[Posted 7:00 AM ET]
We are so desperately in need of good news that when the
Street received word Friday of the capture of Osama bin
Laden’s eldest son, the stock market rallied after being on the
verge of hitting its October, multi-year lows. No matter that the
report was discredited by the White House, the market held onto
its gains anyway. Maybe the outright capture or death of Osama
himself, however, is around the corner. Certainly the
dismemberment of the Iraqi regime appears to be. Both would
be huge positives, of course, but it would also be good for the
disaffected in the Arab world to see these two myths shattered
and to witness, instead, the cheers of those finally liberated.
I am not going to spend a lot of time this week on the diplomatic
efforts going on at the UN, now that we have our latest, and one
would hope, final deadline, March 17. I remain optimistic that
the removal of Saddam will prove to be one of the great, defining
moments in world history.
In his press conference on Thursday, President Bush said he was
humbled by those he will never meet who constantly pray for
him. I’m one of the many who fall into that category. I also
firmly believe the war will be quick; measured in days, not
weeks or months, but aside from praying for our servicemen and
women, I’m also praying for Bush to have the conviction to stay
the course once the battle is over, wherever that may take us.
—
One of the problems in writing a column of this kind these days
is the rapidity with which circumstances can change. Just 5
hours after posting last week’s piece two news items broke
almost simultaneously, the arrest of Khalid Mohammed and the
defeat in the Turkish parliament of the proposal allowing
substantial U.S. ground forces to mount a northern front against
Iraq. Regarding the former, it is a huge victory.
As for Turkey, upon watching the celebration in the streets of
Ankara following the vote, I couldn’t help but think back to my
personal experience there last May when I was treated well and
felt totally safe walking the streets. How would I fare today?
Despite the 90%+ disapproval for the war in the country, I’d like
to think the average resident would be as kind as before, but I
can only guess what treatment I’d find. I do note rather fondly
my time spent at a restaurant facing the Iranian embassy, where I
had a few meals. The weather was gorgeous, the food and drink
great, the waiters pleasant, and I took pleasure in saluting the
video cameras of the embassy when I scratched my nose.
Despite talk of a broad coalition in the war on terror, the truth is
there isn’t one. Save for a few brave leaders like Blair, Howard
and Aznar, the United States faces an increasingly uphill battle in
shaping world opinion. Again, there is also no better place to get
a handle on this than Turkey.
I have written extensively of how Turkey was abused following
the first Gulf War, and then last December Turkey was throttled
anew in its effort to secure Ataturk’s vision of formally joining
the European community, as the European Union basically said
“see you in two years.” In addition, an Islamic party cobbled
together a parliamentary majority in a historic change of
government. I noted at this time (12/14/02) that I was “less
optimistic about Turkey’s future than I have been in some time,”
having also pulled my investment in the country a month earlier.
But I still want to believe that Turkey can be the model for the
region, though the defeat in parliament last week was disturbing
because over 100 members of the majority defected on the issue
of U.S. troops despite the pleadings of the Islamic leaders. At
the same time, the all-powerful military opted not to weigh in
until it was too late, which tells me they wanted the party to fail
even though defiance could prove costly in the post-Saddam era.
My fear has always been that the military would feel compelled
to intervene directly in the country’s politics, i.e., a coup, an
event that would squelch all possibilities for E.U. membership
this decade.
There is no doubt in my mind that had the E.U. last December
elected to accept Turkey’s formal candidacy for membership, last
week’s vote would have gone the other way. As it was, only 4 or
5 votes out of 530 were needed. It wasn’t all about Iraq, though
you are unlikely to hear this from commentators on the issue.
It’s distressing that the Turks are dangerously close to
abandoning Ataturk’s vision. Having said this, I still couldn’t
help but place a small bet here on Monday, following the
Istanbul market’s 13% decline on the heels of Saturday’s vote,
though new maneuvers to confront the Kurds on the Iraqi border
could ruin this trade. More below.
