[Posted 7:15 AM]
“When an 18-year-old Palestinian girl is induced to blow herself
up, and in the process kills a 17-year-old Israeli girl, the future
itself is dying, the future of the Palestinian people and the future
of the Israeli people…And to those who would try to use the
current crisis as an opportunity to widen the conflict, stay out.”
–President George W. Bush
“There are no good options for the United States in the Middle
East. Each option carries risk. But the risk of not being actively
engaged is far higher. We must accept the unpredictability of
this risk and lead before the Middle East escalates beyond any
possibility for a settlement.”
–Senator Chuck Hagel, R-Neb.
Last Saturday, just hours after posting comments complimentary
of President Bush’s leadership, Bush was suddenly rambling at
an impromptu press conference, totally contradicting previous
policy statements on the Israeli-Palestinian issue. In the words of
former national security advisor Zbiegniew Brzezinski, it was an
example of “strategic incoherence.”
Not that the President was wrong, mind you, as he backed up
Israeli Prime Minister Ariel Sharon, it’s just that for the first time
the Bush White House wasn’t on the same page, and these days,
that can be dangerous. However, by Thursday all was well in the
eyes of this editor as Bush gave a strong, balanced statement on
our new reengagement in the region.
The high approval ratings that the President still enjoys are a
reflection of the view that we trust his instincts and we are ready
to follow him to Baghdad and beyond. The American people, by
a 5 to 1 majority (CBS News poll), also sympathize with the
Israeli cause, and if you’re one who has doubts as to the current
Sharon offensive, all you needed to do was watch PBS’s
“Frontline” program the other night, an extraordinary, behind the
scenes documentary on the attempts to destroy the state of Israel,
while Israeli military and intelligence forces struggle to stave off
disaster.
America needs to come out full force in defense of Israel, as we
also attempt to pull off the high-wire act of appearing to be an
“honest broker” in the region. At the same time I’m increasingly
irritated at those who believe the world is all black and white.
When it comes to the Middle East, it isn’t. I’m particularly
referring to those who feel that President Bush is wrong in
sending Colin Powell to the region. The critics view Powell as
an appeaser, though I would argue he still happens to be the most
credible figure America has in the eyes of the rest of the world.
These same folks also have short memories, for it was Powell
who played a huge role in preventing a war between India and
Pakistan just a few months ago. As Senator Hagel says, the
risk of not being engaged is far higher than catapulting our top
diplomat into the fire.
But, sorry, I have to bring you all back to reality, as longer-term,
the situation in the Middle East is beyond the control of any
single Western statesman. Agreements may be signed, cease-
fires hold for a spell, but the extremists, whether they represent
Hezbollah, Hamas, or al Qaeda, still can ruin everyone’s day
with a single bullet, or a well-placed, bomb-strapped teen…and
in the not too distant future with weapons far more severe.
When folks like Bush and Donald Rumsfeld told us back in
September this was going to be a long struggle, lasting
“decades,” I hope you believed them. Unfortunately, the
American psyche is such that the majority falls right back into a
state of complacency. Some have actually labeled this a
strength. I call it arrogance.
Mr. President, follow your original instincts in supporting
democracy and Israel…but stay engaged as you finalize plans for
taking out Saddam. The United States cannot go it alone over
the coming 30+ years. We need our friends’ intelligence on the
ground, and their ships to help protect the seas. We need the
help of our allies in rooting out terrorist cells in their own lands,
as well as keeping them from infiltrating our borders and
harbors. This IS a clash of civilizations, good vs. evil. A clash
between this twisted “cult of death,” and those of us who just
want to be able to meet friends at a Sbarro without having to
constantly stare at the front door, or to attend a Yankees game, or
a Manchester United match, or fly to an exotic place to learn of
other cultures without worrying about our safety. Stay the
course, and as we watch a heroine from World War II, the Queen
Mother, being laid to rest in a few days, may you be reminded of
Winston Churchill’s words, as he bucked up his people following
the fall of France.
“Let us therefore brace ourselves to our duty and so bear
ourselves that if (we should) last for a thousand years, men will
still say ‘This was their finest hour.’”
—–
Wall Street
Excuse me if I feel a bit smug, but I got quite a kick out of Wall
Street’s strategists suddenly rediscovering, after getting religion
the hard way for a brief spell last fall, that foreign affairs matters
when it comes to the health of the financial markets. Ah, but not
you fine readers, as I’ve warned that falling confidence
obviously could have an impact on the consumer, representing a
mere two-thirds of economic activity, as well as corporate
chieftains’ confidence in investing in new plant and equipment.
