[Posted 7:00 AM ET]
Iraq and Israel
It wasn’t a good week for Planet Earth. Regarding recent events
in Iraq, perhaps former U.S. ambassador Richard Burt put it most
succinctly when he said “we have a race between terrorism and
rebuilding the country.” And as most conservatives, and one
would hope most Americans, recognize, we cannot afford to
lose.
When the truck bomb went off at UN headquarters in Baghdad,
Senator John McCain was with a congressional delegation in the
country and I awaited his latest thoughts on the depressing
developments, not that I didn’t know where he would come
down, frankly.
McCain said it was essential we “restore electricity and water as
soon as possible,” the U.S. “needs a larger army” (overall, not
just in Iraq), and we “need straight talk” from our leaders, i.e.,
President Bush, and “an honest accounting to Congress and the
public” of the costs and resources. Finally, America needs to
spend “whatever it takes to complete the mission.”
Even the casual observer now recognizes what the U.S. and its
allies on the ground are up against. To risk irreverence, it’s like
the characters in the board game “Clue,” all lining up to cross the
Syrian, Iranian and Saudi borders for a shot at the world’s
superpower. Ironically, as the Financial Times reported on
Monday, the day before the attack on the UN, Saudi Arabia’s
recent crackdown on militants there may have actually led to
many of the al Qaeda types crossing into Iraq, it being perceived
to be a safer haven these days than their own homeland.
But I was troubled by some of the statements from the left and
right, such as terrorism expert Jessica Stern’s assertion that the
U.S. had created a hotbed for terrorism, while implying that
somehow the world would have been better off leaving Saddam
alone. That’s pure idiocy.
As is conservative Ralph Peters’ assertion that we are making
“swifter progress than we had any right to expect.” [New York
Post…I normally agree with 95% of what Mr. Peters says.]
I noted last week that I was growing impatient with those
incapable of using both the right and left sides of their brain. Of
course some progress has been made, such as in Iraq’s
burgeoning free press, but to paper over the severe difficulties
isn’t dealing with reality.
And whether it’s John McCain, Democratic Senator Joe Biden,
or yours truly from long ago, you’re hearing the same refrain
these days. ‘President Bush, get on prime time and tell us what
you’re going to do and at what cost.’
I know what some of you think when I write this every week,
‘Brian, we already know what needs to be done and we support
the President.’ Maybe, because if you’re reading this you’re in
the top 1% of Americans – 20% of my readers are from
overseas, with half those in China – when it comes to an
understanding of the world we live in. It’s the rest I worry about,
the ones telling pollsters that by a 57 / 27 margin, the economy
was the #1 issue over national security.
After 9/11, it was fashionable to label the war against terror a
“clash of civilizations,” as I did myself. For some less serious
than me, it was merely a throwaway line. ‘Oh, radical Islamists
represent but a small percentage of the true believers,’ they’d
add. But I say, unless the supposed silent majority in the Muslim
faith stands up and is accounted for, around the world, the
“Battle for Civilization” would be the more appropriate phrase.
Israel
I won’t rewrite what I said last week, but it couldn’t have been
more dead on…unfortunately. It’s been important to observe
Secretary of State Colin Powell the past few weeks as his tone
and demeanor have become increasingly hard-edged, unlike the
diplomat we are used to seeing. And on Thursday, he admitted
the “end of the road map is a cliff that both sides will fall off,”
should the peace plan be abandoned.
But amazingly, some liberal pundits, such as Maureen Dowd,
blame President Bush for the latest escalation in violence. As
Secretary Powell reiterated, there is no other path than to
continue to try for a peaceful solution, recognizing that Israel has
a right of self-defense, which it will now exercise.
The road map is history until Hamas, Islamic Jihad and Yassir
Arafat have been neutralized. The only remaining issue is
whether this will be at the hands of Israel or the Palestinian
Authority and you know the answer to that one.
