[Norfolk, VA…Friday, 5:00 PM…posted Sat., 10:00 AM ET]
This hasn’t exactly been a great week for yours truly. If you’ve
been following the news and took my hint at the end of last
week’s column you know I was one of the millions impacted by
Hurricane Isabel. I have been without power and a major news
source for a few days and there will be more than a few gaps in
coverage with this week’s column, but at least I was able to write
the following up. The only problem is I still need access (and
power) to the Internet to post it and that just isn’t happening right
now in Norfolk, that’s for sure. More on the week later.
Iraq
It’s open season on the Bush administration, especially among
most Democrats. This week the President and members of his
cabinet had to admit that there are no ties between Saddam
Hussein and 9/11, even as a recent poll revealed that 70% of
Americans believed there to be one. This was after a ‘bob and
weave’ performance by Vice President Cheney on “Meet the
Press” last Sunday, one in which he refused to admit the
administration didn’t underestimate anything in planning for
postwar Iraq, be it the costs, troop strength or the resistance to
occupation. It ticks some of us – yes, even Republicans such as
yours truly – that the White House can’t admit one freakin’
mistake. Not one! For crying out loud, just tell us the truth.
And just as I predicted, the support of the American people is
beginning to crumble, week by week. According to a
Washington Post / ABC News poll, 60% don’t support spending
the $87 billion for rebuilding efforts in Iraq and to add insult to
injury, a majority favor rolling back some of the tax cuts if
Congress nonetheless approved of the added costs for the war. I
keep thinking back to a series of surveys from a few weeks ago.
We believe the President was right to go into Iraq, but we only
want to keep our troops there less than 2 years.
It’s this last sentiment that some, like the French, are now taking
advantage of in advocating a greater immediate role for the U.N.
in establishing the Iraqi governing council as the political body
in the land. This is a joke, and as Secretary of State Powell says
would be the worst possible outcome for the people at this point.
For starters, the governing council doesn’t even have the support
of Iraqis themselves.
Fareed Zakaria wrote in an op-ed for the Post, “The notion of a
quick transfer of power to Iraqis is impractical, unwise and
dangerous.”
This whole adventure in nation-building is going to take years
and $10s of billions. It has to be done the right way, one step at
a time, and in the end the U.S. must maintain a significant
military presence in the nation, outside the cities, to keep the heat
on Iran and Syria.
Of course everything you’re hearing, both from Democrats and
Republicans, fails to address my last point, one I’ve consistently
trumpeted since before the war. Iraq is a mess and our enemies,
including the French, who want us to cut and run, smell blood.
I am one who does not believe the American people always get
the Big Picture. We rallied around the flag after 9/11, but two
years into a struggle that will last the rest of our lives, some of us
are already wimping out. It’s mostly because we are a largely
uneducated people when it comes to world events. Heck, I still
can’t believe that as of about 3 weeks ago, 2/3s of Americans
couldn’t identify one Democratic candidate for president. And
the problem is the idiots have the same vote the rest of us do.
Finally, with regards to the current leadership in the White
House, I have been hard on them, particularly since that
incredibly stupid, insensitive, triumphalist appearance on the
aircraft carrier May 1st. The administration is blowing it,
allowing the likes of Senator Kennedy, Howard Dean and now
Wesley Clark and their charge that the case for going to war was
a “fraud” to actually carry some weight. The administration gave
Kennedy the opening with its failure to communicate truthfully
to the American people and to spell out the hardships ahead and
now they’ll pay the political price.
It’s all very sad, and I’m losing optimism that we will win the
war, best defined as not only avoiding a catastrophic attack far
greater than 9/11, but displaying the will as a people to see the
mission through for generations to come. Some in the White
House have been playing us for chumps. In many respects, we
are.
Wall Street
Market comments will be brief this week, as the Dick Grasso
story dominated the headlines while there was very little real
market news, except perhaps from the Federal Reserve.
The economic releases for the week were mixed, with the data on
housing and industrial production so-so, while Michael Dell told
investors in London that he remained “cautious” about spending
on technology. Meanwhile, the Fed left interest rates unchanged
and issued a statement almost identical to the prior two, that
being that while the pace of recent economic activity is
encouraging, there remains the risk of deflation.
Now no one in their right mind believes deflation is a real
problem, especially with the improving tone for the economy,
even as the core consumer price index is now running at an
annualized rate of 1.3%, the lowest since 1966. The official
government statistics continue to mask the true story of rising
prices. Deflation is only a story if the U.S., and by implication
the rest of the world, slides back into recession.
But Wall Street and the bond market loved the Fed’s statement
because it reiterated a simple fact, this being the Fed is not going
to raise short-term interest rates (the only thing it controls,
remember) until mid-2004 at the earliest, and I would argue that
with a presidential election in November, certainly not before
then either.