Here’s this week’s bottom line. The economy is growing, and in
the first quarter at undoubtedly a robust pace due to the
restocking of once depleted shelves. What is seriously in
question, though, is how strong the recovery will be by the third
quarter, which was always my own hang up. New factory
orders, for example, unexpectedly fell in February (other
manufacturing indices rose) and the jobless picture isn’t exactly
rosy, as the unemployment rate for March rose to 5.7%, while
February’s “gains” were revised to “losses.”
More importantly, as our equity markets were already priced for
perfection from a valuation standpoint, some well-respected tech
analysts either reduced their earnings estimates and/or revenue
projections for stalwarts such as Microsoft, IBM, Sun Micro, and
EMC, all while #3 software maker, Peoplesoft, saw its shares
plunge 33% in one day on its own revenue warning.
Two other points, as we segue into “Street Bytes,” the federal
government and Congress are playing games with the debt
ceiling, forcing the administration to move funds from Box A to
Box B to keep the U.S. from technically breaking the law. While
this is nothing new, it’s unsettling, particularly since it helps to
highlight issues such as the out of control current account deficit
in this country, with its adverse implications for the U.S. dollar
and the markets.
The other point is the latest wave of accounting shenanigans that
the SEC is uncovering. Again, not good for confidence.
On the week, the Dow Jones fell for the 3rd week in a row,
closing at 10271, or down 1.3%. Nasdaq saw its own losing
streak extended to four, finishing at 1770, off 4%.
Street Bytes
–U.S. Treasury Yields
6-mo. 2.01% 2-yr. 3.46% 10-yr. 5.20% 30-yr. 5.66%
Bonds staged a solid rally on the news that the economy, while
growing, may not be quite as robust in the second quarter and
beyond as once thought, while various Fed officials issued
statements leading many to believe that a hike in interest rates is
definitely not in the cards for May, and, as one Fed governor
mentioned, with the unemployment rate still rising it’s tough to
rationalize tightening. In addition, there was a bit of a flight-to-
quality with the ongoing tensions in the Middle East.
But to digress, somewhat, there are those who say the continuing
excessive pumping of the money supply will inevitably lead to
inflation pressures, which reminded me of a recent story I
worked on for “Wall Street History,” that being Andrew Jackson
and the Panic of 1837. Excessive credit and debt, along with a
huge real estate bubble, as well as more than a handful of shady
banks, led to a total collapse in the economy, as the banks
reversed policy and called in loans, only to find that few debtors
could repay them after the real estate market tumbled. Let’s see,
excessive credit? Check. Real estate boom? Check. Inflation?
Maybe.
Regarding the latter, for this week’s edition of “Inflation Watch,”
Mark R. reports that Hershey’s Chocolate Syrup is up 6%, on top
of a similar increase six months ago, while Green Giant frozen
veggies are up 20%. More inflation news next week…if you
keep it where it is.
–Energy: After hitting $28 a barrel earlier in the week, crude oil
(as measured by West Texas Intermediate) backed off on the
Bush peace initiative, though it was still basically unchanged on
the week at $26.21. On the fundamental side, inventories in the
U.S. finally rose after almost two months of decline, but the
current cold snap has to be sopping up a bit. [Remember, boys
and girls, set your thermostats to 75. It helps your editor’s
portfolio.]
Of course the real issue for energy, looking ahead, is overall
strength in the global economy. That’s why the Middle East has
once again emerged as such a wildcard. Ongoing high prices
could easily kill the recovery. But, in terms of further price
spikes, I do NOT believe the U.S. has to worry about Arab oil
embargoes…with one big caveat. The current Arab oil
leadership, particularly Saudi Arabia (as differentiated from
OPEC, which has non-Arab members with which the U.S. has
more than a bit of influence…*though there are major labor
problems going on at Venezuela’s state-run operation, a vital
supplier to America), understands that to kill the economy would
only set back their own domestic agendas and further fuel
discontent amongst the masses. The caveat is, however, that the
extremists end up calling all the shots, more so than their current
influence commands in this realm.
Those of us with substantial positions in this sector, as well as oil
company executives, prefer price stability and economic growth
to price spikes (unless one is nimble enough to get out at the
top).
