[Posted 7:00 AM ET]
The 9/11 Commission
All of us know or have come across a few Dick Clarkes in our
lifetime; pompous and arrogant egotists who are also frustrated
with their position in life. But in the case of the former
counterterrorism coordinator, I recognize that the nation is
undoubtedly split down the middle, 50/50, as to whether one is
pleased or displeased by both his performance before the 9/11
commission and his new book on his experience in government.
So let’s cut to the chase.
Was the establishment of the 9/11 panel necessary? Yes. The
American people not only deserve to know what their
government is doing but where mistakes may have been made
and the corrective strategies that need to be employed.
But should Presidents Clinton and Bush, or members of their
cabinets, apologize to victims’ families? In the case of the Bush
White House, unless a smoking gun is produced, and none has
yet been uncovered, no. [I’ll discuss Clinton in more detail
later.] I was not in the least bit impressed by Dick Clarke’s own
apology to the families and, yes, you already know I’m tired of
those who 2 ½ years later continue to cloak themselves in
victimhood.
Should National Security Advisor Condoleezza Rice be
compelled to testify in public? Absolutely. Just like the Bush
administration made an incredibly stupid move when it initially
announced the president would only give the panel an hour, in
this instance Ms. Rice should appear and take her lumps.
But in all the discussion since the release of Clarke’s book, one
issue should really be dominating thought yet hasn’t received an
inch of ink or been mentioned in the formats that I view, that
being we have a serious problem with the way transitions of
power are handled. Perhaps 20 years ago it didn’t matter too
much if a new president’s cabinet (including vital deputies) was
only half filled three months after the inauguration, but this
nation can ill afford another sloppy transition period like we
witnessed in 2001. If a president takes office on January 21,
for example, and the next day faces a new threat, yet he or she
only has a rudimentary cabinet and few holdovers whose
opinions can be trusted, it could be worse than even 9/11.
It wasn’t until FDR’s 2nd term that the inaugural date was moved
from March to January. I would hope some scholars would
weigh the risk of having an extended lame duck presidency if we
moved the date back versus the increased chance you had a full
staff in place, one already vetted and discussed in Congress, from
Day One so the president could hit the ground running.
Lastly, while Dick Clarke took it easy on the Clinton
administration and its own culpability in 9/11, Duke Professor
Peter Feavers, writing in the Washington Post, addressed the
notion that Clinton was focused on terrorism, though action was
virtually non-existent and opportunities missed.
“Determined commanders in chief have the mindset and the
resolve to act in spite of the political climate and military
resistance…
“Although aware of the danger posed by Osama bin Laden, (the
Clinton administration) was somehow unable to create and carry
out an effective strategy to deal with him. Bill Clinton,
distracted by the threat of impeachment, failed to educate the
American people adequately about the nature of the danger, and
what it might take to fight it.”
True, the pre-9/11 world was a different one, but history is
destined to treat Clinton poorly, while in the case of Bush he’s
still writing it.
Wall Street
The focus returned to fundamentals and away from terrorism, at
least the second half of the week after an initial downdraft on the
news of the assassination of Hamas leader Sheikh Yassin. The
U.S. economy remains strong so it should have been no surprise
that the major averages rebounded a bit by week’s end. And
while the economic data was on the light side, what was released
was good news, with a strong report on durable goods, renewed
signs of rising home sales and a solid gain of 0.4% in personal
income.
Also, G.E. Chairman Jeffrey Immelt had positive things to say
about growth across the globe, G.E. being a key proxy for such
activity, while a survey by Gartner Group on global chip sales
projects an increase of 30% for 2004, above previous, already
robust estimates. So all in all, for a light week there was a lot to
like as the Street awaits the onslaught of first quarter earnings
reports that will start rolling in about two weeks from now. The
latest forecast is for an increase here of about 17% across the
board.
Energy also provided a boost this week as the price of crude
tumbled over $2 from the $38 level, thanks both to talk from
some OPEC members that the cartel may not slash production
after all when it convenes this coming Wednesday, as well as
jawboning from the Bush administration which recognizes that
$2 a gallon gasoline will cost the campaign more than a few
votes if the price at the pump holds at current levels. It also
helped that inventories jumped significantly, thus improving for
at least one week the supply / demand picture.
