[Posted 7:00 AM ET]
I make no apologies for believing the war on Iraq would be a
short one, mainly because I still feel it will be, but perhaps
instead of trying to pick a date, it’s best to say “It will be over
when it’s over.”
Throughout my 5 ½ years of writing this column, if nothing else
I’ve tried to be consistent. Certainly you’ve recognized this in
my market forecasts, and when it comes to geopolitics I guess
you can count me in the column of the “neocons,” though I have
never thought of myself as one in the truest sense.
Like President Bush, I view the war in terms of black and white,
good versus evil. It’s a struggle that could take decades and – as
the President and his team have pointed out on countless
occasions – we will never be able to point to a particular time and
say “It’s over, put away the duct tape.” As for today, Senator
John McCain echoed my sentiments in a recent op-ed piece.
“The apocalyptic vision of a Middle East inflamed by American
intervention ignores the fact that the status quo bred al Qaeda
(ed. or Saddam) is hardly the basis for long-term stability.”
Iraq is but a first step, but not all of the change to come has to be
accompanied by a B-52 strike, particularly in Iran. Others, like
Syria, may feel steel sooner than later, as Secretary of Defense
Rumsfeld darkly hinted Friday afternoon. In the meantime, large
swaths of the Iraqi public will welcome the change the United
States and the coalition is bringing.
But I wouldn’t be honest if I didn’t say I was one of those
Americans who had a pit in their stomach last Sunday, not
because our brave men and women took casualties, but rather
because of the treatment of the POWs and the apparent
executions.
It also wasn’t as much the feeling that the campaign may take a
little longer than some of us thought, but rather one couldn’t help
but notice the spectacular march north by our troops, while
wondering if they weren’t stretched too thin.
When it comes to military strategy, though, that’s the last I’ll talk
about it. What I did find a bit upsetting was how some men like
retired General Barry McCaffrey totally flip-flopped in their
opinions.
I was also a bit distressed to see commentators such as Bill
O’Reilly shout with glee about the low casualty figures coalition
forces have taken. As of this writing that thankfully is the case,
but not only is it insensitive to ‘boast’ of this, when millions in
the extended family have sons, daughters, spouses and friends in
battle, we can’t know with any certainty what the future holds, as
this morning’s suicide attack vividly reminds us. The other tragic
lesson of all wars is the number of accidents that take lives. The
time will come when historians can discuss, hopefully with
wonder, how few were lost, but not today. Now is the time for
continued prayer.
Finally, I turn back to Senator McCain, who noted that what sets
America apart from empire builders is “The use of our power for
moral purpose,” adding “(We fight) for love of freedom, our own
and all humanity’s.”
—
Wall Street
After the spectacular advances of the prior week, and then the
sickening pictures from the front on Sunday, it certainly was no
mystery why the Dow Jones plunged 300 points on Monday.
The rest of the week, save Tuesday, saw a further slide on very
light volume. The Dow closed at 8145, off 4.4%, while Nasdaq
dipped back below the 1400 level, a decline of 3.7% to 1369.
As for the Big Picture, you’d be hard-pressed to find anything
positive. Two readings on consumer confidence declined
further, in one case to a 10-year low, and there are even clearer
signs many of us are pulling back on the spending front.
Coupled with a few months running now of bad news on the
housing market and you have two large pillars of the economy
wobbling badly. [The third, capital spending, collapsed long
ago, crushing the New Economy geeks.]
It’s also interesting to note the Federal Reserve’s recent
disclosure that homeowners raised $130 billion through home
equity loans and lines of credit in 2002, double the pace of just
one year earlier. Yes, as long as housing values hold up, and as
long as you have a job, this isn’t a tremendous concern, but if
values drop, even 5-10%, that can cause a lot of pain.
And now it’s earnings season, with negative pre-announcements
thus far more prevalent than before. Of course every company
will blame the uncertainty over the war for any shortfalls, and to
a great extent this is truthful, one just wonders how often they
will be using it in the quarters to come, because Iraq is
potentially replaced by North Korea, let alone other nations in
the Middle East.
It’s also not just the U.S. whose economy is in the doldrums,
growth is tepid, if nonexistent, worldwide. Morgan Stanley’s
Stephen Roach reiterated his position that war could induce a
global recession. Certainly a Merrill Lynch study on capital
spending backs this up as it revealed that 17% of companies in
both the U.S. and Europe would slow their IT purchases due to
the conflict.
Lastly, you have the exploding federal deficit, a function of what
PIMCO’s Bill Gross describes as the “guns ‘n butter” economy.
