For the week, 2/18-2/22

[Posted 5:00 AM, ET from San Francisco.]

“If making the world a safer place is the aim, then we need to

have a clear grasp of who is making it an unsafe place. Look no

further than across the Taiwan Strait.”

–Taipei Times

“A democracy like Taiwan cannot be expected to become part of

a dictatorship like the People”s Republic of China.”

–China Post (Taiwan)

“All the world”s people, including the people of China, should be

free to choose how they live, how they worship and how they

work.”

–President George W. Bush

I was originally scheduled to travel to Taipei last September.

9/11 changed that, but in rescheduling I didn”t realize I would be

in the region the same week President Bush was visiting Japan,

South Korea and China. Result? Information overload. My

head is swimming from the press coverage in this area during

Bush”s highly important visit.

And why did I want to journey to Taipei in the first place? Well,

it”s a “hot spot,” that”s for sure, though thankfully not as much as

it was just a few years ago when China was firing missiles into

the waters off Taiwan, just to let them know who”s boss in

these parts. And, of course, the current situation can change in a

heartbeat.

The fate of Taiwan is critical to U.S. interests in the Pacific. Not

just because this island democracy manufactures 50% of the

world”s laptop computers, but also because the way the U.S.

treats Taiwan, strategically, is not only of concern to the

Taiwanese people, but also to vital allies like South Korea and

Japan. Were we to ever abandon Taiwan under pressure from

the 800-pound gorilla in the region, mainland China, as well as

pressure from an uneducated American populace, the

repercussions would be cataclysmic.

And so it should be of little surprise that Taiwan”s leadership

carefully monitored each move and word in the six days that

Bush was in the region. The government set up a special

committee to make sure nothing was said that would indicate

Washington was wavering towards its commitments and

everything the president did was dissected. They needn”t have

worried, because on this issue, the Bush administration clearly

gets it.

I won”t rehash all the details of the Taiwan – China relationship

here, as I have ample history for you to turn to in my “Hott

Spotts” archives. [See bottom of that link.] But for purposes of

this discussion, the issue boils down to this. Both China and the

U.S. believe that there is “one China,” including Taiwan, but

whereas the U.S. wants Taiwan and the mainland to settle its

differences peacefully, China has always reserved the right to

take Taiwan by force, if necessary. Meanwhile, Taiwan, while

considering itself a sovereign nation, has thus far kept from

declaring its formal “independence” under pressure from the

U.S., since such a move in the past would undoubtedly have

precipitated a hostile response from the mainland. And so this

little dance has gone on, essentially since 1949 when Chiang

Kai-shek, defeated by Mao in China”s civil war following WW II

(both sides were at war with each other prior to the Big One,

only they were then united in an effort to repel the invading

Japanese), fled with his Kuomintang / Nationalist forces to the

island of Formosa (now Taiwan).

The Nationalists ruled on Taiwan for 50 years, until Chen Shui-

bian and his DPP rose to power in 2000, finally cementing

Taiwan”s claim to total democracy, and a vibrant one it is today.

Chen ran on a pro-independence platform, but he”s held off

formalizing things until, as he puts it, the people demand it.

It”s really an amazing story, as both President Chen and Vice

President Annette Lu were at one time political prisoners in their

land (similar to South Korean President Kim Dae Jung). And

when you add it all up you can see why Taiwan watches every

move between Washington and Beijing with such great interest.

As for the communists on the mainland, whom most folks on

Taiwan feel Bush should have included in his “axis of evil,”

China”s leadership has offered Taiwan what it recently gave

Hong Kong; “One China, two systems.” You become part of

China, we let you keep your form of government, Taiwan.

“Yeah right, dirtballs,” say most Taiwanese in reply. Or as VP

Lu said this week, “I would rather suggest that let both China and

Taiwan set up one system first – the system of freedom and

democracy.” And if you noticed recent events in Hong Kong,

you know of what Lu speaks. Hong Kong is no democracy, as

its “chief executive,” a Mr. Tung, handpicked by Beijing, more

or less said this week, “I think I should like to be big cheese for

another term. How about it?” “Ahh yes, Mr. T.,” said the

compliant council. “Anything you want.” “Good. Let”s give

Beijing the good news, shall we?”