And while interest rates have settled down in the past few weeks,
back closer to 4% than 5% as represented by the 10-year
Treasury, I would also argue that if the economic numbers pick
up anew, particularly on the jobs front, bond investors will be
slaughtered. 5% remains the tipping point and regardless of the
Fed’s reassurances to the contrary, attaining this level would also
have to have a negative impact on equities, which are getting
ridiculously overvalued, in case you haven’t noticed.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.01% 2-yr. 1.66% 10-yr. 4.16% 30-yr. 5.06%
–Dick Grasso, part six:
Good riddance, Dick, and hopefully this is one of the last times I
address the whole pitiful saga.
I nailed this charlatan way back in the weeks after 9/11, calling
him a “used-car salesman” in this space, 9/22/01. But to the end,
his apologists continued to echo the same drivel.
Former SEC Chairman Harvey Pitt: Grasso’s performance after
9/11 was “phenomenal.”
CNBC’s Larry Kudlow on Monday before the exit: “Grasso
should continue to do the superstar job he’s been doing.”
Kudlow and others kept shouting, “Where’s the crime? Where’s
the malfeasance?” To which I’d counter, where was the
corporate governance with the likes of Enron, let alone within the
NYSE itself?
Grasso received over $185 million in compensation ($48 million
of which he is slated to forego) to do what? Ring a damn bell,
slap people on the back, and fly around the country in his private
jet, all while ignoring his function as regulator. As has finally
come to light, after keeping everyone in the dark, the Exchange
was one giant conflict of interest and little Dick was its captain.
The NYSE was supposed to be the moral leader of America’s
investing class and instead it succumbed to the excesses of greed
and arrogance that so characterized the Bubble. Yet all the
while, as the Big Board finally opened the window on the
monopoly and let a ray or two of sunshine in, you had the likes
of Kudlow defend Grasso’s pay package with comments such as,
“Too many people want to punish success,” and that the move
against Grasso was “an assault from the liberal media.”
Yoh, Larry, I’m a Republican and no one has been harder on
Grasso. And many of us don’t see it as punishing success.
California Treasurer Phil Angelides, in calling for the chairman’s
resignation, summed it up perfectly. There is a difference
between a risk taker, like Michael Dell or Bill Gates, and a
regulator. I’ve never begrudged Michael Dell’s wealth, for
example, he’s earned every penny. But Grasso?
As CNBC’s David Faber noted in speaking of corporate CEOs in
general, “These guys just aren’t that good.” Yet Grasso’s
defenders treated him like some indispensable superstar. Ha! As
Angelides devastatingly said of Grasso and his $5 million
performance bonus for his efforts post-9/11, “I didn’t see any
firemen, policemen, or even Rudy Giuliani receive any bonuses.”
I would have added, “Or Verizon workers who replaced the
shattered phone system the NYSE depends on.”
And get this. After all my talk on charities and corporate
dirtballs, Bloomberg News ran a story last weekend that the New
York Stock Exchange gave an increasing amount, under Grasso’s
direction, to the favorite charities of members of the Board’s
compensation committee. It’s sickening.
Grasso was just another greedy, arrogant SOB who was tone-
deaf to the plight of the average investor; the latter still hurting in
a big way, particularly with their retirement savings. And to
compound matters, millions are now out of work, with their
dreams of a modest lifestyle shattered.
But Dick Grasso walks away with $140 million, having failed in
his primary job, that of regulator and protector of the little guy.
Look for him at your local charity soiree. “Boy, that Dick
Grasso, what a great guy,” some will say who feel a need to
touch celebrities. I’d walk right over him, if given the chance.
–Aside from the Grasso mess, there were other reasons to
question whether anyone was doing their job on the corporate
governance front. 3 former senior executives at Merrill Lynch
were indicted for their roles in the Enron scam and the fraudulent
partnerships that pumped up revenues while avoiding taxes. But
once again, parent Merrill itself escaped criminal charges. In
case you forgot, David Komansky was in charge back then and,
like Grasso, a big supporter of the Imus ranch for kids with
cancer. But they’re all such fine, upstanding men, some
proclaim.
–Meanwhile, in the burgeoning mutual fund scandal, Morgan
Stanley was fined $2 million by the NASD for improper sales
practices in a case I discussed before, the holding of sales
contests for the purposes of promoting proprietary / in-house
mutual funds over competing product like that offered by the
likes of American Funds and PIMCO.
