[Posted 7:00 AM ET]
I Was Wrong
The other day as I was beginning my long trip home from the
Pacific, I thought about all my travels the past few years. Who
were the friendliest, I mused, Europeans or those I came across
in Australia and Asia? Of course it wasn’t even close. With the
exception of Turkey, where I always met a favorable response
from anyone I engaged in conversation, the Pacific region wins
hands down.
As you would also expect, the one place in the world where I
have met an outright hostile reaction was in France, both in and
outside of Paris. And as much as I love the ‘City of Lights,’ ask
me when I’ll return?
The other day, writing in U.S. News & World Report, David
Gergen, “advisor to the presidents,” addressed the current tension
between some in Europe and the United States, writing it was
time to repair the damage, “knowing that France and Germany,
along with other nations in the West, have been our closest
friends for half a century and will be our surest companions in
the stormy seas ahead.”
Wrong. This is why Gergen has wormed his way into both
Democratic and Republican administrations. He’s incapable of
creative thought and I guess some presidents find that comforting
knowing he won’t steal their thunder.
Such is not the case with current Deputy Secretary of Defense
Paul Wolfowitz, a man I have long admired and now more so
following Thursday’s “Frontline” presentation on the Bush
Administration and the coming war. It was back in 1992 that
Wolfowitz first came up with the idea of preemptive action
against hostile regimes, a theory for which he was pilloried in
both the Bush #41 as well as the Clinton administrations. And
today, like his boss Donald Rumsfeld, he’s talked of the
difference between an “Old Europe” and a new one.
So we return to France and President Jacques Chirac. Last
spring, following his decisive re-election effort, I was convinced
that at the right moment, and for the sake of his legacy, Chirac
would step up and play his part in the takedown of Saddam. I
still held out hope this would be the case as recently as a few
weeks ago. Sorry to say, I was wrong.
This week Chirac chose to build up the ugly side of his life’s
work (I’m struggling to think of anything good, by the way) as
he told the new European Union candidates from Central and
Eastern Europe to “shut up” with their support of the United
States and its position on Saddam. He went on to threaten their
very candidacy. Aside from the obvious comment one can
make as to the history of the likes of the Czech Republic,
Bulgaria and Romania, as well as France’s own inability to do
anything of a positive nature for over 100 years (I also hate
French films), Chirac allowed into his country this week
President Robert Mugabe of Zimbabwe, for the purposes of
taking part in an annual conference on all things African. Now
there’s a real combination, France and Africa. Lots of positive
things to come out of this relationship, oui?
No, this is a new world, a new era when it comes to choosing
one’s friends, as well as shunning those who stand in the way of
progress and security. Instead, it’s time not just to look to our
new allies in Eastern Europe, it’s also a time for the U.S. to
solidify alliances with the likes of Australia, Taiwan and the
Philippines.
When it comes to the government of Philippine President Gloria
Arroyo, there is a woman who gets it as this week it was
announced up to 3,000 U.S. Marines and Special Operations
forces will begin working side by side with the Filipino army to
once and for all wipe out the Abu Sayyaf terrorist organization,
one that has not only inflicted far too much pain on the good,
God-fearing people of this country, but one that serves as a safe
haven for al Qaeda. Through my experiences during a brief
stopover in Manila the other day, as well as my encounters with
Filipinos on the QE2, various plane rides and on Guam, it is my
fervent hope that this renewed relationship between Washington
and Manila soar, because it could benefit the two peoples
tremendously.
Just look at the map. Coupled with our friends in Australia (even
if the natives there are currently a bit prickly concerning the war)
and Taiwan (where we need to be more forceful in letting the
Chinese know where our government stands), along with Japan,
we can finally forge the basis for a new Pacific, maybe not that
of the “Pacific Century” so erroneously put forward as recently
as 1997, but a strategic alliance that benefits all parties, while
enhancing our security. As for South Korea, they need to decide
for themselves where they want to go.
—
Iraq
You have to admire Britain’s Prime Minister Tony Blair, and I
for one do not blame him in calling for a few more weeks in his
last ditch effort to build more of a consensus, because it would be
disastrous for the United States if Blair was booted from the
leadership position of his own party due to his courageous stance
against Saddam. But as his approval rating plummets, at least
other polls in Britain reveal that the people admire his
conviction, so there is hope he can weather this political crisis.