Lastly, in looking back at the oil embargo of 1973-4 (see my
current “Wall Street History” piece), it’s interesting to note that
back then the crisis resulted in the Trans-Alaskan pipeline,
whereas today’s predicament offers some hope (though fleeting)
for the Arctic National Wildlife Refuge project. Thus far, the
administration still lacks the votes to defeat a filibuster. Write
your senator and call the caribou, telling the latter that this talk
that ANWR will lead to their destruction is absurd.
–Japan: Business sentiment stabilized some, but still remains at a
3-year low (so don’t go overboard, headline writers). I still find
it hard to believe the economy has bottomed when the massive
debt issue overhangs the nation like a volcanic dust cloud, but
Japan can buy some time, I guess, if the global economic picture
continues to pick up. Bottom line, it’s always about the U.S.
Meanwhile, Prime Minister Koizumi’s approval rating continues
to plummet (now below 50% for the first time), which just goes
to show, wavy hair can only get you so far. Separately,
burglaries are rising because the crooks know that with savings
rates of around 0.1%, folks are just stashing their yen at home (or
squirreling away gold), so the dirtballs are having a field day.
–Commercial real estate rents are falling at the fastest clip since
1991.
–3M said it will exceed earnings expectations, through cost-
cutting and restructuring, not because of overall economic
strength, while Dell said it expected 1st quarter revenue above
expectations due to firming personal PC business. So quaff an
ale to this semi-decent news!
–Canadian telecom equipment maker Nortel hit another all-time
low as its debt rating was cut to junk status.
–AOL Time Warner’s recent $54 billion write-off is greater than
the GDP of New Zealand. [Business Week]
–The New York Times’ Gretchen Morgenson wrote a sad piece
on how large brokerage firms have been handing out basically
criminal advice on how employees should handle stock option
plans these advisers have been placed in charge of. In some
cases, those wishing to exercise their options and then cash out
were told they couldn’t do so, which often wasn’t the case. The
brokers, instead, offered the advice of exercising and holding the
company shares, while then borrowing on the account, which, of
course, is most lucrative for the brokerage outfits. While this
practice isn’t necessarily new, I present it in the off chance you
may have a similar situation. Be careful and make sure you
understand your rights under an option plan. The penalty for not
knowing is a potential loss of one’s life savings.
–Bristol-Myers issued a devastating profit warning and the stock
sunk to a 5-year low, once again pointing out how even a
‘conservative’ buy and hold strategy is often fraught with danger.
–In the past decade, the average holding period for U.S. stocks
has dropped from 2 years to 8 months (5 months for Nasdaq
issues). For mutual funds the average has plummeted from 11
years to 4. [Lawrence Mitchell / Washington Post]
–For those of you dabbling in the bond market, particularly bond
funds, just be cognizant of the following statistics concerning
default rates over the past 15 years.
AAA…0.52%
AA…1.31%
BB (junk)…19.52%
B (crap)…35.76%
[S&P / Business Week]
The point being that in looking at high yield (junk) funds, and I
have a substantial investment of my own in same, always ask for
a breakdown in exposure between BB and B or lower.
Remember, the higher the distribution rate, the higher the risk.
Do yourself a favor. Stick with funds heavily weighted towards
BB, particularly in today’s still shaky economic environment.
International Affairs
Iraq: British Prime Minister Blair has backed off a bit from his
hard-line on Iraq, though Americans shouldn’t panic that we are
losing a friend for this future battleground. I suspect events will
move him back off the beam and he’ll be there when we need
him.
Meanwhile, the evidence is overwhelming that Saddam is one of
those bribing the suicide bombers and their families, which, as
Secretary Rumsfeld said, “(inspires) a culture of political
murder.” Rumsfeld also specifically targeted Syria, Iran and
Iraq, again, which is a true reflection of the President’s thinking
as well.
Afghanistan: This is getting short shrift these days, but obviously
the U.S. and the coalition averted disaster with the discovery of
the plot to overthrow interim ruler Karzai.
For its part, Turkey has agreed to take over the peacekeeping
mission after the U.S. and its allies have completed their current
duties (though we’ll have Special Forces there for the next
decade, at least), which brings us to…
Pakistan: General Musharraf continued to exhibit leadership as
his roundup of suspected terrorists hit 100, but he also stated that
U.S. involvement in the raids was no longer requested, the
general having received more than a bit of internal criticism for
allowing U.S. forces to help corral Abu Zubaydah and other
Taliban / al Qaeda figures. Musharraf also is going forward with
a referendum, rather than a full, democratic election, possibly by
next month. This could backfire on him, but it is one case where,
given the current circumstances, the West can’t really question
his actions. Rather it is just one more example of the world not
being all black and white.
