[Posted 7:00 AM ET]
Iraq
Despite President George W. Bush’s public pronouncements on
staying the course in Iraq and seeing the mission through to a
successful conclusion, the administration is hell-bent on
withdrawing a substantial number of troops by next summer; in
time for the congressional elections in November. It’s pitiful
when the political calendar calls the tune, but it shouldn’t be a
surprise to anyone.
And while I noted a few weeks ago that if the Dec. 15
parliamentary election in Iraq goes reasonably well and a
permanent assembly is seated in January, even if we don’t like
the new government we can begin withdrawing some forces,
their mission accomplished.
But that doesn’t mean overall success is ensured, not by a long
shot, yet it’s largely already out of our hands at this point. It’s
now impossible to stay in large numbers, even if you believe in
Senator John McCain’s call that more troops, not less, are what’s
required today.
As James Fallows points out in a piece for the December issue of
The Atlantic Monthly (see “Hott Spotts,” 11/24), the United
States and its allies had a short time in the spring and summer of
2003 to create stability before any occupied nation would
inevitably call for an invading force to leave and we blew it on so
many different levels. I won’t repeat the whole argument here
but it’s clearer than ever how unprepared we were, with perhaps
the single biggest issue, aside from lack of troops, being the
language barrier where we continue to fall woefully short even
today.
And since I have blasted former commander General Tommy
Franks numerous times in this space, I have to note one bit from
Fallows’s piece.
“ ‘Once Baghdad was taken, Tommy Franks checked out,’ Victor
O’Reilly, who has written extensively about the U.S. military,
told me. ‘He seemed to be thinking mainly about his book.’”
This past week ended up being a terrible one for the U.S., but not
because of the usual violence. Instead it has to do with Iran’s
growing sphere of influence. Iraqi President Talabani went to
Iran where he told Iranian President Ahmadinejad, “I have come
to Tehran to deepen our strategic relations. I am sure that the
Iranian side will provide us with the necessary help to uproot
terrorism in Iraq.”
Oh brother. [Separately, Newsweek reported that earlier, Iraq’s
national security advisor got in Ahmadinejad’s face and said stop
supporting the insurgency; but then Talabani comes through and
kisses his butt.]
Ayatollah Khamanei, the ultimate power in Iran, told Talibani,
“The presence of aliens in Iraq is harmful and destructive to the
Iraqi people. If the Iraqi nation and government do not adopt a
firm stance, U.S. demands and pressures will never come to an
end.” [Daily Star, Financial Times]
An Arab conference designed to bring the leaders of Iraq’s
Sunni, Shia and Kurdish factions together, produced a separate
call for a U.S. timetable on withdrawal.
The Washington Post had the following take on it all in a lead
editorial.
“(Congressman John) Murtha, like other Democrats who
advocate an early pullout, grossly misstates the nature of the
conflict in Iraq. In a news conference, he contended that U.S.
troops ‘have become the primary target’ and have united Iraqis
against them. In fact, far more Iraqis than Americans are being
killed by the insurgents…As Democrats such as Sens. Joseph R.
Biden Jr. and Joseph I. Lieberman have recognized, a premature
American departure from Iraq would not end but greatly escalate
what is now a low-grade civil war. It could allow al Qaeda to
claim a triumph and establish a base for attacking the United
States and its allies in the Middle East.”
But, again, it’s too late for even this talk. We’re out of there,
come hell or high water, and Biden has an op-ed himself in the
Post, Saturday, basically adopting the new mantra.
Finally, the New York Times’ David Brooks wrote:
“There’s one area…where I completely sympathize with Jack
Murtha. I sympathize with his frustration. On Feb. 23, 1942,
Franklin Roosevelt asked Americans to spread out maps before
them and he described, step by step, what was going on in World
War II, where the U.S. was winning and where it was losing.
Why can’t today’s president do that? Why can’t he show that he
is aware that his biggest problem is not in Iraq, it’s on the home
front?
“Since the president doesn’t give out credible information, it’s no
wonder Republicans are measuring success by how quickly we
can get out; it’s no wonder many Democrats are turning the war
into a political tool to bash the president; and it’s no wonder that
people like well-meaning but weary Jack Murtha have simply
given up.”
