[Posted 7:00 AM ET]
Iraq
I was watching Bill O’Reilly interview National Security
Advisor Condoleezza Rice this week and Ms. Rice, whom I’ve
steadfastly supported, gave a pitiful defense of administration
policy in Iraq. It was emblematic of everything else that has been
coming out of the White House post-April 9 and the fall of
Saddam. The lack of planning for the aftermath cost the U.S.
dearly, but I’ve already said enough on this topic. What irks me
to no end, however, is that administration officials still refuse to
admit even one mistake, as Rice also refused to do in her chance
to talk to America. [She has another opportunity this Sunday on
“Meet the Press.”]
It’s this same arrogance that obviously is hurting the White
House as it’s forced to go begging to the U.N. for troops and
cash, neither of which appears to be forthcoming outside of an
insulting $220 million or so from the European Commission.
As for the Gallup poll of Baghdad residents that generated a lot
of publicity, the one that said 67% of Iraqis feel they will be
better off in 5 years, this was viewed as positive? Heck, I was
admittedly wrong in thinking last spring it would be more like
90%, and not for nothing, but Bush’s approval rating among this
same group is only 29% (Tony Blair’s is even worse, 20%).
But since you already know of my own opinion, that being the
American people need to understand we should be in Iraq for
years, not just to rebuild the country but to keep the heat on Iran
and Syria, let me focus on Defense Secretary Rumsfeld, who in
testimony to Congress said it should view the $87 billion request
for further funding as an “exit strategy.” I told you long ago that
the secretary was looking to cut and run. He just gave you
further proof of his intentions.
Of course all the while we are constantly calling up more
reserves because Rumsfeld doesn’t want to admit that his policy
is wrong and that we need a larger, not smaller military, the latter
being his dangerous vision of replacing military men and women
with contractors.
You know what I thought of when I learned of the arrests of
those suspected of spying at Guantanamo Bay? Not just ‘Thank
God the Army caught them,’ but also ‘How did this happen?
And imagine how it would be if we had a military full of
outside contractors?’
Military historian Frederick Kagan expressed similar concerns in
the 9/22 issue of the Weekly Standard. Soldiers are on duty
24/7, contractors aren’t, he wrote, and Rumsfeld’s insane (my
word) policy of privatizing the army is relying “on magic to
cover over the reality that our armed forces are too small…
Right now, America’s security strategy rests on a razor’s edge.
If anything goes wrong in Iraq or elsewhere, the United States
cannot rise to the challenge.”
Finally, a word on Vice President Cheney. I do not feel that he
has personally done anything wrong regarding his past
relationship with Halliburton and the company’s receiving
contracts for the reconstruction effort. Charges from the likes of
New Jersey Democratic Senator Frank Lautenburg, that Cheney
has some huge, ongoing financial interest don’t hold water with
me.
But it’s incredible that Halliburton is receiving even one contract
when the vice president knows damn well what the perception
would be with the electorate. This is what I find disturbing.
Cheney will be a liability for us Republicans come November
2004, as last week’s segment on “60 Minutes” addressing the
contracts is but a harbinger of things to come.
Wall Street
Over the years I’ve tried not to make too much of one week’s
market action and I’m not about to start now, but the fact is Wall
Street had its worst in about 6 months as the Dow Jones fell over
300 points, 3.4%, to close at 9313, while Nasdaq plummeted
6.0% to 1792 (its worst performance since 4/02!) and the S&P
500 is now back below 1000 at 996.
While early in the week attention was focused on the currency
markets and comments made last weekend in a meeting of G-7
finance ministers calling for more flexible exchange rates, a slap
at Japan and China for manipulation of the yen and yuan, the
bottom line is that over the past few weeks the economic data
hasn’t been all that great after months of seemingly positive
developments.
Housing continues on its roll, but orders for durable goods
unexpectedly fell, while the latest readings on consumer
sentiment exhibited a decline, too.
I learned a painful lesson, starting about 4 years ago, when I
began pounding the table week after week on the housing bubble.
Well, while it’s still bubbling, it hasn’t hit the stovetop yet and
for this reason I have thus refused to get caught up in the
currency game the last few years, even as every now and then the
cries of crisis are heard across the markets.
