[Posted 5:00 AM ET…Bled, Slovenia]
The Asian Subcontinent
The latest American intelligence estimate has 12 million dying
instantly from a limited nuclear exchange between India and
Pakistan, with at least another 7 million injuries. 12 million
dead. That kind of puts it all in perspective.
What’s depressing is that Pakistani President Musharraf has
basically lost control to the extremists, amidst reports that al
Qaeda are now operating in the cities with other fundamentalists,
sounding, it would seem, a death-knell for his regime. Secondly,
faced with a choice of helping the U.S. root out Taliban and al
Qaeda on the Afghan / Pakistani border, versus redeploying
forces to the Indian frontier, he is choosing the latter. It’s a
devastating lose-lose for the U.S. and all civilized folk for that
matter.
I saw Musharraf address his troops on Thursday and it was more
than a bit spooky, as thousands sat on the ground, perfectly
aligned. Both sides in the conflict certainly appear to be
disciplined. But when it comes to diplomacy, Musharraf keeps
trying to walk the tightrope and in doing so, he is only upsetting
India further. For example, in his ‘historic’ speech on Monday,
he said Pakistan would not start a war, but then blamed Hindu
militants for terror attacks in Kashmir when there is absolutely
no evidence of this whatsoever. Of course it also didn’t help
when Pakistan chose last weekend to test-fire 3 missiles capable
of carrying nuclear warheads.
Secretary of Defense Rumsfeld is being dispatched to the region
at President Bush’s request and maybe the combination of
Rumseld and Russian President Putin can talk some sense into
the two sides before the world bears witness to something that
will not only make you physically ill, it would do serious harm to
our psyches well into the future.
This is the crisis of the moment, there can be no doubt. We also
have to keep our fingers crossed that not only does Musharraf
somehow prevent an overthrow of his government, but that the
nukes stay out of terrorist hands. It’s looking grim.
Russia
The following editorial appeared in a Turkish daily and basically
represents my own feelings as well. Regarding Russian
President Vladimir Putin:
“He acted in a realistic manner in the face of changing world
conditions. He cast aside the calculations of the past, the old
concepts, (figuring) that if he cooperated with America his
country would profit in the long run, especially in the economic
realm…Putin showed he is a man of great vision.”
Many in America continue to doubt the impact of recent
developments in the relationship between the U.S. and Russia, as
well as Russia’s new role in NATO. There is nothing negative
here, folks. This is a tremendous step forward for the civilized
world. At a minimum it further aligns Russia with the West in
the war against terrorism.
But does it also mean we should totally let down our guard? Of
course not. The #1 issue in the U.S. / Russia / NATO
relationship should be getting a handle on Russia’s weapons-
grade material, more so than destroying warheads, and we have
to be willing to expend every effort…and dollar…to see this
through. Also, is Russia likely to take some aggressive steps in
the future which some will see as an attempt to create Soviet
Lite? Probably, but this is all part of the new world we live in
and the U.S. can deal with it.
No, President Putin and President Bush deserve a ton of credit, as
does NATO, for seizing the day. For his part, Putin is embracing
the West and the U.S., even as polls in Russia show only 17% of
the people think Bush is trying to improve relations, as many of
Russia’s generals are none too pleased either. Despite this, Putin
is exhibiting tremendous courage in the face of those who say he
is merely surrendering.
Vladimir is, of course, no dummy. By week’s end, Russia’s #2
oil producer, Yukos, announced it would start shipping oil
directly to the U.S. and for this we should rejoice. Much needs
to be done with Russia’s energy infrastructure to make this
economically viable for the long haul, and thus significantly
reduce our dependence on Saudi / Wahhabi oil, but together we
can work it out. It’s the dawning of a new day, let us pray.
Turkey
The same editorial writer in Turkey who wrote of Putin, Mehmet
Ali Birand, to give him his due, contrasted his bold steps with
those of Turkey in describing his own land as a “small town,”
which is failing to become a player on the global stage. In his
words, this is because its leaders lack vision, as “unqualified
politicians march in place.”