—
North Korea
New South Korean President Roh is already facing stiff
opposition at home for his engagement strategy with Pyongyang
from those groups who want him to take a more aggressive
stance. Roh also believes he can drag Washington into
negotiations, telling the Times of London in an interview:
“When I meet President Bush I will convince him by saying that
although North Korea does not meet the values of the U.S. and
may not be likeable from their standpoint, there is a possibility to
improve the relationship…When we look at history, the greater a
leader is, the more effort he makes to create dialogue.”
[That’s just what Neville Chamberlain did, Mr. Roh.]
I’m sure the Bush Administration is just thrilled by this talk. As
for North Korea they buzzed one of our spy planes, in an attempt
to bring it down and take hostages, and at week’s end they
declared the Sea of Japan a protected area, the prelude to another
missile test.
And as a follow-up to last week’s comment on potential troop
withdrawals from the region, Secretary of Defense Rumsfeld
confirmed as much in comments to Congress this week, though
South Korea’s defense minister called for the U.S. to maintain its
presence as a ‘tripwire.’ Seoul can’t have it both ways,
criticizing the U.S. on one hand, while asking for its protection
with the other.
More importantly at this moment in history, the United States is
unprepared to fight two major conflicts at the same time without
resorting to nuclear weapons, in my opinion. A global
Depression would follow should we choose this path.
—
Wall Street
This was one of the worst weeks for economic news since the
days following 9/11, because it contained both micro and macro
items that smelled of double-dip and recession. Whether it was
stagnant data on manufacturing, rising gasoline prices and
jobless claims, slumping auto sales or lackluster news on the
earnings front from a key giant, Intel, 90% of the micro news
was awful, capped off by Friday’s disastrous jobs report that
reflected a loss of over 300,000 for the month of February.
But it was two macro items that clearly caught the attention of
investors. First, Fed Chairman Alan Greenspan talked about a
housing slowdown. Now granted, he was quick to add we
weren’t in the midst of a bubble but obviously any slowdown,
not just in construction activity but in price appreciation, could
have a significant impact on consumer spending. This shouldn’t
necessarily be news for readers of this space, but coming from
Mr. Greenspan, as irrelevant as he’s become, it’s still a worthy
admission.
More importantly, though, were the comments of Warren Buffett
in his annual letter to shareholders, details of which emerged
during the week (with more to follow shortly after this is posted,
I imagine). Buffett writes:
“Despite 3 years of falling (equity) prices…we still find very few
(stocks) that even mildly interest us,” adding, “occasionally,
successful investing requires no activity.”
But he saved his harshest words for a topic near and dear to my
heart, derivatives, what he labeled “financial weapons of mass
destruction.” Buffett’s chief concern in this area is in the
accounting shenanigans that are taking place when it comes to
valuing the instruments, to which I’d also add one of my old
points, that being some of these guys manning the weapons
simply aren’t that smart.
Street Bytes
–For the week the Dow Jones lost 1.9% to 7740, though it was
well below 7600 Friday morning before the bin Laden family
rumors started. Nasdaq declined 2.4% to 1305. But what is
getting lost in the shuffle these days is the fact that most other
developed global equity markets are also at multi-year lows,
in the case of Japan and the Nikkei a 20+ year one. And
compounding matters for U.S. markets is the continued flight
out of dollar-denominated assets, with the greenback tumbling
to a new 4-year low against the euro.
–U.S. Treasury Yields
6-mo. 1.10% 2-yr. 1.40% 10-yr. 3.64% 30-yr. 4.68%
Friday morning the 5-year Treasury hit a 48-year low in yield on
the heels of ongoing war fears and the miserable economic news.
There is new talk that the Federal Reserve may have to cut rates
once again when it gets together in two weeks, but while the
European Central Bank reduced its rate ¼% (less than expected)
due to the desultory news across the pond, I thought one of the
more significant items of the week was the move by the Bank of
Canada to actually ‘raise’ rates in order to stave off inflation,
which is now running in excess of 4% north of the border. Is this
the canary in the mine?
Of course if you were looking for news of inflation in the States,
aside from rising energy prices, all you had to do was look to
New York City and approval there of a 33% hike in subway and
bus fares. Plus, back to the issue of real estate, the IMF warned
Britain’s monetary authorities that the UK housing bubble is
about to burst with disastrous effect…prices having risen a
stupendous 23% in the past year. [U.S. prices have generally
been increasing at a 6% level.]