Meanwhile, back to Bush and his meeting with Chinese

President Jiang Zemin, Bush had 3 main agenda items; China”s

arms shipments (inclusive of missile technology courtesy of the

Clinton administration and the folks at Loral and Hughes

Electronics) to nations like Pakistan and Iran, its continued

flouting of all acceptable standards when it comes to human

rights and Taiwan. In various forums President Bush said all the

right things, but received nothing in return. That”s because Jiang

Zemin, ever the crafty, shifty, lyin” weasel that all Chinese

communists are, is anxious to solidify his legacy as a “reform”

leader. Jiang will be turning over the reins of power (barring a

palace coup) to Hu (“Hu”s on first?”) this fall, so he is seeking

to avoid any major disputes with the U.S., but that doesn”t mean

he has to give in to Washington”s wishes, and so he doesn”t.

Well, at the end of the day, was it all worth it? [Bush”s trip, that

is, not this week in review, at least I hope you don”t feel that

way.] Yes, the two leaders need to communicate, but U.S.

officials must approach the relationship with eyes wide open, and

China must always know that America will defend Taiwan. Of

course the average American doesn”t have a clue as to what war

in the Straits would entail, or why it may be necessary someday.

But for now all they need to understand is that China has

hundreds of missiles pointed at a powerful ally of the U.S. and

no people should have to live under the threat of a gun. Alas,

that”s the way it is today and it”s why we”ll keep reviewing the

situation in these parts.

—

Of course ”this week in Asia” wasn”t just about China and

Taiwan. President Bush also stopped by Japan and South Korea,

both of whom had to take note of the administration”s ongoing

support of Taiwan as a real show of commitment to the entire

region. Both are worried, after all, that the day is rapidly

approaching when China”s military will have the wherewithal to

overwhelm either one, should the U.S. get all weak-kneed and

pull our substantial presence from the region. [Currently 37,000

troops in South Korea, 48,000 in Japan.]

As for Bush, he confronted two different situations. In Japan,

any rational observer would have to say the President went way

overboard in his praise of Japanese Prime Minister Koizumi.

Koizumi, who came to power with such high hopes, has proven

to be just another bureaucrat thus far, as the collapse of the

Japanese economy threatens to take the whole region under. But

maybe in calling Koizumi a “great reformer,” Bush lit a fire

under the wavy-haired one. For his part, Koizumi could only

admit, “Japan has lost confidence in itself.”

If it”s Tuesday, this must be Seoul, mused the editor, and here

Bush confronted far fewer demonstrators than I expected

(demonstrating being South Korean students” raison d”etre…it”s

amazing they still graduate), especially since the inclusion of

North Korea in the President”s axis of evil riled up folks on both

sides of the peninsula. South Korean President Kim Dai Jung

wants the U.S. to engage the weird one, the North”s Kim Jong-Il.

Bush replied, get the psycho (well, he didn”t exactly use this

word, but he could have) to move his arms back from the DMZ

and then maybe we”ll talk.

While Kim “the Good” was actually supportive, amidst Bush”s

claim that he”d talk to the little northern guy, what worries Seoul

is that Bush may be pre-empting a North – South deal as part of

Kim D.”s “sunshine policy.” And maybe Washington really

doesn”t want a “peace” deal because then the U.S. couldn”t take

out Pyongyang”s weapons of mass destruction plants without

causing uproar in the South. Well, Kim D. may have a point, and

we have to respect it, because how would you like it if thousands

of artillery pieces were cocked, 30 miles from your capital?

Street Bytes

–You”ll have to excuse me for being brief with my Wall Street

analysis this week. While I did sometimes catch the market open

in my hotel room (10:30 PM local time) and my sleep patterns

were such I woke up for the last hour of trading (4:00-5:00 AM),

I really didn”t pay too much attention to the goings on. What I

did observe was an incredibly volatile week, with the Dow

managing to tack on 0.7% to the 9968 level, while Nasdaq

continued to swoon, off another 4.4% to 1724.

