[Posted 7:00 AM ET]
“France is not an ally.”
–George Will
It’s a new world and it’s about to be reshaped in ways even the
leaders themselves really don’t have a handle on. What we do
know is we have reached the end of another hectic, historic
week, with the next one shaping up to be a period that will be
remembered for a long time by all.
The summit in the Azores between President Bush and Prime
Ministers Aznar and Blair is the right thing to do. I also hope to
show my own appreciation for the support being given by Blair
and Aznar by traveling to Madrid and London in the next year or
so. I suspect that I will die happy if I never see Paris again.
The French and the other nations who go against the wishes of
the United States just don’t get it. Some leaders, be they in
France, Germany, Chile or Mexico, not only risk the wrath of the
American consumer, they only hurt their own people, who may
soon lose jobs as a result of the intransigence of folks like
Jacques Chirac. Of course U.S. jobs may be lost, too.
There has been enough shrill talk already in this regard and on
most topics I’m going to maintain some civility on these pages,
but it’s clear to yours truly that Chirac’s effort to become the
counterweight to U.S. power in the world will drag his nation
down to the depths of despair, and given the right circumstances
over the coming decade, possibly anarchy. And to those in
America who say, “France will always be an ally,” I say, bunk.
This has already changed the whole debate in this country on
how we treat our friends, and our enemies. It will change the
nature of old alliances, while creating new ones, the latter with
immense and exciting possibilities.
But before we can officially celebrate this new day, there is more
than a bit of unfinished business. For starters, aside from the
summit, Turkey’s parliament may be meeting one last time to
vote on allowing U.S. forces on their soil, though as of this
writing it could be too late, a fact which wouldn’t augur well for
the Kurds if the Turks decide to plow through northern Iraq to
prevent the establishment of a Kurdish state.
In addition, let’s address a few common questions.
–By attacking Iraq, are we fostering further terrorist attacks?
Potentially, but do you really think that sitting back and letting
Saddam or his sons (after they plug dear old Dad) in power
makes all of us any safer? Of course not. Remember Hitler,
only think sarin and anthrax. Either way, we’re still a target for
years to come.
–Will Saddam torch the oilfields? It increasingly looks like this
could be the case, but it’s only a short-term problem should he
choose to do so.
–Will Saddam launch chemical and biological weapons?
Unfortunately, one or two might get through the initial assault.
But what is truly scary is Saddam firing the first shots. I have
thought a lot about this the past few days and to me it’s the only
way he can ensure that some of his generals obey him. Once the
allies start firing, I just don’t see this being the case.
[This is also the huge difference between Iraq and North Korea.
Iraq’s leadership is worthless, scared to death of their own
leader. North Korea’s, on the other hand, consists of crazed
fanatics and can be expected to follow orders.]
–Back to France, Marc Ginsberg, a former U.S. ambassador,
wrote in the current issue of The Weekly Standard that 23
million Iraqis will direct their anger against Jacques Chirac if he
continues to stand in the way of their liberation. An interesting
angle.
–Walter Russell Mead (Washington Post) notes a UN study that
proves “containment kills,” in Mead’s words. It is estimated
240,000 Iraqi children under the age of 5 will die over the next
10 years if Saddam remains in power.
My mind has been made up for years as to what the United States
needs to do. I haven’t wavered one bit. I do, however,
understand the fears some of you have. There are no certainties,
no more guarantees in life. Of course that’s the way it’s always
been, only today life has an edge to it that didn’t exist for most of
us just a few years ago.
One thing remains the same, though, and that is you have to take
a stand, backed by facts, and support those with similar beliefs,
who in my case happen to occupy the White House and No. 10
Downing Street. We’re about to learn more about ourselves…
and the future of the world.
Wall Street
The best news of the week was the fall in energy prices, and the
benefits of this cannot be discounted, but even here you’d be
foolish to place a heavy bet on the trend continuing until you see
what develops in Iraq.
As for the rest of the financial and economic scene, the news was
more or less abysmal and I, for one, am declaring “double-dip.”
If it looks like a recession and feels like a recession, it’s probably
a recession. Oh sure, the U.S. economy grew at a 1.4% clip in
the 4th quarter, but it certainly didn’t seem like it, nor are the
figures for the 1st going to look any better; they’ll probably come
in worse.
This week we learned retail sales for the month of February
declined 1.6%, another sign the consumer is pulling in his horns,
while you have earnings warnings from key economic
bellwethers like Sherwin Williams and Maytag, with Ford
announcing it was slashing production 15% in the second
quarter.
