[Posted 7:00 AM ET]
Beyond Baghdad, Part II
No gloating allowed on these pages when it comes to issues like
life and death. It was a great week for America, no doubt, and
some of us feel a bit vindicated for choosing to be optimistic
about the outcome in Iraq, but at the same time I can not help but
be sensitive to the feelings of the families of our brave men and
women serving there, as well as in Afghanistan. I watch the
interviews of our heroes in Baghdad, for example, and simply
pray, “God, please bring them home safely.”
By now most of you recognize that Iraq may yet be just another
step in President Bush’s plan to rid the world of terror and the
threat posed by weapons of mass destruction. Syria is next.
Deputy Defense Secretary Paul Wolfowitz, the prime architect of
U.S. policy in the region going back to 1992, was on “Meet the
Press” last week. I have made no secret of my admiration for
this man’s ideas. I’m also sure I’ve lost some readers by doing
so. Yet as Wolfowitz reminds us we must continue to “look
forward, not back” while never underestimating the “effects of a
good example,” referring to Iraq.
As for Syria, “(it) will be held accountable,” in Wolfowitz’s
words. “There’s got to be change.”
Personally, I can see Damascus being given an ultimatum along
the lines of: stop supporting terrorists, kick out Hizbollah from
Lebanon, and leave Lebanon yourself, or else…
British Prime Minister Tony Blair and others don’t want to see
this, at least not until Iraq has been fully digested, and it’s
understandable the vast majority, let alone 95% in the Middle
East, would agree with him. I submit, however, that we
shouldn’t be surprised at the speed of events yet to come.
But as Wolfowitz also knows, each case is different, including
Iran and North Korea. For two years I’ve held out hope the
students would topple the Ayatollahs in Iran and I remain
optimistic in this regard, as long as our nation-building in Iraq
proceeds apace. But we’re running out of time because the
Iranian bombworks will soon be running full tilt.
When it comes to North Korea, negotiation is still the preferred
tactic, but we have to be prepared for anything the little commie
throws at us.
Back to Iraq, we now have the coalition of losers, France, Russia
and Germany. As Republican Senator John Warner so aptly put
it, if they want to help pay the bills for reconstruction, fine, but if
they want to be “managing partners,” forget it. And for its part
the United Nations can still play a role…in facilitating
humanitarian aid, nothing more. Basically, as Warner and others
state, if you don’t fight the war, you can’t control the peace.
But what of the vaunted Arab street? Last week’s entire “60
Minutes” was loaded with references concerning the sense of
“rage and humiliation.” The U.S., we have been continually told,
doesn’t understand the Arab world. Yet as foreign affairs expert
Fouad Ajami put it, “Pity a people left to such craven
victimology and willful denial.”
George Will added, “(The war is the) down payment on
America’s long-term commitment to the liberalization of the
political cultures of Middle Eastern nations.” Hopefully the
American people and Congress recognize it as such.
Lastly, it’s also time for real political deal-making. The U.S.
should dismantle its bases in Saudi Arabia as soon as possible,
thus taking away the excuse so often used by the bin Ladens of
the world, that being the U.S. presence in the midst of Islam’s
most holy sites. Not only do we now have existing facilities in
Kuwait and Qatar, but it sure looks like we have our pick of
airstrips in Iraq for the foreseeable future.
The Kingdom, I imagine, while publicly welcoming the
departure, will also be scared to death for fear the U.S. will no
longer protect them. Too bad. The Wahhabis will need to find a
new war cry, while the Sheiks have ample power to put down
any uprisings. Of course at the same time the Kingdom should
stop funding Wahhabism. But that’s a subject for “Beyond
Baghdad, Part III…or XIII.”
Wall Street
If you’re bullish, you had to be a bit discouraged that the equity
markets declined in the face of victory in Iraq and better
economic news on Friday. At the same time the action is telling
you the market is already fairly valued and it’s waiting for far
more proof that corporate earnings are set for a true rebound
before rewarding individual shareholders.
I’ve been writing that the markets would trade more on sentiment
than fundamentals and this was the case on Monday, when the
Dow shot up 240 points on the open, thanks to good news on the
war front, only to lose all but 23 of it by the close because
everyone looked around and glumly sang that Peggy Lee song,
“Is that all there is?” For now, yes.
