[Posted Noon ET]
Summer’s over and it’s time to get down to business. Namely,
Iraq. After months of confusion and ill-timed commentary from
some past administration officials, the Bush camp retook center
stage this week.
“Iraq is like a runaway freight train loaded with explosives
barreling toward us. We can act to derail it or wait for the crash
and deal with the resulting damage.”
–Bob Dole / Washington Post
“Perhaps…what truly concerns some of our Gulf War allies (is)
that among the consequences of regime change in Iraq might be a
stronger demand for self-determination from their own people.”
–John McCain / Time
“By now, the risks of inaction clearly outweigh the risks of
action…The danger is immediate…When the risk is not
hundreds of people killed in a conventional attack but tens or
hundreds of thousands killed by chemical, biological or nuclear
attack, the time factor is even more compelling.”
–Former secretary of state George Shultz / Washington Post
On Monday, Britain’s Conservative Party leader urged Prime
Minister Tony Blair to support the U.S., proclaiming that the
next generation of Iraqi missiles will be able to reach all of
Europe, while it was announced that Britain’s defense secretary
would be spending 6 days in Washington later this month.
Then Tony Blair himself stepped forward the next day. Weeks
ago (WIR 8/10) I noted that we could expect a real “profile in
courage” from him as he bucked opposition not just in his own
party, but across the European continent as well. Now he is
prepared to do the right thing, and it’s worth reading some of his
comments from a press conference he held on Tuesday.
“I do believe that the threat posed by the current Iraqi regime is
real; I believe that it is in the U.K.’s national interest that the
issue is addressed, just as dealing with the terrorists after Sept. 11
was in our national interest, even though the actual terrorist act
took place thousands of miles away on the streets of New York,
not in London.”
“I have absolutely no doubt at all that the vast majority of Iraqi
people would love to get rid of Saddam Hussein.”
“Of course it is better to do this with the broadest possible basis
of international support, that is true. But it does have to be done
and we have to make sure that there are not people who are
simply going to turn a blind eye to this.”
“There is a tendency for the world to say to America ‘the big
problems of the world are yours, you go and sort them out’ and
then to worry when America wants to (do so).”
“International terrorism executed its worst atrocity on the streets
of America, but that was an attack on the whole of the free and
civilized world, and America should not have to face these
problems alone.”
“The Americans in raising this issue are not wrong, they are
right, and the reason why our place is beside them in addressing
this issue is not because of some misplaced allegiance or because
of blind loyalty, it’s because it’s the right thing to do. And if
Sept. 11 teaches us anything, it teaches us the importance of not
waiting for the threat to materialize, but when we can see the
signs of that threat in front of us, dealing with it.”
“If Britain and Europe want to be taken seriously as people
facing up to these issues do, then our place is facing them with
America, in partnership, but with America.”
[Source: Associated Press]
Meanwhile, President Bush is gearing up for a visit from Blair at
Camp David this weekend, while the President prepares for what
will truly be a momentous presentation to the United Nations on
Thursday. I’m optimistic that by zero hour, more than just
Britain will be standing shoulder to shoulder with us. No, it
won’t be a Gulf War coalition, but it will be enough.
Unfortunately, it now appears Bush is prepared to give the UN
and inspections one last chance. If so, let’s hope it’s a tight
timetable.
Wall Street
Despite a decent rally on Friday, the major stock indexes
declined for a second straight week, with the Dow off 2.7% to
8427, while Nasdaq fell 1.5% to 1295.
The Dow had plunged 355 points on Tuesday following a report
that the service economy was slowing. Additionally, with even
Wal-Mart reporting softer August sales, there are growing signs
the consumer is finally cutting back on spending, an obviously
worrisome trend. This coming Friday’s report on the health of
the retail sector could be quite telling.
The positive news that spurred the market on Friday was related
to a better than expected employment report for August, but the
numbers are suspect, particularly relating to the fall in the official
unemployment rate from 5.9% to 5.7%. Certainly the 15,500
employees of Consolidated Freightways who received their pink
slips on Labor Day would beg to differ, and I imagine the
government data for September will contain a revision or two.
