[Posted 7:00 AM ET]
Brace Yourself
This week, Australia’s intelligence chief said “There is a genuine
concern that a catastrophic attack is certainly only a matter of
time,” as Australia, itself, is a prime target, both because of its
support of the United States as well as its proximity to terror
hotbeds such as Indonesia. And it is more than a bit significant
that Australian Prime Minister John Howard added, “We have to
brace ourselves.” You can’t be any more blunt than that.
In just the past few days we have seen a rash of activity in the
war on terror, some of it with great results, such as the arrest of
Jemaah Islamiyah leader Hambali on the Cambodian – Thai
border, along with the cooperation between U.S., British, and
Russian intelligence in unmasking the plot to purchase surface-
to-air missiles that can be used to target commercial aircraft.
But there were more than a few disturbing developments, such as
British Airways’ suspension of flights to Saudi Arabia due to a
perceived threat, as well as a steep escalation of the ongoing
conflict in Afghanistan that saw over 50 killed in 3 separate
incidents in one day, all involving to some extent the Taliban, al
Qaeda and / or Afghan warlords.
As for the Saudis, the power struggle in the Kingdom is
intensifying, one with consequences for us all, as Crown Prince
Abdullah, the de facto leader and a man most Western leaders
can trust to a certain extent, issued the strongest statement yet,
vowing to crush terrorism while defining the struggle in terms of
“good and evil.” But then the dangerous Prince Nayef, head of
intelligence, disputed many of Abdullah’s claims.
And then you have the situation in the U.S., where a Pew
research poll had a distressing result, as by a 57 to 27 percent
margin, Americans said President Bush should focus more on the
economy than the war on terror. If the figures are close to the
truth we’re doomed because for starters, Americans won’t
support the kind of spending on homeland security and the
military that is required to make our country as safe as humanly
possible.
With Thursday’s power failure – which the President said wasn’t
terror-related when he literally had no clue whether it was or not
at the time – we have seen another example of how as generous
as our country can be, we can also be a selfish nation, not
willing to make necessary sacrifices for the good of our fellow
countrymen.
How else to explain our lack of an energy policy? And to blame
the politicians is missing the forest from the trees. Who votes for
the politicians? We do. Who tells a particular congressman how
to vote? We do.
Sure, it’s easy to blast Congress for inaction, but we the people
are to blame for not having the sense to know, for example, that
drilling in the Arctic National Wildlife Refuge is part of a
comprehensive plan for energy independence, while at the same
time modernizing the electricity grid requires sacrifice of a
different sort, building power plants in someone’s back yard or
placing transmission lines in your neighborhood.
Following 9/11, some pundits and politicians blamed President
Bush for not asking the American people to make any real
sacrifices, instead, urging us to shop. On the other hand, I have
always argued the sacrifice is going to be in the tremendous
amount of money that needs to be spent, particularly for
homeland security, with the sacrifice coming in the form of much
higher deficits, higher interest rates, and a punk economy.
Finally, watching the crowd of up to 100,000 attempting to get
ferries to take them from Manhattan to New Jersey during the
blackout, I kept thinking, what will happen if a dirty bomb or
chemical attack takes place and there’s true panic?
Every individual in America, even those living in the most rural
areas, should think through a plan for the most terrifying
scenarios. In some cases, there will be little one can do, but what
worries me is that many states and cities say they have firm
emergency plans in place (New York, for the most part, did
perform admirably this week), but no one is telling the average
citizen what to really prepare for, outside of our duct tape scare.
We need leadership. We can handle the truth. We can sacrifice.
And as Prime Minister Howard said, we also “have to brace
ourselves.”
Wall Street
The news on the economic front continued to be largely on the
positive side, with retail sales for July coming in at a much better
pace than expected, while the figure for industrial production
rose and both the PPI and CPI were tame. Cyclical stocks,
obviously a good barometer of economic activity, continue to
trend higher, while there is anecdotal evidence the tax cuts are
being spent. [Which means debt isn’t being paid down.]
