[Posted 7:00 AM ET]
Beyond Baghdad
“America is great because she is good, and if America ceases to
be good, America will cease to be great.”
–Alexis de Tocqueville, “Democracy in America”
“There are no people in the world who are so slow to develop
hostile feelings against a foreign country as the Americans and
there are no people who, once estranged, are more difficult to
win back.”
–Winston Churchill
The goodness of America is seen in the pictures of U.S. soldiers
holding Iraqi children, or in caring for a wounded Iraqi soldier.
It is hoped that as this war reaches a successful conclusion, more
and more natives, along with suspicious Muslims across the
region, begin to appreciate the best of our great country.
And it is certainly not too soon to look at the immediate post-
war period with eyes wide open. Secretary of State Powell’s
mission to Brussels this week was a notable example. The
French, for one, have the gall to want to be a player in the
rebuilding of Iraq. Take a hike, said the Secretary. But if the
Administration were to waffle on the subject of French
participation down the road (not likely), do you think the
American people would stand for it? No.
Of course both the French and Russians have also been singled
out by Powell and others for aiding Iraq in the endgame, hoping
to weasel a political settlement and thus ensure that they get to
eat at the redevelopment trough. This time it was Secretary of
Defense Rumsfeld who weighed in, essentially saying “up
yours.”
The coming period is going to be fraught with tension and further
conflict, the latter because Iraq is but the latest target, al Qaeda
and the Taliban having been first. A re-energized Powell, for
example, helped to pile on Syria. “Syria bears a responsibility for
its choices and the consequences,” he said. While in the cases of
both Iran and North Korea, this is one Administration that is
showing no signs of allowing a rogue nuclear power or two to
emerge.
A lot of folks don’t like to hear such talk and it’s true that only
15% of foreigners approve of the Bush team’s foreign policy
these days. But while the history books are already being written
on the missteps, of which there were some on the diplomatic
front, those who blast the U.S., purposefully dismissing the
goodness that de Tocqueville wrote of while at the same time
ignoring the evil of, say, Iraqi officials condoning suicide
bombings, miss the point.
In the battle between good and evil, ‘America the Good’ must
triumph, or the entire world will be plunged into darkness. If
you want to come along for the ride and share in the
responsibility, the American people will be all too happy to
recognize this, and reward you. But if you pull crap like the
current French government did, you’ll pay a steep price.
Finally, with the ongoing duplicitous behavior of the Russians, it
is clear that another paramount goal in shaping world security at
this very moment in time has to be to secure Russia’s nuclear
grade weapons material. Contained therein lies the seeds of
disaster.
Wall Street
If it wasn’t for falling energy prices, once again there would be
little good news to report on the economic front. Friday’s dismal
employment figures for March capped off a week in which
various measures of manufacturing activity declined to levels
denoting “contraction,” while the leading index for the service
economy also showed significant signs of deterioration. Auto
sales continue to dip (though some manufacturers were
optimistic about April), and the new round of 0% financing
obviously isn’t an elixir for profits.
On the housing front, while not commenting on the current
situation in the U.S., the International Monetary Fund released a
report on past bubbles in both housing and stocks, with the
conclusion that housing busts can be twice as bad for the overall
economy as a stock bubble that bursts. Ergo, you’ve been
warned.
Across the board economists are lowering their growth estimates
for 2003 in the U.S. and the situation is just as bleak globally.
Plus you have SARS, the mysterious infection that in the words
of Morgan Stanley’s Stephen Roach is “another nail in the coffin
for the world economy.”
Of course I’m already on record as saying we’re in a second
recession now, we just won’t know it until the official types that
examine these things say so down the road. It’s a mild one,
thankfully, just like the prior one, but unless the conclusion of
hostilities in Iraq provides a significant lift, ‘mild’ could become
‘deep.’
The above also doesn’t take into consideration the murky post-
war trade picture, alluded to in the first segment of this review,
as politicians, business leaders and consumers sort out the issues
that clouded the Iraqi debate.
Lastly, remember that over the next few weeks, at least, the stock
market will be dominated as much by sentiment as economic
fundamentals. Hopefully this leads to a nice bounce, but
fundamentals always win out in the long run.
Street Bytes
–For the week the Dow Jones rebounded 1.6% to 8277, while
Nasdaq added 1.0% to 1383. The flood of first quarter earnings
reports begins next week. Grab a beer and pull up a chair.