–Energy: First there were reports that Saudi Arabia will help out
in the event of war, ramping up production to its maximum 10.5
million barrel per day capacity in order to help stabilize prices.
Then on Thursday word came out that the Saudis were already at
full capacity in the 9.2 million level. Where is the truth? What,
you expect the Saudis to be honest about anything?
–Back on 5/6/00 in this space I asked of C. Michael Armstrong,
then chairman of AT&T but former CEO of Hughes Electronics
in the mid-90s, “What did you do at Hughes that so interested the
Chinese?” For years I was frustrated that Congress and
government authorities did little to expose the treason committed
by some in Corporate America who knowingly shared missile
secrets with the Chinese during the Clinton Administration. I
still say that of all the corruption that took place during this
period, the missile theft will easily hurt us the most.
Well, this week Boeing and Hughes finally settled with the
government on 123 charges for $32 million (Loral having
admitted its own guilt earlier), with both companies saying the
dirty dealings had a “negative impact on national security.” Yet
none of the reports I read this week mentioned that Armstrong
was at the helm of Hughes during this time. He’s led a charmed
life.
–In reviewing the same 5/6/00 column, it’s interesting that I
started that particular piece with the following quote from
Warren Buffett.
“In the past year, the ability to monetize shareholder ignorance
has never been greater.”
Right again, Mr. Buffett, and very prescient.
–When I wrote about PIMCO’s Bill Gross last week and his
latest thoughts on the bond market, I purposefully omitted his
musings on the coming conflict with Iraq because, having read
his material for years, I didn’t find the comments germane to my
review.
But then the Wall Street Journal ran a focus piece on Gross’s
thoughts which included his admonition against going to war. Of
course I totally disagree with him on this, but I still view it as par
for the course. He has always spoken out on various topics
outside the bond arena, as is his right, but I have opted to focus
on his primary field of expertise instead, one in which he has no
peer.
At the same time, because of the mini-controversy that was
stirred up with this last letter, I have to now admit that when I
worked at PIMCO I was probably the only one who saw Mr.
Gross running for high political office (the Senate) some day.
Don’t worry, investors, this would be years down the road, but it
definitely wouldn’t surprise me.
–According to Ibbotson Associates, long-term government
bonds beat stocks (as represented by the S&P 500) 9.7% to 9.3%,
annually, for the 10-years ending 2002, only the 8th such
occurrence in 77 rolling 10-year periods since 1926.
–CSFB’s Frank Quattrone started the week by refusing to testify
in the IPO probe, an act for which he was forced to resign a few
days later, only to then see formal complaints leveled against him
by the NASD. But Quattrone earned $200 million for the 4 years
ending 2001, which he has undoubtedly squirreled away in tin
cans near his beloved Pebble Beach Golf Club. Meanwhile, 7
other executives at CSFB were subpoenaed in the ongoing Enron
investigation.
–The Wall Street Journal questioned Hewlett-Packard’s
accounting methods in the company’s last quarterly report.
–Imclone’s former CEO Sam Waksal was charged with trying to
evade $1 million in New York sales tax on his art purchases, a la
Tyco’s Dennis Kozlowski and, it is apparent, tens of other
corporate dirtballs in the New York City area. Just string the
bastards up. Seriously.
–And then there is the case of Capital One’s CFO, who resigned
amidst allegations of insider trading.
–The cash level for the average equity mutual fund is 4.5%.
That’s low. Don’t look here for a source of buying power,
particularly since net redemptions remain the order of the day.
–The New York Post reports that the SEC has its eyes on
corporate pension plans and the fact large numbers of companies
continue to hide big losses in their filings to the agency. Along
the same lines, a separate report from London has Ford on the
brink of financial distress due to its own pension issues. Ford
denies this is the case.
–Honda bucked the trend when it came to reporting February car
sales. While GM’s were down 19%, Honda’s rose 14%. Yours
truly just purchased my 3rd straight Honda Accord (all made in
Ohio, mind you). Good value at a fair price.
–George Foreman has been a marketing machine with his grills,
earning a reported $27.5 million from the sale of them in 2002
alone. Now he’s going to begin selling his own brand of
packaged meat; items such as strip steaks and bacon cheddar
burgers….mmmmmm, ched-dar bur-gers. I’m fired up.