Wall Street
By now you all should know the powerful story of seasonality on
Wall Street. Buy stocks on Nov. 1 and sell May 1. More
specifically, November and December represent two of the top
three months, historically, for both the Dow Jones and Nasdaq,
while they are the top two for the S&P 500. [See “Wall Street
History,” 11/4/05] Certainly 2005 is proving no exception.
Last year, from late October through year end the S&P 500
rallied 11% and Nasdaq 14% off its lows. Much of this move
was attributed to post-election euphoria, back when President
Bush had “political capital” to expend. But the ensuing 12
months have been pretty miserable on a number of fronts while
Bush didn’t end up spending his capital wisely, yet once again
we are in the midst of a soaring rally that commenced Oct. 13
and has seen the S&P and Nasdaq climb another 8 and 10
percent, respectively.
So why the repeat performance despite the often gloomy
geopolitical and domestic picture, including a most contentious
war debate? Well the U.S. economy is a resilient sonuvagun and
your editor’s pronouncements of its demise have obviously been
premature. In this season of giving thanks, let’s count our
blessings.
This past week, while light on the economic release front,
nonetheless saw a tick up in consumer confidence by one key
measurement as well as a gain in the leading economic indicators
for the first time in five months. Plus the National Retail
Federation offered that sales for the holiday season will be up
6%, not the originally projected 5%.
So what’s not to like? Energy has settled into a lower range and
shock and awe at the gas pump is for now a thing of the past,
while our heating bill, though higher than last year, is looking
better than the dire forecasts of just six weeks ago; and we give
thanks for this.
Even the Federal Reserve cooperated this week, albeit in
absentia, as the just-released notes from its Nov. 1 confab
showed that some governors were concerned about the “risks of
going too far” on the rate front. So almost everyone on the Street
and in the bond pits took this to mean the “end is in sight.”
Perhaps two more rate hikes, max, and that’s it.
As for the usual caution put forward in this space, you get a one
week respite. Take advantage of it. Extend the holiday, whip
out that third credit card. Just be back all the earlier next time for
the more normal fare, mused Scrooge. The holiday spirit is often
fleeting around here.
Street Bytes
–Just another superb week in terms of equity performance with
the three major averages up 1.5 or 1.6 percent to 4 ½ year highs
in each. [OK, the Dow is nine points shy at 10931, but who’s
counting?] And on Friday you had the usual pabulum about the
official start of the holiday shopping season. Each Black Friday
it looks the same to me. A bunch of clowns mowing each other
down for stuff they don’t need, but it keeps the country humming
so what the heck. I maintain this won’t be a great period for
retailers, but then I said I’d give you a break on the negativity
front.
One thing is for sure, the technicals for this market move are
superb if you are a chartist. This is one broad-based rally with
virtually every sector participating. And one little noticed item
on the week was the new all-time high hit in the oil service
index, the OSX, despite the slump in oil and natural gas prices.
–U.S. Treasury Yields
6-mo. 4.27% 2-yr. 4.32% 10-yr. 4.43% 30-yr. 4.66%
Bonds rallied on the Fed minutes. This coming week, however,
brings a slew of market-moving data, including November’s jobs
report on Friday.
–General Motors’ announcement of 30,000 layoffs and nine
plant closings by 2008 shouldn’t really have been a surprise, GM
having previously talked of 25,000 job cuts earlier in the year.
The automaker’s capacity is now down 30% from ’02 levels and
its #1 world ranking is threatened in a big way by Toyota.
–Russia agreed on a Siberian oil pipeline to the Pacific that will
supply Japan and the West with a projected 1.6mm barrels per
day. China had wanted it to head south to its industrial north but
the Kremlin is trying to assure Beijing that China will still
receive some benefits down the road.
–Russia is also looking to double its gold reserves in a move to
shore up the country’s mining industry (the world’s 5th-largest).
Gold rallied to a new 18-year-high on the news. Should other
nations follow suit for different reasons, Katy bar the door on the
price of the precious metal.
–China’s President Hu Jintao promised President Bush his
nation would “unswervingly press ahead with currency reform,”
but very slowly…you can be sure.