The Federal Reserve also weighed in, issuing a rather muted
statement on the economy, while spelling out that it will hold
the line on interest rates “for a considerable period,” rather
extraordinary language coming from them. In other words, they
are trying like hell to convince the markets that they can be
trusted.
But on the roller coaster that passes for the bond market these
days, rates spiked higher again after taking a breather the
previous week, with the 10-year Treasury trading above the
4.60% level before settling down at 4.53%. You can talk all you
want about how interest rates, despite the recent rise, are still at
historically low rates, and they are, but sentiment is what rules
the markets, whether it’s stocks, bonds, or real estate. Yes, the
housing market may avoid the feared slide if rates stabilize
quickly around current levels, but one part of the equation is
history, that being the refi trade.
Meanwhile, the global recovery we keep hoping for is out there,
but it’s obviously a tepid one, with Italy, Germany and the
Netherlands all technically in recession, even as there is other
evidence a rebound is in the offing across much of Europe, while
some Asian countries such as Singapore continue their climb out
of the hole caused by SARS. As for Japan, it registered a gain of
0.6% in GDP for the second quarter, which seems like a grand
slam compared to past activity.
Overall, progress is being made, but it’s slow and few are willing
to bet heavily on 2004. To a great extent we’re at the mercy of
forces outside of our control, which is why you still can’t go
crazy for equities when putting together your asset allocation.
Street Bytes
–While the broad averages all finished up, 1.4% for the Dow to
9321, 3.5% for Nasdaq (back over 1700 to 1702), we remain in a
tight trading range, as best exhibited by the S&P 500 which has
closed each Friday over the past 11 weeks between 976 and 998.
But concerning Friday’s session, there was absolutely no reason
to open the stock market that day. I saw “Kudlow and Cramer”
kissing NYSE Chairman Dick Grasso’s ass last evening and you
have to ask yourself, “Why?”
This $10 million egotist knows that the nation, and the world’s
capital markets, would have survived. It’s called vacation.
–U.S. Treasury Yields
6-mo. 1.03% 2-yr. 1.79% 10-yr. 4.53% 30-yr. 5.40%
13-month highs in yield on the long end, as the bond market
concerns itself with the possibility that economic growth may
come in as now projected, 3.5-4 percent for the second half,
which by yearend could stoke inflation.
–Energy: Focusing on more conventional means, for now,
inventories for both crude and natural gas increased by more than
expected, which helped lower the price of the commodities some
this week, though $30+ oil is once again being reflected at the
pump. [Gasoline prices also rose in the spot market due to
concerns over various refineries being out due to the power
failure.]
–Trade: China is now exporting more to Japan than the U.S. is
($61.7 billion to $57.6 billion in 2002), but, to put this in some
perspective, more than half of this is controlled by non-Chinese
companies, like Nike.
Meanwhile, on the issue of China and trade, Donald Straszheim,
the former Merrill Lynch strategist who was booted a few years
ago for being correctly bearish and who now has his own firm,
echoed a statement I made a few weeks ago that China would be
a huge political issue in 2004. Straszheim writes (as summarized
in Barron’s):
“Slow job growth will create lots of finger-pointing on trade.
China will be a primary focus of this attention. For American
workers, we believe that job losses to overseas competition will
be ‘the’ issue the rest of this decade.”
And on a related item having to do with current trade talks and
massive agricultural subsidies, former congressman Rick Lazio
opined in the New York Times.
“It is completely inconsistent for the United States and Europe to
preach the virtues of capitalism and open markets while using
statist policies to strip struggling countries of one of their few
comparative trade advantages.”
And, of course, the policy leads to more failed states and
terrorism.
Finally, here’s a line being used by some of the Democratic
presidential candidates, particularly by Dick Gephardt, that
you’ll hear 1,000 times more.
“We have given the green light to corporations to have a race to
the bottom to get the cheapest labor they can find.”
–Back to China, luxury real estate in Shanghai has risen 62%
since 1999. If that isn’t a bubble, I don’t know what is. All
Chinese residents and investors need to do is look to Hong Kong
for an example of what can happen when the party ends, Hong
Kong having witnessed a plunge in real estate values of 66%
since its own bubble burst.
