[Posted 7:00AM]
“Our armed forces have won a triumph, but an inept political
strategy can easily leave the fruits of victory to rot on the vine.”
–Max Boot / The Weekly Standard
I wrote last week that I had missed President Bush’s appearance
on the USS Abraham Lincoln, but that it smacked a bit of
“triumphalism.” Then, much to my horror, some Democrats
criticized the event, even questioning the cost, a ridiculous
notion. Oh no, I thought, I’ve lumped myself in with Henry
Waxman and Robert Byrd.
But I have no problem addressing this issue further, because, as
Mr. Boot says above, it’s about far more than what I later saw,
once I viewed the tapes, as a normal presidential photo-op and a
reward to our hero troops.
Before 9/11, there was little to distinguish the Bush presidency,
except for the important fact that he had returned a sense of
honor to the oval office after the nightmare of the previous 8
years. Then within hours of the attacks, George Bush stepped
forward and became our leader. Suddenly, he had a vision that a
vast majority of Americans shared and supported. We all got a
sense President Bush was truly prepared to see this titanic
struggle against terrorism through to the end, at least to the point
of setting an example for those who would follow.
What I also admired is that our President clearly had the right
instincts, knowing when to side with Secretary of Defense
Rumsfeld and Vice President Cheney, for example, and then
when to turn to Secretary of State Powell. This is true
leadership, in the purest, historical sense of the word.
Now let’s advance to two weeks ago when I turned on Sky News
in my hotel room in Ireland and saw Secretary Rumsfeld in
Afghanistan proclaim that the war there was over and all was
hunky dory. “Bull,” I thought. “He’s lying.”
And therein lies the problem I’ve been wrestling with the past 4
weeks or so. I even wrote as much a while back that as great as
the performance of the U.S. and our allies was in Iraq, for once
I’d like to hear an official admit just one mistake.
Yes, I never thought I’d write this, but Donald Rumsfeld has lost
me, and in discussions I’ve had recently with some very good,
old friends of mine, I’m not alone. His cowboy schtick, not the
President’s, has grown old and while Max Boot wasn’t referring
to the secretary directly, he could have been.
The problem is that Afghanistan is still a disaster (you didn’t
need an excellent “60 Minutes” piece last Sunday to tell you
that), the Taliban and al Qaeda are reconfiguring (just ask the
Saudis), and there were clearly zero real plans to reconstruct Iraq
(witness the looting, post the fall, of the oil fields). Our brave
men and women accomplished their goals in both countries with
amazing speed and skill, and then our political leaders botched it.
I have long warned that the Bush administration needed to stay
focused on the long haul, that it has to remain committed,
even as the American people invariably sour with each passing
year. Secretary Rumsfeld, on the other hand, seems more
concerned with cutting and running. The U.S. has far too few
troops in Afghanistan, with Kabul being the only secure area in
the whole freakin’ country. And the U.S. general on the ground
in Baghdad said the other day that the remaining American
forces there were stretched way too thin. I’m sure parents of
loved ones stationed in both countries like to hear Rumsfeld’s
talk of bringing everyone home quickly, but this isn’t necessarily
serving our interests, and plays into the hands of the very radical
elements I thought we were trying to exterminate.
A lot of hard-core conservatives don’t get it, either. William
Kristol correctly states that President Bush understands the Big
Picture, but then Kristol doesn’t recognize we are mucking
things up in Afghanistan and Iraq. If we don’t set up the models
of freedom here, we’ll never succeed elsewhere, like in Iran.
The United States stayed in Germany and Japan for years
following World War II to ensure an orderly transformation to
democracy. Rumsfeld’s model, on the other hand, is doomed to
fail.
But I still hold out hope that President Bush’s heretofore solid
instincts will prevail. The American people need to understand
the tremendous sacrifices that have to be made for decades to
come, as in the end, history will judge not just the actions, but
our finished work.
