[Posted 7:00 AM ET]
“International politics is, in many ways, about dealing with
shades of gray. Where genocide, international terrorism and the
survival of the human race are concerned, however, hard choices
need to be made. Simply waiting is not a choice, it is an
abdication of responsibility.”
–Richard Sezibera / Rwandan ambassador to the United States
(Washington Post, 3/19/03)
Ambassador Sezibera was comparing the inaction of the United
Nations and the role the French played in the slaughter that led to
the deaths of one million innocents in 100 days back in 1994, to
the situation the U.N. faced over Iraq.
This time it’s different, thanks to President Bush, and while he
has caught a lot of heat in some circles for his evangelical
methods and for labeling the current world situation as a battle
between good and evil, I respectfully submit, how can you not
see it this way as well? And as I watch some of the protests
against allied action in Iraq, I have zero tolerance for those
failing to understand the threat posed by the evil ones and their
weapons of mass death.
I watched with awe the bombing of strategic installations in and
around Baghdad on Friday and offered up a prayer that as many
innocents as possible were spared, as well as one for those
coalition forces risking their lives, their mothers and fathers,
husbands and wives, sons and daughters. I have said all along
that what is now known as Operation Iraqi Freedom would
represent a “great, defining moment in world history.” [WIR 3/8]
I also said the battle would be “measured in days, not weeks or
months.” [WIR 3/8]
As I write this, success, defined as regime change, appears
imminent. But there are also many more dangers for those
carrying out the mission, as well as sleepless nights for loved
ones, so we pray for the best. Good is triumphing, but the quest
for a safer, just world is far, far from over.
And to our coalition partners, particularly Britain and Australia,
you have the gratitude of Americans everywhere for the
sacrifices you are making.
—
Wall Street
From the lows of Wednesday, March 12, to the close on Friday
we had the 1,000-point rally in the Dow Jones that some of us
suggested would be the result of a successful campaign in Iraq.
While I would argue that the markets were jumping the gun a bit,
a 15% move, 7416 to 8521, is damn impressive. On the week
the Dow gained 8.4%, its best performance since those heady,
early days of October 1982, the second month of the nascent bull
market. And the winning streaks for the Dow and S&P, now 8
days in a row, are the longest since 1998 and 1997, respectively.
So what does it all mean? Goodness, gracious, it’s enough for
me to bring up a topic near and dear to my heart, that being
valuation. Ten days ago I read a comment from a Street
strategist who described stocks as being “shockingly cheap.” By
cheap he was referring to stocks trading at 16 times projected
2003 earnings, but, buddy, they’re now over 30 based on trailing,
and when market historians talk about a normal market valuation
being 14-16, they’re referring, again, to trailing. Merrill Lynch’s
Richard Bernstein labeled current levels as “extraordinarily
high.”
Look, I’m not one who ever felt, or wrote, that we had to go
down to P/Es of 8-10, as some claim, because for one, markets
are far more driven by sentiment than reality these days, and,
heck, my own prediction was for the market to finish up this
year. But once the situation calms down some in Iraq, as hoped,
focus goes back to the economy and other hot spots like North
Korea…and the picture in both cases doesn’t look good. But for
now we’ll focus on the former.
Housing starts plummeted in February, and it wasn’t just because
of the weather, the index of leading indicators fell in the same
month and Oracle, a key bellwether, issued a lousy forecast for
future revenues. Meanwhile, retailers could benefit from a quick
resolution in Iraq, but for the time being many are glued to the
tube and not about to walk in a mall, for more reasons than one.
And then you have employment…or lack thereof. Following are
a few of this week’s announced layoffs.
Gateway – 2,000
Applied Materials – 1,900
Solectron (a leading electronics contractor) – 12,000
Cessna – 1,200
Continental – 1,200
Northwest – 4,900
Regarding the airlines, I was particularly struck by the absurd 25-
30% rally on Friday, alone, in many of these shares. Hell, the
industry itself was warning investors all week that the future was
glum.
And just when you thought you had seen the worst in corporate
malfeasance, along comes healthcare giant HealthSouth, which
the SEC accused of “massive accounting fraud” as it charged the
company with inflating earnings by $1.4 billion since 1999.