–Technology, part deux
The current issue of Business Week has a thought provoking
section on technology, with interviews from some of the leading
thinkers in this arena. I have always argued that there is no “next
big thing,” at least in the traditional terms we think of when we
hear the word tech, but that certainly in the fields of, say,
biotechnology there will be.
Those who argue differently include Bill Gates, who sees more
innovation in areas like real-time communication, while Michael
Dell is high on nanomaterials and photonics, and venture
capitalist Roger McNamee favors wireless and web services that
address both the consumer and enterprise needs.
As for Intel Chairman Andy Grove, he said that the 3 factors
driving a recovery in tech spending will be 1) Asia-Pacific,
especially emerging economies, 2) Internet traffic, still growing
at significant rates, and, 3) applications that drive the traffic, such
as e-commerce and broadband.
Two comments regarding the above: As for Gates and real-time
communication, “How much more do we really need?” unless
he’s talking about the importance of this during national or
regional emergencies (which he isn’t). And to Grove and the
importance of Asia-Pacific, he’s right, but this is also the same
region that is rife with terrorists and 2 or 3 significant acts could
take it down, so temper the enthusiasm if you’re thinking of
putting more than 10% of your funds here. [Also, diversify
within the region, too.]
As for the iconoclasts in the technology debate, Nick Carr,
former editor-at-large for Harvard Business Review, says:
“I’m not arguing that there won’t continue to be innovations in
technology. I’m arguing that a lot of those innovations are going
to be beyond the needs of a lot of companies….A lot of the core
things that businesses do have already been automated with
information technologies.”
And then you have Bill Joy of Sun Microsystems, who has long
been a realist in this debate.
“Many of the people with disposable income may have more
than they can take care of. And there is not much out there to
inspire you to buy.”
[For you Bell Labs veterans, Joy did praise the good old days
there, when you all were on the cutting edge.]
–Microsoft: Ah yes, freaking ‘Worm Blaster.’ I knew about this
bug a month ago, told some folks to watch for it then failed to
download the patch myself. Idiot. Bingo, it got me. I wrote just
last 7/26 in this space, following news that Microsoft was hiring
5,000 for its R&D effort:
“Hopefully, just one of these new employees will be able to
figure out how to create software that’s not full of security
holes.”
I used to be a big defender of this company. No longer. [My
traffic has dried up in Seattle, anyway, so I have no one to suck
up to.] During the whole antitrust case I took the position, ‘Hey,
Microsoft makes a good product at a fair price, so lay off.’ I was
wrong.
Today, when you look up “Windows” in the dictionary, it should
read “sucks.” It just boggles the mind that with thousands of
computer geeks at its disposal, led by chief nerd Gates, the
company can’t create a secure product. And since obviously
many of our most sensitive sites are dependent on Windows-
based programs, it’s disheartening having to rely on Microsoft in
matters of national security.
–Separately, Microsoft was hit for a $521 million judgment over
a case involving Internet Explorer and patent infringement.
–Hewlett-Packard rolled out 150 new products, none of which
you will ever need, except for one or two if you’re a traveling
salesman.
–La-Z-Boy announced revenues fell 9% in the 2nd quarter. Good
news. We’re walking more.
–AOL Time Warner is dropping the AOL. No one gives a
damn.
–Dell had another solid quarter with revenues up 16%, in line
with expectations. The company said consumer demand was
strong, but corporate spending was still on the lousy side, though
other readings on business spending continue to look
encouraging.
–Russian authorities finally approved the Yukos-Sibneft merger
that will create the world’s 6th-largest oil company, a mild
positive considering the still ongoing rift between the Kremlin
and senior executives at Yukos.
–A Saudi telecom company accused Lucent of bribing a Saudi
official. Lucent can’t even get this right.
–Merrill Lynch CEO Stanley O’Neal (no relation to Shaquille)
rehired a popular senior executive who left the firm March 1st, an
embarrassing act given all the recent turmoil in the ranks, though
evidently welcomed by employees.
But I loved this line from a New York Times report.
“Paul Critchlow, a Merrill Lynch spokesman, did not respond to
dozens of requests for comment.”