–It is now estimated that China’s potential loss in its copper
trade (see last week) could be as much as $300 million.
–Shares in Google continue to rocket higher, closing the week at
an amazing $428. The stock was $300 as recently as mid-
October before the latest surge. [Let alone the fact the IPO was
priced at $85 just 15 months ago.] Like all of you I’m kicking
myself for not buying some along the way but at this point I can’t
chase it. What I should have learned from my own experience
was that there was indeed something special here. For example,
I was quoted in a White Plains, NY, daily (Journal News) on Jim
Cramer (the article hit after I posted last week’s commentary on
him) and instantly Google was alerting me to this fact. And until
last week I didn’t realize some of the “Wall Street History”
pieces I publish were being used in various finance books hitting
the market the past 1-1 ½ years. But Google knew this, and I
now take back earlier comments on Google and its nascent book
ventures.
True, the above two examples aren’t being monetized as yet, but
not every aspect of the company needs to, or will be in the future,
for it to have an impact in other areas that are.
So basically I’m in awe of Google. It’s potentially one of the
five best business stories of the last 100 years. [This is a
‘random musing.’ Haven’t really given it much thought…but I
will.]
As for the share price, as I’ve maintained all along you ‘short’ it
at your own risk. And, yes, on this one Jim Cramer deserves
some credit.
–In Japan, over 80% of individual investor transactions are
conducted over the Internet.
–Employers’ health-care costs will rise a more reasonable 6.1%
in 2005, continuing a favorable trend here. But, the employee
share is rising at a far faster rate.
–Ruth Siems, the inventor of Stove Top stuffing, passed away.
Siems was working with General Foods (now Kraft) when she
came up with the secret formula about 30 years ago. Too bad
this wasn’t available back in Dickens’ time. “Please sir, more
Stove Top stuffing.”
–Business Week ran its annual cover story on philanthropy and
John Templeton, now 92, was featured for his good works in the
field of religion and scientific study. In my mind Templeton is
also truly the greatest investor of the past century, and that’s no
random musing.
–On a related topic, Bernie Marcus, co-founder of Home Depot,
donated $200 million to build the new Georgia Aquarium. In
doing so he told “Today’s” Matt Lauer, “I could have bought the
world’s biggest yacht but I chose to give something back;” a
none too subtle shot at Oracle’s Larry Ellison, poster boy for the
greed generation. And it was ironic that Mr. Ellison lost a court
judgment this week whereby he now has to pony up $100 million
for an as yet unnamed charity as part of a shareholder suit going
back to 2001; when he sold some $900 million in shares right
before the company reported an earnings shortfall. A Bill Gates
or Templeton, Ellison isn’t.
–I imagine I’m not the only one to receive two particular
mailings the past few weeks pertaining to class action suits. One
was for a case against Visa, 1992-2003, and the other was related
to the IPO / conflict of interest scandal on Wall Street.
Regarding the Visa issue, if I spent over 20 minutes filling out a
form, down the road I could collect $14. In the case of the $1
billion class action suit for those who bought into some 298
individual IPOs, this is one of those Milberg Weiss deals; the law
firm that is itself still under investigation for bribing witnesses in
other class action suits.
Bottom line, recovery for investors is generally in the $0.052 per
share range. In other words, if you were lucky enough to have
been granted 1,000 shares, you’re receiving about $50 back.
So what’s the point of this idiotic exercise? Well, Milberg Weiss
receives 1/3 of the amount recovered plus other attorneys’ fees
and costs. Put the two suits together, including the Visa case,
and they represent the very worst of American jurisprudence.
–New York Attorney General Eliot Spitzer has now dropped
some of the cases in the mutual fund market timing scandal and
he’s receiving a bit of bad press over it all. He’s also not going
to file criminal charges against former AIG chief Hank
Greenberg, though Greenberg will still get his in other venues.
But while Spitzer may have been too aggressive in some
instances in his battle against Wall Street, I remain a big
supporter. Wall Street needed to be shaken up…and it has been.
And while old habits die hard, the average investor in the long
run is better off because of his crusade.
Separately, Spitzer continued to go after the music industry, as
both Warner and Sony BMG have now admitted guilt and paid
hefty fines as the result of the latest payola scandal where in
some cases DJs received up to $20,000 to hype the labels’ artists.