While Friday’s reading on consumer sentiment showed a slight
improvement and retail sales for March surprisingly rose 2%
(including autos, which were up 5%), the rest of the news
generally remained lousy. This was the week that forecasters of
all stripes lowered their growth estimates around the world. U.S.
economists reduced their outlook for GDP in this country to
2.4% for all of 2003, while the IMF said it would be 2.2%. The
European Commission cut its forecast for eurozone growth in ’03
from 1.8% to 1% (the IMF said 1.1%), while the IMF predicted
Japan’s economy would grow a minuscule 0.8%.
Meanwhile, while overall retail sales may have risen 2%, chain
store sales, like at Wal-Mart, were basically flat in March. It
also needs to be noted that while Washington grapples with
record federal budget deficits (this is our “sacrifice,” remember),
the needs on the state and local front get worse by the day. In
California, for example, thousands of teachers are about to be
laid off, while New York City, faced with its own mammoth
deficit, is handing out 3,400 pink slips (with possibly a lot more
to follow).
And then there is SARS, which is not only doing a number on
the Asian economies, it threatens to impact North America in a
big way, too, whether truly warranted or not. Concern in Asia,
though, is warranted, particularly when the Chinese government
refuses to come clean. Earlier in the week, for example,
authorities in Beijing said there were only 19 cases and 4 deaths
attributable to SARS, while World Health Organization officials
on the ground there said well in excess of 100 were infected in
the city.
The economic ramifications are huge and the travel industry in
and around Asia is grinding to a halt. Even Australia has seen a
quick 20% drop in tourism with Qantas laying off 1,000. Of
course the impact on Hong Kong, Singapore and Thailand, to
name a few, is far worse.
Heck, the little company I recently acquired suffered too, as a
trade show in Toronto was canceled, one in which we were
slated to provide products for. The trickle down effect of SARS
is big, and it doesn’t give one a warm, fuzzy feeling to hear
that scientists believe it could be spread by cockroaches, for
goodness sake. So we have mosquito-borne West Nile and
cockroach-carrying SARS to contend with. Score two for the
pests.
Add it all up and the picture is still pretty gloomy. But back to
the markets, what we continue to need is more time; time to work
off the effects of the bubble, to see how post-war Iraq goes
(while gauging the tone in the rest of the Arab world), to see if
some kind of agreement can be reached with North Korea before
they cross the line, and to see which company finally steps
forward and announces to the world, “You can come out now, ye
spenders of capital. The coast is clear…we’re going to survive.”
Street Bytes
–For the week the Dow Jones fell 0.9% to 8203, while Nasdaq
declined 1.8% to 1358. Nasdaq does remain up by the same
amount on the year.
–U.S. Treasury Yields
6-mo. 1.18% 2-yr. 1.64% 10-yr. 3.98% 30-yr. 4.95%
With the rapid conclusion to events in Iraq and the slightly better
economic news at week’s end, one would think an inter-meeting
interest rate cut by the Federal Reserve is now out of the
question. The Fed next formally meets in May and we need
more data before predicting what will occur then. The biggest
issue Greenspan and Co. face, it would seem, is how to keep the
housing industry, and refinancings, going, which requires
holding down long-term rates.
Friday’s higher than expected producer price index didn’t help
in this regard, though all are in agreement we need a little
inflation these days, particularly to help stoke corporate profit
growth and thus capital spending. And the Fed is prepared to
tolerate some, but it also means they may have to step into the
market and buy gobs of long-term Treasury bonds to keep
mortgage rates down. So the situation could get rather complex
over the coming months.
Of course when it comes to long-term interest rates you also have
to factor in the exploding federal budget deficit, but then you
already knew that.
–Energy: The price of crude oil continued to decline, this week
to just above $28 (as measured by West Texas cheese) on more
signs the oilfields of Iraq are secure amidst hints of a possible
global supply glut. The International Energy Agency said
worldwide production is now up to about 80 million barrels a
day, 2-3 million more than is generally needed. OPEC is thus
slated to hold an emergency meeting on April 24, most likely to
attempt to cut production in order to stabilize prices before they
decline much further. As for the United States Congress and
energy legislation, the proposal to drill in the Arctic National
Wildlife Refuge lives!….only in the House, however. The Senate
will once again block it.
–In perhaps the most significant event of the week from an
economy / market standpoint, by a 6-3 margin the U.S. Supreme
Court ruled to severely limit punitive damages in a Utah case
where State Farm Insurance Co. was liable for $145 million.
Hopefully, this sets a real precedent and it’s been encouraging
that we have been making headway over the past year on the
issue of tort reform. It’s been 3 steps forward for each one back.
–Both Nokia and State Street Corp. announced layoffs of 1,800.
