[Posted from Asuncion, Paraguay]
**The following was written largely Friday. A lot has transpired
on my little trip since then and I will discuss it all next time**
Up until a few years ago, as much as I liked to travel there were
some places I had no desire to visit, such as Asia. Now I’ve been
over three times in the past four years and absolutely love it,
can’t wait to get back, and only wish it were closer.
When it came to South America, the only spot I ever
contemplated going to was Santiago, Chile, because it seemed
civilized and had a lot of attractions, including proximity to both
beaches and spectacular mountains. So a few months ago I
began thinking of a trip this winter to Patagonian Chile and
Santiago but the Andes resort was all booked up.
Around the same time I became intrigued by the story of
professional golfer Carlos Franco from Paraguay; a classic rags
to riches tale. Growing up dirt poor in Asuncion (the capital),
Carlos’s father was the caddy / greenskeeper at the lone golf
course in the city.
But somehow Carlos rose above it all, becoming a touring pro on
the South American circuit before finding his way to America.
He has won four times on the PGA Tour, including this past
summer in Milwaukee, and I began to think his story would
make for a good book.
The next step occurred when I attended a PGA stop in
Pennsylvania this past September (the 84 Lumber Classic) just to
walk with Carlos during his first round to get a better sense of the
man. We didn’t meet but I liked what I saw.
Then a few weeks later I contacted his agent and the two of us
met at Newark Airport in what could only be described as a great
exchange of ideas. “Carlos has been wondering why no one has
ever told his life story in full,” he said.
But my thinking went beyond Carlos and I thought a compelling
read would be the juxtaposition of Carlos’s bio with that of his
country. You see, Paraguay is a truly tragic place, perhaps best
exemplified by a horrific fire in Asuncion this past August, one I
touched on in this space, that claimed over 400 lives. The fire
broke out at the city’s only ‘upscale’ shopping mall, authorities
supposedly locked the doors to prevent looting and the result was
predictable. Add it all up and the political scientist in me,
combined with my love of sport, seemed like the perfect
combination. I thus made plans to come down here before
Christmas when I knew Carlos would be in the area with his
family. The rest of the year he literally travels the globe.
But it was during one such recent trip for him, to Asia, that
Carlos and his agent discussed my project. I need to leave out
the details, for now, but let’s just say the parties hit a speed
bump.
I was already committed to this trip, though, and so off I went
last Tuesday…Newark to Orlando to Panama City, Panama to
Santiago, Chile. Alas, my luggage didn’t make it. No big deal, I
thought. I had allowed for extra time in Santiago for such an
occurrence, thinking any problems would be rectified with the
next flight 24 hours later. But after countless calls to Copa
Airlines (a Panamanian carrier I flew the final two segments),
they said Continental had my bag and wouldn’t release it. This
was total B.S.; my bag was clearly stuck in Panama.
Well, I had to go to Asuncion on Thursday and bought a few
things at the airport in Santiago but I’m beginning to look like
trash, wearing basically the same outfit everyday. As for my
bag, Copa swore it would be at my hotel when I return to
Santiago on Monday.
At least it was a spectacular flight over the Andes to Asuncion,
but a bit of a rude awakening as we were landing when the first
thing I spotted was a bunch of rusting aircraft just off the
runway. Third World stuff, to put it mildly.
Don’t get me wrong. I fully knew what I was getting into to;
especially in going from the continent’s wealthiest country,
Chile, to the poorest. But this place has elements of your classic
banana republic. In fact on the absolutely awful road into town
from the airport, that’s what the kids were hawking…bananas.
The airport itself was a real piece of work and I’m wondering
how it is still standing. Customs was also a joke. The agents had
computers but they weren’t on, undoubtedly because they didn’t
work. [Pleasant female officer, though.] Next I hopped into the
worst taxi I have ever been in and my hotel has clearly seen
better days, like perhaps 30 years ago. But thus far, I have to
admit the people here couldn’t be nicer.
That’s the background for you. Now on to the week in review,
as best as I can piece together; just understand that by the time I
can figure out how to post this using the hotel’s archaic
computers events may have changed from what I describe herein.
Foreign Affairs
Iraq and the war on terror: I saw Tommy Franks, George Tenet
and Paul Bremer receiving their Medals of Freedom while
watching television in Santiago and I couldn’t agree more with
Democratic Senator Jack Reed of Rhode Island. “I don’t think
history will be as kind to these gentlemen as the president was
today.” And as columnist Richard Cohen chimed in, “Where’s
Kerik?” After all, Bernie was so successful in his stint building
up the Iraqi police force, give him a ribbon, too. As for me I
have but one question. “Mr. President, what the heck was the
point in doing this so soon?”
