[Posted 7:00 AM ET]
WMD and Iraq
Some of you have undoubtedly noticed that I have said little on
the issue of our search for weapons of mass destruction in Iraq,
save for expressing my impatience in the immediate aftermath of
the fall of Saddam. Like the majority of Americans, of all
political stripes, as well as the intelligence apparatuses of not
only Washington, but also London, Paris and countless others,
we expected to find huge stockpiles. But while personally
disappointed thus far, I continue to say the war was more than
justified.
Nonetheless, with the report to Congress and the White House
from chief inspector David Kay that nothing has as yet been
found in Iraq, one can’t help but be concerned. I quoted
conservative columnist George Will back on June 28 in this
space.
“Americans seem sanguine about the failure…to validate the
war’s premise, (but) a long-term failure would unravel much of
this President’s policy and rhetoric.”
This week, after interviewing Secretary of State Colin Powell,
Will followed up.
“This President or a successor is likely to have to ask the country
to run grave risks in response to intelligence from what the
government will call ‘solid sources.’ So, unless the public is
convinced that the government is learning from this war –
learning how to know what it does not know – the war may have
made the public less persuadable and the nation perhaps less
safe.
“Americans know that government, whether disbursing money or
gathering intelligence, is not an instrument of precision. Hence
they want the government to have the confidence – in itself, and
the public – to say…that it was wrong.” [Washington Post]
Republican Congressman Porter Goss, a former CIA agent and
co-chairman of the House Intelligence Committee, conceded the
CIA used outdated information (just as in its analysis of the old
Soviet Union) and as I noted above, it’s not just Washington
that’s faced with this dilemma. The intelligence agencies
elsewhere have also failed.
The issue comes down to credibility and as Will is alluding to,
what happens now with North Korea and Iran? Will the people
believe George Bush or his successor when presented with an
imminent danger? Will the world community? Will a leader
buckle under to political pressure and fail to act if the support
isn’t there, potentially dooming millions later on?
And there was National Security Advisor Condoleezza Rice
telling Tim Russert on “Meet the Press” last week that the
administration was surprised by the atrocious state of Iraq’s
infrastructure. Why didn’t we know this beforehand?
Of course if the debate continues along these lines, it’s easy to
obscure the bigger picture, which British Prime Minister Tony
Blair reiterated this week in a speech to his fellow Labour Party
members.
“I believe the security threat of the 21st century is not countries
waging conventional war. I believe that in today’s
interdependent world the threat is chaos. It’s fanaticism
defeating reason.”
I agree with this, as I’m sure many of you do, but I’ve always
been concerned about an ill-educated, fickle, and often
misguided public. It would help here if we had a leader who was
better at communicating in a candid fashion.
William Kristol weighs in on this, admittedly stating the obvious,
but with a message the White House needs to read every day.
“The Bush administration has repeatedly asserted the centrality
of Iraq to the broader War on Terror…I urge the President to
rehearse it, in his own voice and with sufficient force and clarity
to persuade (or at least remind) the country that this is a single
war, in Iraq and beyond – and it is a war that we absolutely have
to win.” [New York Post / Weekly Standard]
—
Wall Street
After stumbling out of the gate, and following the previous
week’s slide, the equity markets regained their footing and began
to view the economic data in a more favorable light. Earlier the
market was hit by another dour consumer confidence figure, as
well as a Chicago Purchasing Managers number that missed
expectations to the downside by a mile. Later, though, the key
Institute of Supply Managers Index, while also less than
expected, still reflected economic growth, especially in ‘new
orders.’ That, along with bullish comments from several Federal
Reserve governors on future prospects for the economy, plus the
expectation that the coming earnings reporting season will be full
of positive surprises propelled the major market averages
upward, with the Dow Jones regaining 2.8% to close at 9572,
while Nasdaq sprinted ahead about 5%, back to the 1880 level.
Of course we also have this huge issue of jobs, or lack thereof,
and for the first time since January, the September employment
data reflected a gain in the non-farm payroll department of
57,000. Granted, over half the growth was from the temp sector,
but we’ll take what we can get.
It would be more than a bit irrational, though, to put too much
credence into one number, especially when during a normal
recovery job growth is more like 300,000 a month, and you still
have announcements from the likes of Ford that at least another
3,000 positions will be lost in the U.S. (12-13,000 worldwide).
As noted the past few weeks, no one disputes growth in this
second half will be strong. It’s increasingly about 2004 and
whether consumers fade if they don’t see any real improvement
in the employment outlook. Thus far I fall into the camp that
says ’04 may not be as rosy as expected, both for the economy
and equities, even though history argues otherwise when it
comes to presidential election years. I’m still hung up on
hot spots like North Korea and Iran, let alone my lack of
confidence that the administration will truly stay in Iraq for the
long haul.
You also can’t ignore the fact that even with this year’s solid
gains the market is still a casino. 41% of overall volume on the
New York Stock Exchange, for example, is the result of program
trading and margin debt is also back on the rise. In other words,
with valuations already reflecting a better than expected earnings
picture, be careful out there.
Street Bytes
–U.S. Treasury Yields
6-mo. 1.00% 2-yr. 1.63% 10-yr. 4.20% 30-yr. 5.09%
After the 10-year Treasury hit a low of 3.95%, the bond market
refocused on the relatively bullish economic data and took rates
back up to 4.20%, with the bulk of the move coming on the heels
of Friday’s employment report. Meanwhile, the dollar regained
some of its recent losses on the better growth prospects.