Economic indicators continue to offer up more signs of recovery

than not, with the robust housing data for January once again

leading the way. But when the issue of housing comes up, it still

leads me to one conclusion. After two years of waiting for the

bubble to burst, the day of reckoning can”t be far off. It”s kind of

like looking at pornography; you know it when you see it.

–U.S. Treasury Yields

6-mo. 1.86% 2-yr. 2.92% 10-yr. 4.83% 30-yr. 5.35%

Basically unchanged on the week.

–Just from my readings this week, it would appear that outside

Japan the Asian economy doesn”t seem to be in quite as bad a

shape as one might expect. While I”d take China”s

pronouncements of “7% growth” with a grain of rice (some

experts say it”s more like 3%…call it fuzzy math), South Korea

seems to genuinely have its act together, as unemployment has

fallen to a record low, 3.2%.

But excluding Indonesia (and as Henny Youngman would have

said, “Take this country, please”), even Singapore and Taiwan,

both in recession last year, would appear to be on the verge of

decent recoveries. True, the scope depends on how the U.S.

does, but especially in the case of Taiwan there seems to be

cause for optimism.

It”s true, as I have written extensively on prior to this week,

Taiwan”s business leaders continue to shift more and more

production to the mainland as economic integration takes hold,

but I feel more confident that the island will retain more than its

fair share of the high tech biz. For example, in my travels

outside Taipei, I saw work proceeding at a hectic pace on a new

tech park, which will employ some 14,000 when complete. And

Taiwan seems determined to be the leading manufacturer of flat

panel monitors. But I was also excited to read of their prospects

in the bio-tech field, a segment the government is targeting. This

could be a big success. The workforce is certainly smart enough.

[To be balanced, this week the banking sector noted that non-

performing loans are at an all-time high, though where isn”t this

the case these days?]

–Argentina: Just as your editor long predicted, the situation

continues to deteriorate and there was more violence. The U.S.

also slapped a visa requirement on travelers to America, as we

don”t want to encourage an exodus of Argentinians, who could

simply use the old passport entry method and then decide to stay.

–A few weeks back I questioned the health of the U.S. banking

system due to its derivatives exposure. This week, in an op-ed

piece for Barron”s, Christopher Whalen wrote: “Are the big

banks already dead men walking due to unrealized losses on

derivatives?” Whalen points out that many banks are heavily

reliant on “swaps,” or over-the-counter derivatives, whose safety

supposedly lies in the fact that the banks” position would be

superior to other creditors in the event of a bankruptcy (i.e.,

Enron goes under, Bank X”s position is superior). However, this

has never been tested in court and is it really right that a synthetic

instrument stands ahead of hard assets or a normal bank loan in

bankruptcy? In their infinite wisdom, Congress came up with

this charade to protect the banks (and the campaign dollars). My

conclusion, and Whalen”s, is that some big bank is about to get

the surprise of its life.

–Speaking of banks (the investment variety) and Enron, this

week J.P, Morgan Chase, Lehman, Credit Suisse, and Citigroup

will be grilled by a Senate committee on the conflicts of interest

issue, particularly, how could analysts continue to rate Enron

shares a “strong buy” when they were about to declare Chapter

11? Make them squirm, I say.

–As a follow-up to my comment of last week on the negative

wealth effect, a new study reveals that it”s even worse than I

expected. Two-thirds of U.S. households have not seen an

increase in their retirement wealth since 1983 (after adjusting for

inflation). Scary. [Source: New York Times]

–Lots of ongoing rumors that Fed Chairman Alan Greenspan,

age 75, will retire before his term as chairman expires in June

2004.

–Yes, Bush”s gaffe, mistaking “devaluation” for “deflation” was

a big deal in the local press, just as it was back home. And as

you can imagine, Reuters, those mealy-mouthed liberals from

across the pond, were outright vicious.

–Online sales rose 20% in the U.S. for 2001 to $33 billion, but

before you get too excited, know that this still represents just 1%

of overall retail sales in this country, not exactly what the Net

wizards predicted in 1999. As for Net usage, the best estimate is

that 445 million, worldwide, are current users, with the U.S.

comprising 27% of the market. Did I ever tell you I”m big in

Saudi Arabia?