–U. S. Treasury Yields
6-mo. 1.09% 2-yr. 1.53% 10-yr. 3.94% 30-yr. 4.96%
The dollar was beginning to weaken but good news on the war
front led to a late week rally. Interest rates were largely
unchanged, with rising equity prices balanced against punk news
on the economic front. The jury is still out whether the Federal
Reserve will be forced to lower rates further in May, or before;
not that this would have any impact, mind you.
–Energy: Crude prices plummeted anew on the ongoing
successful effort to secure Iraqi oilfields, as well as a lessening of
tensions in key supplier Nigeria. Additionally, inventories rose
substantially in the U.S. and, let’s face it, the demand side of the
equation is weakening considerably as the global economic
forecast calls for damp and drizzly conditions.
–Airlines: AMR may have staved off bankruptcy, but it came at
the expense of 2,500 pilots, while Air Canada filed for
bankruptcy itself. The only good news, if you can call it that,
was USAir’s own emergence out of Chapter 11, though it
announced its traffic is down about 20% since the war started as
the airline continues to lose gobs of money. Add to the already
gloomy picture the devastating impact of SARS, particularly on
Asian routes, and I see zero reason to be optimistic on the sector,
even with a quick resolution to the war.
–It’s long been known that this stock market is dominated by the
hedge funds (and to a lesser extent dwindling institutional desks),
but if you needed further proof of this, 37% of volume on the
New York Stock Exchange in the first quarter was “program”
generated. Compare this to the comparable period in 2000 when
the figure was just 19% due largely to the fact that the little guy
was going crazy. Exit little guy stage left. Enter the hedge funds
to dominate the action, stage right.
–The release of the report accompanying the final settlement on
the stock research / conflicts of interest scandal is just weeks
away and New York Attorney General Eliot Spitzer promises
that the term “fraud” will be contained therein, which opens up
the door for all the private investor lawsuits. It’s enough to give
some of us a warm, fuzzy feeling.
Separately, Morgan Stanley Internet analyst Mary Meeker is
escaping any serious charges, along with her firm and Goldman
Sachs, according to published reports.
–Altria’s Philip Morris unit is still potentially on the verge of
bankruptcy as the state of Illinois insists on the company posting
a $12 billion bond by April 20 in order to be able to appeal the
$10 billion judgment against it.
–Warren Buffett’s Berkshire Hathaway acquired Clayton
Homes, maker of pre-fab houses…not that there is anything
wrong with this.
–Gateway made yet another admission it inflated revenue in
2000 and 2001. Take these cows to the slaughterhouse.
–But the biggest offender on the corporate governance front
these days is far and away HealthSouth. The scope of its fraud
grows exponentially, it seems, at last count $2.5 billion in
overstated profits. We had a hint this was going to happen, yet
no one picked up on it. Not only did we fail to track the
charitable giving of CEO Richard Scrushy, but did you notice he
has a slight resemblance to Christopher Walken?
–Conflict of interest, part XXXIV: Leslie Norton of Barron’s
had a piece concerning the ties between the United Negro
College Fund and J.P. Morgan Chase. UNCF Chairman William
Gray is on JPM’s compensation board, while JPM Chairman
William Harrison is treasurer of UNCF. These two are
scratching each other’s backs so hard, they must be raw.
–The Federal Accounting Standards Board (FASB) is to rule by
year end on the treatment of options as an expense for 2004 and
beyond. According to a Merrill Lynch study, in 2002 announced
tech profits would have been down 61% from reported levels if
options had been treated this way. For example, Cisco Systems
reported earnings of $0.39 in ’02. Option-adjusted it would have
been $0.19, for a price / earnings multiple of 74 based on a $14
share value. [Source: Andrew Bary / Barron’s]
–Joe F., a friend of StocksandNews and employee of New Jersey
Transit, alerted me to a pitiful move by Union Pacific to pick up
a few bucks. After 100 years, the company is now levying
charges on model train manufacturers that use its trademark. So
consumers get hit and lawyers rack up fees going after offenders.
Now that’s ridiculous.
–As the tax bill winds its way through conference, it appears that
one thing a majority agrees on is further increases in IRA and
401(k) contribution limits, a good thing. As I’ve said over the
years, scrap the private account idea for Social Security and keep
increasing these amounts. But one problem is the lack of
publicity for the vehicles and the government needs to mount a
public service campaign to remind investors of their options.