So when you add up all of the different economic news of the
week, those of us in the double-dip camp can still claim new
ammunition.
On the international front, the Tokyo Nikkei index hit lows not
seen in 19 years, closing barely above 9100. It would appear that
the government is going to have to launch its 3rd bank bailout in
4 years, as the sliding equity market has once again severely
impacted the capital reserve positions for many financial
institutions in Japan.
And regarding the technology sector, Intel trimmed its revenue
projections for the current quarter, as a hoped for revival in
capital spending remains far down the road. You are also seeing
more and more comments from chief financial officers that
Corporate America can make do with what they already have.
Heck, the best performing of the five computers that I personally
own is my oldest, a Pentium 386.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.64% 2-yr. 2.05% 10-yr. 4.01% 30-yr. 4.86%
Bonds continued to rally, with the 10-year trading with a yield of
3.91% at one point this week, the lowest in over 40 years. The
market did give up some of its gains on Friday on the heals of the
stronger employment report, which cast doubts on whether the
Fed will lower interest rates when they next meet.
–Energy: Well, it was kind of a strange sight in Johannesburg
this week, as the U.S. and OPEC teamed up to block initiatives
on renewable energy. SUVs and sheiks, united against the
world. And it’s really quite an effective coalition since SUVs
ride higher, thus exacting deadly force on impact with the little
guys driving their Hondas (oops, that’s me).
But in the real world of energy pricing, after a hit early in the
week, oil rallied back, both on renewed war fears as well as
favorable inventory data. But regarding the former, you know
what? Energy traders don’t know squat. $4-$5 is no war
premium, let alone the fact that they took the market down
Tuesday because Iraq’s Tariq Aziz said Baghdad may be willing
to allow inspectors back in. They actually listened to the guy!
Anyway, yours truly took his lumps in his roughly 20% position
and I recognize I am going to have to be very nimble over the
coming months. Plus, OPEC is meeting soon and after agreeing
to raise production (an insignificant amount), the number of
dissenters in the cartel has grown, as has cheating on existing
quotas, and it all adds up to what should be a most contentious
confab, with global economic concerns being weighed against war
and possible supply disruptions. Perhaps long-time energy expert
Tom Petrie summed it up best when he said it is an “incredibly
challenging” environment.
–My portfolio: I added to my position in Turkey, slightly,
bringing me up to 4%…20% energy…now 76% cash. However,
as I’ve hinted before, at some point I may be increasing my
Istanbul(l) Express position by quite a bit, at which point some of
you will think, “What?! I’m telling you, the editor is crazy!”
–A Pennsylvania judge blocked the potential sale of Hershey
Foods due to the adverse impact on the community. Workers
rejoiced by eating all the inventory.
–What credit crunch? I didn’t ask for this, but for some reason
all of my personal credit card lines have been increased over just
the past few weeks. Party at Trumbore’s!
–Citigroup was slammed early in the week by a Prudential
analyst and the shares plummeted further. Something about
concerns over lawsuits, WorldCom, Enron, IPOs, Argentina, and
Brazil. Other than all this, no problemo.
–Meanwhile, Congress is back, and that’s not good news for
Wall Street as the various probes looking into the brokerage
industry’s bad behavior heat up anew. We are assured by some
congressmen that no top executive or politico will be spared if
evidence of malfeasance is uncovered. I pray that this is the
case, but I can’t help being a cynic. Then again, we do have a
free press, so rock and roll, guys!
–McDonald’s received Gary Condit-like publicity for its
decision to cook its fries in healthier oil. Of course yours truly
was more interested in whether they were switching from North
Sea Brent to West Texas Intermediate crude.
–Back to downgrades, Ford received one from UBS Warburg
thanks to problems previously discussed in this space, issues like
a severely underfunded pension and the fact Ford is losing
market share, let alone the ongoing longer-term negative impact
of 0% financing and other incentives, i.e., “Where will the profits
come from?”
