[Posted: 4:00 AM ET from Istanbul]
I left New York on Thursday evening headed for a return trip to
Istanbul, though it ended up being the flight from hell. Whereas
3 weeks ago my friends and I withered in 95 degree heat on our
Royal Jordanian flight to Ireland, this time my Delta air crew
attempted to match the outside air temperature, -59 F. Needless
to say it was a rather miserable experience as I merely sought to
survive. Heck, I half expected Burl Ives to stroll down the aisle
singing “Silver and Gold,” a fact I mentioned to the guy next to
me, icicles forming on his chin, though he failed to see the
humor.
Alas, I think only 47 died of exposure on the flight and when I
got to my hotel around noon on Friday I crashed, only to wake
up a few hours later realizing I had to get cracking on a column.
But first I went to the restaurant for an early dinner and as it
turned out my waiter was a wealth of information, something I
discovered when I asked my first question, “How’s the prime
minister doing?”
Prime Minister Ecevit, 76-years-old and dealing with a severe
case of phlebitis, appeared to be in rapidly failing health, a big
deal in these parts when you don’t as yet have a real line of
succession, your nation is still struggling to develop a pure
democracy, and with $16 billion in IMF aid hanging in the
balance. My waiter assured me Ecevit would be alright (at last
report he was finally out of his hospital bed) and that tanks
weren’t about to rumble past my hotel, which, actually, I would
have found exciting, since I consider myself the Turkish
military’s #1 fan outside this strategically vital country.
Anyway, I’ll save the bulk of the Turkey talk for next week, as
I’m in Istanbul and Ankara another 4 days, before heading to
Slovenia for a week and then Vienna.
Back in the U.S., the big issue this week was terrorism,
specifically statements made by administration officials,
beginning with the Sunday talk shows.
Frankly, I was a bit surprised at the media (and Wall Street’s)
reaction to, first, Vice President Cheney’s remarks on “Meet the
Press” and Fox, as well as the candor of Secretary of Defense
Rumsfeld, Secretary of State Powell, FBI Director Mueller and
then the President himself.
Statements such as Rumsfeld’s, that terrorists will use chemical,
biological and nuclear weapons against the U.S., and that they
will get them from rogue nations, let alone Cheney and Co.’s
comments that it’s only a matter of time, have been echoed
consistently by the Bush White House since September 11. Of
course it has also been practically the whole raison d’etre from
day one for StocksandNews, the bottom line being, always ask
yourself, if the unthinkable happens, whether it’s a dirty bomb
that incapacitates half of Manhattan or a series of suicide attacks
on high-profile sites that leads to a crash in consumer and
business spending, financially, can you whether the inevitable
shock to your portfolio? If you go through this exercise every
few weeks, as I’ve suggested, then I have performed a great
service, one that many on Wall Street fail to provide. [And I’m
free.]
But, again, for Wall Street to react to the threats the way they did
bordered on being comical. Not because the market declined,
particularly Monday and Tuesday, mind you, but in the
classically schizoid manner of those purported to be some of our
nation’s smartest, Wall Street traders and strategists. Americans
possess short memories, that’s for sure.
I’ll tell you what was most significant about the warnings, it was
the fact that Vice President Cheney came as close as anyone in
the administration in strongly hinting that Saddam Hussein
already has at least a rudimentary nuclear device…today. Just
last week in this space I told you that by my perhaps flawed
reasoning (falling back on history and the Manhattan Project, for
example), it seemed inevitable that Saddam already has the
bomb. I have also noted the tone of the so-called ‘pacifist’ Colin
Powell these past few weeks. Powell has been in lockstep with
the hard-liners in the administration when it comes to Iraq and
the immediate threat that Saddam poses. As all the President’s
men were re-emphasizing in no uncertain terms, Saddam must be
destroyed, soon, or civilization itself is at risk.
Which leads me to Issue #2…sharing intelligence. The Vice
President was emphatic that if many of the memos now in
question were released, it could compromise not only our own
sources, but those of our allies, too.
Perhaps my biggest pet peeve with friends, particularly on the
right, is this idea, promulgated long before September 11, that
the U.S. can go it alone. Sure, we can try, but there is no way
we’d be as successful and the consequences of not being engaged
will be measured in lives lost.
As for the left side of the political aisle, all of those clamoring
for disclosure fail to appreciate the potential cost in lives here, as
well. Better yet, think of the new poster boy, Phoenix FBI agent
Ken Williams…the one who warned of terrorists at U.S. flight
schools. Ken Williams is a hero, in his own world, though he is
also now scared to death. Do you think Williams wanted to be
exposed? He’s one of our intelligence ‘sources’ and now he has
to worry about his own life and that of his family.