And then there is Secretary of Defense Donald Rumsfeld. I
couldn’t agree more with the growing list of Republicans,
including Senators McCain and Hagel, as well as leading neocon
William Kristol, that thinks the nation would be better off
without him. Kristol spoke for many of us when he wrote in a
Washington Post op-ed that he was sick of Rumsfeld’s
“arrogance and buck-passing.” Even retired General Norman
Schwarzkopf is super ticked off after Rumsfeld’s recent
performance in Kuwait. President Bush, show this erratic
character the door.
But as if some of us didn’t already have enough ammunition
when it comes to Rumsfeld, you probably saw that National
Guard recruitment is way off the past few months. The nation
desperately needs Sen. McCain at the Pentagon, though it would
appear this is unlikely.
Meanwhile, a high British court ruled that terror suspects there
can no longer be held without trial; a decision with implications
for the U.S. and its detainees at Guantanamo. On this I agree
with the court. After all these years you either have the evidence
or you don’t. Bring them to trial.
But I also want to leave you with the thoughts of columnist
Fareed Zakaria (Newsweek / Washington Post) whose sentiments
I share.
“The United States has paid a terrible price for this war – in Iraq
and in the world at large – unconscionably high, given how many
of these costs were avoidable. And I could be wrong about Iraq,
in the sense that things could get much worse. Civil war,
rampant anti-Americanism and terrorism are all part of the
possible future. But what I am not wrong about is that a more
decent, pluralistic Iraq would make a huge difference in the Arab
world. Already the preparations for Iraq’s elections are stirring
debate and discussion among its neighbors. Remember, these are
the first genuine, national elections in the entire region. As 300
million Middle Easterners watch Iraqis going to the polls, they
will surely ask a simple question: ‘Why not us?’”
Israel: New coalition partner Shimon Peres is endorsing Prime
Minister Sharon’s ‘security / Palestine first,’ gradualist approach
to the Middle East peace process. Both Peres and Sharon favor a
hard line on Syria, for example. But at the same time Israel and
Egypt announced a complex trade deal; wherein a portion of the
end product in Egypt must be made in Israel before export to the
U.S., nonetheless another positive step between these two.
As for the Palestinian Authority, there are good signs here as
well as it would appear a more moderate tone towards Israel has
been adopted in the media, while the leading candidate in the
Jan. 9 election, Mahmoud Abbas, has declared that the armed
uprising must stop. Helping Abbas was the withdrawal of
Marwan Barghouti from the race.
But Israel, of course, can never let its guard down. Defense
News reports that Iran is stepping up its use of Hizbollah in
Lebanon to test out Tehran’s new weapons systems.
Turkey: The European Union has voted to begin membership
talks with Turkey on Oct. 3 of next year, six months later than
Turkey sought, and severe conditions are already being imposed
on the Turks; the prime one being Europe’s insistence that
Turkey recognize the Greek-Cypriot government on disputed
Cypress, a major stumbling block. France, Germany, Austria
and the Netherlands, in particular, are also making it difficult as
the leaders here face stiff opposition from their own native
populations who want to keep the Turks out.
This is sad. After four decades of trying, and after enacting
sweeping reforms to appease the E.U. (most admittedly
warranted), Turkey is once again on the verge of being thwarted.
Prime Minister Erdogan has already warned terrorism would
increase across Europe if Turkey is not accepted, without
conditions, but as I go to post there has been no formal response
to the Oct. date and the Cypress issue from Ankara.
China / Taiwan: In what is being viewed as an upset, Taiwan
President Chen Shui-bian’s ruling party (DPP) failed to gain a
majority of the seats (in combination with its coalition partner) in
legislative elections, thus halting for the moment the drive
toward formal independence. The Nationalists (Kuomintang)
and its alliance members now control the majority and will seek
to increase ties with the mainland, which also means little
progress will be seen in the areas of privatization and tax reform,
as well as Chen’s planned $18 billion expenditure for badly
needed weapons upgrades.
But while Chen’s popularity is down to an all-time low of 34%,
the DPP is still the largest single party and the independence
campaign is not dead. As for Beijing, the communists are
looking to codify that any such move on Taiwan’s part is an act
of war.
