[Posted 7:00 AM ET]
Early in the week, President Bush held a brief press conference
down in Crawford with Secretary of Defense Rumsfeld at his
side. When the issue of Iraq came up, the President said he was
“a patient man.” That evening and the following day, every
headline writer and television reporter emphasized the word
“patient” or “patience” in their stories, with the pacifist New
York Times proclaiming, “Bush Promises Patience on Iraq,”
while a BBC television reporter stressed that a patient Bush
was rethinking the whole adventure.
Oh, brother, I mused. The time for patience is long past, we
need action. But while I believe the President didn’t mean for
the world to pick up on this one word, there is no doubt that this
Administration has done a miserable job in the PR arena and it is
the hope here that when Congress returns, he rectifies the
situation. As conservative columnist Michael Kelly noted this
week, some of us are stumped as to President Bush’s “refusal to
wage a coherent campaign to win public (and congressional)
approval for the war.”
Friday’s CNN / USA Today poll that revealed a sharp drop in
support (from 74% to 53%) for direct military action in Iraq is a
sign that the message isn’t getting through, even as 94% believe
Saddam has weapons of mass destruction. So the American
people understand the threat, but they are losing their
commitment to fight. This, my friends, is dangerous, as any
student of world history knows.
Even the President’s body language will be critical going
forward, while more often than not recently, as Mr. Kelly adds,
Bush comes off as being in a state of sheer “can’t be-
botheredness.” It’s time for our President to readopt the
seriousness of purpose he showed us all immediately after 9/11.
Appearing on “Meet the Press,” Henry Kissinger (who was
grossly mischaracterized in the New York Times as being against
military action in Iraq) summed up our current dilemma. The
days of state-to-state conflicts, with a clear beginning (like an
attack on one’s neighbor), are largely history.
“Many of today’s threats are transnational and the damage of a
first strike is so overwhelming as to cripple society.”
That is the simple case for preemption. But at the same time
there has to be a diplomatic component, and as Republican
Senator Lugar said, “robust diplomacy” is required in building
the case against Iraq. Here again, the Administration has fallen
short.
After 9/11 I wrote glowingly of the strong coalition that Bush
and Secretary of State Colin Powell had put together. Think
back to all the help we received from the governments of Spain,
Italy, Germany, France, Jordan, Singapore, and Morocco, to
name just a few, as well as the critical role played by the likes of
Britain and Canada in both Afghanistan and on the high seas.
Now think about the past few months. The silence is deafening.
This last week also brought word of a new Russia-Iraq economic
cooperation agreement. More was made of this than is
warranted, because it needs to be understood that Moscow has
longstanding relationships with not just Baghdad, but Tehran and
Pyongyang, among other unsavory types, as part of the legacy of
the Soviet era.
But what have I been arguing for? Getting Bush and Russian
President Putin to cut a deal on Iran and Iraq, in particular. It
also bears repeating, in this instance, what Donald Rumsfeld said
from day one. “This will be a dirty war,” one that also requires
creative thinking, even if it means getting in bed with former
adversaries. In the case of Russia, though, we should be beyond
that latter description. Washington and Moscow should be allies
in this fight, so I say again, give them the majority of the oil
concessions in return for their help in regime change. It’s just
common sense.
Lastly, the New York Times’ Thomas Friedman wrote a piece
this week wherein he called for a “soft landing” when it came to
promoting democracy in nations such as Egypt and Saudi Arabia.
That is absolutely ridiculous. Change will not be gradual in
these countries, as you could argue has been the case in Turkey
for about 80 years now. No, it’s going to be quick and messy, a
little like 1989 after the Wall, only with far more dicey moments.
The sooner the American people and the rest of the world
understand that, the better we will be able to accept the
challenges that we face. Every American should not be patient
right now…we should be impatient. To be otherwise only
hastens the day of unspeakable darkness.
Wall Street
So, now who wants to invest in stocks? Clearly on Friday, few
did, but, unlike the above doom and gloom, investors could take
some solace this week in a market that saw the Dow Jones close
above 9000 for the first time since July 9, though Friday’s broad
sell off brought the index back below that level as it closed at
8872, nonetheless up for a 5th-straight week, 1.1%. Nasdaq also
gained ground, 1.4% to 1380.