–So I broke my kitchen sink dish sprayer about 3 years ago and
each year since I’ve made an annual pilgrimage to Home Depot
to try and find a new one. [This is obviously not high on my
priority list.] The last two years it was an impossible search
amidst the mess that passes for a Dow Jones Industrial Average
listed stock. But this time what should happen? I asked a worker
and bingo, he pointed to a row of nice, shiny dish spray heads.
The store was cleaned up, the parking lot jammed…I mean to
tell you, it was enough to make one want to shout “Buy!”
–My portfolio: No, I didn’t buy Home Depot but I did attempt to
make some aggressive / conservative additions to my 30% equity
position. I use that term because on Tuesday I tried to purchase
long-term (January ’05) call options on two separate issues.
Unfortunately, I missed them both by a nickel and they took off
without me. Yes, I was discouraged as I witnessed some very
nice profits fly past my screen, but I learned over the years never
to chase options. Separately, now you know why I wrote last
week that I had dumped my Asia-Pacific holding because of
concerns over SARS. If you do your homework, sometimes you
can be one step ahead of the posse. And remember, sports fans,
wash your hands 30 times a day, just as we do here in the home
office.
International Affairs
North Korea: Big week coming up as the U.N. Security Council
holds closed door meetings to discuss the commies and their
nuke works. It’s a chance to flush out whether Russia and China
will ever play a positive role.
South Korea: Encouraging comments from new President Roh
this week as he urged parliament to approve the sending of non-
combat troops to support the U.S. in Iraq. Roh is hoping this will
encourage Washington to peacefully resolve the North Korea
issue.
China: Taiwan’s President Chen Shui-bian accused China of
concealing details on SARS and the government has canceled
some recently initiated contacts between the two. In addition,
Bloomberg’s William Pesek had a terrific piece on China’s spin
in this regard, comparing it to the government’s ongoing efforts
to cover up the huge risks in its financial system, foremost being
the fact that the 4 state-run banks have underperforming loans to
the tune of 40-50%. The scope and magnitude of the problem
could be even worse than this and if you are an investor, you
must be concerned Beijing has given few assurances that it isn’t.
France: It should come as no surprise that anti-Semitism is
soaring here, as the Chirac regime panders to its Arab Muslim
population at the expense of the Jews. Of course these same
Muslims, recognizing their truly lousy lot in the country, could
just as easily turn on Chirac at some point.
Cuba: Fidel Castro, the ultimate survivor, has been using the war
in Iraq as cover for his largest crackdown on dissidents in years,
rounding up at least 78 since March 18 and charging them with
collaborating with the U.S. Each could be sentenced to life.
Look for this to become a huge issue, shortly.
Random Musings
–The media is trying to convince Americans that we were
unprepared for the war. Bull. We were more than prepared and
after listening to informed opinions from all sides, we formed our
own. I chose to be optimistic.
I’m mystified by some of the polls, though, particularly the Wall
Street Journal one that revealed 40% have doubts a U.S. victory
will be worth the cost in American lives.
–Prince Alwaleed, the world’s richest Arab, on anti-American
sentiment:
“I understand there is a lot of negative sentiment but the position
of the U.S. is that they are not against the Iraqi people, they are
against Saddam Hussein and weapons of mass destruction. So I
believe it’s misplaced negative sentiment.” [Source: Times of
London]
Thanks, Prince Alwaleed. [This is a first for StocksandNews!]
–Ralph Peters on Saddam: “If dead, we may be certain he is not
enjoying the lovely virgins of paradise, but something even more
stimulating.” [Source: New York Post] Personally, I have
doubts about the authenticity of the Friday video of Saddam
mingling outside.
–Senator John Kerry: “What we need now is not just a regime
change in Saddam Hussein and Iraq, but we need a regime
change in the United States.”
I can’t beat the conclusion of a New York Post editorial. “What
a jerk….How utterly despicable.”
I’d add that Kerry’s wife will eventually torpedo his candidacy
anyway.
–Long-time reader Scott P. had a good point. New Senate
Majority Leader Bill Frist has been a big disappointment thus far,
whether it’s his failure to gain a larger tax cut or shepherding the
Miguel Estrada judicial nomination.
–The New York Times had a big story last Sunday on the
demographics of the U.S. military vs. the population as a whole.
I scanned all the charts, searching for meaning…and the point.
The problem for the Times is that there isn’t an issue here. In
2000, for example, 37% in the armed services were minorities vs.
a 30% standing in the overall population. Big freakin’ deal.