But while the oil and gas market will remain highly volatile over
the near term, you still have the issue of long-term supplies, or
lack thereof, and a dearth of global refining capacity. A few
weeks ago, a respected analyst said Saudi Arabia’s main oil
fields were in essence drying up at a much faster rate than
projected (denied by the Saudis) and this week Petro-China was
placed under the microscope with word its biggest oil field,
representing 30% of the country’s domestic output, was also
being depleted at a much faster pace than once thought. Again,
however, the president of the company denied there was any
danger of drying up in the near future, though he admitted
extracting the oil will be increasingly difficult. Bottom line, with
little spare capacity around the globe and a growing economy,
don’t look for oil to plummet below $30 anytime soon.
Finally, as sales of gadgets like Blackberries and fancy,
schmancy cellphones soar, recognize that there is no new big
thing that otherwise will drive the tech sector. In other words,
aside from some toys, what applications are you using today that
you didn’t use, say, 3-4 years ago? Time’s up…the answer?
Nothing. Sure, gadgets can drive economic growth to a certain
extent and are good for those participating in the hot item of the
moment, but the longer-term impact is negligible, in my humble
opinion.
As I’ve written before, though, the sectors that provide real hope
and excitement for the future are biomedical research and space.
The former is understood, the latter requires real presidential
leadership. I’m not holding my breath.
Street Bytes
–The broad averages finished mixed after a late Friday sell-off.
The Dow Jones rose 26 points to the 10212 level, the S&P 500
finished down a single point to 1108, and Nasdaq picked up 1%
to close at 1960.
–U.S. Treasury Yields
6-mo. 0.99% 2-yr. 1.57% 10-yr. 3.83% 30-yr. 4.76%
It was another week of virtually no movement, until Friday
afternoon when the bond market chose to focus on some rather
hawkish inflation comments by a few Fed governors. But the
actual moves in rates from the prior week are too small to get
worked up over. Maybe with next week’s employment report on
the docket this will change. I do have to comment, though, on a
piece in the Wall Street Journal that said the Federal Reserve has
no problem acting on interest rates in an election year, pointing
to 2000 when the Fed raised rates 3 times. But the last hike then
was in May, well before November, and I would suggest that the
whole process today is more politicized than ever. In other
words, if the Fed is ever going to move, my original guess of this
coming May is probably the last shot until after the election,
regardless of what the data shows over the succeeding period.
There was also a survey of 203 business economists where the
chief risks to the economy were identified to be budget deficits
and the labor market…not terrorism. I don’t necessarily disagree
on the surface, but if you are going to be responsible about the
issue you have to bring up the following. A conventional bomb
attack in a mall or theater, while destructive short-term, won’t
have a lasting impact on economic activity. But two
simultaneous takedowns of commercial airliners most assuredly
would send the economy into its own death spiral.
–The European Union fined Microsoft $613 million for its anti-
competitive business practices and while much was made of the
decision this week, the fact is it will be tied up in litigation for
years and doesn’t impact Microsoft’s bottom line. What it does
augur, however, is more protectionist measures on both sides of
the pond, not a good thing.
But when it comes to Microsoft’s future overall, I think tech
maven Roger McNamee put it best the other day on CNBC. It’s
yesterday’s story, yesterday’s technology. Windows can still be
a cash cow, but if you’re expecting significant growth from this
company in the future, you’ll be sadly disappointed.
–The saga of Dick Grasso and his stupendous compensation
package rolls on, with the New York Times reporting that the
SEC and New York Attorney General Eliot Spitzer are looking
into whether they can build a court case around the validity of
the New York Stock Exchange board’s decision to grant 2003’s
‘dirtball of the year’ his $140 million in parting gifts. Many
board members with expertise on the compensation issue were
either out of town at the time of the key August meeting or not
presented with the facts beforehand, the latter not meeting the
norms of good corporate governance.