Don’t get me wrong, at some point foreigners, holders of 36% of
America’s federal debt, will sell out of their dollar holdings for
more than a day or two, with profound consequences for the
stock and bond markets. You saw a preview of that this week,
only this time while stocks declined as the dollar was being sold
versus the other major currencies, bonds eventually rallied. Not
to confuse matters further, but it wasn’t exactly according to
Hoyle.
No, instead bonds rose because of the moribund economic news
and herewith lies the dilemma. Everyone has been expecting the
renewed growth in the second half of the year to continue well
into 2004. Now, that scenario is increasingly being called into
question, though admittedly the split in the two camps that is
emerging between the ‘robust’ and ‘so-so’ growth crowds is
widening by the week.
Back to the U.S. greenback and movements in the dollar pits, for
today just remember three facts. A weaker $ is better for U.S.
exporters, it’s bad for U.S. inflation, and speed kills; the latter
meaning, don’t go crazy if the decline, such as that which we had
in the spring, is orderly. It’s when everyone heads to the door at
once, possibly as the result of some external shock, that you need
to duck and cover…cover your bets quickly, that is.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.01% 2-yr. 1.55% 10-yr. 4.00% 30-yr. 4.93%
The big rally continues, shockingly, even as a reality check is in
order. The federal budget deficit is exploding and while any
renewed economic vigor would translate into higher revenues, if
we fight the war on terror as we should, let alone fund solutions
for problems on the prescription drug front and with the
alternative minimum tax, the deficit will remain stubbornly high,
at best. Ergo, lots of supply coming to a market near you,
meaning higher rates, let alone the impact of a true dollar crisis.
–Energy: OPEC shocked the world (thought I’d throw in a little
hyperbole there) with its 3.5% cut in production quotas from
25.4 to 24.5 million barrels per day for the cartel. Various
reasons were given, including rising production from non-OPEC
Russia, political maneuvering from Venezuela’s President
Chavez, no friend of the U.S. these days, as well as the hoped for
resumption of significant production from Iraq.
But here’s the bottom line. If the world economy grows, even
with increased supply in 2004 oil prices will remain solidly in the
mid-$20s (it’s currently at $28 for West Texas). But if the global
picture darkens, and with Russia desperately needing revenues to
keep the nation from imploding, crude would take a header.
[A long-time loyal reader Steve L. wrote me a good piece on
privatizing the Iraqi oil concession, then two days later his basic
ideas were all over the papers. Good job, Steve. Then again,
maybe my e-mail is tapped.]
–Line of the week from the New York Times’ Gretchen
Morgenson: “Anyone who turns over a corporate rock can still
find the earth crawling with maggots.”
–Speaking of maggots, the controversy surrounding the
departure of New York Stock Exchange Chairman Dick Grasso
continues with the resignation of one of his lieutenants along
with that of leading board member Carl “Not Ready for Prime
Time” McCall. Former Citigroup executive John Reed was
named interim chief of the exchange for the ostensible purpose
of finding a permanent replacement. Reed’s selection was a
good one.
While all this is going on, the SEC is widening its investigation
into the NYSE’s trading practices, which former Vanguard
Chairman John Bogle blasted for being unfair and inefficient.
One other item. I was disappointed to see Rudy Giuliani defend
Grasso’s compensation so vigorously. Mr. Giuliani certainly
doesn’t want to lose his potential Wall Street contributors for a
future political campaign, and he’s obviously raking it in himself
these days, but it doesn’t resonate well in the heartland (or
anywhere else for that matter) and he’s displaying some of the tin
ear attributes that got Grasso in trouble in the first place.
–Money magazine has a story in the October issue that Wilshire
Associates, a powerhouse in the money-management / consulting
business, allegedly was a big abuser of market-timing in various
mutual funds. The firm’s founder is Dennis Tito, the first paying
tourist in space. Now that this has been made public, I can
acknowledge this is the man I was alluding to the past few weeks
in describing my own travails in dealing with timers while at
PIMCO. We booted Wilshire in 1998.