Wall Street
An interesting week, to say the least, as the Federal Reserve
dropped a bombshell in its Open Market Committee statement
that deflation was a concern. While they didn’t exactly use the
“D-word,” recognizing this would be tantamount to yelling
“Fire!” in a crowded theatre, the Federal Reserve said “the
probability of an unwelcome substantial fall in inflation, though
minor, exceeds that of a pickup in inflation from its already low
level.” As a piece in the Wall Street Journal put it, this
represented a “profound shift” in policy.
Here we’ve been trained to believe that inflation, not ‘de’flation,
is the issue, particularly if the economy improves. But therein
lies the rub; in holding the line on interest rates, while keeping
open the possibility of further rate cuts later on, the Federal
Reserve added that the U.S. economy was “disappointing” and
that the balance of risks remained weighted toward “weakness
over the foreseeable future.”
What the Fed is worried about can perhaps best be summarized
by the thoughts of Robert Samuelson, who in an op-ed piece this
week in the Washington Post revisited the whole aftermath of the
bubble theory, wherein the U.S. has three key problems.
First, overcapacity. Second, Europe and Japan are sicker that we
are. Third, global trade patterns are troubling, or, as Samuelson
put it, “twisted.” A good example of this last point was the battle
this week over an aircraft engine contract, whereby United
Technologies’ Pratt & Whitney unit, the low bidder, suddenly
lost out to a European consortium when French President
Jacques Chirac intervened at the 11th hour.
Samuelson’s conclusion, and that of others like Morgan
Stanley’s Stephen Roach, is that the United States is potentially
in the midst of a slow-motion unraveling, just like that which
occurred in Japan beginning in 1989. Have a good day.
The decline in the U.S. dollar the past year, and weeks, in
particular, certainly is a warning signal. While the 20% drop
versus the euro has been orderly, and lately of no obvious
concern to U.S. equity markets, the fact is that even while the
rest of the developed world is staggering to the exit door after a
seemingly endless bender, the U.S. isn’t offering many investors
a solid alternative. Yes, a declining dollar is good for U.S.
multinationals, a fact borne out at earnings time, but there are
geopolitical machinations at work that should give one pause.
“America, the indispensable nation,” as Miss Stickpin,
Madeleine Albright, used to intone, is not necessarily the mantra
of foreign investors these days.
Perhaps most telling was a comment made by Malaysian Prime
Minister Mahathir this week. Mahathir, you’ll recall, was a lone
wolf during the Asian currency crisis, blasting speculators like
George Soros for exacerbating the situation. Soros, and others,
said “Bunk, crony capitalism is the problem, man” and we all
nodded in agreement. Then we learned, post-Enron et al, that
many of our own corporate leaders and investment mavens were
nothing but dirtballs on a scale rivaling the worst of Asia.
Mahathir was right.
So the other day he urged Malaysia’s state oil company to
abandon the dollar in favor of the euro.
“It is not a question of the U.S. being happy or not, it is a
question of whether we get value for our goods.” [London
Times]
Who can argue with such sound logic?
Alas, there was a bit of good news this week as Intel and Texas
Instruments issued statements solidifying the belief that the tech
sector has bottomed (which Nasdaq has been anticipating for
weeks now), though it needs to be noted that Goldman Sachs
now believes IT spending for ’03 will be down 3%, not up 1% as
previously stated (the 1% being a comedown from an up 3-4%
prior forecast).
In the end the market absorbed the deflation talk, punk retail
sales, the falling dollar and the shock of a 4-game Detroit Tigers
winning streak to finish up yet again, the 4th straight advance for
Nasdaq (1520) and the S&P 500 (933), 3 of 4 for the Dow Jones,
the latter now sitting at 8604.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.12% 2-yr. 1.44% 10-yr. 3.68% 30-yr. 4.67%
Who said the bond rally was over? Alan Greenspan’s Fed, of
course, recognizes that the housing boom has been critical to our
economic well-being, so the hints at deflation had an equally
well-targeted audience, the Treasury bond pit and those last
schleps who haven’t refinanced. I joined the crowd myself this
week, finally, never having needed to sooner due to the
adjustable nature of my own mortgage. Actually, I’m one of the
few who is shelling out more the first year, but rates will go up
one of these days. If they don’t, it’s because we’re all eating
gruel amidst the Depression.