–G.E.’s earnings report was one big blahhhh. Sales declined 1%
over the year earlier period and there’s no reason to rush in to
buy. Which also tells you something about the overall
environment for stocks, G.E. being a rather important bellwether
issue.
–Rupert Murdoch’s News Corp. is acquiring a controlling stake
in DirecTV, but shares of subsidiary Fox Entertainment Group
were pummeled when it was learned the News Corp. unit would
be the dumping ground for the financing of the acquisition.
–Good news from Mexico as it paid off its Brady bond
obligations about 16 years early, formally marking a successful
recovery from the currency debacles of the 90s.
–Yahoo! issued another strong earnings report while raising
guidance for the remainder of the year. But the shares are still
grossly overvalued, as are those of Amazon and eBay, yet the
momentum in all 3 is such that I still can’t short them. For
starters, if you were contemplating buying ‘put’ options, the
premiums are ridiculous.
–On a related topic, Internet fraud cases tripled in 2002 over
2001.
–Lucent CEO Patricia Russo received total compensation of $29
million in 2002, $3 million of which was salary plus bonus.
Now discuss amongst yourselves.
–Shares in McDonald’s rose on news the company is trimming
its capital spending plans, while focusing instead on serving its
mediocre food with a smile.
–Nautilus, maker of StairMaster and other exercise equipment,
drastically lowered its earnings expectations as users of its
products finally realized they were ripping up their knees.
–Just another small example of the problems faced by some
states and municipalities, particularly in the northeast following
an above average year for snowfall. New Jersey had budgeted
$14 million for snow removal and ended up spending about $34
million. That means that shortly we will hear of at least another
400 layoffs by my back of the beer coaster calculation (salary
plus benefits).
–Topps, makers of collectible trading cards and “Yu-Gi-Oh!”
Japanese cartoon products, reported strong earnings for the
quarter. The company continues to reduce its traditional sports
card offerings due to weak demand, but aside from Yu-Gi-Oh!,
soccer team products are selling well. Personally, I’ve had
problems unloading my Jerry Koosman doubles.
–On Wednesday, as the good news on Baghdad filtered through,
CNBC’s floor reporter from the New York Stock Exchange said
that one trader bemoaned the 100-point drop in the Dow. “If this
is what happens when the statue (of Saddam) goes down, put it
back.” Incredibly stupid comments like this are why so many
hate everything about the Street. I hope whoever said this not
only loses their job, but also their home in bankruptcy.
–My portfolio: Believe it or not, I’m up to about a 40% exposure
in stocks, as I added two positions this week. This is my highest
in well over a year, but most of it is in the energy sector and I’m
ready to jettison some of the positions if I don’t like what I hear
in the upcoming earnings reports. I don’t own Baker Hughes, for
example, but its downbeat warning this week didn’t bode well
for the oil service / drilling sector, where I have a lion’s share of
my assets, though my holdings rose on the week.
International Affairs
North Korea: Surprisingly, Pyongyang has not taken advantage
of Washington’s focus on Iraq the past few weeks. There
haven’t been any threatening maneuvers, nor has there been a
ballistic missile test over Japan. [There was a 3rd test of a short-
range surface to ship missile, but everyone is used to these by
now.] Nonetheless, the crisis is as serious as ever.
Kim Jong Il continues to hope for direct talks with the United
States, while at the same time China, in particular, continues to
be a pain in the ass, blocking a U.N. Security Council Resolution
critical of North Korea and its pulling out of the Nuclear Non-
Proliferation Treaty.
South Korea: President Roh will be coming to Washington on
May 14 and President Bush needs to pull out all the stops this
time, including a state dinner. Amazingly, Bush has held only a
handful of these. Granted, the company must be boring as hell,
but it’s part of the job, you know.
Separately, it increasingly looks like the U.S. is going to shift
around its troops in the South, particularly the 6,000 that base
right in the heart of Seoul, as well as moving many of the others
away from the border with the North.
Turkey: Ankara is scared to death that the Kurds will now fight
for an independent state. They need not worry, at least as long as
the U.S. is in Iraq.
Russia: There are some who are claiming Russian President
Vladimir Putin is a big loser as a result of coalition success in
Iraq. Certainly, he’s not a winner, but he’s also not a loser on par
with France and Chirac, for the simple reason that we’ll always
have to listen to Russia, if for no other reason than that we need
to secure their nuclear weapons material.