Finally, if you were looking for guidance from the Federal
Reserve, you came up empty. In keeping short-term interest
rates steady this week, the Fed blamed oil and geopolitical
uncertainties for sluggishness in the economy, while offering no
opinion on future prospects. Events in Iraq at week’s end,
however, may begin to change that, while to end on another
positive, plunging oil prices have to be considered a big plus for
the global picture. Overall, though, on balance we are still in the
midst of our double dip…even if few recognize it as such, yet.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.19% 2-yr. 1.77% 10-yr. 4.10% 30-yr. 5.04%
A huge reversal, as the flight out of bonds and commodities,
back into stocks, continued. Just one week ago, for example, the
key 10-year Treasury was at 3.56% and homeowners are
scrambling for one last opportunity to refinance.
–Energy: Crude oil plummeted to levels not seen since early
December on the good news from the war front and the feeling
that any supply disruptions will be minimal, if nonexistent.
Natural gas inventories, however, are at historic lows and this is
an issue, particularly when the economy improves, which will be
with us for some time to come.
But I can’t help but comment on the stunning defeat, at least to
yours truly, in the Senate of the bill to open up the Arctic
National Wildlife Refuge to drilling. An incredibly idiotic
decision. Realistically, ANWR could supply the U.S. with 7% of
its overall daily petroleum needs…figuring a maximum capacity
of 1.4 million barrels a day vs. current consumption, both
imports and exports, of around 19 million barrels. It’s a great
insurance policy (as I’ve probably noted 75 times before) and
how often do we need to remind the environmentalists that the
friggin’ disease-ridden caribou will survive?!
–For well over a year, Dell has traded in a tight $22-$30 range.
It would be a big positive for not only tech but the overall market
if it were to bust through $30 with some strength, in my humble
opinion. [Dell finished the week at $28.75.]
–The SEC charged 4 former Merrill Lynch executives with
securities fraud in the Enron case, including the former head of
investment banking. J.P. Morgan Chase and Citigroup are also
still under the gun, while Business Week points out that in the
case of Citigroup, a June ruling by the bankruptcy court holds the
key to the future of the slew of civil suits the bank faces.
But wait, there’s more, as Japanese securities regulators slapped
Citigroup’s Nikko Salomon Smith Barney unit with a startling
20-day trading ban for making false trades in an attempt to
artificially pump up prices.
–And in the ongoing saga of CSFB and one-time tech kingpin
Frank Quattrone, it’s now apparent that “Friends of Frank,” some
300 of them, made off with an average $1 million apiece in the
IPO shares Mr. Quattrone doled out as gifts to tech insiders in
exchange for future banking business.
–But, since I’m trashing Wall Street, it’s only fair that I also note
how the big firms have been raking in the profits lately, despite
all their problems, on the fixed income side, with Bear Stearns,
in particular, deserving credit for recognizing this opportunity
long before many of the others did. Bear has also largely
avoided the scandals.
–HealthSouth CEO Richard “Squishy” Scrushy was known to be
a giver to charity, thereby reinforcing my long-held theory that
many of the biggest donors are also some of our nation’s true
dirtballs.
–My portfolio: I dumped my less than 2% position in Turkey (a
‘trade’ put on about a week earlier) after the government’s
failure to shape the debate and secure the massive financial aid
package from the U.S. that it desperately needs.
Otherwise, I was having a solid week with my drillers (and lone
refiner) until Friday, when the market dumped them for more
aggressive plays. Remember, sports fans, the best thing possible
for this sector would be for oil to settle in the $22-$24 range,
along with a pickup in global economic activity, but you’ve seen
just how hard it is for the commodity to behave in any kind of
orderly fashion.
As for my other plays, Telecom New Zealand and my new Asia-
Pacific closed end fund both rose, so I’m celebrating in New
York tonight…just because. Overall, I’m about 34% equity,
66% cash.
International
North Korea: Military historian Frederick Kagan.
“Our armed forces – all of them – are stretched beyond the
danger point into crisis.”
Afghanistan, Bosnia, Iraq, South Korea. And what did
Pyongyang learn this week? Whereas Syria and Iran, for starters,
have real cause for concern now that the U.S. is “in country,”
North Korea sits back and says, well, they’ll be tied up for a
while down there.
Anyone who doesn’t think this is still a major crisis is just not
dealing with reality.
Russia: I’ve written before that in dealing with Moscow, you
have to be willing to accept two steps forward, one back.
Unfortunately, in recent weeks it’s two steps back, one forward.