There is little original thinking left here, and I admit to having
run out of any thought-provoking commentary in this regard,
only to increasing frustration that the Palestinian people, and the
Arab world in general, refuse to call their leaders to account.
According to a piece by Richard Carlson in the Weekly Standard,
for example, Arafat’s personal wealth is estimated to be $1.3
billion, while the U.S., Europe and the Arab League continue to
ply the PA with more aid that only lines his pockets, rather than
doing anything for the Palestinian people.
Finally, Israel and / or the United States will be waging war
against Syria, if not Iran, in the very near future unless, a) Syria
immediately dismantles Hizbollah (let alone stop the flow of
terrorists entering Iraq), or b) Iran opens the window on its
nuclear weapons programs. You can book it.
Wall Street
And now for a little history lesson, as a way of showing you how
American investors can react at times. I wrote of the following
years ago, 10/1/99, for my “Wall Street History” link.
September 1, 1939…The Wehrmacht blitzes Poland. The Dow
Jones closes that day at 135.25.
September 2…Dow 138.09.
September 12…market hits 155.
May 9, 1940…Dow is still at 148.17.
May 10…Winston Churchill becomes prime minister of Great
Britain and Hitler swarms into the Netherlands, Belgium, and
Luxembourg on his way to France. Dow closes at 144.77.
May 12…a Sunday. The market, open on Saturdays back then,
finally reflects a bit.
May 13…Dow tumbles 5% to 137.63. ‘You know, maybe this
World War II thing ain’t that great after all, Mabel.’
May 24…Dow sits at 113.94, a 20%+ decline in two weeks.
I couldn’t help but think of all this as the bombs were going off
in Baghdad and Jerusalem, Tuesday, while the U.S. markets were
open. All the broad averages finished up that day.
Look, I’m not saying we should have called our brokers and said,
“Sell! Get me the hell out of this world!” [Where would you go,
after all?] But when you’ve been around Wall Street as much as
I have, you quickly recognize when both investors and traders
have their brains clogged with cement. Just to name two obvious
potential consequences of the separate terror attacks; further
instability between Israel and the Palestinians threatens oil prices
if governments such as Saudi Arabia are forced by radical
elements to more openly side with the Palestinians, and, second,
the costs in Iraq, both human and monetary, are likely to rise far
higher than we have been led to believe. Plus, cutting and
running simply isn’t an option.
Thankfully, at least from my viewpoint, more sober minded
thinking prevailed the rest of the week, even as positive news on
the economic front outweighed the negatives.
Housing starts were up big (the fastest pace in 17 years), leading
indicators rose, the Philly manufacturing index was up, jobless
claims continued to improve, retailers such as Wal-Mart and
Staples reported stronger sales, and, lastly, Intel supplied some
fodder for those participating in the meltup in technology issues
when it raised its revenue forecast for the current quarter, the
best announcement to date that business spending could be on
the rebound.
But on the flipside, mortgage applications and new housing
permits were down, as higher mortgage rates finally begin to
bite, consumer sentiment readings were soft, bankruptcies hit a
new record, insider selling is rampant, bull / bear indicators
remain at dangerous levels, and the $ is rallying against the euro,
the last bit not good for the profits of U.S. multinationals.
Admittedly, there is a distinct difference in the above ‘plusses’
and ‘minuses.’ The plusses are measurable today, while the
minuses require the use of a crystal ball. Bull / bear sentiment
readings (listed below) are often months ahead of a turnaround,
while figures for mortgage applications and new permits take a
while to filter down to the labor force, as well as actual housing
values.
Street Bytes
–While Nasdaq rose close to 4% to finish at a 16-month high,
1765, the Dow Jones suffered what could be a key reversal on
Friday, hitting 9500 before ending the session and the week up
slightly at 9348. As for the S&P 500, with a close of 993, that
makes it 12 weeks in a row where it has finished between 976
and 998.