10:45 am. “Mr. Critchlow, Peter Dufus at the New York Times.
Please call me, re Robert McCann.”
10:47 am. “Mr. Critchlow, please return my call.”
10:49 am. “Hey, Critchlow, Dufus here. Call me!”
10:51 am. “Hey, a-hole. CALL ME!”
You have to understand, it’s been a miserable summer in these
parts.
–But wait, there’s more! Merrill’s former chief energy trader is
suspected of embezzling $43 million in 2000, a tidy sum if I may
say so myself.
–S.G. Cowen and Lehman Brothers were fined a collective $7.5
million for failure to supervise rogue broker Frank Gruttadauria,
the latter having cleaned out client accounts to the tune of $115
million.
–More negative reports on WorldCom, this time involving
massive, alleged evasion of state taxes, and once again the good
folks at KPMG were right there, providing sleazy advice and
comfort.
–India: A government committee recommended the death
penalty for those who manufacture and sell fake drugs. A super
idea…call your congressman.
–Speaking of India, my small position in this country is now up
40% and thanks to a solid run in one of my energy holdings, I’m
up to about 18% equities, 82% cash.
–If you’re new to the site, my benchmark projections for yearend
2003 (set last December) were Dow 9200, S&P 995, Nasdaq
1600.
–Finally, the photo of yours truly up top was taken at a Bruce
Springsteen concert, but more importantly, that spiffy shirt was
purchased at Wal-Mart in Branson, Missouri. Of course you
don’t have to travel all the way to Branson to get one, like I did.
International Affairs
[Any of the following four could have had the top slot.]
Iraq: Some Americans received a small taste of what has been an
ongoing problem in much of Iraq. No electricity. Since May I
have refused to be an apologist for the Bush administration and
I’m sick of those who can’t look at the situation and utilize both
sides of their brain at the same time. So much has gone right, but
a ton continues to go wrong and it’s incredible that after 4
months, 4 months! we can’t keep electricity on in Baghdad and
Basra. To paraphrase Republican Senator Richard Lugar, where
are the freakin’ generators?! Get the damn power on. Yes, it’s
tough when parts of Iraq’s grid are continually sabotaged but that
has as much to do with lack of manpower and physical security
as anything else. Nothing was more important from day one than
restoring the grid after Saddam’s fall.
Separately, the U.N. Security Council voted 14-0 (Syria
abstained) to “welcome” the new Iraqi council, making it
easier for increased U.N. involvement, which the White House
now realizes is necessary.
Israel: The suicide attacks by Hamas and Arafat’s Al Aqsa
brigade were as predictable as they come in the cycle of
violence, and after Israel killed a terrorist from Islamic Jihad on
Thursday, further escalation is a certainty. Look, no one can
expect Israel to sit back when they learn of plots against its
people, while at the same time terrorists will continue to do what
they always have; attempt to kill innocents.
This week Secretary of State Colin Powell was particularly dour
in his comments and his trademark optimism was missing. The
road map is close to being shredded, despite Israel’s latest
goodwill gesture to return 4 West Bank cities to Palestinian
control.
North Korea: Talks between North Korea, the U.S. and the other
4 players in the region are slated to begin in Beijing on August
27. Early word is that the White House is prepared to offer
concessions if the nuclear program is dismantled, but that would
rely largely on the word of the North Korean leadership, and
since you can’t trust the bastards, let alone the fact that such an
approach does nothing for the hundreds of thousands in labor
camps, I see absolutely no reason to be optimistic on this front.
About every 2 months we must assume Pyongyang has built
another nuclear bomb and the United States is ill-prepared to
take the commies on militarily without catastrophic loss of life.
Iran: Speaking of nukes, according to commentator Jim
Hoagland (Washington Post), the Bush administration is
increasingly concerned Israel is preparing a preemptive strike on
Iran’s nuclear facilities. As noted in this space before, Israeli
intelligence has long concluded that Iran’s weapons program is
much further along than some Western intelligence agencies say
it is. If true, what the issue then becomes is you can’t strike the
facilities after they have been loaded up with nuclear material
because that risks contaminating the surrounding region when
the plants are hit. So you have to move before you cross the
threshold. In the case of Iran, that could easily be within one
year; whereas in North Korea, we’re already there, by my way
of thinking.