–In the “for what it’s worth” category, Barron’s latest poll of
institutional money managers revealed that 60% were bullish on
equities for the balance of the year, with only 11.5% bearish.
The rest were either ‘neutral’ or too busy figuring out another
way to scam the system.
–Energy: The EPA announced that the nation’s average auto
fuel economy was at its lowest level in 20 years for the 2002
model car year, thanks to the proliferation of light trucks and
SUVs, the latter really falling into the heavy truck category.
Separately, the price of gasoline at the pump continues to tumble
back to normal, pre-panic levels. Remember, folks, there are two
certainties in life. Each year, at some point there will be a
plethora of news stories on “soaring” gas prices, as well as the
other annual rite, “the worst forest fires since, err, last year.”
Personally, it would be a great sign for all of us if we had a
return to shark attack headlines this summer. Better than terror
or nuke concerns, I think you’d agree.
–Warren Buffett received his annual dose of hosannas as a result
of his holding court in Omaha at the Berkshire Hathaway
shareholder meeting. I get a kick out of those who criticize him
out of sheer jealousy. True, his politics blows, in my humble
opinion, but on balance his investment themes have been as good
as any. Currently, he’s souring on junk bonds.
–Yeah, there’s renewed talk of deflation, but tell that to New
Yorkers who have seen every cost imaginable go up since 9/11,
including this week’s 33% subway and bus fare increase. [I’ll
have more on New York in coming weeks. Many of us fear for
our favorite city, the trends are horrible.]
–I subscribe to Value Line and in looking at some figures for the
past 50 years, through 2002, come up with the following tidbits.
Average annual total return on the Dow Jones, 11.0%
Average price / earnings ratio, 13.4
Average earnings growth, 6.0%
Now, for the period 1993-2002
Average annual total return on the Dow, 12.0%
P/E, 18.0
Earnings growth, 10.8%
Discuss amongst yourselves.
–So I’ll give you another glimpse into my personal life. After
“Meet the Press” on Sundays, I go to the local high school track
and jog a few miles. I’m normally wearing something with my
alma mater, Wake Forest, on it and sometimes it’s a conversation
starter.
Well, last Sunday I hear this “nice shirt” and it turned out to be a
fellow alum I hadn’t met before, an airline analyst on Wall
Street. Steve joined me for a few laps, I asked him about
Continental and some other issues (while failing to tell him I’ve
been ripping his firm) and he confirmed what most of you
already know; the market is totally institution driven these days,
including the hedge funds. He also agreed that some of the plays
in his sector have gotten way ahead of themselves.
–Lucent soared above $2 this week, as the company reiterated it
would soon return to profitability.
–Ted Turner sold half his AOL stake, not exactly a ringing
endorsement.
–Wal-Mart banned the sale of 3 men’s magazines, including
Maxim, in case you noticed longer lines at your corner
newsstand.
–Betty D., who oversees a large investment club here in New
Jersey, wrote to tell me of the outrageous fees the state levies on
members; $150 here, $150 there. It’s pitiful…and another reason
to boot our awful governor, Jim McGreevey, just because.
–Japan’s economy has renewed its downturn, and even though
SARS hasn’t swept Japan like other Asian countries, it is feeling
the spillover effect. So, in an effort to find new life, this week
Japan launched the first mission of its kind to explore an
asteroid. Figures.
–Sleaze Alert: Remember Todd Eberhard, an investment
manager who appeared frequently on “Moneyline with Lou
Dobbs”? He spent more than $2 million buying the silence of
three employees who threatened to tell his wife about his secret
sex romps and shady business deals. [John Lehmann / New York
Post]
–I liked my friend Liz S.’s name for those firms involved in the
Wall Street research settlement, the “Tawdry Ten.”