Now multiply this by 300 or 400 times and take into
consideration the intelligence we are gathering from allies in this
war such as Italy, Spain, France, Germany, Britain, Malaysia,
Singapore and Jordan, just for starters. All of the above have
prevented catastrophic terrorist activity since 9/11, yet if our
intelligence capabilities are compromised, as the Vice President
reiterated, what is the incentive for these folks to cooperate and
risk the lives of their own men and women?
Issue #3…the warnings. Pulitzer Prize-winning columnist Tom
Friedman makes the “Week in Review” yet again for another
incredibly idiotic op-ed piece, this one lambasting the
administration for its “Chicken Little warning binge.” He’s
wrong. We need the warnings, and at the same time we have no
other choice but to heed the advice of our officials in high office,
whether it’s Bush, Cheney, Rumsfeld or any future Democratic
representatives, for that matter, in these post-9/11 days. We have
to believe they are acting in our best interests.
As we’ve learned this past week with Wall Street’s reaction,
however, with our short attention spans it is necessary to remind
the nation from time to time just what it is we are up against.
The apartment building threat warning, for example, was totally
justified, and, I can guarantee, will one day prevent a
catastrophe, possibly in your city. It’s also about common sense.
We’re supposed to be fairly intelligent people (though I have
serious doubts these days) and if you know the terrorists are out
to kill as many as possible, anything is fair game.
But back to Mr. Friedman and his inane comment that he wasn’t
succumbing to terrorists, no, he was sticking with his Memorial
Day plans. “Saturday…golf, Sunday…bike trip, Monday…
barbecue.” What the hell is this supposed to mean? Not exactly
pushing the envelope here, are we, Tom?
And then you have the New York Times’ Maureen Dowd, who,
in addressing the apartment building warning, decided to show
the humor in it, specifically regarding the problems of finding a
suitable unit in New York from which to pack explosives.
“But first the Qaeda rats would have to find an empty, affordable
apartment. Then they’d have to get past the withering front line
of real estate agents. Finally, they’d have to penetrate the
maximum security defenses of Manhattan co-op boards.”
If you find this in the least bit funny, as Ms. Dowd intended, I’m
more than a bit disappointed.
Issue #4…in defense of Robert Mueller. There is an awful lot of
incredibly sloppy reporting going on these days. May I remind
the punditry and Congress that the FBI director did not take the
oath until September 4! I don’t know enough, yet, about the man
to tell if he’s the right person to reform the bureau, but what I do
know is that, for now, he is taking more than a few shots that
simply aren’t fair. I also seem to be one of a handful that
recognize that former director Louis Freeh was an abomination
and is the one who should bear the blame for the organizational
chaos that inhibited our intelligence gathering prior to 9/11.
Issue #5…Wall Street.
From a piece by Holman Jenkins, a member of the Wall Street
Journal’s editorial board.
“It’s hard to feel sorry for investors who thought they were
entitled to year after year of implausible, unprecedented returns
on their life savings.”
Columnist / author Michael Lewis (of “Liar’s Poker” fame), in
discussing the value of Wall Street research, while castigating
New York Attorney General Eliot Spitzer.
“Anyone who could read without moving his lips knew the
truth.”
You know what, folks? Nothing pisses me off more than this
kind of talk from Wall Street’s apologists. This isn’t the point,
you idiots.
Get it in your thick heads, Jenkins, Lewis et al. Much of what
Wall Street did during the Bubble was outright fraud! In most
civilized countries, that’s freakin’ illegal, let alone immoral, the
latter being the code by which all of us should be leading our
lives to begin with.
From day one of StocksandNews (2/99), I was pounding the
table on the dangers of the Bubble. I was also slamming those
who issued edicts like “valuation doesn’t matter,” and I
admonished readers to know what they own. If anyone now has
a right to be smug, it’s yours truly.
But at the same time I was writing these things because I
understood that many of you did not have the financial
background I do (16 years on Wall Street) and that the vast
majority have real lives (as opposed to mine…where I stupidly
watch CNBC all day). You have real jobs, real obligations, and
you couldn’t possibly be expected to understand an investment
world rife with both opportunities…and dangers.
So many of you sought professional advice, as you should have.
I’ve said it before and I’ll say it again. In my career I literally
dealt with thousands of brokers and financial planners, the vast
majority of whom were not only astute, they were good people as
well.
Yes, some of them, though, like the high-profile cases you’ve
read about, are scum, but at the same time it needs to be pointed
out that the brokerage community itself was often led by a group
that, today, deserve nothing less than the label…mobsters. Only
the real ones inflict far less damage than these characters did.