–Related to the above is a disturbing, though not unexpected,
result from an ABC News poll. Whereas 72% of all Americans
support the war, only 35% of Black Americans do. Hell, even
Democrats are essentially 50/50.
–Three separate pyramid schemes collapsed recently in the
Philippines. Two million victims lost $2 billion.
–Enough has already been written about Peter Arnett. In a word,
he’s pitiful.
–Speaking of pitiful, it turns out when I made my comment last
week about General Barry McCaffrey, I wasn’t the only one
upset at his behavior. The White House, and the Pentagon, are
furious with his second-guessing. I never thought I’d write this
about an American general, but shut up, already.
–Britain’s parliament passed a law allowing the government to
revoke the citizenship of immigrants. There were 110,000
asylum seekers there in 2002 alone.
–I was watching Democratic New Jersey Congressman Frank
Pallone discuss the future of drilling in the Arctic National
Wildlife Refuge and like all the other idiots on this issue, Pallone
was going on and on how the locals depend on the caribou for
their livelihood.
Yoh, Congressman, you think these folks want to hunt caribou
all their lives? You think they’re telling their children, “Mule
Deer, when you grow up you can hunt caribou, just like your old
man”? These folks are screaming for better jobs and a better
life, for crying out loud.
–So every now and then I go to Carnegie Hall for a concert and
the other day I received a statement concerning the Rotterdam
Philharmonic. The music director said, “Having taken advice
and views from all parties closely involved, the orchestra has
decided, under the current circumstances, not to travel.”
Unbelievable.
Well, the Kirov Orchestra (St. Petersburg) filled the breach, with
their music director writing, “In light of this cancellation, the
musicians of the Kirov…have agreed to remain in the United
States to perform all the concerts of the tour. My Kirov
colleagues and I feel that the role of music in turbulent times is
immeasurably important, providing people a way to share
feelings, look deep within themselves, and voice their joys and
passions.”
Score one for the Russkies.
–Uh oh, looks like I can’t just go ahead and award the
StocksandNews “Animal of the Year” trophy to dolphins for
2003. First off, Ken S. alerted me to the fact that one porpoise
wannabe on mine-sweeping duty in the Persian Gulf went
AWOL. Then Johnny Mac passed along the story of Buster, a
Springer Spaniel that unearthed a weapons cache in the Iraqi
village of Safwan. [Source: Sky News] Earlier, 200 soldiers had
turned up nothing until Buster was let loose. The find also
resulted in the arrest of 16 Iraqis who had denied there were any
weapons around. Looks like Buster should have been part of
Hans Blix’s team. He probably would have written more cogent
reports as well.
–Canines are also being employed in Colombia to sniff out
counterfeit money.
–Back to the AWOL dolphin and its friends, the Aussies have
been making fun of their performance. “The bottom line, mate,
is it’s a fish,” said a member of the coalition of the willing.
–This week I went through a pile of articles I was building ever
higher going back to 1994. In it I found this prescient gem from
George Will (Newsweek, 8/17/98). “Saving Private Ryan” had
recently been released…Bill Clinton was President.
“Fortunately, America has enjoyed a holiday from history,
internationally, while enduring this dangerously frivolous
president. But in Iraq and elsewhere, cold-eyed men have taken
the measure of his littleness, and of America’s deepening
dilemma of his vanished authority. Soon the holiday will be
history. And, sooner or later, so will the notion that war is a
subject only for historians and moviemakers. It is time to
remember Trotsky’s mordant words: ‘You may not be interested
in war, but war is interested in you.’”
–Lastly, we note with sadness the death of columnist Michael
Kelly in Iraq, a personal favorite here whom I’ve quoted on
numerous occasions. Our condolences to his family.
—
God look over the men and women of our armed forces and
those of our allies. Bring them home safely.
God bless America.
—
Gold closed at $326
Oil, $28.62
Returns for the week, 3/31-4/4
Dow Jones +1.6% [8277]
S&P 500 +1.7% [878]
S&P MidCap +0.7%
Russell 2000 +1.3%
Nasdaq +1.0% [1383]
Returns for the period, 1/1/03-4/4/03
Dow Jones -0.8% [1st Qtr. -4.2%]
S&P 500 -0.1% [-3.6%]
S&P MidCap -3.0%
Russell 2000 -2.6%
Nasdaq +3.6% [+0.4%]
Bulls 47.2%
Bears 34.8% [Source: Investors Intelligence]
“Lamb” returns Tuesday.
Have a great week. I appreciate your support.
Brian Trumbore