As for the capture of Zubaydah, one of bin Laden’s masterminds,
there is no doubt this is a huge positive for all of us who seek to
live our lives with some semblance of normalcy. But he’s still
just one cog in a million-spoked wheel of terror, while those
already complaining he may be tortured deserve a one-way ticket
to Camp X-ray.
China / Taiwan: Much was made of China’s latest additions to its
missile batteries lining the coast, facing Taiwan. Ah, hello?
This is nothing new, it’s been going on for years. To reporters
and op-ed columnists just waking up to this fact, I offer you a
free subscription to StocksandNews. I’ve said it before, but it
bears repeating. If the Communists are forced to resort to
extreme nationalism as a way of controlling their increasingly
restive laborers, then Taiwan is in immediate danger. It’s why
one of my New Year’s predictions was that by year-end,
discussion may center around China, China, China…as they
undergo the leadership change at the top of the Party hierarchy.
North Korea: Ignore all the talk from Pyongyang concerning
diplomatic discussions with the U.S. If you wait 24 hours, you’ll
get a return to bombast. What does matter, however, is the
December expiration of a 1994 deal whereby the Commies
agreed to freeze their nuclear weapons programs in exchange for
two nuclear reactors. As we draw closer to hoped for renewal of
this treaty, Lil’ Kim will threaten to pull out of it if he doesn’t
have his way, meaning he will say his country will go right back
to bomb-making. Of course this is somewhat ludicrous because
his balrogs are making them anyway. What does matter is that
abrogation of the agreement allows the U.S. to go in and destroy
suspected plants, if we think we can control the risk of retaliation
against Seoul.
France: From George Will. “Sharon should ship Arafat to
Europe, where there is much official sympathy for him. Arafat
would like today’s France, where he could place his phone calls
by the light of burning synagogues.”
We have long discussed Europe’s problems, ranging from the
always persistent anti-Semitism to its total inability to deal with
the current wave of immigration…immigration that is also vital
to Europe’s economic future as its native population declines. In
other words, Europe is still Europe, scene of the vast majority of
the world’s worst conflicts.
The current crisis in France also impacts its presidential
campaign and should provide Jacques Chirac with his margin of
victory, Chirac being the least worst in a race against Lionel
Jospin. As a sidelight, it will also be more than a bit interesting,
and, I’m afraid, unsettling, to see how much of the vote far-right
candidate Jean-Marie Le Pen receives.
But how the government handles the burgeoning anti-Semitism
is just one issue in the election, the other central one being the
rapid rise in street crime, and, in this regard, France is far from
alone. Crime is exploding across all of Europe, with Spain
becoming the latest country to criticize the U.S. State
Department for its warnings to American travelers to Madrid.
Others, like Italy, have expressed concern over terrorism alerts
for cities like Florence and Venice.
Which brings me to the following “Name Dropping Alert.” Your
editor had dinner with Rudy Giuliani this week, the occasion
being a surprise birthday party for his former campaign finance
chairman. I knew neither, but, thanks to my friend, weaseled an
invite to what proved to be a small affair of just about 40 people.
Aside from exchanging pleasantries with His Honor and Dame
Judith, I didn’t have the opportunity to tell him what was on my
mind this week, that being, isn’t it funny how for years the
European press vilified the U.S. and New York, in particular, for
its soaring crime rate (a point well-deserved at the time), yet
today New York has a murder rate rivaling that of 37 years ago
(thanks in large part to Rudy’s leadership), while crime is
endemic in those European capitals once deemed safe? Take
another bow, Mr. Mayor.
Random Musings
–At an Islamic conference in Malaysia, of 57 nations in
attendance, only representatives from Bosnia and Malaysian
Prime Minister Mahathir equated suicide bombers with
terrorism. This is the challenge we face.
–In this country, we have quickly forgotten the extremist
Wahhabi influence within America’s own Islamic community.
It’s a poison that will inevitably kill scores.
–Imagine for a moment that the Israeli army and intelligence
forces have foiled at least an additional 25 suicide plots in just
the past few weeks, including the case of one man whom they
suspected was wearing a bomb belt, a correct assumption when the
terrorist exploded with a single shot to the gut.