To understand the Turkey of 2002, however, it is first necessary
to recall the greatness of Ataturk, the founder of the modern
Turkish Republic. Born in 1881, Mustafa Kemal (he took the
name Ataturk, “father of the Turks,” in 1934) led Turkey’s war
of independence following World War I, becoming his nation’s
first president in 1923, a position he held until his death in 1938.
Ataturk turned the country upside down, as he forced Western
ideals and customs on his Islamic people, while demanding a
total separation between church and state (which some would say
went too far in the other direction). Women were given the right
to vote (1928), Western attire was adopted (women were
forbidden to wear veils, men had to abandon the fez, for
example), education emphasized Western Civilization and much
more. [I have a series on Ataturk in my “Hott Spotts” archives,
in case you’re interested.]
Ataturk sought no territorial gains for Turkey, he just wanted the
country to reach its full potential and for a while it was doing just
that. But following him, Turkey’s history has been one of
corruption, military coups and lost opportunities. “Kemalism” is
still the guiding principle for the country, but now, just as Turkey
is in need of another IMF bailout, it has a huge crisis of
confidence as its 77-year-old Prime Minister, Ecevit, goes in and
out of hospital with a variety of serious ailments.
Ecevit is one leader in a 3-party coalition and the other two
deputy prime ministers are constantly bickering. Off to the side
is Kemal Dervis, the highly regarded finance minister who is
shepherding Turkey’s bid for a further $16 billion in IMF
funding. The last thing the country needs is a leadership crisis,
though Dervis, himself, feels early elections would not be
harmful should Ecevit be deemed unfit to hold office.
As if this isn’t confusing enough, Turkey is still trying to win
E.U. approval. While it has been a member of NATO since 1952
(and has NATO’s second-largest army), with its constantly shaky
economy and 3 coups since 1960, the European Union has not
been too anxious to give Turkey a seat at the table.
I could ramble on and on, but for now the nation faces 3 crucial
issues to get back on the E.U. fast track (for possible inclusion in
2007).
–It must abolish the death penalty, something one of the
coalition members does not want to do. [I wouldn’t either.]
–It must lift the state of emergency in the southeast, where the
minority Kurds hold sway. [I’d wait a while on this.]
–It must grant the Kurds the right to educate its children in their
own language, as well as establish a Kurdish television network.
On this last item, Turkey’s High Court has already ruled that if
the Kurds get the right to educate in their own language, then the
other 25 or so ethnic groups in Turkey will demand similar
treatment. [Sounds a little familiar, doesn’t it?]
The bottom line being that if the Kurds are granted too much
independence, the military could have a real problem on their
hands, particularly in a post-Saddam world, with Iraq’s own
Kurds inevitably gaining ground there.
Why should Americans care about any of this? For a few simple
reasons: Turkey borders Iran, Iraq and Syria, and as a nation
which is 98% Muslim, Turkey nonetheless represents a model of
secularism (flawed though it may be) that the U.S. and the West
hope to export to the rest of the Arab World (one can always
dream).
Turkey also has this kickass military of 870,000, armed mostly
by the U.S. and Israel (the latter being a staunch ally). We
desperately need Turkey’s help in any fight against Saddam, but
the government in Ankara is correctly fearful that a U.S. invasion
will devastate the economy, just as it did following the Gulf War.
What Turkey needs, aside from the $16 billion in IMF funding
and stability at the top, is a full commitment from the U.S. that
we will stand by with aid after Saddam is gone. Secretary
Rumsfeld has publicly stated that the region needs more
Ataturks, but I’m not so sure the rest of Washington gets it.
Turkey is also obviously a prime target for Islamic extremists
who would like nothing more than to destabilize the regime, but
the difference here, compared to other Muslim nations like
Pakistan, for example, is that the military in Turkey is virulently
anti-fundamentalist, with no apparent division in the ranks.
So this is why I follow Turkey like I do and why I’ve now
journeyed here twice in 13 months. It’s a fascinating place, with
an admittedly scarred past (see Greece, Armenia and Cyprus).
The nation needs to finally get its act together and the U.S. has to
be there to lend a hand to this strategically critical ally.