–The lumber issue between the U.S. and Canada won’t go away
and now Prime Minister Paul Martin, facing a stiff challenge in
elections that may be held as early as late January, is offering up
an aid package to Canada’s struggling lumber industry to the
tune of $1.28 billion. U.S. Trade Representative Rob Portman
said the proposal “Illustrates what the U.S. has been saying all
along: the Canadian industry is the beneficiary of subsidies that
create an unlevel playing field to the detriment of the U.S.
industry.” For its part, Canada continues to argue the U.S. isn’t
living up to its own obligations as mandated by a NAFTA panel.
–You think Wall Street has a good rally going on? Try Kuwait.
Through Wednesday, the Kuwait exchange’s leading barometer
is up 82% year to date and until this week hadn’t suffered a
losing one since mid-July.
–My portfolio: I remain about 80% cash and 20% equities. Yes,
as the market has rallied I’ve been moping with my own
laggards. Actually, I’m fretting.
Foreign Affairs
Israel: Prime Minister Ariel Sharon left the Likud Party to form
a new one, Kadima (‘forward,’ in Hebrew). Likud split apart
over Sharon’s Gaza withdrawal policy and the far-right wing of
the party, led by former Prime Minister Benjamin Netanyahu,
will now pick up the conservative mantel. Netanyahu started off
what is destined to be an incredibly nasty campaign by calling
Sharon a “dictator.”
An election has now been set for March 28 and Sharon will
likely square off against Netanyahu (the probable Likud pick)
and the new Labour Party leader Amir Peretz, the man who just
replaced Shimon Peres. Sharon will pursue a two-state solution
to the Palestinian issue, while Labour will focus on social and
economic reform, particularly the increasing divide between rich
and poor in Israel, with Likud representing the hardliners.
But there was action on a different front this week as Israeli
forces battled it out with Hizbullah in the disputed Shebaa Farms
region on the border with Lebanon. Four Hizbullah guerillas
were killed in the heaviest fighting here since 2000.
Israel later dropped leaflets on Beirut and other major Lebanese
population centers, slamming Hizbullah. But think about how
this was accomplished. Israeli jets and helicopters invaded
Lebanese territory to carry this off with obviously zero resistance
from Lebanon’s military; not the kind of thing that would
engender confidence if I was the average citizen of Beirut.
The politics of Lebanon, as I’ve written before, are as
complicated as any in the world. Druse leader Walid Jumblatt
this week blasted Hizbullah for its call to arms, arguing that
disarming the terrorist group (my term) has to be the ultimate
goal. A gutty call for Jumblatt considering he’s already under
threat of assassination.
And then you had the situation with Syria’s lackey, Lebanese
President Emile Lahoud; who in a meeting in Tunisia is alleged
to have shaken the hand of Israel’s foreign minister. What’s
wrong with this? Israel and Lebanon are technically at war and
the handshake is against Lebanese law.
Syria: President Bashar Assad has given in to the requests of UN
prosecutor Detlev Mehlis and will allow five top officials to be
interviewed in the assassination of Rafik Hariri. The only
concession by Mehlis is that the interviews will now take place
in Vienna, not Lebanon. Mehlis’s final report is to be submitted
Dec. 15.
China: President Bush’s trip to Asia was uneventful and yielded
nothing of value that I can see. But as I like to say, better to talk
than not to. China needs to know where the administration
stands on issues such as human rights, let alone concerns over
China’s economic juggernaut and its extensive military buildup.
But it’s clear that Chinese President Hu Jintao listened to what
President Bush had to say and then basically replied, “whatever.”
For example, in discussing Taiwan, Hu said China was
committed to a peaceful resolution but “we will by no means
tolerate so-called Taiwan independence.”
And while President Bush talked of spreading religious freedom
in China, the government was rounding up dissidents; failing to
release even one from a White House list submitted two months
earlier. Plus the only television pictures the Chinese people saw
of Bush’s visit was when he rode with the Chinese Olympic
cycling team. In the past, Hu had agreed to a joint news
conference but not this time; Hu not wanting to have to handle
tough questions from western journalists such as on human rights
and press freedoms.