–Back to New Jersey…and scandal…remember, our senator, Jon
Corzine, was present at the beginning.
–My portfolio: My precious drillers finally struck oil this week,
hitting levels not seen in months and making me giddy as a
schoolboy. But by way of follow-up to my story from Ireland
that Dell was moving some of its customer service operations to
India, in light of this and the possibility that the political situation
may stabilize a bit between India and Pakistan, I put 1% of my
assets into a closed-end fund specializing in the land of Kama
Sutra.
–Finally, now the rest of America knows what you have all
along. The man I first labeled a “snake oil salesman” and
“dirtball,” NYSE Chairman Richard Grasso, was the subject of
massive abuse this week when the Journal uncovered the fact he
took home $10 million last year. [By comparison, a man I
respect, Nasdaq’s former Chairman Hardwick Simmons, made
$1.4 million.] On Wednesday, Grasso was in Washington to
testify before a Senate committee on the global research
settlement and it was like watching a man self-destruct. Kudos
to Senator Paul Sarbanes, who ripped Grasso to shreds, even if
the sleazeball didn’t quite recognize it himself. But there are
some who will defend this “honorable” man, including some of
my own friends in the industry, I have to add. Of course for his
part, Grasso will hide behind his charitable good works, because
that’s what they all do.
International Affairs
India / Pakistan: We now enter the delicate, critical stage of
statecraft, as both sides try to cement a more stable relationship.
Low-level talks should begin shortly, prelude to a summit
between India’s Vajpayee and Pakistan’s Musharraf. This week
Pakistan said it would get rid of its nuclear weapons if India
does, but India correctly replied it has its force not just to deter
Pakistan, but also to ward off China. Meanwhile, there was
renewed violence in Kashmir, a reminder that attaining a true
peace won’t be easy.
Israel: Prime Minister Sharon said he was ready to start talks
with Syria as long as Damascus had no preconditions. Secretary
of State Powell is now in the region. President Bush has
proposed a free-trade zone for basically the entire Middle East.
More next week.
North Korea: The U.S. has begun targeting the drug and missile
trade, amid new reports Pyongyang may indeed be reprocessing
its spent fuel rods, a precursor to assembling nukes. [Of course
our intelligence community has been all over the board on this,
as they are on most matters these days…which doesn’t give the
rest of us a warm and fuzzy feeling.] This week South Korean
President Roh comes to Washington and look for the Bush
administration to roll out the red carpet.
Iran: The U.S. is pressing the International Atomic Energy
Agency and the U.N. to come down harder on Tehran’s own
clear nuclear intentions. Again, suddenly intelligence is saying
Iran is further along than once thought.
Iraq: The Washington Times’ Bill Gertz reports that France aided
Iraqis escaping through Syria by supplying false passports that
enabled some of them to flee to Europe.
China: SARS continues to spread into the rural, peasant
population, a true nightmare of cataclysmic proportions. This
isn’t an overstatement, there simply aren’t any real health care
facilities in these areas. Plus, while President Hu and Jiang
Zemin have been on television with family members of SARS
victims, a rare display of openness, at the same time lower-level
officials continue to cover up important details when the World
Health Organization questions them. SARS may be increasingly
contained in other countries (at least until next winter), but it will
ravage China.
Ellen Bork commented in the Weekly Standard that the West
does have an opportunity. She notes how despite the
stonewalling, “there are people who are willing to tell the truth”
and those courageous acts need to be encouraged by the world
community. On a far smaller scale, I continue to see an almost
daily increase in my own site traffic from China. I appreciate
those of you who are helping to spread the word. It’s not as if
I’m advertising in the People’s Daily, after all.
Taiwan: In a significant step, the U.S. is looking to sell an
advanced Patriot missile defense system to Taiwan, which ticks
off China. Taiwan has been begging for this for years, a good
move on the part of the Bush administration.