–But, overall, auto sales are continuing to soar, while revealing a
new trend. Folks are now hitching their latest purchase to the
back of the 3rd car they bought last spring, creating massive
parking problems in downtown areas.
–Inflation watch: I don’t know about our reporter Mark R. Just
a few weeks ago I purchased some perfectly good golf shirts for
$15 a piece, yet he tells me a Robert Jones model still goes for
$155 at Nordstrom’s. Actually, I think mine was from the
Hootie Johnson line. That must be the difference.
–Last September, I blasted personal finance ‘guru’ Suze Orman
for urging everyone to buy stocks, in order to send a message to
the terrorists. So guess what Ms. Orman said this past weekend
(as I channel-surfed to oblivion)? “Since 2000 I’ve been 90%
cash and bonds.” For starters, let’s hook her up to a lie-detector
machine. Then we send her down to testify before Congress,
after which we indict her for violating the public trust.
–The total derivatives position of U.S. banks and trusts currently
exceeds $44 trillion (that’s 12 zeroes), $26 trillion of which is
under the care of J.P. Morgan Chase. Now to be fair, this isn’t
anywhere near the actual exposure, but the point is that there is
another side to each trade, i.e., what’s known as “counterparty”
risk. In other words, if the other side goes under, someone is left
holding the bag. And that, sports fans, is normally not a good
thing, particularly if its an oversized bag and you have to pay one
of those new penalties like the airlines are now tacking on.
–So I told you last week that all the insider ‘buying’ taking place
among corporate executives (except in the homebuilding sector)
did not foretell a rally in the equity markets. Lo and behold,
Monday and Tuesday all the papers and business broadcasts were
full of articles trumpeting this very same insider buying as a
bullish signal. Then the market plunged. Yours truly allowed
himself a smile.
International Affairs
Israel: What started out as a bad week, with Israeli forces
accidentally killing Palestinian civilians in a number of separate
incidents (now under investigation by the Israeli military), could
have been far worse had officials not discovered a 1,300-lb. car
bomb before it was detonated.
But when it comes to the bigger picture, as the U.S. prepares to
take on some of Israel’s enemies, I implore the government to do
just one thing to help America. Announce an immediate
cessation in the building of settlements. If the nation’s leaders
continue to play with this crucial issue, they’ve lost me.
Zimbabwe: At the Earth Summit (which at times resembled the
cast of characters from the board game “Clue”), chief thug
Robert Mugabe said, “(Tony) Blair, keep your England and let
me keep my Zimbabwe.” After which President Najoma of
Namibia (who makes his inaugural appearance in “Week in
Review”) blasted Blair as well, calling him a modern-day
colonialist, while saying that Britain created the problem in
Zimbabwe. Najoma then dropped the slave trade bomb for good
measure. Of course while all this was transpiring, Najoma’s
neighbor, Mugabe, continued to starve millions of his own
people.
China: I didn’t see a lot of details, but evidently the Chinese
government is attempting to block the search engine, Google,
which also happens to be far and away the best. You’ll recall
that AOL and Yahoo have been cutting their own deals with
Beijing, much to my dismay. By the way, to my readers from
China (over the past few weeks you’ve climbed to #3 behind the
U.S. and U.K.), help me spread the word. But if one of you is
President Jiang Zemin, well, ahh, I really didn’t mean anything I
wrote over the past 3+ years.
Meanwhile, the Wall Street Journal had a front-page story on the
ongoing leadership transition, but with the opening paragraph
reading:
“For more than a year, China made it look easy: an economy
growing at close to 8% in the face of a global slump.”
Wrong. As I noted a number of months ago, a University of
Pittsburgh academic proved that China’s true growth rate is
1-2%, at best. The government continues to lie about the real
state of the economy, while it wishes for the 8% growth rate that
is needed in order to manage the titanic move from an agrarian to
an industrialized nation. Anything less than that means massive
unemployment and unrest in the rural districts, as well as a
ticking time bomb in the cities, as people flock to them for work.