–Goldman Sachs reported record quarterly earnings for the
period February 27, with revenue from proprietary trading for
their own account hitting $4.1 billion, up 47%. This also means
the firm is taking on more risk. Separately, Goldman has no big
hiring plans despite the spectacular results, another sign of the
times on the job front.
–Crime Watch: A former vice president of finance at Dynegy
was sentenced to 24 years strapped to an electrical power grid for
his role in a $300 million accounting fraud. We applaud the
court.
–An internal investigation into Putnam has revealed that former
CEO Lawrence Lasser, despised across the mutual fund industry
and one of the truly bad people of this corrupt era on Wall Street,
had knowledge of illegal trading by some of Putnam’s fund
managers in 2000 but didn’t tell the trustees because he didn’t
want to jeopardize his compensation arrangement…some $100
million over a 5-year period.
–These proposals floating around that would eliminate the 12b-1
marketing / distribution fee for mutual funds are ludicrous. Get
rid of B shares, which have zero merit when C shares are
available as an alternative, but to then not pay the broker or
financial advisor a minimal amount of compensation on an
ongoing basis for servicing the account would only lead to
churning.
–Wal-Mart is #1 in the latest Fortune 500 ranking, as measured
by sales, with global revenue of $259 billion, so the company is
rapidly approaching its goal of $1 billion in sales per day.
Goodness gracious. ExxonMobil is #2, but #1 in profits at $21.5
billion for 2003. That’s #1, but #498 in your hearts if you listen
to the likes of Bill O’Reilly. Yes, it’s time for the annual bashing
of the oil industry. You shouldn’t be surprised I’m a defender,
given my heavy personal exposure to the sector on an almost
ongoing basis, but the last time I checked the major oil
companies employed hundreds of thousands in this country,
“good, high-paying jobs” as President Bush is wont to say. I also
understand how some of you feel like Big Oil is gouging you, but
you weren’t singing that tune when crude was $10 and layoffs
were many, I imagine. And if this nation doesn’t want to change
its habits when it comes to energy consumption, it will pay the
price. Right now that means we fill up Exxon’s coffers. That’s
the way of the world.
–Those on the front line in the energy business, drilling for the
crude and natural gas we consume, also know it can be a most
dangerous one and I note the crash of a helicopter in the Gulf of
Mexico that was taking a crew out to an oil platform. 10 died.
–But in the oil and gas industry, like any other, you have some
bad apples and so the other day the Canadian government
announced it was selling off its last stake in Petro-Canada.
Having seen it mentioned on CNBC, I e-mailed my expert on all
things energy related in Canada, Harry K., and asked him his
opinion on the company. Harry quickly reminded me that Petro-
Canada is the largest producer in Syria, which was all I needed to
know. No investment dollars from this guy, that’s for sure.
–Over the years I’ve bemoaned the fact I didn’t start a chain of
printer cartridge stores….Mr. B’s Cartridges, for example.
Every time you see Lexmark’s earnings you realize just what a
tremendous cash cow this business is. And so it was that my
friend Jimbo purchased a Lexmark printer at Staples for just
$49.98, thinking he had come across the deal of the century until
he realized that replacement cartridges were over $64. Jimbo
was not a happy camper and it required intervention. But he’s
better now, thank you.
–Red Lobster is moving away from all-you-can-eat specials
because it was impacting the bottom line in a big way; you know,
people bringing in coolers and steamer chests to load up. Shrimp
celebrated their good fortune by holding an all-you-can-eat
extravaganza of their own featuring seared plankton.
–In February 1997, rocker David Bowie floated a $55 million,
10-year bond issue (7.9% coupon) that was to be backed by
royalties, but the paper has now been downgraded to one notch
above junk over fears future interest payments could be
jeopardized due to Internet piracy.
–The World Trade Organization ruled on a suit filed by the
government of Antigua and proclaimed that offshore gambling
websites can operate freely in the U.S., which flies in the face of
U.S. Justice Department rulings. Washington has vowed to fight
the decision but Vegas casinos are licking their chops. The
potential American market is obviously huge should the
established operators now feel free to set up their own
businesses.