–U.S. Treasury Yields
6-mo. 1.04% 2-yr. 1.91% 10-yr. 4.46% 30-yr. 5.25%
While the long end of the yield curve rallied a bit over the
previous week, the short end soared, with the 2-year trading at
nearly 2% before its close of 1.91%, still up 12 basis points for
the 5 days. The bond market remains largely unconvinced that
the Federal Reserve will really hold the line on interest rates in
the face of a recovery that seems to be gaining steam. One Fed
governor actually said the recovery was hardly robust, which
only added to the perceived credibility gap when it comes to
Alan Greenspan’s gang.
As for the dollar, with a close of $1.08 to the euro, that means it
has fallen out of the $1.10 – $1.19 range established back in April
/ May. But the dollar isn’t strengthening against the yen because
Japan’s economy is thought to be on the rebound, too, while
Europe’s has suddenly taken on gas again, it would appear.
–Energy: Demand is rising, with, for example, China’s own oil
imports up 30% year to date (40%, overall, is from the Middle
East), while Venezuela’s production has been tumbling due to
faulty management and an archaic infrastructure, Nigeria is
suffering through another bout of unrest, and Iraq’s contribution
to world supply is obviously limited. So the price of oil remains
stubbornly above $30. Meanwhile, natural gas is back over $5
and gasoline futures soared due to refinery concerns and low
stockpiles. Arizona was particularly hard hit due to one of its
two major gasoline pipelines being offline.
–Freddie Mac CEO Greg Parseghian was forced to step down
late Friday. Earlier in the week there were a number of stories
that appeared to seal his fate, such as the one in the Washington
Post (Kathleen Day / David Hilzenrath) that discussed
Parseghian selling $17 million in stock in early 2001 “soon after
he helped implement strategies that a recent investigation
concluded were designed to eliminate the effect of a new
accounting rule and keep earnings growth steady.” True, it was
his first opportunity to sell his stake, but it obviously looks bad in
hindsight.
–Perhaps more disturbing is a story laid out by Jim McTague in
Barron’s, involving Republican Congressman Michael Oxley,
chairman of the House Financial Services Committee, and
Freddie Mac’s cousin, Fannie Mae. Oxley played golf at ultra-
exclusive Pine Valley with Fannie Mae’s top lobbyist, an
egregious conflict of interest in light of the fact Oxley has been
protecting both Fannie and Freddie from fellow Congressman
Richard Baker’s proposed legislation that calls for more
oversight of the government sponsored entities.
[Oxley, a golf fanatic, actually got a hole-in-one during this
particular round, a fact he is now trying to low-key once word
got out on who took him there.]
–Dick Grasso, part deux: I admit I appear to be the only one in
the whole world who was unimpressed by the New York Stock
Exchange’s opening the day following the blackout. I argue that
there were still huge uncertainties that day as to the power grid.
Electricity didn’t return to Wall Street until 6:00 AM that Friday
morning, the American Stock Exchange was out all day until
3:45 PM, and the transportation system was still such a mess that
the only people at work were those forced to sleep over because
they couldn’t get home in the first place. No one, no one cared
the market was open at the end of the day except the usual
assortment of program traders.
The real issue, though, and the reason for the venom, is Grasso
himself. I blamed Larry Kudlow and Jim Cramer for singing
Grasso’s praises last Friday because these two were among the
chorus blasting the NYSE chairman earlier in the year for his
failures on the corporate governance front. To then turn around
and treat him like a hero is rather disingenuous, to put it mildly.
Grasso proved during the bull run he was nothing more than a
classic insider, a carnival barker, a shill, a blowhard, who while
continuously touting the “world’s greatest market,” stood watch
as millions of investors got their clocks cleaned, not always
because of stupidity, but rather due to fraudulent information.
But many Americans have short memories and thus when the
likes of Kudlow and Cramer tell their audience, “When you want
something done, go to Dick Grasso,” I say, “Yeah, right.”
–Hewlett-Packard disappointed on both earnings and revenues,
and then Dell announced it was slashing PC prices by up to 25%,
thus enabling it to cut further into HP’s market share.