Anything to make my life easier, I say, and you can count me as
a disciple in the Church of George.
–My portfolio: So having the advantage of knowing that the
Istanbul stock market was down big when I began work on
Monday, just for a trade I purchased a small amount (less than
2% of my investment assets) in a leading Turkish company
traded on the NYSE in the hope that the government got its act
together. For the rest of the week I broke even on the position.
Otherwise, I remain about 25% in energy (mostly drillers), 5%
Telecom New Zealand, the latter recovering somewhat from its
post-America’s Cup funk, and the rest cash.
International Affairs
Israel: Driving to work Wednesday morning I was thinking of
how Israel had avoided a suicide attack for a long period, about
two months, then an hour later came news of the Haifa bombing.
Israel retaliated and the cycle of violence was renewed. There is
no doubt that many of us living outside this region are becoming
desensitized to the conflict of the last two years in particular.
The pictures from there no longer move me like they did in the
past, probably because I blame both sides. I can also hear some
of you asking, how can you treat each side equally? Because
Israel needs to stop building the settlements, that’s why. At
the same time the Palestinian people need to wake up and cut
off Arafat’s life support.
China: Jiang Zemin has maintained control of just one top
position, but it’s the most important one…the military. Even
though this was long in the cards, many are focused on the fact
that Jiang has been very visible the past few months, even after
he was supposed to be enjoying his retirement. Hu Jintao, the
new party chief, can’t be too pleased.
Philippines: The series of terrorist attacks on the island of
Mindanao was distressing, more so because President Gloria
Arroyo is holding fast to her belief that the Philippine military
can do the heavy lifting when it comes to wiping out the
Islamists who are making life miserable for her citizens. But
they need more than just advisor support from the U.S., yet it
looks like it will take a major attack in Manila before that
becomes a reality. It’s also just another example of the
incredible shifting sands these days, whether it’s Turkey, the
Philippines, Russia, South Korea, or any of our other “friends.”
Negotiating the changing tides in this chaotic era is increasingly
difficult to manage, let alone write about.
Russia: The U.S. Senate unanimously ratified a treaty with
Russia that will reduce long-range nuclear warheads. The Duma
is slated to weigh in shortly, this being the document that
President Putin insisted on in talks with President Bush, the latter
favoring a mere handshake.
Iran: Turnout for local council elections in Tehran was only 12%
the other day as conservatives won big. The reason the moderate
and reform candidates fared badly and the turnout was light was
because voters remain disillusioned by the lack of real change
under President Khatami, who has nothing to show for his
“reform” agenda.
Argentina: The New York Times had a telling, and depressing,
piece on the country the other day. In May 2001, 36% of the
citizens lived below the poverty line. Today it’s 60% due to the
economic depression. It’s amazing to think that not too long ago
Argentina’s per capita income equaled that of the U.S.
Congo: So there was supposed to be a 4-nation cease-fire about a
year ago, after the awful fighting that claimed a staggering 2
million in 4 years. I still can’t fathom this figure because there
was zero press coverage of the carnage, along with the fact the
UN failed in its responsibilities (surprise). Well, fighting has
renewed, but thus far only about 500 have died. Progress!
Czech Republic: The man who replaced Vaclav Havel as
president, Vaclav Klaus, is already pulling back support for both
E.U. membership and the war against Iraq (the Czechs having
committed under Havel to supply chemical weapons specialists
to the cause). Klaus has always been a prickly sort and bears
watching.
Random Musings
–From the CATO Institute, between 1990-2001 state tax revenue
grew 86%, more than the 55% inflation plus population growth
benchmark. Yet the states all find themselves in fiscal distress.
Well, it’s because they spent way too much, citizens.
–The New York Times’ Thomas Friedman is the darling of the
media, especially post 9-11, and every now and then I agree with
something he says, though he has gone back to his pacifist ways
recently. Last Sunday, however, he wrote the following
outlandish piece of crap.
“And don’t believe the polls. I’ve been to nearly 20 states
recently, and I’ve found that 95% of the country wants to see
Iraq dealt with without a war.”