Then there was this week’s environmental disaster, a potentially
catastrophic toxic spill near the city of Harbin with deadly
benzene flowing downriver from the site of a chemical plant fire.
The central government said nothing for a week while the toxins
inched toward the city of four million before finally admitting it
had made a mistake in downplaying the health hazards. The
water supply was shut off and the poisons threaten towns in
Russia hundreds of miles away.
Of course the authorities in Beijing are concerned about growing
unrest across the land and these constant environmental disasters,
coupled with the pitiful government response (a la FEMA), are
only going to add fuel to what is still just a brushfire.
But at some point the people will begin to protest in a more
widespread, organized way, and it is at this moment that Hu Jintao
will play the nationalism card in an effort to distract his people.
Under this scenario, the U.S. becomes a rhetorical target, while
Taiwan is hit with a lightning strike, decapitating the government
in Taipei. Unfortunately, you can take this to the bank.
Russia: The Kremlin’s dispute with Ukraine over the natural gas
pipeline that runs through Ukraine and into other parts of Europe
is escalating. Similar to the battle between Gazprom and Poland,
this case is all about how much Ukraine should pay but it could
easily affect others.
And then President Putin decided to impose new controls over
foreign charities and interest groups, seeking to restrict outside
support of the political opposition. The Kremlin is forcing
organizations such as Amnesty International to register as a
Russian operation which would then severely restrict future
activities.
Meanwhile, Poland has decided to release 1,700 secret files from
the Warsaw Pact days that detail Soviet plans for a nuclear
counterattack against NATO forces, wiping out cities in
Belgium, the Netherlands and Germany. Plans also reveal that
Poland would have been a NATO target. So in other words,
Poland was being asked to take part in an invasion that would
have resulted in its own annihilation. This is all part of the new
Polish government’s plan to deal more openly with its
communist past. [Financial Times]
Kenya: Voters rejected a new constitution by a 57-43 margin
over tribal fears it would have granted the president too much
power. But the document also would have enshrined women’s
rights.
[Along the same lines, why President Bush doesn’t hammer
away at the women’s rights issue in the Muslim world, I’ll never
know. Sending Karen Hughes around to discuss it is not the
answer. It’s a lay-up, but after employing it, successfully, in the
first year or two after 9/11, Bush has abandoned the topic.]
Singapore: Australians are up in arms about the pending
execution by hanging of one of its citizens in Singapore, Dec. 2.
Melbourne’s Nguyen Tuong Van, 25, was convicted of
trafficking almost 400 grams of heroin in 2002. I love both these
countries and my feeling is when you travel somewhere you
better know and respect that nation’s laws or pay the
consequences.
Singapore’s Straits Times newspaper opined:
“The reality is that more Australians can expect to face the
ultimate penalty here because too may choose to dice with
death….The drugs trade is a destroyer of lives and of society,
vividly so in this region. Australians who have an imperfect
understanding of this can only learn to educate themselves….As
much as Singaporeans make no judgment on a value of
jurisprudence which has served the Australian commonwealth
well, Australians show their breeding by learning to accept what
the Singapore situation requires.”
Australians counter the punishment is not only cruel, Singapore
is hypocritical due to its relations with Myanmar, Asia’s top drug
den.
Malaysia: Singapore’s neighbor has a different problem.
Allegations of abuse against Chinese women here have caused a
steep drop-off in tourism from China. Much of this is
perpetrated by police officers, according to reports.
Indonesia: After 13 years, Washington and Jakarta have resumed
military ties and sale of equipment…a good thing made possible
by Indonesia’s favorable reform effort.
Chile: Former dictator Gen. Augusto Pinochet was finally
indicted for his role in the disappearance of six Chileans as part
of a joint intelligence operation between Chile, Argentina and
Brazil back in 1974 that targeted leftist opposition groups. [119
members were executed then.] Pinochet turned 90 on Friday.
Random Musings
–Michael Scanlon, a former top aide to Congressman Tom
DeLay, pleaded guilty to bribing a member of Congress (Ohio
Republican Robert Ney) and other public officials in the ongoing
investigation into the activities of super lobbyist Jack Abramoff.