Random Musings
–I decided to go easy on German Chancellor Shroeder and his
refusal to support any U.S. preemptive attack on Iraq. Frankly,
we don’t need him, but should he win his upcoming election and
remain in the “profiles in weeniedom” camp, you and I can
always refuse to buy German products.
–I made a personal vow not to get sucked into the blogger wars
over the New York Times (it’s normally not worth yours or my
time to state the obvious), but in last week’s review I couldn’t
help but note a particular report that was more than a bit unkind
to the President, and then this week I read a piece by Elaine
Sciolino that would have made Joseph Stalin proud.
Now get this. Sciolino writes of nations who are against
attacking Iraq (that’s fair enough), but quotes a Vietnamese
spokesperson who says, “The administration of Iraq was elected
by the Iraqi people,” as well as quoting Iran’s President
Khatami.
Memo to John Ashcroft: I have a target for you.
–Over the past few years, you may have noticed an increasingly
‘leftward’ tilt from yours truly when it comes to issues like the
environment and globalization in general, though I prefer to
think of it as pragmatism. But as I watched the dirtballs of the
Earth Summit treat Colin Powell in a most disrespectful manner,
I couldn’t help but think, the hell with ‘em.
As for the Kyoto treaty on global warming, France, Germany and
the U.K. have lined up behind it, with the U.S. joined in
opposition by Canada (at least for now) and Australia. Heck, we
should go ahead and sign it. Way, way too much is being made
of the potential damage to our economy (we can always have
some former Arthur Andersen folks cook the emissions books),
but, most importantly, it would afford us the opportunity to jack
the rest of the world up against the wall and say, “Alright.
You’ve got your freakin’ Kyoto. Now here’s what we
want…and if you ever treat our secretary of state like you did
Powell, all cooperation is over.”
–U.S. spending on defense is greater than the next 25 nations
combined. Not complaining, just a factoid.
–There is incredible pressure on bodyguards for all political
figures these days, but I can’t imagine what it’s like to be part of
Afghan President Hamid Karzai’s security detail (most of whom
are American). We saw another example of this Thursday, as
Karzai escaped an assassination attempt, while his protectors
killed the hit men.
–On a related topic, U.S. News had another powerful story on
problems at the Secret Service. There are holes throughout the
system that is supposed to protect our leaders and their families.
It’s an accident waiting to happen. Thankfully, agents were
tipped off about the New Hampshire man who had threatened the
President and caught him with 16 rifles on Wednesday.
–Last weekend police in Newark were notified that something
was amiss in a rundown home that the cops thought was vacant.
Turns out there were 6 adults and 13 children living in total
squalor. It was sickening to see, especially when you discovered
they also had a satellite dish, a big screen television and tons of
DVDs. Unbelievable.
–In watching the soon to be retired Senator Fred Thompson last
Sunday on “Meet the Press,” I couldn’t help but think there goes
one talented leader. He could have been president under the
right circumstances (like if he had been ‘miked’ properly that
one year when he gave the Republican rebuttal to a Clinton State
of the Union address). Thompson’s appearance with Tim
Russert was in stark contrast to Congresswoman Nita Lowey of
New York, a true idiot if there ever was one.
–We were happy to see Andrew Cuomo drop out of the New
York gubernatorial race. It also means we’ll probably see less of
his father, another good thing.
–Follow-up to last week’s discussion on the 80/20 rule. John K.
reminds me that Schaefer Beer’s jingle of some 30 years ago was
“The one beer to have when you’re having more than one.” Yes,
even Schaefer knew that 20% of us beer drinkers accounted for
80% of the consumption.
–Those of you who have traveled to Paris know that it is the
filthiest major city in the world, thanks to the fact that you are
constantly dodging dog crap on the sidewalks. Well, now the
mayor is finally doing something about it and he’s committed to
enforcing new laws, with fines running $182 for offenders. Oui,
oui!
–Finally, as an aside, my home town here in New Jersey (and the
headquarters of StocksandNews) is supposed to be one of the
features on “60 Minutes” this Sunday, a story about 9/11.