More International Affairs
Iran: The battle between the reformers and hard-liners keeps
heating up and it can’t be overstated how events here can reshape
the whole region. The clerics and judiciary have warned it’s a
crime for the media to even mention that reformers want to
initiate talks with the U.S., so pray that the people over the
coming months will rise up, a la Eastern Europe and the fall of
communism. Imagine the impact elsewhere. I’m actually
optimistic on this one.
Israel: With at least an attempted attack a day in Israel since the
conclusion of the main offensive in the West Bank, obviously the
Palestinian extremists’ efforts haven’t been slowed in the least.
Israel’s generals appear to have ruled out any broad-based
retaliation and as of this writing have chosen more selective
action. It is also increasingly clear that Arafat must be removed
before negotiations of any kind can bear fruit.
Libya: Conflicting reports that a settlement with the families of
Pan Am Flight 103 (Lockerbie) may have been reached, but the
U.S. and UN would then have to lift trade sanctions.
Colombia: The hard-line conservative Uribe won the presidential
election in resounding fashion and will at least attempt to fulfill
his mandate, that being the destruction of the rebels. This is
what the Colombian people want and the U.S. needs to back him
to the hilt.
Wall Street
I’m not going to try and create a story where there is none. I was
able to keep up some on the news of the week and saw little of
consequence, except the fact that for the umpteenth time,
investors have seen another rally fizzle, badly. Just two weeks
ago the major indexes staged their best showing in months (in the
case of Nasdaq, in over a year), yet the gains have now all but
evaporated.
Why? There simply is no compelling reason to be an aggressive
buyer in today’s market. Of course this is far from original
thinking these days because everyone is now whistling the same
tune. But whether it’s the ongoing terror threats, the growing
realization that the deceptive accounting practices of the Bubble
era were not limited to a handful of companies, or the seeming
lack of profit potential in the second half, especially versus
expectations, you can then see why there is essentially a total
lack of confidence. Ironically, the economic indicators are solid,
which tells you something else; the market is already more than
fully valued.
The loss of faith is not limited to U.S. investors, which is another
source of the problem. Data is now confirming what everyone
feared; foreign investors are fleeing U.S. equity markets. It’s
still an orderly march, as opposed to a panic, but in the long run
there is no real difference between the two when it comes to the
eventual market decline.
The foreign investor, who has been responsible for such a large
percentage of gains in both the stock and bond markets, now
feels that returns back home, in Europe and Japan, for example,
offer compelling relative value. Many U.S. investors are
following suit as well. These trends aren’t easily reversed and
could last years, especially depending on developments in the
war on terror.
I might, however, offer up more of a defense for investing in the
U.S., were it not for the accounting scandal. In any language, the
reaction to the discovery of a Ponzi scheme is not only
embarrassment, it’s contempt.
Street Bytes
–For the week the Dow Jones lost another 1.8% to close at 9925,
while Nasdaq declined 2.8% to finish at the 1615 level. Volume
was abysmal.
–U.S. Treasury Yields
6-mo. 1.88% 2-yr. 3.19% 10-yr. 5.04% 30-yr. 5.62%
–Energy: Oil continued to tumble, before a nice rally on Friday,
as the war premium is worked off further and the inventory
picture in the U.S. brightens, with gasoline stocks, in particular,
now well above last year’s levels. On Friday, OPEC did lend
some price support when it hinted it would maintain its
production controls through the third quarter.
–As I alluded to in the above comments on foreign markets, the
U.S. dollar continues to decline, touching a 16-month low vs. the
euro, as well as a 6-month low against the yen. Treasury
Secretary O’Neill continues to advocate a policy of letting the
markets decide the true value of the greenback, not government
intervention.
–Gretchen Morgenson in the New York Times noted that the
$100 million fine levied against Merrill Lynch is far less than the
$349 million Merrill paid for office supplies and postage last
year.
–Richard Bernstein, Merrill’s chief strategist (and one followed
closely here), revealed perhaps the key statistic for the next
decade when his research showed that since Nasdaq’s inception
in 1971, the index is up an annualized 11.5%. For the same
period, a broad basket of utilities is up 11.6%. Conclusion? You
can attain a solid market return over the long haul without taking
on a large amount of risk. The findings don’t bode well for tech
stocks, this much is certain.