–It was disturbing to see Charles Schwab himself the target of a
possible bomb attack, along with a Schwab branch; a good
reminder for all executives these days when they see something
suspicious.
–Microsoft’s network administrators turned back round two of
the Worm Blaster virus, but they also admitted it helped that the
code was written so poorly. In other words, Windows remains
wide open. But the Sobig e-mail virus is a cat of a different sort,
since it requires negligence on the part of the computer user.
Don’t open attachments! But here, with new folks coming online
all the time, especially kids, it’s almost impossible to stop. One
of these days it will all just crash and we’ll rediscover books and
baseball.
But in way of follow-up to my scathing comments of last week
concerning Microsoft, my own system administrator reminded
me that one potential problem is the outsourcing of software
development to other countries where there is obviously less
accountability, or at least you have to believe the systems
controls aren’t as tight as at MSFT HQ.
–It’s incredible to think that the blackout may have been the
result of FirstEnergy or AEP’s not trimming trees around its
power lines.
–By the end of 2003, Boeing will have laid off 40,000 over the
past few years, including an additional 1,400 by year end.
–Home Depot announced it was increasing the dividend to 7
cents a quarter, meaning the yield is still under 1%. In other
words, whoopty-damn-do. I do give them major credit for
cleaning up the stores, however.
–Whatever you do, don’t invest in diamond mining operations
(or else ‘short’ them). My friend Harry K. long ago warned me
of the coming boom in synthetic diamonds, and it’s here. Just
another example of Kobe Bryant overpaying when he bought
Vanessa a $4 million rock. He could have purchased a decent
synthetic one for a fraction of the price and she wouldn’t have
known the difference. [Sorry to blow your cover, guys. Watch
out, girls.]
–Hong Kong has now seen 57 straight months of deflation, with
prices down 4% year over year.
–Ken S., a college buddy, wanted to know where the spiffy shirt
that I purchased at Wal-Mart (see picture above) was made.
Label says………………El Salvador!!
International Affairs
North Korea: 6-nation talks begin this week in Beijing. I expect
little. Pyongyang also has its attention focused on joint naval
exercises between Japan, South Korea, and Russia.
Iran: Arms expert Henry Sokolski noted in a Journal op-ed that
North Korean missile experts are flooding into Iran. See earlier
comments on Israel.
Afghanistan: The Taliban amassed 200 and 400 soldiers at a
clip for attacks this week. From “Week in Review,” 5/10/03:
“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.’”
China: U.S. businessmen and economists love to talk about the
economic miracle in this country, and they’re right, there is one.
But I come from the old school that still places significant
emphasis on values and human rights. Case in point, this week
the government pledged to support the military dictatorship in
Burma, where, in case you forgot, Aung San Suu Kyi remains in
custody for being a woman of peace. Wake up, world, and also
remember the faces of the greedy corporate chieftains who place
profit before the rights of man.
At least on Friday, the State Department issued a statement
chastising Beijing for “backsliding” on this issue.
And not for nothing, but a staggering 3,761 miners in China
perished in the 1st six months of the year, according to official
government statistics. [South China Morning Post]
Russia: Senator Richard Lugar, of Nunn-Lugar fame, said that
there was a “sense of denial surrounding (Russia’s) biological
programs,” while Moscow’s intransigence is helping to block the
congressional funding needed to destroy the stockpile. Of
44,000 tons of chemicals Russia says it possesses, only 440 tons
have been removed. Another reason why you should never have
all your money in equities these days.
Liberia: A power-sharing agreement was signed and a
businessman chosen to be the interim leader until 2005 elections.
So far, so good. President Bush said U.S. Marines will be out by
October 1st. Naysayers at that time will have major egg on their
face, I suspect, while I’ll continue to say, we could have saved
20,000 lives by going in 4 weeks earlier. Either way, there was
going to be regime change, after all. Meanwhile, America’s
black voters couldn’t care less.
Balkans: It’s more than a bit worrisome that ethnic tensions are
picking up again between Serbs and Albanians in Kosovo.