But in a week bereft of economic news, we were reminded that
the issues of corporate governance are far from a thing of the
past; the plea bargain of Enron’s Michael Kopper being the most
visible example of this. Whether it’s ongoing investigations into
AOL Time Warner, or the burgeoning examination into the
relationship between Citigroup chairman Sandy Weill and
Salomon analyst Jack Grubman, one shouldn’t get too cozy with
the notion that it was just a few bad apples. [I’m actually hoping
that was long since dispelled.] In the case of Mr. Weill, we’ll see
what develops. It should be pretty clear by now where I stand on
this one.
But the Weill / Grubman connection does remind us all of some
of the more egregious stories of the Bubble era. As Charles
Gasparino of the Wall Street Journal reiterates this week, one
item being investigated is the spin-off of AT&T Wireless (AWE)
back in spring 2000. There is no disputing the fact that Weill
pressured Grubman into upgrading Ma Bell in order to capture a
huge chunk of the AWE underwriting. The Journal pointed it out
then, while I, in my 4/29/00 column, wrote of how AT&T
employees were being told to take out second mortgages for the
purposes of buying up shares in the offering. I wrote then that
this was pure idiocy, and since then investors have lost 80% of
their money if they opted to stick with it. Unfortunately, as in so
many of these cases it will be tough to prove criminal intent, but
we will be talking about the ensuing lawsuits for years to come.
As for where we go from here in the stock market, my guess is
economic indicators will continue to reveal that we have an
economy teetering on the brink of a double-dip. If that proves to
be the case, you sure as heck won’t see any real pickup in
earnings, so upside is limited, while at the same time I also don’t
see why anyone in their right mind would be aggressive in a time
of war.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.66% 2-yr. 2.16% 10-yr. 4.23% 30-yr. 5.03%
Some of the Federal Reserve’s governors were out this week
with a consistent message; the Fed doesn’t see a real need to
lower interest rates further. But by the end of the week, the
longer end of the yield curve rallied as equities took a hit.
–Argentina: The big banks, who have already written off huge
amounts from their investments in this country, are now worried
that the current government could adopt rules that would in
essence mean further giant losses in the near future.
–Brazil: The above also has everything to do with the future
here. While the recent IMF package is potentially a big positive
(depending largely on the outcome of the upcoming presidential
election), if the same money center banks that have taken a hit in
Argentina and now have massive risks in Brazil opt not to lend to
local businesses, then we are back to square one, meaning Brazil
takes another header.
–No one can argue that in times of recession (or close to it),
running a budget deficit is often the prudent step to take in order
to stimulate the economy, but it is also important to note that for
the first ten months of fiscal 2002, the federal government is in
the red to the tune of $147 billion, versus a surplus of $172
billion for the same period one-year earlier.
–Energy: Oil took a breather from its run up to $30 on what
could best be described as profit taking, as well as the fact that
the inventory picture in this country brightened some. With
regards to Iraq, U.S. companies are cutting the amount imported
from there for various reasons (see “Hott Spotts” for more on
this).
–My portfolio: As noted in the past, I can envision a scenario
that would make for a far better investment climate, if the U.S.
acts aggressively in Iraq and elsewhere. In the meantime, I am
preparing a wish list, including the likes of Continental Airlines
and Taiwan Semiconductor. But I want to emphasize, I have not
purchased these, nor am I likely to in the near future.
In the case of Continental, for example, while its stock had an
excellent week, as soon as the shooting starts in Iraq, fears of
domestic terrorism and air security will reemerge in a big way,
so while you can “trade” it today, anything beyond that makes
little sense to me. But a victory in Iraq would go a long way
towards reassuring the flying public, let alone if we begin to see
favorable regime change elsewhere.
As for an issue like Taiwan Semiconductor, again, it may be a
year, or more, before I purchase something like this, while I am
also willing to miss the first 50% up move from current levels,
until I’m convinced the global economy and tech spending are
truly in recovery mode.
In the meantime, I’m sticking with my energy holdings (though
well aware of the downside risks given the economic
environment), while maintaining my little position in Turkey.
Regarding the latter, however, here again I await a clearer picture
of both the domestic political situation, as well as a resolution in
Iraq. When I get comfortable, I’ll be adding significantly to this
land of belly dancers and whirling dervishes.
–In an interview in last Sunday’s New York Times, Bill
O’Reilly spelled out his current investment posture; 50% muni
bonds, 30% stocks, 20% cash. I mention this only because it was
O’Reilly and other shills like Suze Orman who advised everyone
post-9/11 to buy stocks in order to “stick it to the terrorists.”