–Lee Gomes wrote a great piece in the Journal titled “Microsoft
Complains About Complacency. But Who Is At Fault?” The
story is along the lines of my ongoing theme that “we don’t need
all this stuff.” Gomes writes:
“Tech purchasers (have adopted an attitude of) once-burned,
twice-shy about multimillion-dollar Enterprise Resource
Planning packages that don’t do what they are supposed to do,
about e-mail servers that come crashing down with Sobig
viruses, and all the rest.”
As Gomes also adds, whatever happened to Bill Gates’ “.Net”
online initiative of 2000 that was supposed to transform
computing?
–Similarly, this week a group of computer security specialists
said that because the software is full of holes and bugs, Windows
represents a real threat to national security, not that you haven’t
already read this in “Week in Review” before.
–Shares in Kodak slumped to a 17-year low as the company
slashed its dividend and announced it was going digital. The
market’s judgment as to the latter? “Whoopty-damn-do.”
–The large brokerage firms have generally been reporting solid
earnings this year and it could end up being the 2nd-best ever on
the profit side for the industry. Most of the players, save
Goldman Sachs, avoided the bond bloodbath through prudent
hedging, while profits from investment banking and proprietary
trading are up. In other words, with the added risk on the trading
side, buyers of these shares beware.
–I understand the hoopla and savings behind the re-importation
of drugs from nations like Canada. I’m just leery of the potential
for abuse, such as on the terrorism front. One tainted batch of,
say, generic Zocor and it’s panic city, not that this can’t happen
in the U.S. manufacturing process, I grant you.
–The report that the poverty rate rose for the second straight year
in 2002, along with the fact that household incomes declined for
a third year in a row, proves my point that our economy suffered
a double-dip in ’02, even if the “official” numbers argue
otherwise.
–The president for the Red Lobster chain, a Darden Restaurants
subsidiary, was dismissed due to her miscalculation of the cost
for the company’s recent all-you-can eat crab special. Crab, as
you all know, is more expensive than the shrimp the place is
famous for and I guess people were going in with ice chests and
just scarfing up the crab meat. [This could be a slight
exaggeration, but the bottom line is it cost Darden $millions.]
–Ah ha! Inventor Dean Kamen’s Segway scooter is being
recalled for a defect in the power system that could cause the
rider to fall. I told you Segway would never amount to
anything…and so far it hasn’t.
–Reader John K. wrote in with a suggestion for formally naming
the StocksandNews business edition of the “Dirtball of the Year”
award after a well-known figure, an idea I am going to adopt, but
I’ll hold off on the suspense until December.
–My portfolio: I actually bought a few issues this week,
utilizing the cash I’ve been stowing in a hole in the
Meadowlands, but the total purchases only bring my equity
exposure to about 25%, and that’s the max for me, unless it’s
through appreciation. [I then reburied the remaining cash,
double-wrapped in foil, some 43 feet from the parking lot.]
International Affairs
Iran: The country has once again given the International Atomic
Energy Agency the finger as the October 31 deadline for full
compliance on inspections of Iran’s suspected nuclear weapons
programs rapidly approaches. This week, new traces of
weapons-grade uranium were found with the evidence continuing
to pile up. And if you needed further proof of Iran’s true
intentions, you need look no further than a military parade that
was held this week in Tehran, one in which the Islamists
displayed the latest in medium-range missile fashion, complete
with slogans painted on the weapons that read, “Israel must be
wiped off the map.” And some want the U.S. military to cut and
run in Iraq? They’re nuts.
Korea: Most intelligence experts now concede Pyongyang has
anywhere from 3-6 nuclear bombs. Of course it’s more than a bit
unsettling that it took these folks so long to recognize this. After
all, we knew with a fair amount of certainty that the North had 1-
2 weapons over a year ago so why should we be surprised that
they are up to 3-6? If it’s six…one is for a showy test, one to
target Seoul, one for Tokyo, one for Guam, and two for Ramadan
giving to al Qaeda types.
Israel: Washington Post commentator David Ignatius was
recently invited to speak to a group of Hezbollah supporters in
Beirut, which he viewed as an opportunity to get a firsthand look
at opinions these days. Ignatius’ conclusion, not surprisingly,
was discomforting. Said one Hezbollah backer, “Israel’s
problem isn’t simply the bombs but the long line of people who
want to be bombers.”