Street Bytes
[Due to travel, market coverage will be a bit skimpy this week.]
–For the week, the major indices gave up half of the substantial
gains from the prior one, with the Dow Jones losing 2.4% to
close at 10104, while Nasdaq tumbled 4.6% to the 1661 level.
Most of the losses occurred early in the week in the face of the
terrorist warnings, though one can argue that this isn’t the real
issue when it comes to the market, rather, it’s also the
recognition that at existing levels, many stocks are still
overvalued.
–U.S. Treasury Yields
6-mo. 1.89% 2-yr. 3.22% 10-yr. 5.14% 30-yr. 5.66%
A decent rally, especially in the face of the ongoing dollar
concerns, but the release of the leading economic indicators data
and a downward revision in first quarter GDP, once again raised
questions as to the strength of the recovery, as well as a flight to
quality mentality, which in turn spurred Treasuries.
–Japan: The Nikkei index briefly traded above 12000 before
settling at 11976, still up 20% on the year. So, if you believe that
equity markets are often a leading indicator, put this on the ‘plus’
side of the ledger. But talk of an economic recovery could be
hampered, however, by a rising yen, so the Bank of Japan sought
to prop up the falling U.S. dollar in order to make Japan’s
exports once again more competitive. Meanwhile, Prime
Minister Koizumi’s approval rating has fallen below 40%, so it
would be more than a bit ironic if early elections are called and
he’s not around to take credit for any recovery. Personally,
though, outside of a two-quarter snapback, I’m skeptical of a true
turnaround here.
–$: There’s kind of a standard rule of thumb among portfolio
managers, that being one shouldn’t get overly concerned about
10% swings in a currency, which is about the level given up by
the greenback against the yen and euro the past few months. But
fundamentally, when one looks at the current account deficit, a
possible recovery in Japan, and our own deceitful corporate
practices, we shouldn’t be surprised if the currency falls even
more…which would nonetheless be great for U.S. exporters and
corporate profits, so, again, does it all really matter? Only if the
slide leads to higher inflation and interest rates, in other words,
the jury is still out on this one.
–Regarding my comments from last week on Wi-Fi, Vince V.
wrote to say that he’s using his credit card points to pay for the
gear. It “rocks,” as he put it.
–My office cable bill jumped 15% last month. Goodness,
gracious (expletive deleted).
International Affairs
India / Pakistan: Despite the best efforts of the U.S., the E.U., the
U.N. and other leaders, it still comes down to this. One more
full-scale terrorist attack on Indian interests and the region will
blow. It also doesn’t help matters when Pakistan announces it
will be test-firing missiles this weekend. By Friday, however,
India was saying it would give them two months to get their act
together before launching any retaliatory action.
An important thing to remember when gauging the risks of
conflict between the two sides is the fact that Pakistan’s nukes
are under military control (one which has long had extremist
elements), while India’s are under civilian authority. Pakistan
has a “first strike” doctrine; India’s is “no first strike.”
After 9/11, the U.S. had no other choice than to aggressively
work with Pakistan’s Musharraf. Unfortunately, he is once again
placating many of the terrorist factions in his country. At the
same time, for his part Indian Prime Minister Vajpayee isn’t
exactly Jeopardy material, and his fragile coalition is
increasingly at the whim of Hindu militants. In other words, it’s
a bit depressing and the U.S. must stay actively engaged to head
off a conflagration.
Iraq: Increasingly, it appears that Saddam will gamble that Saudi
Arabia will actually support him in the event of a U.S. invasion.
The rest of the Arab world would then surely follow the
Sandbags’ lead. Meanwhile, U.S. defense officials are growing
leery that our troops wouldn’t be able to handle a chemical or
biological attack in the field.
Additionally, Saddam is once again playing his masterful stall
game, as we look to July and another round of talks on allowing
inspectors back in. As for those questioning who would follow
Saddam, Vice President Cheney reminds us that his “offspring
leave a lot to be desired.”
Israel: Yasser Arafat’s approval rating is now around 35%,
according to Palestinian polls, but with no clear alternative in
sight. For his part, Israeli Prime Minister Sharon appears to have
staved off a political crisis within his own government, while,
thankfully, the bulk of the latest terrorist attacks were not as
deadly as they could have been.
Iran: While it remains #1 on the U.S. terror list, and as it
becomes a topic of heated discussion between Bush and Putin,
there is also no doubt that, internally, the debate between the
hard-liners and reformers on the issue of initiating a dialogue
with the West is for real.
[I’m not ignoring the Bush / Putin summit, it’s just that as of this
writing there is nothing to add, on top of the volumes I have
previously written. I’ll comment further next week.]