While a deficit in the neighborhood of $400-$500 billion for a
year or two, including the cost of war, isn’t necessarily a disaster,
particularly since it still represents just about 4% of the overall
economy, it’s the trend that has many professionals concerned,
along with the fact we are already far too reliant on foreigners to
finance it.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.13% 2-yr. 1.54% 10-yr. 3.90% 30-yr. 4.91%
Yields fell back on the weakness in equities and now sit basically
in the middle of the wide range established the prior two weeks.
–Airline industry: Air traffic is plummeting, particularly for
international bookings. Continental’s overseas numbers are off a
whopping 40%. Meanwhile, UAL is scrambling to avoid
liquidation, while AMR seems destined for bankruptcy, even
though the carriers are winning some key labor concessions.
Then you have the issue of aircraft leases that are held by the
likes of Bell Atlantic, Ford and Disney. In a shrinking industry,
all you need to know when it comes to potential exposure is the
fact there are over 2,000 unused aircraft now parked in the
Arizona desert.
–Energy: The price of crude rebounded strongly back to the $30
level based not only on concerns the war in Iraq may last longer
than initially expected, but also because of ethnic clashes in
Nigeria that forced the shutdown of about 40% of its production
capability. As for my precious drillers, they continue to trade in
an incredibly tight range going back to mid-August, best
exemplified by the OSX, the Oil Service Sector Index. I keep
waiting for the breakout, hopefully to the upside, but a global
recession wouldn’t help, that’s for sure.
Lastly, I just have to make note of a typical New York Times
comment, this one from a Sunday editorial concerning the Senate
vote to defeat drilling in the Arctic National Wildlife Refuge.
“The pitch included the usual hyperbole from the Alaskan
delegation, which typically inflates official estimates of
economically recoverable oil in the refuge by a factor of four.”
No backup and patently false. But then at the Times the truth
never got in the way of its agenda.
–Altria, the parent of Philip Morris, was ordered by an Illinois
judge to pay out $10 billion for advertising “light” cigarettes as
being less harmful. If the judgment isn’t reduced, the unit could
be forced into bankruptcy.
–Sears announced it was unloading its credit card business, one
which has been beset by high delinquency rates. Sorry, this
doesn’t mean your own debt is wiped off.
–The Federal Energy Regulatory Commission wrapped up its
investigation into the California energy debacle of 2000-2001,
concluding that major players like Enron, Williams, and Duke
Energy seriously manipulated electricity and natural gas prices.
FERC will most likely level heavy penalties and attempt to
disgorge profits. Of all the mistakes I have made in this space,
I’m most disappointed that I stuck up for the energy industry in
this regard during that turbulent time. I lost some California
readers over that stance.
–Long-time readers know of my high disregard for NYSE
Chairman Dick Grasso, a stance confirmed this past week with
his incredibly ill-timed, ill-conceived idea to place Citigroup
Chairman Sandy Weill on the board of directors of the Exchange.
New York Attorney General Eliot Spitzer was particularly upset
at Grasso’s move, especially in light of Weill’s own recent
attempt to rehabilitate his tarnished image. Weill pulled his
name after Spitzer confronted Grasso. For his part, when
approached by a CNBC reporter for an explanation, Grasso,
Smeagol-like, declined to comment.
–Goldman Sachs’s co-president John Thornton announced he
was leaving to become a professor at a top university in China,
an interesting career move.
–My portfolio: Just about 10 days ago I put on a 3% position in a
closed-end Asia-Pacific fund. It was trading at a 15% discount
to net asset value and seemed like a decent, diversified bet to
pick up a few bucks if the war went well. But I sold it out on
Thursday (at a miniscule gain) because I was worried about the
impact of SARS, the pneumonia-like virus, on the Asian
economy. When I heard stories of school closings in Hong Kong
and Singapore, that was enough for me. If the situation clears
up, I may hop back in. My drillers rallied and overall I’m about
31% equities, 69% cash.
International Affairs
Russia: A real downer of a week on the U.S.-Russian relations
front as the Bush Administration pressed its case that Russian
companies are supplying weapons and war material to the Iraqis,
something the White House has known for a long time but only
now chose to go public with its concerns. The Kremlin denied it
and further stated it wasn’t happy about the oil deals that may be
cut in a post-Saddam Iraq. Foreign Minister Igor Ivanov has
been particularly strident the past few months, which goes
against his past character, while for his part President Putin is
worrying that the former Soviet Republics, the ‘-stans,’ could be
further destabilized due to the war on Iraq. Well, geezuz,
Vladimir, why did you let the U.S. base troops there post-9/11 in
the first place?