–My portfolio: I took a little hit in my energy issues and I’m
roughly 44% equities, 56% cash that I hid in the Meadowlands,
parking section 10 C, across from the arena. [I’ll go into more
detail on specific holdings next week. I plan on making some
moves this coming one.]
Foreign Affairs
Israel: Whether or not you follow the situation here that closely,
you had to see Hamas leader Sheikh Yassin’s picture over the
years and wonder why this son of Satan hadn’t been taken out.
Alas, Yassin is finally no longer as he took a missile to the gut.
Israeli officials said that for them it was like taking out Osama
bin Laden since Yassin had been directly linked to hundreds of
deaths in Hamas’ campaign of terror.
Yassin was replaced by Abdel Aziz Rantisi, who before he was
selected had warned that the assassination would “open the gates
of hell” and at first Hamas said the U.S. was just as much a target
of retaliation as Israel. Then, following Rantisi’s selection, he
said Hamas would leave Americans alone, but would target
Israeli Prime Minister Sharon and other Israeli leaders.
Meanwhile, Sharon said he would try to wipe out all of Hamas’
leadership as he attempts to prevent the terror organization from
filling the power vacuum left by Israel’s eventual withdrawal
from Gaza. As for Yassir Arafat, he’s cowering, understandably,
and maybe he’ll die of fear and spare us all.
What isn’t good, though, following this week’s development, is
the rage that was felt across the Middle East and against the U.S.
with Yassin’s death. I obviously understand why Israel took the
action it did, but the rest of us must understand the possible
consequences. Egyptian President Mubarak, for one, is really
under the gun since he has been involved in negotiations over a
security force for Gaza if and when Israel leaves. The
assassination will also reverberate across Europe’s Muslim
populations and a backlash here on the part of conservatives in
particular will impact the vote on proceeding with Turkey’s
candidacy for E.U. membership, I imagine.
Iraq: It was a week with little real news save the positive event
that the Shiite and Kurdish militias have agreed to disband their
forces, which would help the future electoral process as you’d
like to think there would be less intimidation at the polls.
Meanwhile, we are only about 90 days away from turning over
sovereignty to an as yet unidentified leadership.
Pakistan / Al Qaeda: Like I say, wait 24 hours, and thus we
learned over last weekend that the situation on the ground in
Waziristan was not quite as dire for al Qaeda and a “high-profile
target” as we were at first led to believe. The Pakistani army
also seemed to be startled with the discovery of tunnels that
evidently allowed many of those under fire to escape. I don’t
know why this was so surprising…the North Koreans have
tunnels, the Palestinians have them for the purposes of
smuggling arms, why shouldn’t al Qaeda have the same?
By week’s end the military had decided it was tired of taking
casualties and acted like it had given up pressing the issue. Ergo,
your editor doesn’t have to concern himself with handing
President Musharraf a “man of the year” award…but then in 24
hours it could once again be an entirely different story. What we
do know is that Musharraf’s legitimately heroic initial decision to
commit his forces to a land that is part of Pakistan in name only
and resembles the Middle Ages has made him even more of a
target than he already was.
India: I was remiss in not mentioning last week that with the U.S.
designating Pakistan a “major non-NATO ally” for its seeming
cooperation in the war on terror, this would miff India. The only
others with the label, incidentally, are Egypt, Jordan, Bahrain and
Kuwait. I also didn’t learn until this week that Secretary of State
Colin Powell, who had been in India two days before bestowing
the prize on Pakistan when he met with President Musharraf,
never said anything to Indian leaders beforehand. Just an
incredible error of omission and amazingly stupid. Frankly, I
eagerly await a new set of cabinet members should there be a
second Bush term. Figures I once held in high regard are now
failing in my estimation.
Taiwan: As I went to post last week, the results of the
presidential vote were rolling in but it was too close to call.
About six hours later the tally had President Chen Shui-bian
winning reelection, 50.1 to 49.9 percent and a total margin of
only about 30,000. Turnout was heavy, 80%, but on the two
referendum issues – whether Taiwan should increase defense
spending to meet China’s missile threat and also pursue a
peace framework with the mainland – only 45% voted, below
the 50% required threshold (92% of those who did vote
selected ”yes’ to each).