As for the U.S. and Turkey, you can imagine that nothing
surprises me here. How many times have I said that the U.S.
gave Turkey the shaft following the first Gulf War and it’s a
memory the Turks won’t soon forget? Unfortunately, in its quest
for more money, the new Islamic government came close to
overplaying its hand, though as of this writing an agreement on
the deployment of U.S. troops looks imminent. What this whole
messy episode also points out, however, is the huge expense of
this war and the rebuilding effort, costs which are still not part of
the budget deficit projections of the Bush Administration. It’s
not a positive for our financial markets. [I do have to add,
though, that you will also undoubtedly see scathing reports
about Turkey and what will be labeled ‘blackmail.’ None of
these pundits will know their history.]
But when it comes to the Bush team and its diplomatic effort, as
a supporter I’ll admit that its performance has been spotty, at
best. I argued all last spring that they were wasting time and not
doing the spadework and it’s apparent this was a big mistake.
But victory will erase that from the history books and victory is
what we will get. The U.S. military is just too good and each
time you see a report on the men and women on the front lines,
as an American your heart has to swell with pride. These are the
very best our nation has to offer, they have the equipment and the
training, now they need our total support.
But in the aftermath, it falls back to the politicians and, in this
instance, nation-building. The Bush Administration has a clear
plan in place, but at the slightest hint of problems, such as a
rebellion or two, I’m not confident our political leaders will show
courage of their own in the face of the inevitable protests in this
country. But we’re getting way ahead of ourselves. Then again,
I know that Paul Wolfowitz is spending his time on critical issues
like these, and we all should take comfort from that.
Wall Street
Not a great week when it came to the economic data, as a record
U.S. trade deficit for December competed for the headlines with
the highest monthly gain in producer prices since 1990 (+1.6% in
January). Add in rising raw material prices, the ongoing lack of
pricing power, and the tightening energy situation and it’s tough
to build a case for increasing corporate profits, at least to the
extent already projected. Throw in Iraq and other geopolitical
concerns and moving to a safe room early, as long as its wired
for cable (so as not to miss “March Madness” – which this year
could take on a more ominous tone), may not be such a bad idea.
When it comes to the trade deficit, a function of Americans
buying more imports even as exports drop, this adds fuel to the
dollar bear camp. And as for the American consumer, when it
finally shuts down to watch CNN and Fox’s coverage of the war,
not just the U.S. but the world will suffer. Morgan Stanley’s
Stephen Roach (as cited by Robert Samuelson) did a study of
world economic growth from 1995-2002 and the U.S. accounted
for 64% of it. That’s staggering. [Throw out the consumption
by NBA ballplayers, however, and I suspect it drops to 55%.]
So what’s good these days? Housing…still the undisputed
champion. The median home price in the U.S. rose at an
annualized rate of 8.8% in the fourth quarter and there’s still no
letup in sight on the construction front, even as some high-end
markets begin to soften. But that’s enough good news for one
week…back to the negative.
Various surveys of CEOs reveal there is little optimism among
this class, which doesn’t bode well for hiring or capital spending,
while the problems of state and local governments only deepen.
A classic example of the latter was supplied by New York Mayor
Michael Bloomberg, who during this week’s blizzard noted the
projected cost of $20 million to clean up the streets, adding,
“We’ll have to cut elsewhere.” That’s probably 400 jobs, by my
back of the beer coaster calculation.
Finally, a big reason given for the stock market’s rally on
Tuesday was that day’s talk that the war with Iraq could be
delayed. Idiots. The longer this drags out, the worse it will be
for Wall Street.
Street Bytes
–For the week, the major averages registered their second
straight advance, with the Dow closing up +1.4% to 8018, the
S&P 500 tacking on 1.6% to 848, and Nasdaq recouping 3% to
the 1349 level.
–U.S. Treasury Yields
6-mo. 1.19% 2-yr. 1.59% 10-yr. 3.89% 30-yr. 4.85%
Basically unchanged on the week. The consumer price index
was tame, compared to the scary PPI, but now it’s time for….
–Inflation Watch: So I return home from my trip and discover to
my immense dismay that the property insurance for my
townhouse development (I’m the association president…good
for the resume) doubled! This 9/11-related B.S. has to stop and I
will rip the insurance industry with each opportunity I get.
Separately, ace inflation reporter Mark R. updated me that in my
absence it was reported that since the states can’t subsidize their
public colleges and universities at prior levels, tuition could jump
in excess of 15%, on top of the already substantial increases
parents saw even in the boom times.