Colombia: Secretary Rumsfeld traveled here this week in a
significant show of support for President Uribe, a courageous
figure. Like in Iraq, Colombia, with U.S. help, must defeat the
forces of evil, or instability will sweep through the rest of Latin
America.
Venezuela: Voters here have the constitutional right to a
referendum on the presidency halfway through his / her term in
office, so in this case it’s floundering President Chavez who is
under the gun, with over 2.5 million having signed a petition to
put the recall process in place. Chavez does maintain the support
of the poor, however, of which there are more thanks to his
dictatorial, inept leadership.
Mexico: 8 leading drug traffickers were arrested in a giant
victory against the dirtballs. The group was responsible for
smuggling 30% of the cocaine and heroin sold in the U.S.
Stupidly, all 8 were partying in a bar together when they were
nabbed. Hasta la…….oops, that line is already taken. Sorry,
Arnold.
Morocco: The high court sentenced 4 to death for the Casablanca
bombing in May. Some 80 others received prison terms of 10-30
years.
Singapore: Prime Minister Goh announced he was stepping
down when the economy recovered, in order to give his
handpicked successor a leg up in the next elections. No criticism
here; I think everything about this place is great.
Britain: The inquiry into pre-war intelligence and the suicide of
David Kelly took a number of turns this week with the disclosure
of damaging e-mails between members of Prime Minister Blair’s
cabinet. As the London Times opined, “A picture emerged of a
Downing Street machine locked in mortal combat with an
unyielding BBC.”
Random Musings
–Homeland Security: New York Mayor Michael Bloomberg
continues to receive praise for his performance during the
blackout, but I think the public is missing a far bigger picture.
Last week I wrote of how I couldn’t help but notice how 100,000
were trying to get to New Jersey from Manhattan by ferry
because the trains were obviously shut down. But unlike 9/11,
when a flotilla of some 500 ships, many privately owned, came
to the rescue in an heroic effort, this time it was left up to New
York Waterways, the operator of the ferry, with zero assistance.
Of course there are obvious differences between the two
occurrences…or are there?
A while back I wrote of my visit to the Henry Ford Museum in
Dearborn, Michigan. One of the exhibits that I didn’t make
mention of at the time was of an early 1960s schoolroom, with a
recording of a teacher’s instructions for a popular drill of that
day, “duck and cover,” that was designed to address the
possibility of a nuclear attack from the Soviet Union.
Looking back, it was silly given what we now know of the
physical consequences of an atomic bomb, but I thought of it the
other day because, laughable or not, every American, from age 5
on up, was given specific instructions on what to do in the event
of an emergency. Air raid sirens were installed around the
country and civil defense shelters established, the signs of which
can still be found today.
But if the blackout had been a chemical or dirty bomb attack in
midtown Manhattan, what would our instructions be? If it
occurred around Penn Station (33rd Street), who should go north,
south, east, or west? If 100,000 people show up at New York
Waterways’ piers, will anyone else aside from the company be
there to evacuate them? Is there an elite New York police force
ready to helicopter onto the massive Staten Island ferries for the
purposes of an evacuation effort? Are the gangplanks on board
adjustable to fit different piers? What if the attack was in the
Wall Street vicinity? Does everyone go south to Battery Park
where boats or decontamination facilities are located? Do you
just start fleeing north?
What happens if a small nuke goes off in Denver, a very real
possibility given the porous border with Canada north of there?
Is traffic on I-70 (an east / west road) routed solely west over the
mountains where you would expect fallout to be lessened? Or is
everyone directed to the airport, which could possibly
accommodate a vast majority of the people in an environment
that has a chance of being sealed?
Ludicrous? I hope you don’t think so. This is all part of the
perfect homeland security effort, aside from the more obvious
ones of securing the ports, strategic sites, etc. But today, we
don’t have a clue. You can also see just how much money it will
take to have as good a system as possible.