I’m not going to go crazy here, for now, except to say it’s clearly
apparent that President Putin is facing increasing pressure from
his generals, in particular, not to placate the U.S. on every
matter. He knows Russia’s future lies with the West, and in turn
the U.S. could be a huge buyer of Russian oil, upon which the
entire budget is based ($21.50 a barrel, specifically), but the
hardliners still hold sway and Putin has to work through this little
internal crisis. That said, if President Bush cancels his summit
meeting with Putin scheduled for this May, that would be a truly
dark signal.
Turkey: What else can you say but they blew it. The government
is $100 billion in debt, in dire need of financial aid, and it spent
too much time listening to the will of the people instead of using
common sense. My hero Ataturk’s vision may forever be
unfulfilled. While Turkey has often been a victim, such as in the
shabby treatment of its European Union application, over the
past 50 years or so more often than not it shoots itself in the foot.
Of course if it were located next to Cameroon, no one would give
a damn, including yours truly, but it’s not. How the government
in Ankara behaves over the coming weeks could make or break
the nation’s future and impact the region as a whole.
Britain: Prime Minister Tony Blair weathered his political crisis,
securing a 412-149 vote endorsing military action. Much was
made of the fact many in his own party abandoned him, but
should the coalition be successful, as looks apparent, they’ll
come swarming back.
France: It’s amazing how they still have no clue. I was at my
Lions Club meeting on Wednesday and aside from the opening
installment in the bombing of Baghdad, all we could talk about
was what idiots the French were. [Well, to be honest, we also
had the issue of the upcoming Easter egg hunt for the local kids,
but I digress.] The long-range implications, as I’ve spelled out
before, are far-reaching and the French people will suffer, big
time. It’s also going to be interesting to see how Chirac and Co.
get out of the burgeoning Iraq-related scandals, but there will be
ample time to dissect these over the coming months.
Syria: More than a few have predicted that this is the next target;
more specifically, if President Assad doesn’t do something about
Hezbollah in Lebanon, we’ll take care of the problem for him.
For months and probably years to come, Assad is looking at
100,000 or so coalition forces on his doorstep. One hopes his
nights are filled with dread.
Iran: And related to the above, the mullahs in Tehran can’t feel
too comfortable. Spring could bring renewed protests in the
streets and it’s hoped that this time the Bush Administration
won’t sit on its hands. Momentum for change can build rapidly
throughout the entire region. But despite the happy thoughts,
one can’t forget that Iran is rushing to build nuclear weapons,
which would give the leadership the ability to blackmail
Washington.
Saudi Arabia: Documents uncovered in Bosnia purport to show
that 9 of the 10 top financiers of al Qaeda are Saudis.
Eventually, the Bush Administration is going to have to adopt a
more consistent policy in this regard…and soon.
Israel: The Palestinian parliament formally selected Mahmoud
Abbas as prime minister, though Yassir Rat Fink kept control of
the military and the peace process, which means there will be no
peace until a trap slams shut on his neck.
Egypt: A positive development this week, as the highest court in
the land acquitted the Egyptian-American human rights
campaigner, Saad Ibrahim. It’s admittedly a small step for
increased political freedom, but it’s better than the alternative. In
the meantime, the locals can have all kinds of fun slamming the
United States.
–Zimbabwe: The opposition held a series of strikes, shutting
down shops and industry, which were deemed a big success.
Could two-time “Dirtball of the Year” award winner Robert
Mugabe finally be on his way out? Saddam, Mugabe…hope
springs eternal!
Random Musings
–I was highly critical of the Bush Administration and its efforts
at diplomacy over a year ago, particularly when it came to
cutting deals with Russia over Iraq and Iran. But there is a time
for debate and a time to rally ‘round the flag, particularly when
the chattering masses are making total asses of themselves. I
came across the following by David Brooks in The Weekly
Standard that best sums up my recent position.
“It’s possible to second-guess the U.N. venture in any number of
ways. Maybe the United States should have walked away from
the U.N. after Saddam’s insulting weapons report in December.
Maybe Bush should have anticipated that Russia would remain
intransigent regardless of Bush’s relationship with Putin. But
second-guessing the last-minute diplomatic maneuvers leading
up to a war is hardly a useful way to spend one’s time.”
–One country I have left out in the months’ long discussion is
Canada. Why? It’s irrelevant, unless you’re concerned about the
terrorists hiding out in Montreal (I am) or you’re a Canadian
worker.
Regarding the latter, my friend Harry K., an analyst with
Thomson Financial in Ontario, has always bemoaned the
government of “Jean Chretien and his gang of corrupt
incompetents” who now spread the anti-American babble that
has swept segments of the population. Harry adds, “I fear the
economic repercussions of this stupid, populist policy will be far-
reaching and severe,” as the U.S. accounts for 80% of Canada’s
exports.