Pure stupidity, as I pointed out at the time. Buy for fundamental,
solid reasons, not to make a political statement. You think the
market gives a damn?
–The average U.S. household has credit card debt of $8,400; a
rather large sum in the eyes of this scribe. [Thanks to Steve B.
for updating me on this information. We share a passion for
debt-free balance sheets.]
–Along the same lines, in an interview with Barron’s guru Ned
Davis (one of the best) said his major concern remained the “debt
bubble,” both at the individual and corporate level. As he put it,
in this current environment assets may have disappeared, but
liabilities don’t.
–On the positive side, we are in the midst of a new wave of
home refinancings, while in the home improvement field, both
Lowe’s and Home Depot reported better than expected earnings.
As to the latter, however, once a year I attempt to be Brian
Trumbore, handyman, and I ventured forth to find something for
the kitchen sink. Alas, amidst all the clutter at Home Depot, I
came up empty, so it’s on to Lowe’s.
–Andy Kessler, a former hedge-fund manager, wrote a terrific
op-ed piece in the Journal this week. Two of his insights:
“The whole buy-hold-sell thing is a remnant of the old days on
Wall Street – a charade acted out on the unsuspecting public.”
Re: money center banks – “If I was a depositor, I’d yank my
money out of those full-service firms and shove it into a
mattress.”
Actually, Andy, you could hide it at Home Depot. No one would
ever find the money there.
–Note to my friends in Australia. [I see the traffic data. I know
you’re out there.] Don’t ask me why, but since March 1990 I
have jotted down (only on paper) the weekly closing figure for
the All-Ordinaires index. If you want a particular reading for a
given date, drop me a line and I’d be happy to pass it along. [I
also have this for the Nikkei, Frankfurt DAX, and London FT-
SE, but, again, it’s all on scrap paper, not disk. In this respect,
call me Bob Cratchett.
–I put together some pretty good pieces the past two weeks on
the stock market of 1929-42…so check out my “Wall Street
History” link. Then again, if you’re looking for something
positive to latch onto with regards to today’s environment, you
may want to skip them.
–Medical device maker Medtronic reported solid earnings,
thanks in part to strong sales of its defibrilators…clear!!
–It is now known that Vanguard had net redemptions in its
equity funds of $2.7 billion in July. While this represents a
meager percentage of the fund group’s overall equity assets, I
have to bring it up because on 7/20 in this space, I noted how
some fund executives blatantly, err, misspeak when it comes to
discussing their fund flows, and I specifically mentioned Jack
Brennan of Vanguard. Another case closed.
–Tokyo’s Nikkei index finished below 10000 for the 5th-straight
week. At its current 9867 level, it is off a mere 75% from the all-
time high set back in December 1989…13 years ago. Yikes.
Actually, that’s what we may be saying about Nasdaq around
2013.
–Radio Shack warned that electronics sales will be down in the
third quarter, not up as originally projected. The fact is we’ve
already purchased every conceivable gadget we’d ever need and
now we’re throwing them out.
–The 5-year annual return on the S&P 500 (including dividends)
is +2.2%. It’s been a Peggy Lee market, that’s for sure. “Is that
all there is?”
International Affairs
Israel: There hasn’t been much to say regarding the Israeli-
Palestinian conflict the past few weeks. News of a new security
agreement between the two sides isn’t cause for optimism
because Hamas and Islamic Jihad will only undermine it. What
is good, though, is the fact that Israel has been increasingly
successful in rounding up some of the leading terrorists.
Otherwise, we await one of two things. (1) The impact of a war
against Saddam on Israel, and/or (2) The day when the
Palestinian people themselves decide to change from within.
Separately, terrorist Abu Nidal died in Baghdad, murdered or by
suicide depending on whom you believe. Nidal was responsible
for hundreds of deaths in countries such as Greece, Austria, Italy,
Turkey, Lebanon, and Israel, as well as on hijacked planes and
cruise ships. You name it, Nidal did it, and a special place in hell
awaits him. It is also obvious that he was either working directly
with, or had at least the tacit support of Saddam, a link which
needs to be established and brought to the American people and
the world community as further proof of Saddam’s own
complicity in global terrorism.