Britain: Prime Minster Tony Blair, under growing political
pressure, is calling for tighter E.U. immigration controls, as all of
Europe’s leaders worry about the growing anti-immigrant wave
of discontent.
China: The country is training 12 astronauts for the nation’s first
manned space flights. The goals are to mine the moon and
explore Mars. We can’t let them get to Mars first! As far as the
moon, however, given the communists safety regard on mining
in general, I don’t know if I’d volunteer for this duty.
Colombia: Vital presidential election on Sunday, as the
frontrunner Uribe has vowed to double the size of the military
and wipe out both the rebels and the death squads. There are
some who say, however, that Uribe is merely a representative of
the latter.
NATO: Lastly, much has been written concerning the apparent
obsolescence of this organization in today’s world. That
couldn’t be further from the truth, as officials ranging from the
Czech Republic’s Vaclav Havel to former U.S. Senator Sam
Nunn pointed out this week. NATO not only has to help monitor
weapons materials, but its intelligence capabilities need to be
upgraded so that it can contribute to the war efforts in this realm.
Random Musings
–This could have been a “street byte,” but the burgeoning debt
situation, both at the federal and state level, is just now beginning
to take hold. In Washington, aside from the fact the President
deserves scorn for allowing domestic spending to rise an
unbelievable 15%, you can also see that the costs on the war
front will eventually be staggering (though necessary). Think of
the coming war on Iraq, for example, not just the invasion itself,
but also the cost to maintain a credible peacekeeping force there
for at least a decade.
On the state front, where, unlike at the federal level, most
governors are forced to balance their budgets, the Washington
Post’s David Broder wrote that 48 of 50 states are far short of
their revenue projections and since there is a lag time in these
matters, 2003 will be even worse, as most states will have used
up their accounting tricks and rainy day funds to get through
2002.
Of course what you will also see is a substantial amount of
layoffs, right when (as I’ve argued in this space for quite a while
now) a sustainable economic recovery is supposed to take hold.
As Broder summed it up, “(The) tough fiscal realities of the
states and the never-never land of Washington’s make-believe
budget are stunningly wide.”
–Japan is the latest developed nation to worry openly about the
falling baby count, as the health minister announced, “If we go
on this way, the Japanese race will cease to exist.”
Which got me thinking about the “All in the Family” episode
where Meathead asked Archie, “Why would I bring children into
this world?”
That was in the early 70s, when Meathead’s main concerns
centered around the environment. Today, it’s about the potential
for a catastrophic terrorist incident, or two. Just musing…
nothing more.
–According to intelligence sources, al Qaeda detainee Abu
Zubaydah confirmed that Flight 93 (which went down in
Pennsylvania) was, after all, headed for the White House, which
means that, once again, many Democrats (as well as pundits like
Maureen Dowd) owe the President on down an apology for
doubting the official concerns of that day. Don’t look for one,
however.
–Chandra Levy is page 8 of Friday’s Turkish Daily News.
–A 13-year-old Danbury, CT girl was killed by a 25-year-old
illegal, who she met on the Internet. Parents, you simply have to
know what your kids are doing on this vehicle that is
increasingly the source of more evil than good.
–Lynne Cheney, on why our children need to learn about
history.
“The past isn’t a sure guide to the future, but it’s the only guide
we have.”
–Finally, I was watching Lisa Vance, widow of Sgt. Arden
Vance Jr. who was killed in Afghanistan the other day, and I was
reminded of a comment Senator Trent Lott made during the
recent Congressional ceremony to honor Nancy and Ronald
Reagan.
Lott recalled a time back in the California days when the two had
finished meeting with some returning POWs from Vietnam.
“Where do we come up with such great men?” Ronnie asked
Nancy. Lisa Vance had one answer in describing her husband.
“He’s what Americans are.”
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $320…its highest level since Oct. ’99.
Oil, $25.88…big drop as some of the war premium is worked
off, for the time being…until Iraq.
Returns for the week, 5/20-5/24
Dow Jones -2.4% [10104]
S&P 500 -2.1%
S&P MidCap -2.1%
Russell 2000 -3.0%
Nasdaq -4.6% [1661]
Returns for the period, 1/1/02-5/24/02
Dow Jones +0.8%
S&P 500 -5.6%
S&P MidCap +5.1%
Russell 2000 +1.1%
Nasdaq -14.8%
Bulls 53.1%
Bears 30.6% [Source: Investors Intelligence]
Note:
I may be slow in responding to your emails the next few weeks
due to my travels.
Have a great week. I appreciate your support.
Brian Trumbore