–Energy: Nothing like a giant explosion outside an oil refinery
to heat up one’s stocks in this sector and thankfully Friday’s
incident off Staten Island was an accident. But let’s talk about
this $2 a gallon gasoline situation again. As I’ve noted in the
past, it always cracks me up how the individual buying public
responds. Like the following New York Times headline from
this past week, “As Gasoline Prices Rise, Drivers Have Doubts
About Why.” Read a damn newspaper (probably not the Times),
or this column, if you have doubts. It’s called supply and
demand…as well as a pending war in the oil fields and a normal
winter. One guy interviewed for the article of course took a shot
at Big Oil. There is no doubt profits will rise, but last time I
checked not only does this sector employ a few million folks, if
you think individual gas station owners and those highly paid
attendants are raking it in, then you don’t know that business.
And then there’s the world’s leading political opportunist, New
York Senator Charles “Where’s the camera?” Schumer. What a
slimy weasel he can be, as he said he was launching an
investigation into price gouging.
Yes, there is no doubt that from a Big Picture standpoint the
stubbornly high energy prices are doing a number on economic
activity, but when it comes to the individual consumer and their
attitudes, some semblance of balance, and rationality, is in order.
Americans still consume far more energy than we should be,
while for its part U.S. auto manufacturers are once again blasting
the Bush Administration and its fuel economy proposal for
SUVs; the one calling for a whopping 1.5 mpg increase by 2007.
This is back to the future stuff, folks, because foreign car
manufacturers will absolutely eat Detroit’s lunch, much as they
did in the 70s and early 80s.
It’s also interesting to note that the oil futures contract for March
’05 reflects a projected price per barrel of $24. As a heavy
investor in the sector, that would be fine with me, and to the
global economy, but it may not be as easy to attain as we once
thought.
–I have been unstinting in my praise of Microsoft and Chairman
Bill Gates, but I gotta tell you, though I suspect many of you
already know, the Windows XP operating system totally sucks.
Windows 98 was 10 times better for performing the simple
functions that most of us use a PC for. So my question is, what
the hell do those thousands of software types do? Let alone the
fact that every few weeks we learn of a new way that hackers
discovered to circumvent this piece of crap.
[I obviously had a tough time on my trip with my new, super-
duper laptop. And I see that the new issue of Business Week has
a cover story on Linux.]
–I don’t expect anyone outside the industry to cry for Wall Street
and its latest round of layoffs, nor certainly over cuts in bonus
levels, but with the continuing pitiful trend in volume, the
situation only gets worse and, after all, these guys and girls buy
the cars and, yes, boats that employ hundreds of thousands. But
it also further illustrates a point many of us discussed a long time
ago. Regardless of any stimulus package or success in the
geopolitical realm, the little guy is not going to rush back into the
market after seeing his nest egg torched. It’s a function of
nothing more complicated than ‘time.’
–On a related note, the penalty phase for the Street is heating up
as Merrill Lynch is reported to be joining CSFB and Salomon
Smith Barney in the conflicts of interest scandal’s final
document, i.e., examples of outright fraud will be alleged. Then
it was announced Merrill will pay an $80 million fine to the SEC
for its corrupt actions in the Enron fiasco. Yes, that’s “Total
Merrill.” Along the same lines, J.P. Morgan Chase was fined $6
million for its role (through its Hambrecht Quist division) in the
IPO scandal. JPM also faces extensive fines / suits over its own
Enron dealings.
–Wachovia Securities is finally wrapping up its purchase of
Prudential Financial. I remember when I was a freshman at
Wake Forest and I opened up a checking account on campus at
this bank called Wachovia. Who the hell are they? I mused at
the time. As for the deal itself, my bet is it was a good move,
assuming management understands it will take…time.
–Wal-Mart reported that revenue was up almost 11% in its fiscal
4th quarter, spurred on by the sale of Wrangler Jeans! Nothing
wrong with that, mind you, but it’s another sign of a double-dip.
Wal-Mart also was less than enthusiastic about first quarter
prospects.
–Congratulations to Nextel for its continuing comeback from the
depths. If the trend continues, CEO Tom Donahue could be
corporate executive of the decade (I hope I haven’t just jinxed
him). [I do not personally own shares in the company.]