And then you have the airline industry. Eegads. An independent
analysis predicts that war would result in another 70,000 lost jobs
and an additional $4 billion in losses. That’s a lot of additional
folks (including vendors, restaurant owners) not buying cars or
washers, let alone new homes.
Speaking of the housing industry, this remains the single biggest
ongoing positive, as record low interest rates have led to one
more final surge in refinancings. But if we have another after
this, it would be amidst depression.
So we just sit around and wait to see how our leaders handle the
evil one. To place any big bets on the outcome is gambling, not
investing. I said long ago that I was willing to miss the first
1,000 points of a rally, if that’s what we get, but that statement
was made prior to the emergence of North Korea as a further
destabilizing factor.
You also can’t ignore the fact that the entire world relies on a
strong U.S. economy. The margin for error is small, especially
with the tremendous amount of debt sloshing around the global
system these days, from the individual consumer, to the
corporation, to state and local governments and, now, an
exploding federal deficit in Washington.
So many things have to go right before we can issue the “all
clear,” allowing the good folks to put away the gas masks and
duct tape, or not worry about smallpox vaccinations and drones,
or suicide bombers and crazy North Koreans with bad haircuts.
Frankly, this also doesn’t mean I’m changing the way I live. I’ll
still travel, go out in New York and enjoy life as best as I can.
But when it comes to protecting my financial assets, I’m not
about to get reckless. My best advice to you is that you do the
same.
Street Bytes
–For the week, despite the 270-point advance on Thursday the
Dow Jones rose just 1.6% to 7859, while Nasdaq tacked on 2.7%
to 1340. Intraday, however, the Dow had been as low as 7416,
within hurling distance of the October lows, so the comeback
was impressive.
Much talk was made of an unwinding of the “war trade,” selling
hard assets such as gold, along with Treasuries, in exchange for
stocks, and certainly there was some validity to this. I also just
think stocks were due for a technical bounce. To call it much
more than that, before the geopolitical scene becomes clearer, is
simply not facing up to reality.
–U.S. Treasury Yields
6-mo. 1.11% 2-yr. 1.57% 10-yr. 3.70% 30-yr. 4.71%
Early in the week yields hit 44+-year lows, with the 10-year
trading at 3.57% before settling at 3.70%. Overall, rates were
largely unchanged, except for the two-year. The Federal Reserve
meets this coming Tuesday and it is expected that Greenspan and
Co. will change the “bias,” at least, to reflect the sloppy economy
and war. Should it opt to lower interest rates, I wouldn’t expect
this to have any appreciable impact on market behavior.
[PIMCO’s Bill Gross says the Fed will remain on hold for some
time to come so as to not to further roil the money market funds,
many of which are struggling to pay out miniscule yields as it is,
after you take into account fees. I see Gross is also the cover
story for the March 17 edition of Barron’s, but we have to get
this posted now, don’t we?]
–St. Louis Federal Reserve President William Poole caused a
huge stink when he reiterated a long-held belief at what some
characterized an inopportune time, that being the theory that
Fannie Mae and Freddie Mac lack adequate capital and may not
be able to weather a financial shock, posing a risk to the overall
financial system. The implication is that while Fannie and
Freddie are not backed by the U.S. government, basically,
they’re treated as if they are too big to fail and investors act as if
the instruments are guaranteed. Since the two institutions
oversee a huge portion of the mortgage debt in this country, it is
a legitimate concern.
–Energy: Inventories continued to fall to levels not seen since
the 70s, which means that the margin of error is miniscule.
While OPEC announced this week it would step up production
should supplies from Iraq be disrupted, the fact is that among the
cartel members, only Saudi Arabia has any real spare capacity
and, as I noted last week, even this is in some doubt.
The good news on the week, though, was that natural gas
continued its slide from the $10 level, finishing up around $5.50,
which is still high, while crude oil corrected to the $35 mark.
Meanwhile, prospects for drilling in the Arctic National Wildlife
Refuge are still alive, with Republican senators saying they are
just one vote short.
–German Chancellor Schroeder finally found religion and laid
out an ambitious plan to restructure his nation’s welfare state.
But to give you an idea of what he’s up against, Schroeder is
seeking to enact reforms like lowering jobless benefits from 32
to 12 months. You think the masses will stand for that?