Ukraine: Austrian doctors confirmed that presidential candidate
Viktor Yuschenko was poisoned with dioxin, most likely at a
Sept. 5 dinner he had with Ukraine’s security chief, a man with
strong ties to Russia’s KGB.
Romania: In the presidential election the opposition candidate,
Traian Basescu, upset Prime Minister Nastase, 51-49, with
Nastase graciously conceding, quite a contrast with Ukraine and
a very good sign for Romania.
Japan: In its national Defense Program Outline, Japan cites
China as a major security concern, which of course it is and a
sentiment that ticked off Beijing. At the same time Japan spelled
out that it seeks to improve its strategic alliance with the United
States, which is great for both of us, especially with U.S.
resources stretched to the max. We need Japan to re-arm and
share the load.
Afghanistan: President Hamid Karzai vowed to destroy the
poppy fields in two years, Afghanistan being responsible for
87% of the world’s opium.
Canada: Defense News reports that any talk of increased defense
spending is just that, talk. Canada is facing a severe crisis with
its armed forces, “rust-out,” as major weapons systems are
literally crumbling due to not enough money being spent on re-
equipment programs.
Chile: Interesting time in this country as it finally comes to grips
with the full scope of abuses under the dictator General Augusto
Pinochet (1973-89). A court has ruled that the 89-year-old is fit
to stand trial for crimes committed under his rule, including the
deaths of an estimated 3,000 political prisoners, as well as the
torture of up to another 30,000. The state, in recognizing the
victims, is going to grant monthly pensions for life of $200 a
month (basically the minimum wage here) to some 27,000… a
large commitment to justice.
Over the years, many have pointed to Chile’s economic success
and given Pinochet credit; believing the discipline he instilled
allowed Chile to rise above the rest and become the best
economic story on the continent. But the man doesn’t deserve
one iota of praise as aside from the documented killings and
torture, it has come to light that the aura of frugality that
Pinochet held out to the public was but a ruse, witness the
$millions he laundered through Washington’s Riggs Bank.
And so we wish Chile the best as it goes through this
reconciliation process. The U.S. and the region need a thriving
democracy and economy here to send a positive message to
many of the others who have recently been backsliding.
Wall Street
In the old days if the Federal Reserve raised interest rates a 3rd
time it was called “3 steps and a stumble,” meaning the equity
markets historically didn’t perform well over the succeeding six
months. But here we are with the Fed having hiked the funds
rate a 5th time since June, to 2.25%, and the markets haven’t
batted an eye. And the Fed, in its accompanying statement,
offered that it will continue to raise rates at a “measured” pace,
even though it also doesn’t see inflation as being a threat…which
is a contradiction in terms, given the Fed’s historic action.
So why the lack of concern on the part of stock jocks? Simply,
because the short end of the yield curve remains at historic lows,
while on the long end, despite a few fits and starts, the 10- year
Treasury is basically where it was 12/31/03.
On the issue of deficits there was both good and bad news. The
falling U.S. dollar was supposed to work wonders on our trade
imbalances as U.S. manufacturers exported more and American
consumers purchased fewer, more expensive imports, but the
dollar has had zero impact on the actual spread between the two
as we just hit another record. Consumers continue to spend and
buy foreign goods (though many European exporters are getting
killed due to the strong euro) and, just as importantly, we keep
buying gobs of oil from overseas at record prices.
And when it comes to the currency and looking for clues of an
imminent collapse, one worrisome item was a report showing
international investors had purchased $48 billion in U.S.
financial assets in October, down from $67 billion in September;
not a good trend. But, the much talked about current account
deficit #s for the third quarter revealed a net direct investment
flow into the U.S. of $9.6 billion after a $22 billion outflow in
the 2nd.
As for energy prices, they had their best week since January
2000 as punk heating oil inventories, coupled with more normal
weather in the northeast, helped lead to a rally that boosted the
price of crude all the way back to $46.28. While I have pooh-
poohed the inventory picture overall, and with good cause,
heating oil is one sector that is still a concern with projections in
the northeast for costs some 34% higher than last year. That
can’t be good for consumer spending, but then how many times
have some of us said this and then had the theory not pan out?
Meanwhile, it’s hard getting a handle on the holiday shopping
season. Retail sales for November were better than expected and
I still see Christmas coming in above consensus thanks to a last
minute crush, similar to last year’s.
Finally, a word on the global economy, courtesy of G.E. CEO
Jeff Immelt. In raising his estimates for earnings growth, a good
positive for the markets, Immelt also said the company would
outperform a “slow growth world.” That’s what I’m talking
about, sports fans, a slow growth world. At least that’s my view
from my perch in Asuncion, Paraguay.