North Korea: Thus far in the crisis that first developed last fall,
while there have yet to be any threatening military maneuvers on
the border between North and South, the launch on Thursday of
two Japanese spy satellites almost surely will elicit a response,
like a ballistic missile test. Pyongyang is also clearly proceeding
with its nuclear weapons program and there is no way the Bush
Administration can allow this to go forward.
–India / Pakistan: 24 Hindus were killed in a terrorist attack by
separatists in Kashmir, the worst such incident since last year.
India blamed Pakistan and the two traded missile tests. But
when the U.S. urged restraint by the Indian government, it in turn
accused the U.S. of a double-standard in leading a war against
Iraq while encouraging India to cool its jets. You know what?
New Delhi is right…but the last thing the world needs is conflict
here or on the Korean Peninsula.
–Turkey: Deputy Defense Secretary Paul Wolfowitz blasted the
government in Ankara, saying it made a “big, big mistake” in
denying the U.S. land access to Iraq and already the Turkish
economy is suffering the effects, though the equity and currency
markets are going to gyrate wildly over the next few months.
Regarding the currency, at one point this week it hit an all-time
low against the U.S. dollar…1,755,000 to one. When I was in
the country the last two years it was generally 1.6 million to the
greenback; which breaking it down to basics meant that in the
Kumkapi district, a favorite haunt of mine outside Istanbul that’s
loaded with fish restaurants, you could get a delicious 4-course
meal with 3 beers for about $12, including tip, plus your 20-30
minute cab ride was all of $5. Great for us, awful for the Turks.
Back to the war front, at least Ankara is exercising restraint
concerning its border with Iraq, vital if the U.S. is to continue to
build a northern front, as opposed to spending time separating
wary Turks and Kurds.
Brazil: In keeping with the realities of the world, that being the
fact that organized crime, drug trafficking and general corruption
are the banes of civil society, we have the sad case here of two
prominent judges, known for going after the Mob, being
themselves gunned down in the past 10 days.
–Serbia: Here, however, Serbian police killed the two main
suspects in the assassination of Prime Minister Djindjic, both
organized crime figures with ties to Slobodan Milosevic.
And in Bosnia, another mass grave was officially identified in
Srebrenica, one containing potentially 600 bodies. Over 8,000
Bosnian Muslims were killed here in July 1995 by Bosnian Serb
forces, which is supposed to be a lesson for today when it comes
to opponents of war in Iraq. Alas, many fail to receive the
message.
–Zimbabwe: Following the 2-day strike by the opposition in this
country, President Robert Mugabe cracked down with a
vengeance and Amnesty International reports that the Army and
Mugabe’s thugs have instituted a reign of terror. When the main
action is over in Iraq, Britain needs to send a bunch of
commandos down there (as I urged years ago) to blow this
regime away. It also continually needs to be pointed out that
Zimbabwe’s neighbors, principally South Africa, are worthless.
Random Musings
–Former President Bush, in his own low-key, inimitable style,
had a loaded comment concerning France and its stance on Iraq
in an interview for Newsweek.
“I think when history is written people are going to find some
very interesting things about the French position.”
The significance is that it is coming from a man long known as
the ultimate diplomat and pragmatist. Not that Americans
needed anyone else to point the way, but the statement is also a
warning to the French people. Your troubles are just beginning.
–Here’s to Poland for its contribution of an elite commando unit
to the war effort, though why the government one minute wants
to support the coalition and the next one act embarrassed is a
mystery to me. It’s not like you are sneaking something past the
people, who are still largely opposed to the war. Be proud, and
reap the rewards from the American consumer.
–On the issue of how Americans should be treating some of our
erstwhile allies, personally, each case is different. My main
source for all things Canadian, for example, Harry K., passed
along some pieces concerning debate within his country; Prime
Minister Chretien leading the anti-American forces, of course.
But I get the sense many of my own countrymen aren’t nearly as
upset with Canada as, say, the French. And unlike France, where
I have yet to see any voices vehemently opposing the Chirac
regime’s position, many Canadians have taken to the airwaves
and print over the past week in praise of America. That’s a big
difference. In other words, save your venom and boycotts, my
fellow Americans, for those who truly deserve it, otherwise
you’ll have a heart attack.
–On the other hand, Harry also passed along poll data reflecting
just how naïve some Canadians truly are. Only 12% think their
nation is under threat from terrorists. They’re outside your front
door, mes amis!
–Former Senator Bob Dole had some random musings of his
own in Friday’s Wall Street Journal, hinting that the U.N.