Well, given the results and the suspicious assassination attempt
on Chen and his vice president the day before the election, the
opposition Kuomintang has been pressing the courts for a
recount, if not an outright declaration that the vote was a fraud.
But on Friday the election board declared Chen the winner and
the White House called to congratulate him. Needless to say
Taiwan’s stock market didn’t react very well to the turmoil and
plunged about 9% over Monday and Tuesday before stabilizing
some.
But whither China on this matter? After remaining silent all
week, on Friday night China spoke.
“Taiwan compatriots are as close to us as flesh and blood,” said a
spokesman for the mainland’s Taiwan Affairs Office. “We will
not sit back and look on unconcerned should the post-election
situation in Taiwan get out of control, leading to social turmoil,
endangering the lives and property of Taiwan compatriots and
affecting the stability across the Taiwan Strait.”
Taiwan’s Mainland Affairs Council hit back: “Communist
China is crudely interfering in our internal affairs. If communist
China triggers conflict, it will be despised by the people of
Taiwan.” [South China Morning Post]
Russia: President Putin promised sweeping tax reforms, taxing
oil companies more in return for reduced social taxes on
employers while maintaining the income tax rate at 13%. Look
for a glowing Wall Street Journal editorial on the low tax rate,
ignoring the rest of the story, because this is what the Journal
does.
In the meantime, Putin’s authoritarian ways continue to work
their way through the fabric of society. For example, the
education ministry has taken 107 books once used to teach
Russian history and reduced the selection to 3, including its top
choice. Marsha Lipman commented in the Washington Post.
“This work, which is likely to be the one and only textbook on
the subject recommended to schoolteachers, makes no mention
of Stalin’s ethnic deportations (perhaps to avoid a ‘distorting’
connection with the current Chechen war), largely reduces the
period of the Red Terror to 1936-38 and describes the years of
Putin’s rule in laudatory terms. If history has not been rewritten
more thoroughly, it’s only because of the time lag: The book
took some time to compile; in the meantime paternalistic and
authoritarian trends have grown significantly stronger in Russia.
There’s no doubt that if the same authors were writing their book
today, the slant would be even more pronounced.
“The Putin regime has brought to the surface hordes of political
opportunists, old and new. The new ones simply seek ways to be
of use to the state. The old ones want revenge for the time of
democratization, which left them rejected and marginalized.
Depending on their background and current jobs, some prosecute
‘spies’; others reclassify Soviet archives and rewrite history.”
To which I’d add for the rest of us, thank God for the period of
perestroika, when the archives were opened, because it at least
gave legitimate scholars what may have been one last
opportunity to reappraise the old Soviet history, from a Western
standpoint, of our youth.
Hong Kong: Only 20% of the citizens now believe they will be
able to vote directly for the next chief executive and legislature
come 2007 / 2008, despite the actions of the democracy
movement over the past year. And on Friday night (China’s
communists were busy last evening), Beijing scolded Hong Kong
by announcing the mainland’s most powerful legislative panel
would “interpret” provisions of Hong Kong’s mini-constitution
that spell out how the territory’s leader and lawmakers are
chosen. As one activist told the Associated Press, “It completely
kills the discussion on democratic reforms in Hong Kong.”
Malaysia: A good sign. Prime Minister Abdullah Badawi’s
secular Islamic coalition won a landslide election in crushing the
fundamentalists, taking 195 of 219 seats in parliament and 12 of
13 states.
Thailand: Prime Minster Thaksin, who has been quick to take
credit for his nation’s economic recovery, is under increasing
scrutiny for his authoritarian tactics. It doesn’t help that a
prominent lawyer defending some Muslim terrorists has gone
missing.
South Korea: The impeachment trial of President Roh begins
March 30, though Roh is not scheduled to testify.
Libya: British Prime Minister Tony Blair became the first leader
of his nation since Winston Churchill to pay a visit. Critics say it
was too soon to meet with Colonel Qaddafi and that the visit was
merely for commercial purposes. Sure enough, the same day
Royal Dutch / Shell signed a big oil lease deal with Libya. But
you have to begin to turn the corner somewhere and the U.S. and
Britain seem satisfied that Qaddafi is taking Libya in a new
direction, one aligned with the West.