–California”s Public Employees” Retirement System (Calpers) is

pulling its investments out of Indonesia, Malaysia, the

Philippines and Thailand due to lax corporate governance and

political instability, which is really quite comical since

concerning the former, you can now say the same thing about the

U.S.

–Speaking of corporate governance, Computer Associates is the

latest target of an SEC inquiry regarding accounting

irregularities. Sorry, but I”ve always thought CEO Sanjay

Kumar was a slimeball.

–Well, for weeks we”ve been beating up on Japan”s Snow Brand

Food Co. for its habit of re-labeling foreign food products as

“domestic” in order to pick up government subsidies. Alas,

parent company Snow Brand Milk Products announced it was

“liquidating” the food division. Might as well pour the milk

down the drain while you”re at it, eh?

–Global Crossing: New CEO John Legere received a $3.5

million signing bonus when he took the job in October, even

while he was currently employed as CEO of Asia Global

Crossing, plus, Asia Global Crossing forgave a $10 million loan

to Mr. Legere. You”ll recall, however, that severance payments

stopped for employees with Global Crossing”s bankruptcy filing,

while many executives, it has now become clear, were receiving

lump-sum pension payouts. The public backlash against this

kind of B.S. is growing by the day.

–A HSBC employee in Singapore siphoned off some $7 million

in bank assets and now faces, get this, a total of “nearly 10,000

years in jail,” as he was charged on “1,415 counts.” There”s

something to be said for autocratic Singapore. Actually, there”s

something to be said for applying similar penalties to execs at

Enron and Global Crossing.

International Affairs

Israel: French Foreign Minister Vedrine, who recently blasted

Bush”s “axis of evil,” this week excoriated the West for its “blind

acceptance” of the “policy of pure repression” conducted by

Israeli Prime Minister Sharon against Palestinians. Vedrine

seems to be forgetting that the Palestinian leadership deserves the

lion”s share of the blame.

Admittedly, however, Sharon was under the gun after this week”s

horrific violence claimed about 70 lives over just a few days.

The fate of Yassir Arafat lies in the balance, but Sharon is facing

pressure from all sides (both internally and among his outside

supporters) to do all he can to prevent further escalation.

But what the hell is he to do? 6 Israeli soldiers are ambushed,

part of an increasing escalation in the sophistication of

Palestinian attacks, and Sharon is supposed to look the other

way?

Unfortunately, the situation will only get worse before it gets

better. Israeli intelligence is now adamant that Iran will deploy

North Korean missiles within 2-3 years that will be capable of

hitting any target in Israel, let alone the Iranian missiles already

in Lebanon.

Egypt: The train fire that killed 373 is significant for one reason.

It gives the banned Muslim Brotherhood a platform for venting

the peoples” anger at the government”s lax regulations

concerning trains such as this. Not only was it grossly

overcrowded, but no way should an open gas canister for

cooking be allowed.

Afghanistan: You didn”t need a CIA report to understand that

the situation here is going from bad to worse, all over again.

[Though not through any fault of the U.S.]

Philippines: Mid-week, the government released a video to its

people which showed Abu Sayef terrorists beheading a soldier,

just to remind everyone what the government is up against, as

well as why the Americans are here. But then on Friday a U.S.

helicopter crashed, supposedly an accident, with 10 fatalities.

We honor the victims like all the others.

Colombia: After 3 years of fruitless peace talks President

Pastrana has seen the light and declared all out war against the

rebels. The last straw was the rebels” hijacking of a domestic

airliner carrying a leading Colombian senator. [You should have

seen Pastrana speaking before his people. Holy cow, I”ve never

seen a president this upset. Now if he can just channel this

anger.]

Americans need to care about Colombia because we are in it

deep down here, and our involvement will continue to grow, as

Pastrana deserves our support.

Venezuela: A leading admiral joined the chorus in urging

President Chavez to step down. Meanwhile, other opposition

figures are working on drumming up support in the judiciary for

their charge that Chavez is unstable and unfit for office.