Russia: Aside from earlier comments concerning the Russia-Iraq
relationship, President Putin had a particularly rough week,
having to deal with the devastating military helicopter crash in
Chechnya that claimed 116 lives at last count. Whether it was an
accident or a rebel attack has yet to be proved. Also, Moscow
was the scene of two political assassinations, including one
member of parliament allied with Putin enemy Boris
Berezovsky.
Then there is the issue of Georgia, which I long ago noted was a
potential hot spot. Russia may use the U.S. principle of
“preemption” as an excuse for it to act here, as Moscow would
claim the nation is harboring Chechen terrorists. In fact, rebels
are using Georgian territory to hide and the U.S. military is
training Georgia’s own forces to take them out. But Russia may
attempt to beat us to the punch and on Friday, Georgia accused
them of incursions along the border. Should this activity pick up,
there really is little Washington can say, and it would clearly be a
step back in U.S.-Russian relations.
India / Pakistan: President Musharraf redrew Pakistan’s
constitution ahead of this fall’s parliamentary elections, which
means that he would have the power to dissolve the new body if
he so chooses. Not exactly “Democracy in America” type stuff,
if you catch my drift. Meanwhile, India has lost patience with
Musharraf’s failure to crack down on the terrorists wreaking
havoc in Kashmir. As columnist Jim Hoagland commented, the
two sides appear to be back on the brink, with Musharraf’s fight
for survival adding fuel to an “already blazing fire.”
Saudi Arabia: Conflicting reports on whether or not Saudi
investors are pulling massive amounts out of U.S. markets. The
Financial Times said $100-$200 billion had moved elsewhere,
while Saudi rich boy, Prince Alwaleed, said, oh contraire, mon
frere, in stating that he had himself been buying even more U.S.
shares in the likes of AOL, Motorola and Citigroup.
But aside from the fact that the Prince hasn’t exactly been
Warren Buffett with his past investments, some reporters missed
the broader point of the story this week. We shouldn’t be
surprised if any nation’s investors were repatriating assets out of
the U.S. After all, we haven’t done a heck of a lot to warrant
confidence recently, so it’s simply the prudent thing to do.
Throw in the fact that some Saudis are probably appropriately
worried about this $1 trillion lawsuit now floating around and it
makes perfect sense to squirrel the money away elsewhere.
Turkey: Former economics minister and World Bank official,
Kemal Dervis, has joined a center-left coalition (one originally
founded by my man Ataturk) in a bid to hamper the Islamist
party currently leading in the polls for the November 3 election.
The vote promises to be a most unruly affair, as are all things
political in Turkey, with some 23 different parties on the ballot.
Of course it’s all complicated by the timing of any U.S. action in
Iraq. For his part, President Bush should make a strong
statement that he expects the European Union to give Turkey a
fair hearing in its application for membership, regardless of who
emerges on top. Of course he would never do this, and the racist
elements in the E.U. will continue to do all they can to block
Turkey’s bid.
Nigeria: Remember how this nation adopted Islamic Sharia law
in some of the northern states? A woman was just sentenced by
an Islamic court to be stoned to death for having sex out of
wedlock. The first appeals court upheld the original ruling.
Only the Supreme Court is left.
Canada: Prime Minister Chretien announced he will not seek a
4th term and thus will step down in February 2004. Had he run
again, the U.S. would have been forced to launch a preemptive
invasion to save the people.
Colombia: The Bush Administration has now expanded the rules
of engagement, so to speak, when it comes to U.S. military aid to
this beleaguered nation. No longer is it limited to the war against
narco-traffickers, now Colombia’s army can use it to fight the
rebels, which they have begun to do so in a big way. An ‘A+’ on
the scorecard for the Bush camp, in the eyes of this reporter.
Random Musings
–Why the Bush White House hasn’t been more careful with
“sleepovers” for big donors, I’ll never know. And you wonder
why I’m always blasting Karl Rove? This is lunacy.
–Can anyone tell me what the President’s policy is on steel
tariffs? The Administration continues to back off from its initial
ill-conceived folly, so now even more U.S. producers are miffed
than were before. Ah, Mr. Rove? Explain.
–One of the best things President Bush could do is propose
legislation to clean up the asbestos litigation issue once and for
all, but, unfortunately, in today’s political climate this would be
seen as a bailout of Vice President Cheney and Halliburton’s ill-
timed acquisition of Dresser Industries under his watch, a move
which backfired when the asbestos ambulance chasers smelled
lawsuit.