Street Bytes
–The major averages finished up again with the Dow Jones
leading the way, advancing 1.0% to 10649. The S&P 500 and
Nasdaq had smaller gains, 0.5% and 0.3%, respectively, to 1194
and 2135. The market was hit on Friday by the news that Pfizer
has problems with its Celebrex drug, or else the week would
have been an even brighter one. In declining 11% on the news,
Pfizer had its single worst day since 1987.
On the positive side, three mergers were finalized, Sprint and
Nextel, Johnson & Johnson and Guidant, and, after 18 months,
Oracle is acquiring PeopleSoft.
–U.S. Treasury Yields
6-mo. 2.47% 2-yr. 3.01% 10-yr. 4.20% 30-yr. 4.83%
In a survey of economists for Barron’s, the average forecast for
2005 is for a 3.5% fed funds rate by 12/31 as well as a 4.90%
yield on the 10-year. But ISI’s Ed Hyman disagrees, calling for
just a 2.5% funds rate and a 4% 10-year as he sees 3% first half
growth slowing to a 2% rate in the second half.
–According to the Financial Times, leading Republicans
sounded out Alan Greenspan on becoming Treasury Secretary
and he declined.
–Real Estate Bubble Update: Rupert Murdoch has reportedly
paid a record $44 million for a New York residential property, a
5th Avenue penthouse.
–But there are those who don’t see a real estate bubble at all and
merely point to the demographics. For example, the Brookings
Institute released a report that projected a 33% rise in the U.S.
population by 2030 that would result in 60 million new housing
units, with the growth mostly in the South and West. Of course
by 2030 our market would then be so saturated a crash in prices
would be inevitable…wrote the editor, with a smile, thinking that
in 25 years he may finally be right, assuming that is the ultimate
peak in demand.
[By contrast, incidentally, Russia’s population over this same
period will decline from 150 million to 120 million…staggering
and very dangerous for the rest of us. But that also means a glut
of existing homes on the market here!]
–According to the Mortgage Bankers Association, in the first
half of 2004 home equity lines of credit rose 77% over a year
earlier.
–DaimlerChrysler and General Motors are teaming up to build a
hybrid engine.
–Brazil is set to grow at its fastest rate since 1994, up 5%.
–Inflation Update: Healthcare premiums for retirees of large
corporations have been rising at a 25% rate as more and more
companies cut back on promises once made.
–I told you the Las Vegas Sands IPO was a great story.
Unfortunately I didn’t own any of it. LVS represented the best
deal out of the gate this year. Originally, the pricing was to be in
the $22-24 range but demand was so high it was upped to $29.
The first day it closed at $46.50 and it finished the week at $53.
Congratulations to CEO Sheldon Adelson.
–30% of discretionary spending goes towards purchases of
electronics. [Bill Alpert / Barron’s]
–The SEC’s chief accountant said mortgage giant Fannie Mae’s
internal accounting practices “did not comply in material
respects” as the company “developed its own unique
methodology.” Fannie will now restate past earnings, lopping
off $9 billion.
–Yukos declared bankruptcy in the U.S. in a last attempt to stave
off liquidation of its prime assets, and while a Houston judge
ruled in its favor, the Kremlin and lackey Gazprom are
proceeding with the auction on Sunday. Earlier in the week
Russia’s chief markets regulator had the guts to say “The war
against businesses is not a good idea.” President Vladimir Putin
undoubtedly then sent some goons over to set the man straight.
–As for the Russian economy overall, some experts feel it is
already suffering from the failure to diversify away from oil and
gas. And even in the energy sector, investment was down 20%
January to October as the chill in the business community hit
home.
–In a surprise move, SEC Chairman William Donaldson
overruled his enforcement staff in declaring that former Global
Crossing chairman Gary Winnick will not be the subject of civil
charges. Donaldson said there was no apparent accounting fraud
and that since Winnick was not involved in day-to-day
operations, he couldn’t be held accountable regardless. This sets
a dangerous precedent as all manner of executives can just claim
“I didn’t know…” and point to this case.
–Know what the currency is in Paraguay ? “Guaranies.” And
on the 1,000 guaranie note, worth about $0.15 I think (don’t hold
me to this), there’s a picture of Francisco Solano Lopez, the man
who sent the country plunging to its death in the 1860s. I told
this tale before but that was when Paraguay was at war with
Brazil, Argentina and Uruguay, all at the same time, and the
nation lost 90% of its adult males.