Long ago, President Bush should have demanded that, for
starters, every single city and state in this country have an
evacuation plan that each resident and office tenant has a
personal copy of. It’s already in place for hurricane prone
regions, for crying out loud, why not for terrorism?
Would our lives change for the worse merely because we are
better informed and prepared? Would the economy tank because
we’d be gripped by fear? Of course not, and we’ve already seen
examples of this. But we’d have a far better chance of survival,
as a nation, if we felt more secure that our leaders, both local and
national, knew what the hell they were doing.
–The UN’s Sergio Viera de Mello was by all accounts a model
public servant. The people of Brazil should be proud of their
native son and we join them in mourning his tragic death. Brazil
is also suffering from a horrible accident at a rocket launch pad
that killed 16.
–Poll #’s show that 60% of California voters favor recalling
Governor Gray Davis, and for his part the governor looked awful
in his public appearances this week. Arnold Schwarzenegger,
while a bit more polished, is nonetheless lost in a sea of
conflicting statements. And Cruz Bustamante is a buffoon.
Good luck, Californians. You’re gonna need it.
–A scary study projects that the rate of Alzheimer’s patients will
triple in the U.S. by 2050, mostly because there will be more and
more living to 80, the age at which 1 in 5 develop some form of
dementia. But to be optimistic, you’d like to think there will also
be major advances in the treatment and prevention of the disease
long before the mid-century mark.
–In the second half of 2002, 60% of the power and energy
companies in America experienced at least one “severe” cyber
attack. [Rick White / Stratton Sclavos – Washington Post]
–The Earth Liberation Front is at it again, this time destroying
SUVs at various auto dealers in California. These terrorists
must be stopped.
–Regarding the blackout, Toronto’s mayor said, “When has the
United States ever admitted it was at fault.” Hey, buddy. When
was the last time the Maple Leafs won the Stanley Cup? [1967
…that will hit him where it really hurts!]
–According to a USA Today / CNN / Gallup survey, only 17%
say spending on the space program should be cut. 24% favor
increasing it, the highest since 1989. Interesting, and
encouraging. Of course this was also the week that Mars was at
its closest in 60,000 years. When I went out to get the papers the
other morning, I looked up at Mars and saw someone toss me
one of those Value Pak coupon envelopes.
–The death toll in France from the recent heat wave is now
pegged at 10,000; mostly elderly folks abandoned as their sons
and daughters went off on vacation. How very French!
–I couldn’t believe my eyes, but the other night on CNBC actor /
socialist Alec Baldwin actually said that Democratic New Jersey
Senator Jon Corzine “bought” his election. Alec, my man!
[Except Baldwin used the figure $35 million when it was closer
to $65 million.]
–Another USA Today story said that one reason why teens are at
risk for substance abuse is too much spending money,
specifically, a study from Columbia University finds that teens
handed $50 a week are much more likely to have tried cigarettes,
alcohol or marijuana than those with $15 a week. “Boredom” is
also a frequent complaint of teens that parents tend to ignore.
First off, $50?! On an inflation adjusted basis, I think I received
$10, enough for some baseball and football cards, plus an extra
large cherry slush at Dairy Queen. As for boredom, blame
computers and video games. Throw the kids out into the street
and tell them to play wiffle ball or something instead. [My
buddy Jimbo is teaching his 5-year-old poker, another good
alternative with excellent career opportunities.]
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $364
Oil, $31.84
Returns for the week 8/18-8/22
Dow Jones +0.3% [9348]
S&P 500 +0.2% [993]
S&P MidCap +2.1%
Russell 2000 +2.9%
Nasdaq +3.7% [1765]
Returns for the period 1/1/03-8/22/03
Dow Jones +12.1%
S&P 500 +12.9%
S&P MidCap +18.2%
Russell 2000 +26.7%
Nasdaq +32.2%
Bulls 55.1
Bears 18.4 [Source: Chartcraft]
Have a great week. Let’s hope it’s a better one.
Brian Trumbore