Security Council needs to be restructured. [Sorry, folks, there is
always going to be a U.N., whether you want it or not.] But
Dole doesn’t give a solution, so here it is. France…gone,
replaced by India. On the surface, perhaps not much of a change
given today’s diplomatic environment, but the U.S. needs to do a
better job cultivating the relationship with New Delhi, certainly
as a counterbalance to militants in Pakistan and the entire region,
as well as the fact that as the world’s largest democracy it just
makes sense.
–In line with the above, since NATO now appears irrelevant it’s
time for a new supra-alliance consisting of the U.S., Britain,
Japan, Australia and India. It’s also time to speed up the debate
whether we want to see Japan rearm, including nuclear weapons.
I don’t think we do, yet, especially since India can
counterbalance China, but it’s contingent on how far we allow
North Korea to get with its own nuke program.
–I have been a supporter of advisor Richard Perle, but with this
morning’s revelation that he was aligned in some manner with
Loral Space and Communications, a company accused of
transferring rocket technology to China, he no longer has it.
Unfortunately, it looks like this story is going to get very messy.
–The Senate voted 51-48 to halve President Bush’s proposed tax
cut, but this debate is far from over as the Senate and the House
now need to hash out differences in their respective proposals.
The dividend tax cut, though, at least full repeal of it, seems
dead. I never believed it would have the positive impact others
claim and I agree with Senator McCain that it just makes sense to
wait a while, even a few weeks, in order to see how the war goes.
I’d also rather see further reductions in the personal income tax
rate rather than the dividend exclusion.
–Ah yes, 20 years ago people scoffed at President Ronald
Reagan’s missile defense initiative, but with the success of the
Patriot system in the Gulf (even after Friday night’s still sketchy
missile attack on Kuwait City), think not only of the progress
that has been made thus far, but also where we could be in
another 10 years.
–As an American, I’ll be furious if British companies fail to get
their fair share of the post-Saddam rebuilding contracts in Iraq.
–An aide to U.S. Army Lt. Gen. David McKiernan recalled that
his boss hates long-winded speeches and overly elaborate
presentations. “Don’t give me any of this PowerPoint bulls—,”
he once said. McKiernan has just jumped into my top ten
favorite people list.
–I wrote about the dolphins training for de-mining missions back
on 12/21/02, saying, “With God’s creatures on our side, how can
we lose?” After hearing the news this week that the dolphins are
now indeed playing a role in the war, it was refreshing to be able
to smile about something. [The dolphin, by the way, was also
the StocksandNews “Animal of the Year” for 2002 and appears
to be a lock for ’03 as well.]
–I always thought New York City’s bid for the 2012 Summer
Olympics was dumb, now everyone else should feel the same
way. The terrorists would start embedding people 4 years
before, I imagine.
–We note the passing of former New York Senator Daniel
Patrick Moynihan, whose legacy was cemented in the early
1960s with his groundbreaking report on the impact of single-
parent black families on the welfare system. But the eulogies all
have the same tone, similar to what Jurek Martin wrote in the
Financial Times, in positioning Moynihan as an “American
political giant in the august company of Lincoln and Jefferson.”
I respectfully disagree, not only because the comparison is
absurd, but I really didn’t understand one word he said his last 10
years in the Senate.
–40 years ago, President John F. Kennedy named Winston
Churchill citizen of the United States. Churchill remarked that
America and Britain had “stood together, and because of that fact
the free world now stands.” [Source: Smithsonian]
As Americans we owe much these days to both our British and
Australian friends, so to show our appreciation, how cool would
it be this baseball season to sing “God Save the Queen”
alongside our own national anthem? Hell, I’m kind of choked up
just thinking about the prospect.
—
God continue to look over the men and women of our armed
forces and those of our allies.
God bless America.
—
Gold closed at $332
Oil, $30.16
Returns for the week, 3/24-3/28
Dow Jones -4.4% [8145]
S&P 500 -3.6% [863]
S&P MidCap -2.2%
Russell 2000 -2.0%
Nasdaq -3.7% [1369]
Returns for the period, 1/1/03-3/28/03
Dow Jones -2.4%
S&P 500 -1.9%
S&P MidCap -3.6%
Russell 2000 -3.8%
Nasdaq +2.6%
Bulls 47.8%
Bears 33.3% [Source: Investors Intelligence…reminder, there is
a lag effect.]
Note: “Lamb in Command” is slated to return April 8, as my
brother has made great progress in recovering from his ailment.
Have a great week. I appreciate your support.
Brian Trumbore