It’s tough to tell who Putin really is, despite our own President’s
claim to know his soul, and it’s understandable why this fact has
many worried. What we do know, today, is that his tough line
against the U.S. had more to do with pandering to hardliners
leading up to parliamentary elections this December than
anything else. And over the past two weeks he has clearly
lowered the harsh tone in urging parliament to approve the
nuclear arms pact with the U.S., which had previously been
rejected. Things aren’t all rosy, that’s for sure, but they also
aren’t as bad as they seem. At least that’s my opinion.
India / Pakistan: Secretary of State Colin Powell has assured both
parties that the U.S. will stay engaged. It better. This is still just
one major incident away from blowing.
Canada: The National Post reported that a Canadian based
Hizbollah terrorist had been arrested a while back for plotting an
assassination of Israeli Prime Minister Sharon. The Post also
reports that Hizbollah’s reach in Canada is wide, so it begs the
question, what is Canada doing about this?
Spain: Granted, the following is a small matter, but I’m watching
‘noted’ historian Douglas Brinkley the other night and he labeled
Spain’s Prime Minister “Anzar” a big winner in the ouster of
Saddam. First off, Brinkley said Anzar about ten times…it’s
“Aznar,” Mr. Binkey, and Aznar is not a big winner, either.
While I greatly appreciate his support of the war, unlike Tony
Blair, Aznar did little internally to rally his people to the cause,
so it’s no wonder a staggering 92% in Spain opposed the
coalition action.
Back to Brinkley, he made no mention of Australia’s John
Howard. Now there is a big winner. And it also needs to be
noted that Australia’s contribution of 2,000 soldiers is not a
minimal one. Many of them have been on the front lines,
performing magnificently. It’s enough to make one want to
quaff a Foster’s, mate.
Cuba: Sentences ranging from 6-28 years were handed down to
75 dissidents put on trial over the past 10 days. Colin Powell
labeled the action “despicable.” It’s time for Fidel to be shown
the door, preferably one of those trap doors into a shark tank, like
in a Bond movie.
Random Musings
–Defense News commented that the real debate taking place
between the Defense and State Departments is over who doles
out foreign aid. While Congress favors State, the Defense
Department argues it needs control of a large slice of the foreign
aid pie for the purpose of rewarding allies in the battles against
terrorism. So split the damn thing.
–The Weekly Standard on John Kerry’s recent performance.
“He spoke so deliriously that one fears he’d eaten some bad
scrod.” Basically, I now place Kerry in the irrelevant category,
alongside Maureen Dowd.
–On the other hand, Richard Gephardt, Joe Lieberman and John
Edwards survive to fight another day thanks to their solid support
for the war. [As for Howard Dean, I labeled him a loser long
ago.]
–I’ve noted in the past I’m not for the dividend tax cut exclusion,
but as reader Scott P. noted in last week’s review, what a terrible
job by Senate Majority Leader Bill Frist in not getting a better
package approved. I’ll have more on this next week.
–The following are two comments from the Associated Press
concerning Arab opinion on the fall of Baghdad. You shouldn’t
be surprised that I picked out only the more optimistic ones.
“We discovered that all what the (Iraqi) information minister was
saying was all lies,” said Ali Hassan, a government employee in
Cairo, Egypt. “Now no one believes Al-Jazeera anymore.”
From a 47-year-old cardiologist in Lebanon, “I don’t like the
idea of having the Americans here, but we asked for it. Why
don’t we see the Americans going to Finland, for example?
They come here because our area is filled with dictatorships like
Saddam’s.”
Actually, Finland is still too cold this time of year. JUST
KIDDING!
–29 foreign travelers (“adventure tourists”) have disappeared in
Algeria over the past few months. This is just another reason
why when I travel, I seek no adventure other than sitting at a
sidewalk café, drinking local beer and watching the world go by.
–From Stephen Budiansky, in a Washington Post op-ed piece.
In World War II, Allied fighter bombers on average had to drop
800 bombs or fire 3,500 rockets to score a single tank kill.
Incredible.
–The New York Times can’t let go of the issue of minorities in
the U.S. military, with another big piece this week titled “Is This
Really an All-Volunteer Army?” The subtext was clear; too
many minorities are in the Army to suit the Times’ editorial
board. Of course everyone should be saying, “Thank God.” The
military is the best institution in America, to state the obvious,
and for the rest of their lives these kids will be productive, God-
fearing citizens.
–David Bloom, RIP. It was amazing how many people felt a
connection to him, and his enthusiasm and energy shined through
on his reports. I’ll never forget one he gave Monday, March 31.