–Fouad Ajami / U.S. News: “It was true to Arafat’s way and to
his history that he would try to hold America’s campaign against
terror hostage to his war against Israel. America is unloved in
Arab lands, this argument runs, and its campaign can proceed
only if Palestinian claims are satisfied. But this argument is
supreme illusion. America indeed is unloved. In truth, the
hatred for it is bottomless. Even if we cast Israel adrift, Arab
opinion will cut us no slack.”
–Author / historian Victor Davis Hanson: “Why do Palestinians
shoot machine-guns up into the air at funerals and Israelis do
not?” “Has anyone heard a Muslim in the United States
condemn September 11 without employing the word ‘but’?”
–I couldn’t help but think this week about my visit last spring to
the Turkish military museum in Istanbul and the exhibit of
foreign gifts given to Turkey’s heads of state over the years.
Nations like Libya and Syria gave gold-plated guns, while
President Reagan gave Turkey a picture of its country, as seen
from the space shuttle. We come in peace. They traffic in
violence.
–I have made no secret of my contempt for Saudi ambassador to
the United States, Prince Bandar bin Sultan. But in case you still
have doubts where he stands, read the following, as enunciated in
a Friday op-ed piece in the Washington Post.
“I believe that the Islamic world, with its 1.2 billion people, will
continue to fight terrorism, but priority should be given to a
united stance in the face of Israel’s terrorism against Palestinians.
Israel’s actions are changing the equation of, and seriously
affecting, the international war on terrorism. This change has
been imposed on us as Arabs and Muslims, we did not choose
it.” Islamic world fighting terrorism?
–I had to watch the first edition of the new “Crossfire,” with
James Carville and Paul Begala from the “left.” As expected, it
was dreadful. Carville really should be locked up before he hurts
someone, while Begala’s act is still based solely on ‘Florida.’
However, one of my political heroes, Robert Novak, is likely to
strangle them, making for dramatic television.
–Human shield / activist Adam Shapiro has been harshly
criticized by a majority of the Jewish community (at least by my
best reading of the situation), but since I’m not qualified to label
him a “traitor” to the Israeli cause, I am nonetheless able to say
Shapiro and others of his ilk, from all ethnic and religious
backgrounds, are sorely misguided.
–NBC has committed $tens of millions to Katie Couric so they
feel obligated to trot her out from time to time in order to prove
her heft. So I’m watching her interview with Tony Blair Friday
morning and she asked him the following. “Why are you so
concerned about Saddam Hussein’s chemical and biological
weapons?” I almost choked on my donut.
–Japanese engineers have developed a pint glass that tells the bar
staff the glass needs refilling. Perfect for impatient imbibers like
yours truly.
–CBS promo: “The smash hit everyone is talking about… ‘Baby
Bob.’” I imagine the fastest way to get fired these days would be
for you to get caught talking about this show at the water cooler.
–Week two of “Wall Street Week…without Louis Rukeyser.”
This new production with Marshall Loeb is one of the most
embarrassing pieces of garbage ever aired. But at least Julius
Westheimer didn’t have a stroke for the second straight week.
–So I’m flying Royal Jordanian Airlines in a few weeks with
some of my friends (not to the Middle East) and they’re suddenly
all worried. What? The Jordanian flight attendants are beautiful,
I tell them, in attempting to change the subject.
–With all the hair growth products out there, I wish someone
would acknowledge who was first in this re-growth game, the
creators of Chia Pet.
–A new study reiterated what you already knew. Most of us
post-9/11 aren’t sleeping well. But since I told you long before
September that I dreamed about North Korean missile attacks, I
have a special offer just for StocksandNews readers. I will do all
your worrying for only $4.95 a month. Now if you want me to
come to your home and sleep with one eye open for a year, that’s
$263,000, which includes taking out the trash.
Gold closed at $301
Oil, $26.21
Returns for the week, 4/1-4/5
Dow Jones –1.3%
S&P 500 -2.2%
S&P MidCap -2.0%
Russell 2000 -1.7%
Nasdaq -4.1%
Returns for the period, 1/1/02-4/5/02
Dow Jones +2.5%
S&P 500 -2.2%
S&P MidCap +4.3%
Russell 2000 +1.9%
Nasdaq -9.3%
Bulls 54.6%
Bears 28.9% [Source: Investors Intelligence]
God bless the men and women of our armed forces.
God bless America.
Have a great week, friends.
Brian Trumbore