Zimbabwe: The European Union initiated a series of sanctions on

Robert Mugabe”s regime, this on the heels of further violence

perpetrated by 2000”s “Dirtball of the Year.” The presidential

election is slated for March 9 and the opposition faces a

resounding defeat at the hands of Mugabe”s thuggery.

Nepal: In a startling development, Maoist rebels killed 130

soldiers and policemen in a highly coordinated attack. Someone

needs to tell these guys Mao is dead. Also, so much for my

Everest expedition.

Random Musings

–No one turned out onto the streets to greet Bush in Beijing.

Interviews with the local citizenry revealed extreme disinterest.

What is even more worrisome is the anti-American, nationalistic

rhetoric that the Chinese government has in many ways

encouraged. Internet chat rooms are full of vitriol and the

leadership is also well aware this could blowback on them as

well, as it”s a new vehicle for disaffection.

–Yes, I did catch the women”s figure skating final. I knew the

last 6 were skating around noon, Taipei time, so I planned

accordingly. [I can just see some old friends about now going,

“That”s Trumbore.”] Count me as a new member of the Sarah

Hughes fan club. That was great stuff.

–I didn”t know this…when the Clintons went to China in 1998,

Bill stayed in the official guesthouse and Hillary stayed at the St.

Regis. Said one official this week, “I don”t know why they did

that?” I do.

–I saw where the terrorists on Guantanamo are being served

baklava for a Muslim feast. Hell, I love baklava. I want my

baklava…now!

Taipei

Perhaps my last cabdriver summed it up best, in response to my

polite comment, “You have a beautiful city.” “Eh, it”s so-so.”

He”s right. In all my travels I can”t recall a more “blah” place.

This city of nearly 3 million does have some good points,

however. It”s as clean as anywhere I have been and the city is

manageable. But communication is extremely difficult and the

street signs have a way of changing English spelling from block

to block (I got super lost my last night, walking in circles for

over an hour looking for a particular restaurant…I never found

it). Allow me to make a few other observations.

–The big craze in town these days is the nation”s first state-

sanctioned lottery and, as you”d expect, many have gone way

overboard in their buying habits. But one of my tour guides said,

“It”s great for the agents, they”re making lots of money on the

commissions.” Yeah, but that means millions are playing who

can”t afford it, I replied. The lottery has gotten so big the

operators are running out of paper.

–One of the sites I enjoyed was a visit to a Buddhist temple. In

fact, I found it so fascinating I went to two others on my own,

after I realized what everyone was doing. My initial guide, a big

disciple of the religion (Taiwan is at least 80% Buddhist)

explained that Buddhists mostly pray for others and that it”s not

right to only think of yourself, so I prayed for all of you (and

world peace, of course) and now one of you needs to go to your

local temple, light the incense sticks, throw them in the urn, and

pray for me…please.

–I was told Taipei was perhaps a little quieter than normal this

week because my visit fell between the Lunar New Year

celebrations and the Lantern Festival (which marks the end of the

partying). Of course regarding the latter, I thought my guide was

saying “Lenten Festival” and I kept thinking, “Why would Lent

be such a big deal in these parts?” A few hours later, it all

clicked when I saw the locals decorating giant lanterns, much as

we would do for the Rose Parade.

–Chiang Kai-shek has this mammoth, gaudy memorial and he

was such a dirtball. I went back a few times, however, to walk

around the square and observe the people, but twice my

cabdrivers said, “I hate this place.”

–Taiwan is one-third mountains and the scenery outside the

cities is spectacular, with a coastline rivaling any I”ve seen.

–Also, once you get outside the city you have the opportunity to

take in the “betel nut ladies.” Betel nut is like a large acorn and

contains a narcotic. I first became familiar with this when I

visited my friends in Micronesia. Well, on Taiwan some very

sexy girls sell it roadside, like they would selling their… well,

you get the picture.