I give the Bush administration credit for its tough line, blaming
the Palestinians for the collapse in peace talks while reminding
them that “Arafat has failed.” An IMF investigation also
concluded that Arafat diverted another $900 million in aid into
his own accounts, which by my recollection brings the
cumulative total to well in excess of $3 billion. So for the 194th
time it begs the question, “When will the Palestinian people
wake up?”
Separately, the Israeli military has its hands full with the case of
the 27 reserve pilots who refused to participate in bombing runs
against Palestinian targets. Prime Minister Sharon has vowed to
deal with them harshly.
Russia: I have been cataloguing the abuses of power and the
increasing autocratic bent of President Vladimir Putin’s regime
for months now and this week you saw all manner of reports
echoing the theme as Putin got set for his weekend meeting with
President Bush at Camp David. No doubt the anti-West, former
KGB cronies of Putin have taken control and December’s
parliamentary elections bear watching, particularly to see the
showing of Putin’s de facto United Russia party, not doing well
in the polls while Putin’s own #’s remain high.
This week a group of opposition figures launched a media blitz
in the western press denouncing the Kremlin and the new KGB
apparatus. One of the supporters of the campaign is exiled
oligarch Boris Berezovsky, whose own credibility is at issue, but
another of the 5 signatories is Elena Bonner, widow of Andrei
Sakharov; in other words, a woman worthy of the highest respect
and deserving of a hearing.
President Bush must be firm with Putin, particularly on the issue
of Russia’s support for Iran’s nuclear program, but also because
Russia is not destroying its chemical and biological stockpile and
undoubtedly this will increasingly fall into the hands of terrorists,
if it hasn’t already.
China: Japan and China are clashing over who gets an oil
pipeline from Russia, a potentially huge issue and hot spot down
the road. China’s oil imports will rise 15% alone in 2003 over
2002’s levels and you can see through this one example how all
of Asia will be fighting over natural resources by 2010, if not
sooner. Meanwhile, China has launched another crackdown on
web sites touting political reform as the government increasingly
controls all Net content. Even the Chinese edition of Hillary’s
book was censured.
[Along the same lines, while my overall overseas traffic is
soaring, and now represents 40% of the total hits on
StocksandNews, the #’s for China have been declining. Call me
Joe Subversive.]
Japan: Prime Minister Koizumi handily won re-election in the
race for leadership of the LDP and he will win in the general
election come November. The stage is set for him to continue on
the reform path, hopefully with even more vigor.
Sweden: Columnist Goran Rosenberg wrote an op-ed piece in the
New York Times early in the week blaming Sweden’s inept
security police for its “appalling lack of professionalism” in the
handling of both Foreign Minister Anna Lindh’s own security
detail as well as the case surrounding her murder. Then just 3
days later, officials released a suspect in the killing who they had
convinced the nation was the actual murderer, only to arrest a
new suspect later. As Rosenberg said before this startling
development, the incompetence of the police here is incredible.
India: Defense News reports that New Delhi has confusing ties
with both Israel and Iran; the former being a potential supplier of
armaments while the latter is principally a provider of oil and
natural gas. Lately, India has tempered its traditional pro-
Palestinian rhetoric, but Israel is worried that its high-tech
military equipment could fall into the hands of Iran.
Britain: As an outsider I can certainly see why citizens here must
be totally disgusted with the inquiry into David Kelly’s death.
There is no hero in this human tragedy and this week the attorney
for Kelly’s family blasted the Blair government, defense minister
Geoffrey Hoon in particular.
On a different matter, Britain and Colombia coordinated efforts
on another massive drug bust. Cocaine prices will skyrocket.
Hope you locked in earlier, if you are so inclined.
Germany: Good to see President Bush and Chancellor Schroeder
have an amicable chat. I have forgiven Schroeder for his
intemperate remarks last fall and this spring. I hope most
Americans will do the same, though we can’t expect any help on
the troop front for Iraq.
Australia: Officials here are warning of more attacks on Bali as
the 1st anniversary of the terrorist attack there draws near.