Random Musings – Turkey Version
–Unfortunately, I didn’t have some of the colorful taxi drivers in
Turkey as I had the year before, like the man who said, “Bill
Clinton is a very, very sexy man.” “He’s a dirtball,” I replied.
–At Ataturk’s tomb in Ankara, it was nice to see a prominent
display of pictures taken from Vice President Cheney’s trip there
this past March.
–As noted earlier, Ataturk was quite a figure, and one who
valued education more than anything.
“School teaches the young brains the respect for humanity, the
love of country, and the high value of independence.”
Sounds pretty simplistic, so why don’t we practice it back in the
U.S.?
–On a trip to Bulgaria, Pope John Paul II said the country was
not responsible for the attempt on his life back in 1981, a
statement Bulgaria has long awaited. Ironically, at the same time
the government of Turkey, which is now holding the gunman
(Mehmet Ali Agca, following his extradition last year), is
debating a ‘reprieve law’ that would grant 5,000 prisoners their
freedom. There was some talk that Agca would be among them,
but officials are assuring everyone this won’t be the case.
Bottom line, it now seems that Agca was working for
fundamentalist right-wingers in Turkey (he had killed prior to
1981) and the Pope was the most visible target in the world.
Back in 1981, however, blaming the Soviets and Bulgaria was
convenient for the West.
–So, are you wondering what security was like in Turkey?
Compared to my experience of last year, it was much tighter.
There are metal detectors in all the American-named hotels
(Hyatt, Hilton), as well as checks under cars that are using the
parking garages. At the airports, I was extremely impressed by
domestic carrier Turkish Airlines (which I took twice between
Istanbul and Ankara). You have to identify your bag before you
board the plane (plus go through at least two security
checkpoints), something every smaller airliner should do in the
U.S., at least, until they can satisfy themselves with the
capabilities of today’s X-ray technology.
–While in Turkey, I once again had the opportunity to drink one
of the world’s great beers, Efes. Then this week investor George
Soros bought a large stake in it. I was talking to a German
gentleman, as we quaffed our mugs of same, and he agreed…
Efes is the best. For once, Soros, who hasn’t exactly been
making good bets the past few years, has a winner.
[Here in Slovenia I’m drinking “Union,” pronounced Oo-knee-
in. Also quite tasty.]
–I must say it’s an awesome experience, if not more than a bit
eerie, walking through the ancient streets of Istanbul and hearing
the call for prayer echoed throughout the city. I also have to note
that while I was skeptical coming over here this year, I ended up
not changing a thing as far as my habits were concerned (I took
the same long walks) and now in twelve days over the past year,
I have to add I wasn’t harassed once.
–My hotel in Ankara was literally next door to the Iranian
Embassy and I spent my evenings at a restaurant across the
street, sitting outside, staring at it, as I contemplated the question
of the day, I wonder what attacks are being planned inside? I
also realized my Hilton probably wouldn’t be bombed. Too
close.
–And now for a comment on Turkish women. I’d say less than
1% wear skirts, due to the Islamic influence, but when it comes
to the alternative, all I’ve got to say is, “There is no slack in them
thar slacks!” [I would say the same about Slovenia, but let’s wait
until next week for our exclusive, albeit politically incorrect…
StocksandNews’ selection of the “most beautiful women in the
world.”]
More Random Musings
–I’m not going to comment any further on the FBI story, except
to say that I read agent Coleen Rawley’s memo and I still don’t
see how everyone can come down on Robert Mueller. Plus the
Washington Post had a piece on the whole “culture of fear” in
the bureau and didn’t have one word concerning former director
Freeh. I’m telling you, this is typical of the way he skated by
through his whole tenure.
–The S.E.C. investigation into Halliburton’s accounting
practices during the days when Vice President Cheney was
running the company certainly doesn’t bode well for Cheney
staying in his current position beyond 2004. But then I predicted
this before and there is nothing wrong with simply swapping
offices, Rice to Veep and Cheney to national security advisor.
Obviously, we must keep him on board, particularly as our
President is subject to a, shall we say, loopy moment or two.