–A week ago Friday, Larry Kudlow, Jim Cramer and guest Seth
Tobias (a hedge fund operator) were all blasting Warren Buffett
for his recent dour investment opinions, labeling him a grouchy
old man. They also took another shot at Bill Gross (a weekly
occurrence on this program). Kudlow and Cramer are so small, I
thought. How the hell can you criticize arguably 2 of the 3 best
investors (Gross’s discipline being bonds) of the last 50 years?
[John Templeton is the other. Peter Lynch is way overrated. You
would have lost a ton with him the last three years.]
As for Buffett, since 1965 his shareholders have picked up 22% a
year and in 2002 they only lost 2%. His predictions have
generally been bang on.
–The Russian government has been very concerned over the
recent weakness in the U.S. dollar because Russians have stashed
some $40 billion in mattresses and shoeboxes due to the historic
instability of the ruble. Russia is actually the 2nd largest dollar
economy outside the U.S. and authorities are trying to calm the
citizenry by talking up the U.S. economy’s long-term attributes.
Ironically, if they’d cooperate on Iraq that would help a helluva
lot more than mere jawboning.
–Speaking of the dollar, it rallied back strongly this week. I
stick with my prediction that there will be no immediate collapse
in its value, and we could continue to see a sizable rally if the
war goes well.
–A study revealed that fewer people are opting into their 401(k)
plans than before. This shouldn’t come as a real surprise,
especially since I’ve been writing that it will take loads of time,
not just a decent rally every so often, before the little guy feels
like venturing forth again. It also doesn’t help when company’s
like Charles Schwab eliminate the company match.
–Much was made of the volume on Thursday when the Dow
soared 270 points, 1.75 million shares on the NYSE, the busiest
day of trading thus far in 2003. But to put this in perspective,
last July the average for the month was 1.9 million.
–Merrill Lynch brokers, upset at CNBC’s coverage of the firm,
are turning off CNBC and switching to Bloomberg as the
financial news source of choice on their workstations. Of course
yours truly will be switching off CNBC, too, this coming
Thursday and Friday for March Madness! Unless there’s a war,
that is.
–Former Treasury Secretary Bob Rubin, currently vice chairman
at Citigroup, received a $10 million bonus last year. Good work,
if you can find it.
–Bell Laboratories, the research arm of Lucent, just picked up
patent # 30,000 since 1925, an amazing feat. Our own Dr.
Bortrum had a hand in about 10 of them, incidentally.
–Schering’s CEO is being investigated for giving fund managers
and analysts a “heads up” before issuing an earnings warning last
fall, a major no-no in this era of full disclosure.
–But at least the Schering exec didn’t pull a Sam Waksal. Just
when you thought the former Imclone CEO couldn’t do
anything worse, word came this week that he actually bought
‘put’ options on Imclone ahead of his company’s own bad news.
In all seriousness, give me one good reason why he shouldn’t be
strung up? Time’s up.
–My portfolio: I had a lousy week and really don’t want to talk
about it. No big blowups, mind you, my energy and other plays
(including a new 3% position in Asia, a closed-end offering) just
drifted lazily lower. Looks like a weekend without premium
beer for the kid. I’m about 35% equities, 65% cash. Actually,
this is the highest exposure to stocks I’ve had in over a year.
This could change Monday morning.
–And finally, Harry K. reminded me of the opening to Charles
Mackay’s 1841 classic “Extraordinary Popular Delusions and the
Madness of Crowds.” It’s a good way to note the 3rd anniversary
of Nasdaq 5048…March 10, 2000. Mackay quoted Daniel
Defoe.
“Some in clandestine companies combine;
Erect new stocks to trade beyond the line;
With air and empty names beguile the town,
And raise new credits first, then cry ‘em down;
Divide the empty nothing into shares,
And set the crowd together by the ears.”
Yup, I’d say that about sums it up.
—
International Affairs
Turkey: Another wild and mostly destructive week as
negotiations collapsed over Cyprus, with the Turkish-Cypriot
leader Denktash, a hopeless old fool, slamming the door on a
solid, UN-brokered peace plan. By acting in this fashion,
Denktash helped kill any immediate hope Turkey had of
enhancing its candidacy for the European Union.
At the same time, Turkey took it up the butt from the European
Court of Human Rights, which ruled that it had violated the
rights of Kurdish rebel leader Ocalan. This is a travesty. Ocalan
is a killer, pure and simple, who led a revolt that resulted in the
loss of 30,000. Yet when Turkey finally captured him, instead of
executing the bastard immediately, the government commuted
his sentence so as to win favor with the E.U., which rejects the
death penalty.