Turkey: Washington has approved an $8.5 billion loan for
Ankara to help cover damage done to the economy as a result of
the war. The Bush administration is hoping for the eventual
deployment of Turkish troops in Iraq but I keep saying, 1) the
Iraqis don’t want the Turks, and 2) we seem to be ignoring the
increasing discord between Turkey’s own generals and the
Islamists in power.
Burma: Aung San Suu Kyi was taken from the hospital, where
she had undergone serious surgery, straight to house arrest.
Lovely.
Random Musings
–I didn’t say much about President Bush’s speech to the U.N.
earlier because there is literally nothing to add. It was a futile
effort to elicit support right from the beginning and if the goal
was to emphasize the postwar operation in Iraq, then with all due
respect, why did Bush spend so much time on the illegal sex
trade?
–As I wrote last week, Wesley Clark’s “#’s will surely rise
quickly to the 10-15% level” and that they did…and then some.
Depending on the survey, Clark is already between 14 and 22
percent and 1st or 2nd in most national polls. But get this; while
the CNN / USA Today / Gallup survey gave the former general
22% (and ‘even’ in a hypothetical match-up with President
Bush), 50% of those polled didn’t even know who Clark was.
As for the talk that Clark is a “placeholder” for Hillary, sure,
that’s more than possible, but let me give you a scenario for the
archives involving the senator that you won’t find anywhere else.
There was a New York poll this week that revealed Rudy
Giuliani would beat Hillary if she ran for re-election for her
senate seat in 2006, 57-40. My new theory is that Hillary
decides at the end of 2005 NOT to run, thereby officially telling
the world she is running for president while avoiding the
prospect of a crippling defeat…all assuming a Bush win next
November, of course.
–President Bush’s approval rating has fallen to the 50% area.
And according to an NBC / Wall Street Journal poll, 56% would
repeal the tax cuts on the upper income bracket, no surprise
when, separately, only 43% say they approve of his handling of
the economy. Finally, a Pew Research survey says 59% oppose
spending $87 billion in Iraq.
–Karl Rove has to go.
–On to California:
I enjoyed the California debate, except for Arianna who had no
business being there. Green Party candidate Peter Camejo,
though, deserves a plate at the table (note to my right-wing
friends in the media, chill out, we have a democracy) while Tom
McClintock is clearly the most competent and I hope he stays in
to the end. [Then again, I don’t live in the state and you
residents undoubtedly probably feel differently.]
But while I have consistently said from day one that Gray Davis
would defeat the recall, he suffered a real blow in not being part
of the debate on Wednesday. And as for Cruz Bustamante,
earlier in the week a judge ruled he couldn’t use $4 million in old
campaign funds, including $1.5 million or so from the fake
Indians. Said a spokesman for the lieutenant governor, “It’s
already been spent.”
Lastly, on the debate (yeah, Arnold did okay), who was that
moderator, Stan Statham? I was scribbling a few notes as I
watched the spectacle and next to his name I wrote “jerk.” Then
I caught Fred Barnes on Fox News and he put it better,
“obnoxious.”
So having viewed Statham the night before, you’d think
MSNBC’s Brian Williams would have learned something as he
prepared for the Democratic presidential contest in New York.
Wrong.
–Just an observation on House Majority Leader Tom DeLay.
It’s a shame he gets so caught up in the heat of battle, spewing
invective when it’s often not appropriate, because if you ever just
read some of his speeches, they are superb.
–U.N. Secretary General Kofi Annan scolded his compatriots for
not moving quicker on changes for the Security Council.
Currently, there are 5 permanent members: China, Britain,
Russia, France and the U.S., so I’ll make Kofi’s life easier. Add
Australia, Brazil, India and Japan to make 9 permanent seats and
then rotate the remaining six.
But….if a nation sponsoring terrorism such as Syria or Iran is
seated, the U.S. reserves the right to withhold all funds as well as
tow every car in New York City with diplomatic plates.
Finally, Vaclav Havel should be Secretary General. Now,
discuss amongst yourselves.
–I was watching one of the stories on the new book featuring the
letters of Ronald Reagan and my first thought was, these days, a
president probably never sees the letters we send him thanks to
the anthrax scare, and that’s sad.