–Columnist of the week, Michael Kelly, on Bush’s economic
forum. “(An) embarrassingly phony and amateurish media
event.” You got that right. Again, no way the Democrats will
approve any new tax reforms before the election.
–The damage from the European floods is estimated to be $20
billion. In the case of Germany, the government has postponed
needed tax cuts as a result.
–Pope John Paul II drew a crowd of over 2 million in Kracow
last Sunday, an extraordinary display of affection. It was also a
farewell visit and in reading some of the text from his homilies, it
now appears the Pope is readying to join St. Peter.
–One of my pet peeves of the past 8 months has been the role
AOL and Yahoo are playing in China’s attempts to identify
dissidents.
This week, in a scathing editorial, the Washington Post said in
part about Yahoo’s latest agreement with Beijing, “If the firm
actually does the things the pledge implies, it may become
complicit in the oppression of Chinese whose crime is to have a
political idea or to espouse an unpopular religion.”
But on Thursday, the Journal weighed in on the side of Yahoo,
saying that the agreement will lead to the spread of information
of all kinds, which can only benefit those seeking democracy.
I would submit that the Journal is wrong. AOL and Yahoo will
be used as pawns in the Communists’ ongoing attempts to snuff
out all dissent.
[Incidentally, China is the #4 country in terms of traffic for this
web site, behind the U.S., Britain and Canada. Saudi Arabia had
been as high as #8, but has slipped clearly because they can’t
identify with “Bar Chat.”]
–Secretary of Defense Rumsfeld is worried about the threat
emanating from the many nations with access to cruise missiles,
which not only could be fired at U.S. targets, but also could
deliver weapons of mass destruction. The threat extends to boats
sitting offshore. Just another reason to keep ample cash in the
old brokerage account.
–Last Saturday, Washington, D.C. was the scene of a long-
awaited march for reparations, but only 2-3,000 showed up,
when tens of thousands were expected. Sunday’s New York
Times buried the event, but in giving some quotes from
participants, conveniently omitted this blast from Louis
Farrakhan.
“We need land for political independence, we need millions of
acres.”
Now discuss amongst yourselves, because if I get started on this
one, I’ll lose my International Web Site Association license.
–Speaking of the New York Times, effective this weekend, they
will begin publishing reports of “same-sex commitment
ceremonies.” Here is what executive editor Howell Raines had
to say in the August 18 edition announcing this move.
“In making this change, we acknowledge the newsworthiness of
a growing and visible trend in society toward public celebrations
of commitment by gay and lesbian couples – celebrations
important to many of our readers, their families and their
friends.”
What?! You expect me to comment further?
–Georgia voters booted Republican Bob Barr and Democrat
Cynthia McKinney in primaries resulting from recent
redistricting. Barr will now undoubtedly be gracing every
television talk show imaginable, while in the case of McKinney,
I have just one question for the people of her old district. “Just
what in God’s name were you thinking when you sent her to
Washington in the first place?!” Goodness, gracious. She would
have fit right in with the Soviet Politboro.
–According to a survey, only half of Americans are satisfied
with their job. You know what that means, don’t you? A surly
employee makes for a surly voter come November, if he or she
bothers to go to the polls in the first place.
–George Bush granted his first magazine interview to “Runner’s
World,” for which he is being ridiculed. Frankly, as a longtime
subscriber to this publication, Bush picked the right one.
Runner’s World is easily the best magazine in existence.
–Coming next, “Survivor: Camden.”
–I have absolutely nothing to say about Bill Clinton’s prospects
for a daily talk show at $30-$50 million per, except I do see the
potential for lots of random musings.
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $308
Oil, $28.63
Returns for the week of 8/19-8/23
Dow Jones +1.1%
S&P 500 +1.3%
S&P MidCap +0.9%
Russell 2000 +1.1%
Nasdaq +1.4%
Returns for the period 1/1/02-8/23/02
Dow Jones -11.5%
S&P 500 -18.1%
S&P MidCap -10.6%
Russell 2000 -18.1%
Nasdaq -29.2%
Bulls 36.7%
Bears 40.0% [Source: Investors Intelligence…reminder, about a
10-day lag.]
Have a great last week of summer, and possibly of major league
baseball. Just be glad you aren’t a New York Mets fan like yours
truly. A strike can’t come soon enough for us.
Brian Trumbore