True, other big brokerage firms have done this, but as I told you
weeks ago through my own personal experience in the fund
business, no one was worse than Morgan Stanley (and the former
Dean Witter operation). But here’s what gets me. The head of
Morgan Stanley’s retail unit, Bruce Alonso, was named and
penalized, but neither the Journal nor the New York Times knew
to draw the line up to CEO Philip Purcell. C’mon. I know that
he was well aware of the shenanigans, but as in the case of
Merrill, Citigroup (Sandy Weill) and the other big shops, the
chieftain escaped. It sucks and every investor in America should
be screaming bloody murder. [Purcell was one of those NYSE
board members who handed Dick Grasso his walking papers
after approving of his compensation all these years.]
Finally, still on the fund industry, New York Attorney General
Eliot Spitzer charged a Bank of America broker with grand
larceny and securities fraud in the timing scheme.
–But wait, there’s more! The Journal reported that 3 of the Big
4 accounting firms have been under investigation since 2001 for
overbilling clients in the $100s of millions for travel expenses;
i.e., charging full fare and then pocketing the discounts or
rebates.
–China: The economic situation here is increasingly volatile.
Foreign direct investment, for example, has plummeted 28 and
19 percent, year over year, each of the last two months over fears
that the bubble is worsening the problems of bad debt and future
inflation. The banking sector has been a ticking time bomb for
years.
–The latest World Trade Organization talks collapsed as
developing countries walked out, primarily over the tumultuous
issue of agriculture and the subsidized farmers of the U.S.,
Europe and Japan. While the U.S. deserves its share of the
blame, the farm lobbies in Europe and Japan simply won’t give
in to the demands of the developing nations that the latter be
allowed to compete on a fair and equal basis.
–Microsoft announced a partnership with Motorola and AT&T
Wireless for a new smartphone. It’s a trick. Don’t buy it. The
software will be full of bugs.
–R.J. Reynolds announced it is laying off 2,600 as its cigarette
brands are losing out to the discount variety. This will have a
severe impact on the town of Winston-Salem, NC, home of
Wake Forest University, my alma mater, and RJR’s
headquarters.
To show you how much times have changed, though, up until my
freshman year in 1976, RJR was allowed to place free cigarettes
on the lunch tables in the school cafeteria to get the students
hooked on the product. Pretty despicable, in hindsight. Then
again, the town also had a Schlitz brewery in those days, a
popular spot on Friday afternoons with some of us as we took the
tour and then retired to the Brown Bottle Room for free beer.
[But at least the beer contained some of the essential food
elements!]
International Affairs
Sweden: In a 56-42 vote (the rest were blank ballots), Swedes
rejected adopting the euro as the official currency, leaving the
spiffy Krona as legal tender for the foreseeable future. The final
vote was in line with polls taken prior to the referendum, but it
was thought that the murder of Foreign Minister Anna Lindh, a
supporter of the euro, just a few days before would turn the tide
in favor of joining the other 12 European Union members who
already have it. The vote also kills the prospects of the U.K. and
Denmark, the other two E.U. holdouts, for a number of years.
Certainly, the euro cause is not helped when leading nations
France and Germany defy the established deficit targets, and
with 10 new nations slated to join the E.U. next year, the smaller
ones are beginning to wonder why the rules are so strict for entry
even as France and Germany flaunt them.
China / North Korea: Beijing denied stories that it has massed
150,000 troops on the border with the North to help local police
in stemming the exploding refugee problem, as well as send a
message to Pyongyang to cool it with the nuclear weapons
program. The border towns have become like the Wild, Wild
West and North Korean troops, themselves, have been accused of
staging bank robberies in the Chinese areas.
Israel: The government had to announce that killing Yassir
Arafat was not official policy after receiving a ton of heat from
the U.S. and the West.
South Korea: The U.S. saw nowhere near the devastation from
Hurricane Isabel that was wrought here by Typhoon Maemi, the
nation’s true “storm of the century.” Well over 100 died and
damage estimates are at least $1.5 billion, including to the vital
economic port of Pusan.
Britain: The BBC’s Andrew Gilligan, one of the true dirtballs of
the year, admitted he was wrong in the facts of the prewar
dossier story that roiled the nation. What some seem to be
forgetting, though, is that David Kelly took his life over this
whole fiasco. Gilligan, along with one or two others in the Blair
cabinet, have blood on their hands.
Random Musings
–In various polls, President Bush is maintaining a 12-15 point
lead when matched up against leading Democratic candidates, or
possible entrants, including Lieberman, Dean, Kerry, Clinton and
Gore. The President’s overall approval rating remains in the 50-
60% range. But 56% disapprove of his handling of the economy
(Washington Post / ABC News).