–The biggest complaint at a conference of mayors was the fact
that the Homeland Security Department hasn’t doled out any
money, as promised, for first responders. This is a disgrace.
–The Star-Ledger newspaper here in New Jersey had a scary
story on hospital mistakes, one of which was repeated in two
different facilities. It involved the chemo drug vincristine, which
in both instances was injected into the spine rather than a
patient’s vein. [It’s a horrible death, they say.] Unfortunately,
the first mistake was never reported throughout the system,
making the second one all the easier. [I hesitate to detail stories
such as this for obvious reasons. If you hear the name
“vincristine,” just make sure you know what’s going on.]
–Speaking of medical issues, Bill Gates is donating $168 million
to fight malaria, but in an op-ed piece in the New York Times by
Amir Attaran, an immunologist, he wrote that the recent
experience of the U.S. military in Liberia, where almost a quarter
of the troops came down with malaria, could be a harbinger of
things to come. Terrorists know that malaria is capable of
incapacitating large portions of an army and may increasingly
turn to tropical bases, using locals with built-in immunities.
–According to the AP, the cumulative death toll from the
European heat wave is more than 19,000, with about 15,000 of
these in France, making it one of the deadliest weather
phenomena of the last century. One July in 1901, a Midwestern
U.S. heatwave killed 9,500. But this kind of thing isn’t supposed
to happen these days!
–The Dalai Lama was in New York City last weekend. Now I
have no problem with his message of peace and love. People
should learn to talk to one another, as he preaches. But the
problem is it’s an incredibly outdated philosophy in today’s
world where for all we know there is a bomb, placed back in
2000, sitting in some warehouse, timed to annihilate a population
base because the terrorists hate us and have no thoughts of ever
adopting the Lama’s philosophy. Other than that, I wouldn’t
mind having a beer with the guy.
–I didn’t sign up for the ‘do not call’ list. Never thought it
would work and I’ve long resigned myself to 2 or 3 calls each
day from telemarketers. I’ve also given up on spam blockers.
However, I would like to see an hour added to each day instead.
–So I was staring out the airplane last week, watching the
country go by and observing all the baseball diamonds, 95% of
which were built over 30-40 years ago, I imagine. I always then
daydream about the days of my youth spent playing on them and
I end up musing how few are used these days.
I’m a bit wistful about baseball this week because the great New
York Mets announcer Bob Murphy called his last game on
Thursday after 42 years with the club. Many of us in this area
grew up with Murph and a better person you won’t find.
–You know the latest television commercial for Hummer, the
one where the kid, Jack, builds a model H2 for his soap box
derby? Am I the only one who is upset that Jack then proceeds
to cheat to win the race? Nice message they’re sending.
–Bill O’Reilly is out promoting his latest, “Who’s Looking Out
for You,” a self-help book, while St. John’s basketball coach
Mike Jarvis added his own “Skills for Life” to the 6.3 million
other tomes of this kind.
So I might as well weigh in with my own free advice that is
probably better than anything these guys throw out at you.
Keep in touch with your good friends. Exercise. Read a good
newspaper every day. Stay away from reality television. Take a
20-minute nap each afternoon. Drink 2 beers or a glass of wine
with dinner.
Follow these simple rules and you’re 90% of the way towards a
reasonably fulfilling life, keeping in mind that these days, you
never know when it will all end.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $381…had been over $390 on Friday.
Oil, $28.16…rallied on OPEC’s production cuts.
Returns for the week 9/22-9/26
Dow Jones -3.4% [9313]
S&P 500 -3.8% [996]
S&P MidCap -4.4%
Russell 2000 -6.7%…overdue
Nasdaq -6.0% [1792]
Returns for the period 1/1/03-9/26/03
Dow Jones +11.7%
S&P 500 +13.3%
S&P MidCap +18.3%
Russell 2000 +26.7%
Nasdaq +34.2%
Bulls 57.4
Bears 18.8 [Source: Chartcraft]
Our own Dr. Bortrum is home and mending following his surgery.
He greatly appreciates your thoughts and prayers.
Have a great week. I appreciate your support, especially those of
you outside the U.S. who have been spreading the word.
Brian Trumbore