Personally, I know I’ll be overwhelmed by some of the coverage
this week, though my thoughts will mostly be with my friends
who survived, still work down there, and have to deal with the
trauma on a daily basis. You may be surprised to learn that
while I have been to New York at least 15 times over the past
year, I have not been to Ground Zero. I don’t have a good
answer as to why, except to say as I did immediately following
the attack; Ground Zero, the Pentagon and Shanksville won’t be
the only places of reverence in this new world of ours, and
frankly it all actually started with the first attack on the Twin
Towers and Oklahoma City.
But if you’ll forgive me, I have something else on my mind
today, flowing from attending mass this past Sunday. I was
standing in the back when we began to sing “America the
Beautiful” and I have to admit I got a little choked up as I
scanned the crowd and saw people from all ethnic groups.
Earlier, I had read a piece in Barron’s by Gene Epstein,
discussing how the U.S. needs further immigration in order to
keep economic growth at favorable levels, a theme I have also
brought up from time to time. Today, 13% of our labor force is
foreign born and it shouldn’t come as any surprise to learn this
percentage will keep rising over the coming years, for reasons all
too clear to anyone who has lived in America for even a brief
time.
It’s our acceptance of the world’s “tired and poor” that helps set
us apart from the rest, particularly when compared with much of
Europe and Japan, for example. But we do have the issue of
what to do about immigration from some of the nations of the
Middle East and Persian Gulf. While I feel for the innocent folks
who desire to partake in the fruits of a great democracy, the U.S.
must, for now, make their entry difficult. This is the world we
live in and the authorities and leaders we rely on for our safety
can’t afford to make any mistakes in this regard.
But I’ll leave you with a chapter in our history in which we
didn’t distinguish ourselves, but one which should have taught us
all a powerful lesson when it comes to the issue of immigration
and the principles for which our forefathers have fought and
died.
At the end of the Vietnam War in 1975, as Saigon was about to
fall, President Gerald Ford was under intense pressure from some
fronts to abandon the people of Vietnam. Senator Claiborne Pell,
for one, said, “We could put these people on Borneo,” because
the climate was the same. But Gerald Ford said, “Our tradition is
to welcome the oppressed.”
And so it was that in the last chaotic hours in Saigon, 6,000
Americans and South Vietnamese were helicoptered to safety,
but over the following months and years, an estimated 600,000
Vietnamese died fleeing the new communist regime. America
had forgotten what it stood for, as Congress pulled back all
funding and abandoned these good people.
Thankfully, many did survive, finding their way to the U.S.,
where a new generation is making its own contribution to our
society. As for President Ford, it’s my understanding the ladder
from the U.S. embassy in Saigon now resides in his presidential
library, a symbol of what America gained from the Vietnam
War, not what it lost.
But it also remains a reminder of what could have been had we
not lost our way. Pray that over the coming years our leaders
don’t abandon the cause of 9/11 and its aftermath, and that the
day will come when we are once again welcoming the oppressed.
Or, better yet, may millions choose to stay to build the new
democracies of tomorrow in the Middle East, because the United
States gave them the opportunity to do so. When that day
arrives, as Americans we’ll be able to go down to the new
memorial at Ground Zero and not just remember the fallen, but
note with pride that we met the challenge that followed and won.
God bless the men and women of our armed forces.
God bless America.
—–
Gold closed at $319
Oil, $29.61
Returns for the week, 9/2-9/6
Dow Jones -2.7%
S&P 500 -2.4%
S&P MidCap -0.4%
Russell 2000 +0.2%
Nasdaq -1.5%
Returns for the period 1/1/02-9/6/02
Dow Jones -15.9%
S&P 500 -22.1%
S&P MidCap -13.1%
Russell 2000 -19.8%
Nasdaq -33.6%
Bulls 43.3%
Bears 33.0% [Source: Investors Intelligence]
Sorry this week’s column was a few hours late. I was out of
town and it wasn’t possible to post it earlier.
Have a great week. I appreciate your support.
Brian Trumbore