Random Musings
–Bernie Kerik: When I went to post last week, all that was
known was his nanny situation. But by Saturday afternoon the
life and times of this fraud were plastered all over the place. It’s
not a stretch to believe that Kerik should actually be doing jail
time and incredibly the Bush administration didn’t allow the FBI
to vet this loser before rushing to nominate him for Director of
Homeland Security.
Boy, if ever there was a case of my dictum “wait 24 hours” it
was this one. Whether it was friends, some with organized crime
connections, paying for his wedding reception in amounts far
exceeding the gift limits, or his failure to pay a whopping $5,800
in condominium maintenance fees until he faced imminent arrest
over the mater, or his crazy relationship with stun-gun king Taser
that netted him a cool $6 million in an options windfall, or his
involvement in a firm that was indicted for a classic pump-and-
dump stock swindle, his failure to fill out any financial disclosure
forms during his rise to the top of the NYPD, let alone all his
more personal issues, the only word to describe him is ‘scum.’
But everyone is asking; is sponsor Rudy Giuliani hurt in all this?
You betcha, and deservedly so. America’s Mayor has been
nothing but a crass opportunist since he left City Hall.
–Physicist Stephen Hawking, when asked in a New York Times
interview what his I.Q. was.
“I have no idea. People who boast about their I.Q. are losers.”
–The New York Post reported that fugitive financier Marc Rich
is a key target of the oil-for-food investigation. Clinton’s
pardon of the man is not part of his presidential library.
–Hats off to the Scott Peterson jury for its courageous decision
in sentencing him to death.
–The National Missile Defense system suffered a big blow as a
key test failed. The Bush administration was hoping to begin
deploying a limited system soon. I still remain an ardent backer,
as long as someone is keeping a record of what is being spent
and where it is going.
–New York City is the 14th safest of 217 cities with a population
of over 100,000 according to the latest FBI statistics. The Big
Apple is also on track to record the fewest murders in 40 years.
St. Louis is the most dangerous, by the way.
–I held my annual Christmas party for the condominium
complex I live in and I must say the clean-up this year was made
easier thanks to the Shark Euro-ProX, hand-held vacuum.
Remember, folks, this makes for the perfect Christmas gift.
–So I saw an article, I think in the Journal, on the new trend in
displaying inflatable Christmas characters for the lawn. In my
surrounding community they’re going up all over the place, and
they’re also being deflated at an equally rapid pace…which then
makes your house even worse-looking, what with Santa all
bundled up in a heap, carrion picking at his face.
–12% more Americans die from heart attacks and other causes
on Christmas Day, the day after and New Year’s Day than on
any other days of the year, according to the journal
“Circulation.”
–Leave it up to the idiots on D.C.’s city council to screw up the
return of baseball to the district.
–Those who normally receive a Christmas card from me will
have to wait a bit. Maybe I’ll get them off in time for Festivus.
–One pleasant surprise on this trip thus far, TAM Airways of
Brazil which I’m taking between Santiago and Asuncion. Very
efficient and great-looking stewardesses…as opposed to Copa
Airlines where it looks like the women were recruited out of a
Havana laundromat.
–One good thing about Asuncion thus far; I noticed in passing
the presidential palace on the drive from the airport that it has a
large nativity scene on the lawn. No problems with political
correctness here.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $442
Oil, $46.28…the volatility in this market is ridiculous.
Returns for the week 12/13-12/17
Dow Jones +1.0% [10649]
S&P 500 +0.5% [1194]
S&P MidCap +1.6%
Russell 2000 +1.6%
Nasdaq +0.3% [2135]
Returns for the period 1/1/04-12/17/04
Dow Jones +1.9%
S&P 500 +7.4%
S&P MidCap +13.1%
Russell 2000 +15.3%
Nasdaq +6.6%
Bulls 62.1*
Bears 21.1 [Source: Chartcraft / Investors Intelligence]
*This is the highest level since January 1987, which perhaps best
exemplifies what this contrarian index is all about. The numbers
can remain at extremes for a long period of time before the
predictive value is borne out, but eventually it almost always is.
So maybe we don’t get whacked until spring or early summer
’05. One thing is for certain, at some point we will.
The bear level, incidentally, is still above its 6/25/04 low of 17.4.
Have a great week. The next review will be posted by noon on
Christmas Eve.
Brian Trumbore