The conservative Weekly Standard has been writing some terrific
pieces on this case that threatens to bring down some top
officials, the vast majority of which are Republicans. Matthew
Continetti concluded a story in the current issue:
“A decade ago Republicans stormed Washington with plans to
establish a ‘new order,’ shrink government, and drain the swamp
of public malfeasance. Today Republicans look warily over the
horizon, and nervously await a midterm election in which voters
will be asked to evaluate whether the party has lived up to its
ideals.”
–Note to reader Scott P. Yes, I’m now convinced. We need
term limits. I used to be of the opinion, why restrict the terms of
those who are truly talented and have developed certain fields of
expertise, such as foreign policy. But with further examples like
the above that the entire system is corrupt, and has been no
matter what era you’re talking about, we might as well let a
generation or two test out a new way of conducting the nation’s
affairs.
–I just got around to an extensive piece in The Atlantic Monthly
on A.Q. Khan of nuclear weapons proliferation fame. Here I was
just in Amsterdam and didn’t realize back in the 1970s (1974-
75), Khan, a Pakistani, did his first work on centrifuges and
uranium enrichment while working for a consulting firm in this
city. The Dutch intelligence service suspected that Khan was up
to no good but they felt as if they didn’t have enough to arrest
him…so they let him run away and the rest is, unfortunately,
history. While another A.Q. Khan may have emerged in his
place, this one did a ton of damage, the true impact of which we
may never learn until it’s too late.
–Alfred Anderson died at the age of 109. Scotland’s oldest man,
Anderson was the last surviving soldier to have participated in
the famous Christmas Truce of World War I.
As an 18-year-old soldier in the Black Watch regiment,
Anderson was in the trenches when on Christmas Day, 1914,
British and German troops emerged from their hell-holes along a
500-mile line to exchange greetings and swap items such as
cigarettes. Army commanders, though, were not fired up over
the seeming fraternization and the war resumed by the next day
in most places.
–The Star-Ledger reports that 47% of colleges are ignoring the
new essay section of the SAT.
–I just want to thank those of you in China, South Korea,
Australia and Malaysia for tuning in (#s 2, 3, 4 and 5 behind the
U.S. in site traffic for StocksandNews). It’s appreciated.
Overall, 63% of the readers these days are from overseas, which
fascinates me. I have three times more readers in Kuala Lumpur
than I do in New York, if you can imagine that. Of course each
week I tick a bunch off but at least I find replacements! Let us
pray…
–As pointed out in an editorial for the Washington Post, Coast
Guard Vice Adm. Thad Allen, who is running the federal
recovery effort in New Orleans and the surrounding environs,
post-Katrina, offers that virtually none of the almost 1.5 million
people evacuated from southern Louisiana have gone home.
–I’m heading down to Katrina ravaged Mississippi before
Christmas to hopefully brighten some family’s holiday, though I
imagine I’ll be pretty depressed by what I see. At least FEMA
finally wised up and extended its aid plan for those staying in
hotels from Dec. 1 to Jan. 7 in most cases. If any organization in
the world, aside from the UN, ever needed a housecleaning at the
top it’s this bunch of insensitive idiots.
But this week I was down in Flower Mound, Texas, to present a
check from an organization I work with for Flower Mound’s
hurricane relief fund; the city being one of thousands of
communities that are doing their best to house and care for the
refugees.
My thanks to Mayor Jody Smith, the city council, and all the
great people I met in my quick visit. In all sincerity, this is
clearly one special place to live. In talking to some residents, I
never saw more pride in one’s community than I did here.
Without exception, everyone urged me to move down there, as I
found out many New Jerseyans already have. It was refreshing
to see, especially in light of the fact so many in my own area are
concerned only with themselves.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $492…another 18-year high
Oil, $58.71
Returns for the week 11/21-11/25
Dow Jones +1.5% [10931]
S&P 500 +1.6% [1268]
S&P MidCap +1.9%
Russell 2000 +1.7%
Nasdaq +1.6% [2263]
Returns for the period 1/1/05-11/25/05
Dow Jones +1.4%
S&P 500 +4.7%
S&P MidCap +12.0%
Russell 2000 +4.9%
Nasdaq +4.0%
Bulls 53.6
Bears 23.2 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