But there is a sliver of hope in the elevation of Islamist party
leader Recep Erdogan to prime minister. [Erdogan had to wait
until he was formally elected to parliament.] He is a supporter of
the U.S. and of basing American troops in Turkey, but he has to
get parliament to reverse its previous stance this weekend, or the
nation risks losing $billions in much needed financial aid.
North Korea / South Korea: I made a remark the other week
relating to Taiwan and China as to how recent history shows that
businessmen do not always act in their nation’s best interest. I
would note the same is the case with the two Koreas. I’m not
going to elaborate except to say corruption is endemic to the
entire region (and the world, really), a recent example of which
was Hyundai’s admission it had paid off Pyongyang to the tune
of $500 million for the purposes of gaining exclusive access to
its market. I see more and more of this happening, with South
Korea’s government largely helpless to stop it. And the more
money Kim Jong Il receives, the more mischief he can create.
China: We welcome the elevation of Hu Jintao to president,
succeeding Jiang Zemin, with the latter retaining control of the
military.
Israel: Tony Blair and George Bush marched out on Friday in a
sorry attempt to gain support for their Israeli-Palestinian peace
plan. I say ‘sorry’ because the timing was so blatant in the face
of the weekend summit on Iraq that it will meet with much
ridicule.
Iran: The International Atomic Energy Agency confirmed what
has long been apparent to many, that being that Iran’s nuclear
program is “robust.” And why not? Better to confront, and
blackmail, the U.S. with nukes in their arsenal, a la North Korea,
than not to have them. Strategist Michael Ledeen describes Iran
as the “mother of all terrorism.” I say the Bush Administration
made a huge mistake in not actively supporting the massive
student demonstrations that sprung up last year. History will
prove this was a giant error.
Serbia: Prime Minister Zoran Djindjic, a friend of the West, was
assassinated by the very mobsters he was attempting to bring
down. Djindjic had helped to topple Milosevic and offered a ray
of hope for his people. Alas, now we wait to see how this
historically troubled region sorts things out. There is little
cause for optimism.
The assassination is also another example of how powerful
organized crime and the drug trade are in impacting the political
situation across the world. A further case is in Thailand, where
Prime Minister Thaksin noted he was being targeted for
assassination by drug lords for his ongoing campaign to root
them out. Over 1,000 have died in the effort.
Bulgaria: The richest man in the nation, head of the largest
industrial outfit, was also rubbed out this week. All of these
actions are similar to events that preceded both World Wars I and
II.
—
Random Musings
–“Week in Review,” 1/26/02: “I have been harping on the idea
that the United States needs to convince Putin that cooperation
with regards to Iraq (which owes Russia at least $8 billion) and
Iran is in his best interest. Deals have to be cut. Shots of vodka
slammed. Oil rights exchanged.”
Fourteen months later you finally see the real problem. We have
teetotalers in both Moscow and Washington.
–“Week in Review,” 12/22/01: On Iraq, “The drumbeat
continues and the battle lines are being drawn.”
Fifteen months later, what “rush to war”?
–The latest Zogby poll reveals that 57% of Americans support
going to war with Iraq. Republicans are 84-12 ‘for,’ while 75%
of blacks are ‘opposed.’
–George Will: “The UN has targeted one nation, the U.S., a
nation that pays 25% of its bills.”
–Ralph Peters / strategist (New York Post): “The sorry truth is
that Europeans love to cry over corpses, but won’t lift a finger to
prevent the killing in the first place.”
–There has been an awful lot of misreading of history recently,
specifically pertaining to a comparison between Germany’s
military might in 1938 and Saddam’s army of today. Hitler was
NOT strong prior to Munich and, as I noted in a recent “Hott
Spotts” series, if Britain and France had gone to
Czechoslovakia’s aid, Hitler would have been crushed. One year
later, however, it was a far different matter. That’s the real
lesson; not that Iraq is too weak to present a current threat, but
that down the road Saddam could take on the whole region if he
chooses to do so, let alone passing the weapons around like
holiday candy. Just substitute weapons of mass destruction for
Hitler’s overwhelming initial superiority in tanks and aircraft.
–Here’s the deal with UN Secretary General Kofi Annan. He’s a
good person and would make for a fine neighbor. I imagine if
you asked him to watch your house while you were away, you’d
come back and Kofi would have left all sorts of notes for you. “I
moved this plant because I thought it would get more light in this
spot. Hope you don’t mind.” What a nice man he is, you’d say.
One problem, though, that being the fact he is hopelessly
overmatched in his current role, which, as he admitted himself,
has cost the lives of millions, yes, millions…witness Africa.