–The FCC overruled Chairman Michael Powell and granted state
regulators more control over what local carriers must lease to
rivals at discounts, a move that hurts the Baby Bells. I haven’t
studied the economics of the issue, but what seems certain is that
you will have a lot of corruption cases in the future involving
state and local officials…where the graft meets the road.
–Reuters slashed 3,000 jobs. Can’t believe they don’t think
there is any news out there.
–Gold stabilized this week after its recent downdraft from the
$380 level, a fall that was due simply to profit-taking by the
speculators, as well as a brief strengthening of the dollar. The
charts still say, however, that the trend is up.
–On the tax shelter front, a good illustration of what was going
on with the corporate executive scams is supplied to us by Ernst
& Young, which made $5.8 million peddling allegedly illegal
shelters to Sprint execs, while at the same time it was earning
just $2.5 million auditing the company.
–I read a number of recent pieces touting Internet survivors, and
thus far winners, eBay, Amazon and Yahoo, yet all of them
remain ridiculously overvalued. Thankfully, though, I haven’t
put on my ‘short’ positions yet or I would have been burned
badly, I hate to admit.
–My portfolio: Aside from my previous note on my energy
holdings, just one other thought concerning my Telecom New
Zealand position. I was distressed to see Team New Zealand get
off to a 0-3 start versus Alinghi in the America’s Cup finals.
Luckily, the stock hasn’t tanked as yet. C’mon Kiwis…you can
still do it!
International
North Korea: Pyongyang keeps ratcheting up the rhetoric with
this week’s threat to abandon the armistice that ended the Korean
War, though by itself this is meaningless. What’s frustrating is
China’s continuing abandonment of its own responsibility in the
crisis, but then again they want to see the U.S. and Japan, in
particular, squirm. Meanwhile, in the South, Hyundai admitted it
gave $500 million to Kim Jong-Il’s regime prior to the 2000
North-South summit in order to win exclusive rights to any
future business contracts. Just another example of how far South
Korea still has to go to clean up its image as a haven for
corruption. And then you had that sickening torch job by the
mental patient in the Daegu subway.
Taiwan: The U.S. has warned the government in Taipei that it
risks falling way behind the mainland if it doesn’t move quickly
to regain its military and technological edge over China, which
keeps adding 50 missiles a year to its own coastline, aimed right
at strategic points like the airstrips…should they ever choose to
engage in blackmail, though with China hosting the 2008
Olympics, this would be a huge mistake on its part.
Venezuela: Just when you thought things were calming down a
bit (I didn’t say getting better), the bodies of four dissidents were
found, with evidence of torture, and the original strike leader was
arrested. President Chavez is a sicko and dangerous when
wounded.
Bolivia: Cancel your vacation plans; the government here has
basically collapsed. Poor Chile is now surrounded by basket
cases and risks being shoved into the Pacific by rabid mobs.
Random Musings
–The U.S. arrested 8 for aiding Islamic Jihad in its terrorist acts,
including the former South Florida professor, Al-Arian. What
troubles me is this particular man was under investigation since
1995 and the government had the goods on him back then, but
he was running around free all these years.
–When you used to hear of tragedies like the Chicago and Rhode
Island nightclub incidents, they always seemed to originate in
some Third World nation. This past week represents a
tremendous embarrassment for our country.
–As for the Duke University Medical Center officials who
screwed up Jessica Santillan’s surgery, no wonder malpractice
premiums are so high. And if I were the students attending Duke
basketball games, the kids known for their clever, often vicious
taunts, I’d cool it for a while.
–I saw where Santa Ana, California replaced a member of the
school board who was an advocate of bilingual education, which
I got a kick out of because during my brief stop in the Philippines
I picked up a local paper, with one of the front-page stories
concerning President Arroyo’s mission to promote English as the
primary language there; the thought being that it will help in
terms of economic growth. Just another reason to love Gloria.
–The Washington Post’s Rob Stein wrote a terrific piece on the
latest medical studies which appear to establish a link between
inflammation, even that caused by a simple mosquito bite, and
the development of far more serious threats such as heart disease
and cancer, all having to do with the way the human body reacts
to fight even the slightest infection.
–So Carol Moseley-Braun, a crooked, corrupt former senator,
has decided to grace us with her presence in the Democratic field
of contenders for president. It’s a great country!
As for Richard Gephardt’s formal announcement, I still say he
has a super shot at the nomination with his appeal to those who
traditionally vote in primaries.