–CNN’s Christianne Amanpour did an outstanding job in
interviewing French President Jacques Chirac last Sunday for
“60 Minutes.” At one point Chirac said, “Whenever things were
difficult the French were side by side (America).” And,
“Whenever I see my friend, someone I love, going down
the wrong path, I owe it to tell him.” Spare yourself, Monsieur
A-Hole.
–And last Saturday I’m watching the PGA Tour event when
NBC had a little piece on French golfer Thomas Levet and the
problems he’s been having with American galleries (which is
unfortunate), at which point commentator Johnny Miller chimes
in, “It’s getting to the point where it’s difficult to tell if France is
our friend anymore.” Holy cow, I thought, this is better than
“Capital Gang.”
–I started a series on securing nuclear weapons grade material
for my “Hott Spotts” link, after seeing a piece by Fred Hiatt in
the Washington Post which alerted me to a new report just
published by the organization headed by former Senator Sam
Nunn and Senator Richard Lugar. I have covered this topic
extensively before but it needs to be repeated, especially amidst
the euphoria over the early success in Iraq. There is no greater
issue in the world today than securing this material and by
various measurements we only have 17-37% of the job done.
–A Gallup poll revealed that 58% of Americans now have a
negative view of the U.N., the worst rating ever.
–The Times of London had a story citing Iraqi sources who
claimed Saddam had those whose job it was to hide chemical
weapons executed, so the locations would remain secret. And
when it comes to son Uday, who may have been killed in the
opening attack, let’s hope he was nailed smack in the face. Even
this week’s Sports Illustrated has a story on this maniac and his
torturing Iraqi athletes who failed to distinguish themselves in
competition. Many of them were killed.
–On Thursday I saw an interview of an Egyptian protester in
Cairo, a man who spoke fluent English. “The American
government is totally blind to what is going on,” he said. You
mean like the story above, sir?
–Secretary of State Colin Powell need not be so defensive, nor
should he beat himself up over the outcome in the U.N. Security
Council. The bottom line is the U.S. is acting in no small part
because Powell came around at a key time to become the leading
public proponent of regime change.
–For the archives I have to note the following:
Democratic Senator Tom Daschle.
“I’m saddened, saddened that this president failed so miserably
at diplomacy that we’re now forced to war.”
Speaker of the House Dennis Hastert.
“Senator Daschle has spent more time criticizing the leadership
of President Bush than he has spent criticizing the tyranny of
Saddam Hussein.”
You know what I’m saddened about? That South Dakota
Republican John Thune didn’t demand a recount last fall in his
Senate race against Tim Johnson. You’ll recall it was Daschle
and his loser Native American friends on the Pine Ridge
Reservation that stole the election.
–We note the passing of Joseph Coors, Sr., who not only helped
build the family-owned brewery (Coors Beer being a major
occupant of your editor’s refrigerator), but he was also most
instrumental in Ronald Reagan’s rise to the presidency, for
which many of us will be eternally grateful.
–A report in the Journal of the American Medical Association
reveals that 20% of those who take a 2+ hour plane flight catch a
cold within a week. Don’t touch the pillows!
–Speaking of illness, awful nice of the Chinese to hide the fact
of the mysterious pneumonia-like virus spreading around the
world these days. They supposedly suppressed knowledge of its
origination there for about two months. Of course these are the
same folks desperately trying to steal U.S. military secrets… but
then you already knew that.
–I must say, I was happy to see the networks airing some normal
television fare. It’s NCAA tourney time, after all, and my Wake
Forest Demon Deacons just squeaked by East Tennessee State.
Goodness, gracious, boys. Get your act together.
—
God continue to watch over the men and women of our armed
forces. We pray for those who have given their lives so that the
rest of us can live free of terror. They will never be forgotten.
God bless America.
—
Gold closed at $326…lowest since 12/6
Oil, $26.91…also, lowest weekly finish since 12/6
Returns for the week, 3/17-3/21
Dow Jones +8.4% [8521]
S&P 500 +7.5% [895]
S&P MidCap +6.6%
Russell 2000 +6.1%
Nasdaq +6.1% [1421]
Returns for the period 1/1/03-3/21/03
Dow Jones +2.2%
S&P 500 +1.8%
S&P MidCap -1.5%
Russell 2000 -1.8%
Nasdaq +6.5%
Bulls 46.6%
Bears 35.2% [Source: Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