–Overall, in a survey of potential Democratic voters, and
including new candidate Wesley Clark:
Lieberman 22 percent
Dean 14
Gephardt 14
Kerry 14
Clark 6
Sharpton 5……….idiots
Edwards 3
Now that Clark is in the race, and already the darling of Chris
Mathews, his #’s will surely rise quickly to the 10-15% level. As
for John Edwards, I loved the way he officially announced the
same day it became clear Clark was running, and yet Edwards,
sitting at 3% nationally, said his message was “resonating.” The
senator has proved to be a pitiful candidate, after being the media
darling a year ago, and therein lies a precautionary note for both
Dean and Clark.
–Someone tell Bill Clinton the Irish love him so maybe he’ll go
over there and stay.
–Since I’ve been out of touch the past few days, I’m not sure of
the latest in California following the appeals court ruling
delaying the recall vote, but you’ve had a further sense of why I
said from day one this whole process was a joke. Of course a
delay until March would help Gallagher and Mary Carey, neither
of whom have had the chance to mount an effective campaign as
yet.
–It’s almost criminal that U.S. Reserve units, trained on and
using outdated equipment, are doing the same dangerous duties
in Iraq as the active units.
–Recently, 18 Yemenis, invited by the U.S. State Department to
Washington as part of a cultural exchange, were held at Dulles
Airport for 5 hours, one handcuffed, because officials at State
had failed to notify Customs that these innocents were coming in.
It wasn’t Customs’ fault, but imagine the awful PR when the 18
go home. You know, folks, in this war of ours even the smallest
screw-up can have the biggest ramifications.
–Finally, one thing is for sure, the National Weather Service
nailed the forecast for Isabel. Thankfully, you had some winds
off Florida that cut into the speed of the storm or we would have
been talking deaths in the hundreds. As it was, Isabel still
proved to be a most disruptive force.
I got down to North Carolina’s Outer Banks on Sunday morning
and made a beeline to the Wright Brothers memorial at Kitty
Hawk. It’s the 100th anniversary, December 17, of Orville and
Wilbur’s astounding feat and I walked away with far more
admiration for these two than I ever had.
Then I worked my way up the coast to the town of Duck (15
miles or so north of Nags Head) where my rental house for the
week was located. Along the way I stopped in to see a
woodcutter, a fixture in the area for decades, and I asked him
about the evacuation procedures. You see, even as I was heading
down to these parts I was more than a bit depressed, knowing I’d
be forced to leave shortly thereafter. In fact, all the locals I
talked to during my brief stay were bummed out big time, as they
worried about their homes and livelihoods. I felt for them all.
On Monday I took a long stroll along the beach and the first
thing I thought was, gee, the water at high tide is already lapping
at the base of the dunes and these were generally just 6-10 feet
high. In other words, the place didn’t stand a chance.
I left Tuesday afternoon, a mandatory evacuation notice having
been given at noon, though they can’t force you to leave. Part of
me wanted to stay until Wednesday morning, which wouldn’t
have been a problem, but a lot of establishments were already
shut down and I thought, what’s the use? In fact, what was
amazing was how few folks actually boarded up their homes.
Many, of course, were rentals with the owners far away, but I
also heard more than one person say, “Insurance will handle it.”
So I went up to Norfolk, about two hours away, to wait Isabel out
and on Thursday morning at 8:00, my hotel lost its power. By
afternoon the whole Norfolk / Virginia Beach area had lost it and
the flooding in some parts was severe. Now it’s 5:00 PM,
Friday, and there’s still no power, with little hope of it coming on
soon. This region suffered a huge blow and there’s only so much
the utility crews can do.
Back on the Outer Banks, I had purchased a transistor radio and
I’m grateful for WNIS / WTAR-AM here in Norfolk for running
great coverage all Thursday and Friday. The DJ, Tony
Macrini, was on the air for 18 hours straight and did a superb
job.
I had a good view from my room of the storm and it was pretty
awesome, that’s for sure. I also worked on my golf swing in the
mirror, so now I’m ready to do some scoring! But I can’t help
but think; what if Isabel had come in at 140 mph? This final
chapter would have been far different for starters, that’s for sure.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $381
Oil, $27.03
Returns for the week of 9/15-9/19
Dow Jones +1.8% [9644]
S&P 500 +1.7% [1036]
S&P MidCap +2.2%
Russell 2000 +2.2%
Nasdaq +2.7% [1905]
Returns for the period 1/1/03-9/19/03
Dow Jones +15.6%
S&P 500 +17.8%
S&P MidCap +23.8%
Russell 2000 +35.8%
Nasdaq +42.7%
Bulls 56.1
Bears 19.4
Note: Best wishes to our own Dr. Bortrum, who came out of
serious surgery on Friday in good shape. The two of us won’t be
golfing for a while, but we’ll resume our matches next year.
Have a great week. To my many readers in Virginia and other
impacted hurricane areas, good luck with the cleanup.
Brian Trumbore
*I wasn’t able to post until I returned to New Jersey, Sat. AM.