But on a different matter, SARS, Taiwan, specifically Taipei, is
facing huge problems of its own. Having been there recently,
witnessing the incredible congestion, I fear for these good people
(as friendly as any I have met in the world). Also, this week
President Chen Shui-bian wrote an op-ed piece in the
Washington Post raising a huge issue, the fact that because
Taiwan isn’t formally recognized by most of the world
community, it hasn’t been allowed to join the WHO. Taiwan,
unlike the mainland, has been very open in its battle against
SARS and sought WHO assistance from the beginning, but it
was only this week that China gave permission for two officials
to enter it. This is a travesty.
Singapore: And here’s another great friend that many in the U.S.
are only now beginning to appreciate. Kudos to President Bush
for finalizing a free-trade agreement with Singapore, the first
with an East Asian nation. I get a kick out of some of my friends
who question my enthusiasm for this country and wonder why I
want to visit it. “The place is too strict,” they say. “Great,” I
reply. “The system works.”
Australia: It was also good to see Australian Prime Minister John
Howard in America. Now there is a man of intestinal fortitude.
It’s hoped that here, too, a free-trade pact will be inked between
our nations by year end.
Britain: Reports circulated this week that 50 would-be suicide
bombers are in the country as the nation grapples with its own
burgeoning population of Islamic radicals.
Colombia: Tragically, the government botched a hostage rescue
(a la Jimmy Carter) and 10 were killed by the rebels; a state
governor, a former defense minister and 8 captive soldiers.
President Uribe took full responsibility, while promising to
continue a hard line against FARC. Just a very sad episode in
this awful 30-year war with vicious, drug-running terrorists.
Random Musings
–An ABC News / Washington Post poll revealed that 48% of
Americans say they are worse off, economically, since President
Bush took office.
–I’m not going to waste any more time on the tax cut debate
until we get closer to a final resolution.
–Where are the weapons of mass destruction in Iraq, for crying
out loud?
–Vice President Cheney announced he was charged and ready
for the 2004 campaign. Of course it only made sense to make
this pronouncement now, in an attempt to forestall talk of his
stepping down for a while. The Bush team can wait until next
spring to reveal Cheney’s new role as special advisor to the
President in a second Bush term.
–Meanwhile, Lloyd Grove wrote a piece in the Washington Post
concerning Teresa Heinz’s interview in Elle magazine. I noted
in this space on 4/5 that she would “torpedo” hubby John Kerry’s
presidential ambitions and after reading the excerpts, this almost
seems assured. The woman is nuts. Rich, but nuts.
–Back in 1798, Thomas Malthus wrote his “Essay on
Population,” which stated that population increases geometrically
but the food supply can’t increase fast enough to accommodate
the masses, ergo, famine, war and disease are consequences. Of
course his theory was largely disproved over the last 200 years,
particularly in the area of food (famines are almost always a
result of corrupt government, not drought), but look for a
resurgence in Malthusian thinking because SARS is but one
example of how our overcrowding can kill us. I see the man on a
U.S. News & World Report cover in, oh, about 6 weeks.
–The U.S. Senate voted 96-0 to ratify the expansion of NATO to
include Latvia, Lithuania, Estonia, Slovenia, Slovakia, Bulgaria
and Romania. Back when this was first proposed, I voiced
reservations on the seeming rush to expand because I was
concerned we were pushing our luck with Russia. I was wrong.
–I mentioned in another column this week that the San Antonio
Spurs’ David Robinson would make for a great Secretary of
Education some day. I’m convinced the nation will hear more of
him in his retirement than during his playing days, even if he
prefers to take a back seat….because I’m not going to let him!
–And then there is the case of the Illinois high school hazing
incident at the powder puff football game. That video is
horrifying and it is the hope here that the ringleaders are thrown
in the slammer. And how about the female student who was
interviewed afterward and said something like the following in
speaking of a victim. “So her head was cut open. It’s not like
she is dead!” Throw her in jail, too, just for being an idiot. As
for the parents who may have supplied alcohol to the students,
foreclose on their homes.