[Though I empathize with him on the whole jet lag issue.]
–Finland is going to build Europe’s first new nuclear plant since
1991, sending a powerful message to the rest of the world, as
well, especially assuming any new facilities are designed to be
747 proof.
–The Germans I have met on this trip have been delightful. [I’m
also embarrassed they speak such great English and I can’t utter
a word of their own language.] This one fellow, a senior
executive at Ford, regaled me with tales of Eastern Europe in the
1960s, when if you didn’t leave a woman’s home by midnight,
the police knocked on the door. [Actually, this was like Wake
Forest University in the 60s and 70s, but I digress.]
But for you Formula One fans, Joachem and I were discussing its
greatest decade, also the 1960s, and his involvement in the sport
back then. The tires were absolutely awful, he recalled, which is
why so many of the drivers were killed. But he also worked
closely with the great Jackie Stewart, whose motto was “It is
important in life to look into details.”
–So I went to the zoo in Ankara, a miserable one, and, yes, long-
time readers will be pleased to know I found an exhibit of yaks.
Bos Grunniens! But just as in a trip to Rome’s zoo last year,
they didn’t seem to appreciate all I’ve done to promote the
species.
–I have been talking up the World Cup ad nauseum in my “Bar
Chat” link and in case you needed a reminder of how cool this
tournament can be, you only needed to see the reaction in
Senegal to the nation’s stunning 1-0 victory over defending
champion France on Friday. Truly great stuff. And tomorrow is
Spain vs. Slovenia. Can’t wait. But hold on, right now I can
watch Ireland vs. Cameroon! Baby, you gotta love it. [Sorry,
the proofing of this piece is bound to suffer. I also need to find a
pub.]
–Speaking of “Bar Chat,” yours truly, experienced world
traveler that he is, did one of the dumbest things ever yesterday
upon his arrival by bus (a local…not a tourist one) in Bled. But
I’ll save the tale for Tuesday’s edition and, for now, let’s just say
no one was hurt and I still have my money.
–Bled is an absolutely charming town on Lake Bled, surrounded
by the spectacular Julian Alps. There is massive security here,
however, and I’ve been told there is an important E.U. meeting
taking place at the hotel next door. Let’s try and crash it…shall
we? Not.
–Finally, two notes of a more somber nature. By chance, thanks
to the time difference, I caught both President Bush’s speech at
Normandy, as well as Thursday’s ceremony at the World Trade
Center.
As for Normandy, with all due respect the President’s
speechwriters failed him. The following line is a lie.
“The day will never come when America forgets them.”
It should have been “ ‘May’ we never forget them,” because as
I’ve pointed out the past few years, many Americans already
have forgotten the sacrifices of World War II, let alone other
conflicts where our boys died in the cause of freedom. Hell,
recall how in one survey over 50% of today’s Ivy League
students couldn’t identify which war the Battle of the Bulge was
waged in.
As for the Trade Center tribute, Mayor Michael Bloomberg and
whoever else was involved deserve a ton of credit for a truly
moving, and tasteful, ceremony. As opposed to Normandy,
obviously Americans won’t soon forget September 11, though
from time to time our people will lose the true meaning of that
day:
We must destroy them before they destroy us.
For this reason I will continue to conclude each “Week in
Review” with the following prayer.
God bless the men and women of our armed forces, and, I should
be adding, our intelligence services.
God bless America.
—–
Gold closed at $327…another multi-year high.
Oil, $25.31…it was down close to $24.00 earlier in the week.
Returns for the week, 5/27-5/31
Dow Jones -1.8% [9925]
S&P 500 -1.5%
S&P MidCap -1.0%
Russell 2000 -1.3%
Nasdaq -2.8% [1615]
Returns for the period, 1/1/02-5/31/02
Dow Jones –1.0%
S&P 500 -7.1%
S&P MidCap +4.0%
Russell 2000 -0.2%
Nasdaq -17.2%
Bulls 53.0%
Bears 29.0% [Source: Investors Intelligence]
Note:
Next week more thoughts on Slovenia, as my little adventure
ends Friday.
Have a great week and thanks, as always, for your support.
Brian Trumbore