When others were still focusing on ‘fierce’ resistance, Bloom
relayed the story of how the division he was embedded in had
obliterated the Iraqis in a firefight the night before, and I mean to
tell you, he was pumped. Watching it I got excited myself, and
felt tremendous pride for our men and women. Good triumphing
over evil. Our hearts go out to Mr. Bloom’s family.
–I have enjoyed Andy Rooney over the years, but it’s safe to say
a windbreaker and nametag are now in order. His last few
appearances on “60 Minutes” have been both sad and infuriating.
Last week, commenting on a war he has vehemently opposed,
Rooney blasted President Bush yet again, saying, “The only good
news will be when this terrible period in American history is
over.”
What are you saying, Mr. Rooney? It’s America’s fault that the
Arab world consists of failed states? 9/11 was our fault?
–Historian Arthur Schlesinger, Jr. is general editor for a new
series of books on America’s presidents, the first seven of which
have now been released. The first one I cracked open was on
Theodore Roosevelt and I have to note his stance on capital
punishment, particularly in light of our war on Iraq.
“But inasmuch as, without hesitation, in the performance of duty,
I have again and again sent good and gallant and upright young
men to die, it seems to me the height of folly both mischievous
and mawkish to contend that criminals who have deserved death
should nevertheless be allowed to shirk it.”
Game, set, match.
–My, those Clintons are amazing. Matt Drudge reported that
Hillary is hopelessly behind on her book, for which she received
$2.85 million upfront, with another $5 million+ upon
completion, while separately, husband Bill is receiving $12
million for his tome and he hasn’t written a word of it. Great
role models, these arrogant, corrupt jerks.
–Republicans have raised $57 million thus far in ’03 for their
major national committees versus the Democrats’ $20.6 million.
–I swear I’ve seen that Iraqi information minister before….I
know, he was Enron’s head of investor relations!
–I was looking hard but I didn’t see Dennis Kozlowski or
HealthSouth’s Richard Scrushy among the looters in Basra.
–I think I received more e-mails on the dolphin mine-sweepers
than just about any other issue over the past year. Of course
most of you pointed out that the Aussies had mistakenly
characterized the fake porpoises on duty in the Persian Gulf as
fish when, yes, they are indeed mammals. Now quick… is a
platypus a mammal or fish?
–Time’s up….it’s a mammal, but it does lay eggs. In other
words, it’s a species fraught with personality disorders.
–Speaking of eggs, most of you know I’m a bachelor and for the
past 30 years or so there has been no reason for me to dye Easter
eggs. Alas, this past week I had to do just that, 5-dozen worth
for a community project. Now I was given some good advice
beforehand on boiling the eggs, but I still had to double-check
during the process…so I placed a call to my Mum. “How long
do you boil these things?” “About ten minutes…but make sure
they’ve been sitting at room temperature for a while or they’ll
crack.”
Doh!! Oh well, I also kept forgetting to buy white vinegar so I
used a little Corona instead.
–More than a few in my area are canceling trips to Paris. One
couple that has gone every year for the last ten and has lots of
friends there is bagging out because the wife is worried how
she’ll be treated. Hell, I was always treated like crap there, so
what’s the worry?
–Cecile de Brunhoff, creator of Babar (though her husband got
all the credit), died the other day at age 99. It needs to be noted
that Babar, a Frenchphant, was a supporter of the war.
–Finally, watching those initial pictures of Saddam being
toppled in Baghdad, I couldn’t help but think what a great
moment it will be when Iraq’s Olympic team marches through
the stadium next summer in Athens. Long under Uday’s thumb,
tortured and killed, it will be as good a symbol as any of a new
beginning. We can only pray. And I also can’t think of a better
representative to hold the flag than that giant of a man who was
wielding the sledgehammer against Saddam’s statue.
—
God bless the men and women of our armed forces and those of
our allies. We couldn’t be prouder of you.
God bless America.
—
Gold closed at $328…appears to be stabilizing.
Oil, $28.14…late Friday rally.
Returns for the week, 4/4-4/11
Dow Jones -0.9%
S&P 500 -1.2%
S&P MidCap -1.2%
Russell 2000 -0.5%
Nasdaq -1.8%
Returns for the period, 1/1/03-4/11/03
Dow Jones -1.7%
S&P 500 -1.3%
S&P MidCap -4.2%
Russell 2000 -3.1%
Nasdaq +1.8%
Bulls 51.1%
Bears 31.1% [Source: Investors Intelligence]
Have a great week. As always, I appreciate your support.
Brian Trumbore