–I knew in my reading that tipping wasn”t expected, though a

book said taxi drivers appreciate a little something because of the

cost to maintain their vehicles, so I made a few friends. But at

this coffee shop I stopped at, the owner came running after me

when I left something on the table and forced me to take it back.

It was an interesting scene.

–I just have to comment on my hotel, the Far Eastern Plaza, a

great spot. Right after I checked in, every employee seemed to

know my name. This was a big place, though granted as one of

just about 5 Americans I stuck out like a sore thumb. And to the

girls at the business center, you were a lifesaver. Of course this

begs an explanation. AOL”s access number had been pulled

months earlier, though AOL didn”t reflect this on its software. I

hate AOL, but I have it on my laptop because I figure that if

anyone is going to have an access number in some of the places

I”ve traveled, they will. Alas, there is a bigger story here, with

political overtones (see the mainland), but I need time back home

to develop the story. If my suspicions are true (see ”Big

Business”), AOL is toast.

–Speaking of AOL and other a-holes, a recently updated U.N.

guide categorized Taiwan as a province of China, rather than as a

sovereign state. True, China, not Taiwan, is the official

representative of the body, but talk about a slap in the face. No

wonder the local press was fuming.

–Back to my hotel, while the food on this trip was far from

memorable, the hotel”s breakfast buffet was a thing of beauty…

East meets West in a culinary bacchanalia worthy of Orson

Welles.

–I kind of liked that line; thought it up between the salmon and

the sesame chicken.

–As luck would have it, the 4th-largest book fair in the world was

going on in Taipei this week, so I had to check it out. No, there

wasn”t anything in English, and I was the only American walking

the aisles. But it didn”t take long to realize that books are

treasured in these parts. You wouldn”t see a show like this in

Communist China, I mused.

–Lastly, one of the few tourist attractions worth seeing was the

Martyr”s Shrine, and it was here that I almost caused an

international incident. As the name implies, this impressive

temple honors Taiwan”s war dead (including those who died in

the cause of freedom on the mainland). I had seen just a handful

of Americans all week in my travels, except here a busload of the

sorriest looking folks who ever graced an American Express tour

disembarked as I was taking in the site.

Now understand that the changing of the guard was about to take

place. First off, there is a big sign that says, “Please be silent.

Remove your hats.” So, of course, these ugly Americans keep

their hats on and find reasons to laugh uproariously. At that

moment I was not only ashamed, I was willing to serve 5-10 in

the defense of Taiwan”s honor.

But then came the payoff. The ceremony was, as you can

imagine, a somber affair. Then this one grotesque slob, who I

guessed was between the age of having to serve in WW II and

Korea, shouts out to no one in particular, “You seen one, you”ve

seen them all.” Well, at this we were real close to the headline,

“U.S. web editor takes out ugly American at Martyr”s Shrine.”

Instead, I just gave him my best Clint look and said, “Shut up.”

Sorry to end on such a mean-spirited note, my friends, but there

is a good reason for this tale, that being that while I haven”t been

effusive in my praise of Taipei thus far, I have purposefully

saved the best for last.

Folks, the Taiwanese are without doubt the friendliest people I

have encountered anywhere in the world. But there are some

Americans who better get with the program. Someday it may be

our duty to defend these kind folks, who seek nothing else but

the ability to live their lives free from the oppressive yoke of the

bastards 120 miles to their west. You wonder why I came to

Taiwan? There”s your reason, to meet the people. It took me a

while myself to understand, and maybe I”ve helped some of you

look at this region in a little different light. Buddha love ”em.

—

Gold closed at $293

Oil, $21.07

Returns for the week, 2/18-2/22

Dow Jones +0.7%

S&P 500 -1.3%

S&P MidCap -0.8%

Russell 2000 -0.9%

Nasdaq -4.5%

Returns for the period, 1/1/02-2/22/02

Dow Jones -0.5%

S&P 500 -5.1%

S&P MidCap -2.3%

Russell 2000 -4.8%

Nasdaq -11.6% [Huge divergence between DJ and Nasdaq]

Bulls 47.9%

Bears 29.2% [Source: Investors Intelligence]

God bless the men and women of our armed forces.

God bless America.

Brian Trumbore