never made it.
Well last week I asked him again, any time off for Labor Day?
Now picture, this is a guy who works from 7-6 Monday through
Friday and 7-5 on Saturday.
“I may close at 4:00 on Saturday,” he said with a straight face.
“Make sure you’re here early.”
I’ll find out next week if he really took the hour off, though I
suspect not. And people wonder why Asians do so well in
American schools and why this may yet be the Asian Century?
–Maybe I shouldn’t have been, but I was startled by a USA
Today survey that showed 77% of Americans opposing the
removal of the monument commemorating the Ten
Commandments from the front of Alabama’s state judicial
building.
–With my recent musings on the terrorist Earth Liberation Front,
Kirk N. urged me to take a look at the group’s web site and sure
enough, right there on the home page is a piece titled “Setting
Fires with Electrical Timers.” I think 99% of us agree on the
right to free speech, but I suspect 90% of you, at least, would
love to see this kind of dangerous crap shut down. Deal with the
“slippery slope” argument later.
–According to the Washington Post, in the past 6 months 32
people in Japan have committed suicide after meeting strangers
online, part of an overall 50% increase in the suicide rate since
1990 amidst the 13-year economic downturn.
–California: What the recall polls really tell you is that no one
has a clue what’s going to happen come October 7. I’ll take a
stab at it. Gray Davis will remain governor.
–Meanwhile, stunning news from New Hampshire, as a Zogby
poll has Howard Dean with a 38-17 lead over John Kerry. Yes, I
underestimated Dean in a huge way, as did many others, it’s safe
to say.
–I’ve been in Boston for a few days, in town to see my Wake
Forest Demon Deacons open up the college football campaign
against Boston College. But I’d like to thank my full-service
broker, David P., for treating me royally as we had front row
seats to a Sox game one night and then golfed at his club the next
day. Life is good, I thought, as I shanked another one on my way
to a sterling 101.
–Finally, since shortly after 9/11 I have ended these columns
with a message of support for our troops. By now it may appear
that it’s merely tacked on without feeling or real sentiment. I just
want the men and women who serve this great country to know
that I think of them all the time, along with their families who are
worried sick about them. These folks can do no wrong in my
book and may our nation forever appreciate their efforts. And
so….
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $376…the rally picks up steam.
Oil, $31.57…I refuse to go crazy over the spike in gasoline
prices.
Returns for the week 8/25-8/29
Dow Jones +0.7% [9415]
S&P 500 +1.5% [1008]
S&P MidCap +2.2%
Russell 2000 +2.5%
Nasdaq +2.6% [1810]
Returns for the period 1/1/03-8/29/03
Dow Jones +12.9%
S&P 500 +14.6%
S&P MidCap +20.7%
Russell 2000 +29.8%
Nasdaq +35.6%
Bulls 56.0
Bears 19.0 [Source: Chartcraft]
Have a great week. I appreciate your support.
Brian Trumbore