Liberia: While events here are obviously still fluid, with the
relative calm that has been restored with the departure of
President Charles Taylor, why didn’t the U.S. go in quicker, over
a month ago? President Bush listened to the Pentagon, when he
should have followed his gut.
Libya: The government formally accepted responsibility for the
bombing of Pan Am 103, allowing compensation to be paid to
victims’ families, while officially ending U.N. sanctions. But
France is threatening to hold the deal up because it desires
comparable treatment for the victims of the bombing of another
flight over Niger in 1989.
India / Pakistan: There was a hopeful development in the form of
a large parliamentary-level conference with representatives from
both countries, including hardline groups. Pakistan’s President
Musharraf issued some conciliatory statements over the issue of
Kashmir, while on Friday, Indian Prime Minister Vajpayee said
in a nationally televised speech, “We have been fighting for more
than 50 years. How much more blood needs to be shed?”
63,000 have been killed in the province claimed by both India
and Pakistan.
Britain: In the inquiry into the suicide of weapons inspector
David Kelly and the allegedly “sexed up” report on the Iraqi
threat, BBC reporter Andrew Gilligan admitted some of his
reporting was flawed, while the involvement of both Defense
Minister Geoffrey Hoon and Blair spokesman Alastair Campbell
is undeniable, with Hoon having insisted that Kelly appear
before a committee that grilled him two days before he took his
life.
Canada: What a freakin’ embarrassment. On Thursday, the
spokesman for Prime Minister Jean Chretien blamed the power
failure on a lightning strike at the Niagara plant. This was after
the Canadians had blamed a non-existent fire at a Con Ed facility
in New York City. Just keep your mouths shut next time.
Random Musings
–No doubt, we are much safer with 65% of al Qaeda’s leaders
either captured or killed. But the organization is mutating, and
it’s deceiving the American people not to note this. That said,
the capture of Hambali dealt a significant blow to the terrorists’
efforts in Asia.
–I can’t help but note a passage I included as part of my 8/14
edition of “Hott Spotts,” posted well before the blackout. It’s
from an article in the July / August issue of Foreign Affairs by
Timothy Wirth, C. Boyden Gray and John Podesta (representing
both sides of the political aisle, incidentally).
“Running today’s digital society through yesterday’s grid is like
running the Internet through a telephone switchboard. Routine
outages and power-quality disturbances cost U.S. businesses tens
of billions a year. A serious accident or act of sabotage could
cripple major regions for days or weeks and do enormous
damage to the economy.”
–The U.S. had to cancel annual war games with Egypt because
it’s low on troops, yet Secretary of Defense Donald Rumsfeld
keeps saying everything is hunky-dory.
As I’ve been writing for months now, we are woefully
unprepared for war on another front and to keep falling back on
the Reserves is a disgrace. The Reserves should be used for
domestic purposes; or only in foreign theatres as part of a
massive, World War II-type deployment. It’s not fair to the men
and women and their families, let alone it helps do a number on
U.S. businesses.
–California: It’s amazing to an outsider like me that in various
polls 60%+ of Californians would recall Gray Davis today, and
that’s not including those still undecided. Former Governor
Jesse Ventura, however, who knows a thing or two about
insurgencies, called the recall “bogus.”
As for Arnold and his naming of Warren Buffett to his strategic
team, that should give Republicans the willies, Buffett obviously
not being one of them.
–In explaining away the problems in the economy, this week
President Bush once again placed partial blame on the media for
its ongoing theme last year of a “march to war.” What’s
distressing is that the President may actually believe this bunk.
–The New York Daily News reports that Rudy Giuliani, in
traveling all over the country stumping for local Republicans, is
piling up his IOUs in preparation for a 2008 run at the White
House.
–Commentator Robert Novak said it best about the candidacy of
Joseph Lieberman, who has taken some honorable positions such
as on continuing to call Iraq “a justifiable war.” But as Novak
adds, “Lieberman can’t win as Bush-lite.”