[Paid for by “Havel for Secretary General.” Brian Trumbore,
Treasurer.]
–Tommy Franks, supreme commander of U.S. forces in the
Gulf, discussed sensitive information in his wife’s presence,
according to an internal Pentagon investigation. That kind of
carelessness doesn’t exactly give one a warm, fuzzy feeling.
–There have been way too many Black Hawk helicopter
accidents recently. Something is seriously wrong.
–Unbelievably, there are some folks out there who like
Democratic presidential candidate Howard Dean, to the point of
calling him “smart.” I was watching Dean last Sunday on “Meet
the Press” and came up with my own conclusion. This guy is an
idiot, as well as being incredibly naïve. Richard Gephardt
remains the best candidate the Democrats have.
–Regarding my musing of last week on Bush’s ’04 Veep pick,
assuming Cheney slides over to ‘presidential advisor,’ Dan D. in
Maryland is convinced it’s still Condi (assuming the war goes
well, of course), as the Democrats turn to Hillary, an increasing
possibility since no one Democrat has as yet separated
themselves from the pack. In Dan’s firm logic, the Dems would
then be in a huge bind, “trying to convince their most historically
strong voting blocs – women and blacks – that Rice isn’t really
one of them.”
–According to the Harvard School of Public Health, by 2004,
40% of the strains of Streptococcus could be resistant to
penicillin and erythromycin, the two common antibiotics used to
combat it. Meanwhile, that mysterious flu in Southeast Asia is
more than a bit scary.
–Hans Blix appeared on MTV and said the issue of global
warming was more important than war and peace. Seriously, he
really said this.
–The New York Times had an editorial on Monday concerning
oil drilling and Alaska in which it lamented the fact that
“offshore seismic activity has driven whales out to sea and
beyond the hunting range of native communities.” First, I
thought we were trying to save the whale. Second, if you open
up to more drilling, the natives will get “good, high-paying jobs,”
to borrow our President’s favorite phrase. For their part, it’s also
time for the damn Eskimos to get with the program! [Personally,
I don’t have any Eskimo friends, nor many Inuit readers, I
imagine.]
–Those ‘antidrug.com’ commercials are highly effective, the
ones with the two guys chatting over the funding of terrorism.
I’d like to see them produce a new one showing the tie-in with
North Korea…since the little commies get a large part of their
hard currency from the drug trade, specifically heroin.
–Two undercover cops were executed on Staten Island this week
in a gun deal gone bad. All of the suspects were quickly
apprehended and the trigger-man, at least, needs to be executed
himself, immediately. But while New York State has the death
penalty, no one has been strapped to the gurney in decades. It’s
time to reverse this, and time for elected officials not only to
show some guts, but to uphold the law.
–Japan has the highest suicide rate in the developed world (more
than double that of the U.S.), thanks to the stress brought on by
10+ years of economic distress.
–Let’s face it, the federal government could save a ton of money
by eliminating the FBI and just throwing pictures up on an
expanded “America’s Most Wanted,” perhaps running 24-hours
a day like “Headline News.” As for the whole Elizabeth Smart
case, heck, I’m glad she’s alright, but I’m sick of seeing the
intense coverage. We’re about to go to war, television execs!
–If we got rid of the UN, that would free up a ton of parking
slots in New York City, since we wouldn’t have to deal with all
those diplomats riding around with their obnoxious license plates
that grant them the ability to park just about anywhere. Plus 50%
of them are terrorists wearing suits.
–There is new evidence of water on Mars, emanating from
underground ice deposits. But other research shows that
radiation levels are so high on the planet, astronauts wouldn’t be
able to survive there. So I’m thinking, one, what about duct
tape? Two, we’re talking Mars must have some really weird
creatures. To be continued…
—
I have been writing the following for well over a year now, but it
has even more meaning these days…so we ask God to bless the
men and women of our armed forces, their friends and family.
God bless America.
—
Gold closed at $336…a collapse from the $350 level.
Oil, $35.38
Returns for the week 3/10-3/14
Dow Jones +1.6% [7859]
S&P 500 +0.5% [833]
S&P MidCap -0.3%
Russell 2000 +0.1%
Nasdaq +2.7% [1340]
Returns for the period 1/1/03-3/14/03
Dow Jones -5.8%
S&P 500 -5.3%
S&P MidCap -7.6%
Russell 2000 -7.5%
Nasdaq +0.4%
Bulls 39.8%
Bears 37.5% [Source: Investors Intelligence]
Have a good week. Keep the faith.
Brian Trumbore