Random Musings
–Commentator Jim Hoagland on democratic politics in the 21st
century.
“The vulnerability is not only to terrorists but also to ourselves;
to our emotions and our increasing reluctance to wait, to weigh,
to take a view longer than the next click of the computer mouse
or change of the channel.
“Undermined by the instantaneousness of the Internet and cable
news, even the most respected newspapers and broadcasters
contribute to dumbing down complex world and national events
to fit them into the flashy, partisan and paranoid style of
contemporary politics.
“This is a moment in which false scandals are pursued with more
zest by many in the media than are real ones. The false variety is
easier to work with and can produce a bigger momentary pop.
And since little or no substance is involved, they fade away
quickly with no damage to journalistic reputation (a phrase I fear
some will increasingly consider an oxymoron).”
–And in the interest of full disclosure, regarding my mention of
an idea of Hoagland’s last week concerning a formal statement
from both Bush and Kerry as we get closer to our election in
November to address the possibility of a terror attack, George
Will and Senator Joseph Biden ridiculed the idea on “This
Week” last Sunday. We held elections during the Civil War
without any problem, said Will.
Fair enough, but what neither Hoagland or the other two
addressed on a related topic is the simple fact that should there
be a catastrophic attack in our nation’s capital, we do not
currently have in place a succession plan for Congress. Yes, the
governors could select replacements for the Senate, as they do
today, but a uniform device for choosing congressman is not in
place. The Constitution obviously didn’t have to deal with the
kind of mass threat we face today.
In the immediate aftermath of 9/11, former House Speaker Newt
Gingrich broached the subject. I wish he and others would bring
it back to the forefront of debate.
–The local NBC News affiliate had a detailed report on our
rapidly improving port security in the region, an encouraging
sign even as the Department of Homeland Security struggles
with its budget. [I also saw where New Orleans is quickly
stepping up, and I’m assuming the same is taking place in the
port of Los Angeles – Long Beach, specifically the installation of
giant bomb detection devices that all trucks must pass through.]
–Civil defense is a virtually non-existent concept in Europe and
the continent is woefully unprepared for a major biological or
chemical weapons attack.
–For those of you who watch “The Sopranos” and are following
the rapid decline in Uncle Junior’s mental state, just know that
New Jersey has a real life example in Senator Frank Lautenberg.
–It now appears that Mars once had a salty sea and probably
“water you can swim in.” On the other hand scientists estimate it
was only two inches deep, meaning ‘adult swim’ was out of the
question.
–According to an AP story, by 2020, the four most popular
seafoods – shrimp, salmon, tilapia and catfish – will likely come
from aquaculture. Actually, one guy in Vero Beach converted
his citrus grove to a shrimp farm once research showed that
shrimp can be acclimated from saltwater to fresh water, so I’m
thinking of raising swordfish in a spare bedroom of my mine.
–Homes with dogs have a higher household income than the rest
of the USA: $41,000 vs. $36,000, in case you were wondering
what dogs did with their free time while you’re out. My guess is
they’re telemarketers. If you ever wondered who was on the
other end of the line when you picked up and heard a click or a
recording, that’s the work of a dog. Just my opinion.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $422…spike Friday on inflation fears.
Oil, $35.73…closed at $38.08 the prior week, but was at $32.52
on 12/31/03.
Returns for the week 3/22-3/26
Dow Jones +0.3% [10212]
S&P 500 -0.1% [1108]
S&P MidCap -0.1%
Russell 2000 +0.4%
Nasdaq +1.0% [1960]
Returns for the period 1/1/04-3/26/04
Dow Jones -2.3%
S&P 500 -0.4%
S&P MidCap +2.3%
Russell 2000 +2.9%
Nasdaq -2.2%
Bulls 45.4
Bears 23.2 [Source: Investors Intelligence / Chartcraft…yes, at
long last the bull figure is sliding significantly. If it were to go
below 40, that could be a buy signal, this being one of the
ultimate contrarian indicators.]
Have a great week. I appreciate your support.
Brian Trumbore