–The New York Times reported that in the days following 9/11,
the White House leaned on the EPA to issue tame reports as to
the air quality at Ground Zero. There seemed to be particular
pressure to reopen Wall Street that following Monday. Folks,
you’d have to be a moron ‘not’ to believe this because it was
clear that the air quality in lower Manhattan was awful.
Unfortunately, it could be years before we truly understand the
damage done to those who went back to work, and lived, in the
immediate vicinity. This is a bigger story than is being given
credit for.
–As a follow-up to my item of support last week for Attorney
General John Ashcroft and his monitoring of judges who passed
down lenient sentences, Supreme Court Justice Anthony
Kennedy took issue with mandatory sentencing and said it was
important for judges to have flexibility. In praising Ashcroft,
what I didn’t do was specify that in terms of simple drug
possession offenses, in some states the guidelines are too strict,
but in more major offenses I remain squarely on the side of
Ashcroft.
–Talk about a bunch of dirtballs, authorities in New York
handed out over 550 indictments for a staggering insurance fraud
ring, connected to Russian organized crime, wherein thousands,
yes, thousands of car accidents were staged in order to bilk State
Farm Insurance of some $48 million. Doctors, lawyers, and
medical clinics were all involved, and it’s believed similar
operations are taking place elsewhere in the country (like
Baltimore).
[Cars would purposefully cut off innocents and then the
“victims,” the bad guys, filed all manner of phony claims.]
–With the record rainfall in much of the eastern half of the U.S.
this year, here’s another tale concerning mosquitoes. According
to a story in the Washington Post, last year, at a particular
monitoring station on Maryland’s Eastern Shore, 100 mosquitoes
were trapped between sunset and sunrise. This year, the same
trap netted 26,000!
–That was staggering news from France this week that up to
3,000 mostly elderly folks could be victims of the excessive heat
in the country.
–Our soldiers in Iraq need to drink 10-12 quarts of water each
day to keep from becoming dehydrated. Tragically, a few have
died of heatstroke.
–The U.S. Geological Survey says that Mt. Rainier in
Washington is a “monumental threat.” Granted, there is a 500-
year window before the volcano blows, or sheds its skin, but then
few thought our power grid could fail like it just did.
–I really wish Maria Shriver would eat a cheeseburger every
now and then. There are times when she looks like a cadaver.
–I can’t imagine that Ireland is really banning smoking in pubs
on January 1st. Talk about culture shock. Next time I head over,
though, at least my clothes will smell better.
–Years ago I took a public speaking class and the first thing they
do is run you through some exercises where you let your arms
hang at the sides. So every time I see President Bush I want to
scream, “For crying out loud, the first lesson is over. Look a
little more natural, will you?”
–Terror, part 89. Nice to know that, once again, cellphones
work during a crisis….NOT!
–The blackout should be a reminder to all of us, remember
‘CGW.’ Always have some cash stored away for when the
ATMs are inaccessible, don’t let your car go to empty on the gas
gauge, and always have some bottled water in excess supply.
Chex Mix, beer and ice would complete the plan. [Ice to keep
the beer cold.]
–From BBC News: “According to recent estimates, there are 10
times more stars in the visible Universe than all the grains of
sand on every beach and desert in the world.” Kind of makes
you feel small, doesn’t it? Well we are!
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $364
Oil, $31.05
Returns for the week 8/11-8/15
Dow Jones +1.4% [9321]
S&P 500 +1.3% [990]
S&P MidCap +2.8%
Russell 2000 +4.0%
Nasdaq +3.5% [1702]
Returns for the period 1/1/03-8/15/03
Dow Jones +11.8%
S&P 500 +12.6%
S&P MidCap +15.7%
Russell 2000 +23.2%
Nasdaq +27.4%
Bulls 52.0
Bears 19.0 [Source: Chartcraft]
Note: Yes, StocksandNews was a victim of the power failure as
we are connected to a line in the Newark area.
Have a great week. I appreciate your support.
Brian Trumbore