95%? That’s a boldfaced lie. Mr. Friedman made this up out of
thin air, but he’ll probably win another Pulitzer Prize for his
efforts.
–It’s pitiful that President Bush had not held a prime time press
conference in close to 18 months.
–I’ll tell you what really concerns me. The American people
will not react well to another attack and our government could be
thrown into a state of chaos should this occur.
–It’s not even worth wasting ink on French Foreign Minister
Villepin. I was watching his lame defense at the UN on Friday
and I kept thinking “trade war.”
–Bill Clinton and Bob Dole are going to be doing a “Point-
Counterpoint” segment for the next 10 weeks on “60 Minutes.”
Reportedly, Clinton will receive $1 million for his efforts. Here
is how the New York Times described Clinton’s thought process
concerning the stint.
“ ‘I thought about it for several weeks.’ He was concerned, he
said, that he not be put in a position where he would be viewed
as mounting a political challenge to the current administration.
‘I’m not running for anything,’ he said.”
Just shoot me. I can’t take it anymore. And this from the same
guy who Parade Magazine reports made $25 million last year,
while mounting a political challenge to the current
administration.
As for Bob Dole, why? Can’t us elephants put up someone
better?
–Last week I mentioned I was about to “explode” over the
coming Masters golf tournament and then didn’t explain why.
My fault. I was simply referring to Jesse Jackson’s sudden
involvement in the debate and his attempts to tie Augusta
members to the KKK. Granted, as I’ve noted in the past most of
Augusta’s members are true dirtballs, but this ugly smear of
Jackson’s is despicable. The other thing is why does this
philandering, corrupt, shakedown artist get on television in the
first place these days? He represents no one and should instead
be serving 10 to 20.
–New York City is contemplating a ban on headbands in public
schools, a good idea since the gangs are using them to display
their colors. It’s also another reason why as a nation we’re idiots
not to adopt Australia’s mandatory policy of school uniforms.
–But speaking of New York kids, on Wednesday many of them
walked out of class to protest the pending war with Iraq. Of
course it’s laughable to see this, but it’s a rite of passage for
every generation, I guess, even the misguided boy, all of 16 and
with earrings in his nose and ear, who was screaming “No blood
for oil!” Oh brother.
–Speaking of protests, I didn’t realize that Shannon, Ireland is
being bypassed as a refueling stop for U.S. military aircraft due
to protests at the airport there. [To my Irish readers, I’d
appreciate a note if this policy has changed.] Now you all know
how much I love this country, and I never give the pacifist Irish
grief because at least they’ve been consistent in their policy over
the years, but it may be time for someone to shake ‘em up a little
and remind them of some American history concerning their own
forefathers.
–Commentator Robert Novak said on “Capital Gang” that you
can be Catholic and still pro capital punishment at the same time.
Hear, hear!
–President Bush’s selection for running mate in 2004 is going to
be fascinating. Cheney has to be out and at first I thought it
would be Rice. Then a few months ago I switched to Powell,
due to the fact the Secretary won’t run for president in 2008,
giving Jeb Bush a shot. But now I’m thinking Giuliani. Then in
2008 Giuliani runs with Jeb as his running mate. Just musing…
it’s what I do.
–Someone tell CNBC that its ‘stock’ footage of the U.S. Senate
in action has Paul Wellstone in it.
—
God bless the men and women of our armed forces…and
President Bush.
God bless America.
—
Gold closed at $350
Oil, $37.78…new 12-year closing high.
Returns for the week, 3/3-3/7
Dow Jones -1.9% [7740]
S&P 500 -1.5% [828]
S&P MidCap -2.0%
Russell 2000 -1.8%
Nasdaq -2.4% [1305]
Returns for the period 1/1/03-3/7/03
Dow Jones -7.2%
S&P 500 -5.8%
S&P MidCap -7.3%
Russell 2000 -7.6%
Nasdaq -2.3%
Bulls 41.6
Bears 38.2 [Source: Investors Intelligence]
*I finished up my two-part series on appeasement and World
War II for my “Hott Spotts” link. Print it out and give it to your
children, after reading it yourself of course.
Have a great week. I appreciate your support.
Brian Trumbore