–An item I missed while in Ireland was the re-election of Cuba
to another 3-year term on the U.N. Commission for Human
Rights. Insane. It’s also time to give Castro a 48-hour
ultimatum, before sending in 10 Delta Force soldiers, because
that is all it would take to topple this tinker toy regime and its
fleet of ’57 Chevys.
–Your heart just goes out to the families impacted by the tornado
outbreak in the Midwest. When the television cameras have
gone and attention is focused elsewhere, I hope to get out there
and see if I can make a small difference in someone’s life.
–Schick is ahead of Gillette in the race to be the first to market a
4-blade razor. “The first blade lifts the whiskers, while the
second removes them. Then the third blade slices off your skin,
allowing the fourth to dig deep into the bone.”
–Finally, I thought you’d get a kick out of this, especially after
my charity bashing of the past year or so. The local historical
society sent out its newsletter and my name appeared on it,
having been one of 4 to contribute to the purchase of a microfilm
reader. Yes, I too have my causes, you just will never see me
attending a black tie affair with Sandy Weill. What cracked me
up is that another name on the list is the “Corzine Fund,”
established by Senator Jon Corzine (and his ex-wife…he was
recently sent packing to Hoboken). Now for sure that’s the only
time you’ll see our names linked together.
But in this same newsletter was the story of the father of a very
good friend of mine from my youth, Elwood C. Cornog, Jr. I’ve
known Mr. Cornog for about 30 years and in Summit, N.J., he is
best known for running the local Memorial Day parade. Little
did I know, though, what an amazing World War II hero he is. It
turns out Mr. Cornog was a tank gunner under General George S.
Patton and was blown out of his tank not once, but twice, with
many of his comrades meeting their end in both cases.
So God bless you, Mr. C., and God bless the men and women of
our armed forces who serve us today.
God bless America.
—
Gold closed at $348…continuing the rally. ***I have a report
from the gold experts at Van Eck Global currently up on my
“Wall Street History” link.
Oil, $27.72
Returns for the week, 5/5-5/9
Dow Jones +0.3% [8604]
S&P 500 +0.4% [933]
S&P MidCap +0.9%
Russell 2000 +1.4%
Nasdaq +1.1% [1520]
Returns for the period, 1/1/03-5/9/03
Dow Jones +3.2%
S&P 500 +6.1%
S&P MidCap +4.6%
Russell 2000 +8.0%
Nasdaq +13.8%
Bulls 55.8
Bears 24.4 [Source: Investors Intelligence…this week saw a
huge pickup in bulls, and a corresponding drop in bears,
especially from just two weeks ago when the ratio was 42.7 /
34.8. Much has been, and will, be made of this. Reminder, I
have two good pieces on the topic in my “Wall Street History”
archives from 2/21/03 and 2/28/03.]
Special Note: Chris C., a longtime reader and good guy, has
decided to put together a discussion group for StocksandNews.
http://groups.yahoo.com/group/stocksandnews/
I have granted my approval, recognizing this may meet with a
limited audience, especially in the beginning, but as Chris said, if
nothing else it may help some of you exchange articles of note.
Back when I started this site, in the frothy days of 1999, I
thought about doing something like this myself, but then realized
it would be a nightmare; from a time standpoint, my ego, and
my health. Those early days were hard, because some of the
hate mail I received was rough and took a little getting used to.
Now my skin is thick as rawhide, at least I’d like to think so.
But I won’t be monitoring, nor participating in Chris’s effort,
mostly because of the same time element. I hope some of you
continue to pass along your thoughts directly to me. I value your
comments.
So I wish Chris luck. If it doesn’t pan out, so be it. We’ll soldier
on regardless.
Happy Mothers Day, Moms!
And congratulations to our own Harry Trumbore, who received
3rd place from the New Jersey chapter of the Society of
Professional Journalists for his political cartoon work at the Item,
a local newspaper.
Brian Trumbore