–I spent last Sunday on Guam, my 7th visit in 3 trips to
Micronesia. I say 7 because Guam is the transit point for the
other islands in the area, like Saipan, so you go to Guam, day trip
to Saipan, return to Guam, day trip to another island, like my
beloved Yap, etc.
If you haven’t been to Guam, it’s really a beautiful place with
some great beaches, but this past December 8th it was devastated
by a typhoon with 200-mph winds. I had forgotten how bad it
was when I arrived to find my Hilton Hotel base with 120 rooms
still out of commission and some $22 million in damage.
Thankfully, the world’s best terrace bar was still in one piece.
But your heart goes out to the locals who were without water for
one month and power for up to two. One major high school will
probably be demolished because damage is so extensive. It was
the worst storm ever on the island (where the U.S. also has a
growing, highly strategic military presence).
–So I was holed up in Houston on Monday and Tuesday, a result
of the blizzard in the northeast and my inability to return home,
but this offered me a chance to catch up on the news and do
some reading, and in viewing the local NBC affiliate I got to see
anchor Dominique Sachse. Goodness, gracious, my Houston
friends. Note to NBC brass: Why did you sign Katie Couric to
such a long-term contract when you could have locked up the
effervescent and beautiful Ms. Sachse instead?
–Speaking of great looking women, last week I reported that my
waitress on the QE2, a Czech girl, was the most attractive on the
entire ship. So, it only seems appropriate that I note that another
Czech lass, Petra Nemcova, graces this year’s cover for the
Sports Illustrated swimsuit issue.
–Of course the preceding two items were of a highly sexist
nature and I’m sure I’ll pay a price in my ratings (plus I’ve lost
my last French readers, no doubt), but continuing along the same
lines, the Sports Illustrated issue was, overall, very disappointing
(save Petra and Audrey Quock).
–We congratulate Homer Simpson and his family for their 300th
episode. As much as I’ve liked other comedy shows over the
years, without a doubt “The Simpsons” has the best writing ever,
period.
–I ended up watching the Martin Bashir documentary on
Michael Jackson and enjoyed it. Then again, maybe my brain
was affected by the inactivity aboard the QE2.
–Actually, I see where people are selling their excess medication
(like fertility drugs) on the Net these days and since I didn’t get
sick on the QE2, maybe I could raise some cash by offering the
hundreds of leftover Kaopectate and Immodium tablets that I
have.
–I have never worn mousse in my hair, which forever
disqualifies me from being a contestant on a reality TV program.
I can see my tombstone now.
Here lies Brian Trumbore. He never appeared in a reality
television series.
–Movie review: I have to pass along the opinion of local NBC
critic Jeffrey Lyons, my favorite, who said the new Civil War
flick, “Gods and Generals,” is terrific and that actor Stephen
Lang’s portrayal of Stonewall Jackson is “brilliant.” Of course
this film has already garnered a ton of publicity due to the fact
that Senator Robert Byrd has a cameo in it, but it gives me an
opportunity to thank Ted Turner, who once again has lent his
considerable support to another project concerning this era.
Turner’s contribution to our nation’s understanding of its history
will be appreciated for centuries. And parents, there’s no sex or
foul language in this film, so encourage your children to see it.
–Finally, I was glad to see Mike, who works behind the counter
at my Dunkin’ Donuts and serves my coffee each morning.
Mike seemed to be happy to see me, after such a long absence,
and then he said, “Can you guarantee you’re sticking around for
a while? [Pause on my part.] Man, you can’t, can you?”
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $351
Oil, $35.58
Returns for the week 2/17-2/21
Dow Jones +1.4% [8018]
S&P 500 +1.6% [848]
S&P MidCap +2.7%
Russell 2000 +1.6%
Nasdaq +3.0% [1349]
Returns for the period 1/1/03-2/21/03
Dow Jones -3.9%
S&P 500 -3.6%
S&P MidCap -4.8%
Russell 2000 -4.9%
Nasdaq +1.0%
Bulls 41.6%
Bears 33.7% [Source: Investors Intelligence. *I have a piece on
this survey currently on my “Wall Street History” link.]
Thanks to the input of Charles K., I will take a look back at
Neville Chamberlain for my 2/27 edition of “Hott Spotts.”
Have a great week. I appreciate your support.
Brian Trumbore