While I was surprised to see the Treasury market move below
4% briefly, I’m still not going to go crazy the other way unless
the 10-year trades above 5%, though the inevitable move up to
that level will churn some stomachs, I suspect.
And for those who believe that inflation is dead, all I can say is
…what planet have you been living on? All the costs that matter
continue to soar, be it college tuition, property & casualty
insurance, beer (!), property taxes, and, of course, healthcare.
Regarding this last one, I guess you can take solace in the fact
that healthcare premiums are only expected to rise 12% next
year! Zip-pi-ty-do-daaa………….
–Energy: Oil climbed back over the $30 level for the first time in
5 weeks thanks to further follow through from OPEC’s recent
production cuts, better economic news foretelling increased
demand, a colder than normal week in the prime energy
consuming regions of the country, as well as hard-line comments
from Venezuelan President Hugo Chavez who called for an
increase in OPEC’s stated price band of $22-$28. [More on
Chavez later.]
–Japan: Business confidence is rising and unemployment hit a 2-
year low, further signs that maybe, just maybe, a real bottom has
been made here and a smiling sun, no longer obscured by clouds,
is on the horizon. [I took a small position here recently, about
2% of my overall portfolio.]
–Sandy Weill sold 25% of his stake in Citigroup for a cool
$264 million, one day after stepping down as CEO.
–No real fireworks as yet in the trials of CSFB’s Frank
Quattrone and Tyco’s Dennis Kozlowski. I’ll take a stab at the
verdicts. Quattrone will get off, while Kozlowski, along with
associate Mark Swartz, will receive the chair.
–The mutual fund industry continues to be bloodied by the
burgeoning market timing scandal, as this week Alliance Capital,
Prudential Financial and Merrill Lynch took steps to discipline
those involved, while a leading hedge fund trader faces criminal
charges for “late trading.” This isn’t impacting the markets,
however, because as I’ve discussed previously the actual costs to
shareholders from the illegal activity are truly minimal.
–J.P. Morgan is paying another fine to the SEC, this time $25
million to settle allegations of manipulating IPO allocations and
prices. Of course the firm “neither admitted nor denied the
allegations” as it took the money out of petty cash. And you
could also say that $25 million is less than 1/10th what Sandy
Weill received for his 25% Citigroup share. Ah, the power of
large numbers.
–Boy, that J.P. Morgan chairman William Harrison has done a
fine job, don’t you think? And he’s a New York Stock Exchange
board member, too! What an outstanding role model for all who
work for him.
–Speaking of the NYSE, those of you who follow the coverage
of Wall Street on television know of Art Cashin, floor operator
for UBS. I’ve never met him but I’m sure I share your opinion
that he seems like a class act, so, I was pleased to see that Mr.
Cashin called for a full review of the Exchange’s books and the
determination of compensation for all executives involved.
–Time to slam Verizon. Here I praised the company in my
comments on Grasso over the past few months pertaining to
Verizon’s role in resurrecting the Exchange following 9/11, but
no more. On Monday one of my chief phone lines went dead
and I wasn’t able to schedule a maintenance call until
Wednesday. No big deal. I would survive. But when given a
“window” of 8 a.m. – 7 p.m. and then not having the technician
show up, nor any notification there would be a delay, I have to
let them have it. Why…you…@#$%!!!! The guy finally
showed up Thursday, no apology.
But there is a far bigger issue here. On one hand we have
already learned that during a true emergency, such as 9/11,
accessing one’s cellphone is impossible. That’s strike one. We
also learned that when a big storm hits, like Hurricane Isabel, it
can take days, if not weeks, to get your land lines back. That’s
strike two. Plus the phone companies continue to lay off
thousands of workers, so when we get hit with the next attack or
a catastrophic storm – heaven forbid they happen together – good
luck making contact with anyone. And I haven’t even
mentioned computer security issues. Have a nice day.
–For those of you keeping score at home, the Dow Jones divisor
is such that for every $1 move in a Dow stock these days, the
average itself moves up or down 7.4 points.
–Sun Microsystems warned again and its shares fell to $3.24 at
week’s end. They traded at $65 back on 9/1/00.
–My portfolio: I sold out my small position in India after a
60%+ gain in just 5 months. Pretty proud of that, obviously.
Sure, it could go higher, but one never grows poor taking a profit
now and then. My 3 energy positions (2 drillers / 1 refiner)
continue to lag, however. Valuations, in general, remain
extremely reasonable for this sector and, again, if you believe
demand for all things oily and gaseous will rise, I still say good
money can be made here. Overall, I’m roughly 25% equities, the
rest cash (no bonds). I moved the cash over four feet at the
Meadowlands, in case you’re trying to track it down.
International Affairs
North Korea: What? Pyongyang has finished reprocessing its
spent nuclear fuel rods? You mean to tell us they may have more
than one or two nukes? I already did. One for a showy test, one
for Tokyo, one for Seoul…………..
Russia: I have a fair number of readers in Russia so maybe one
of you there can pass along a fashion tidbit to President Vladimir
Putin. Dressing in black, as he did last Saturday at Camp David
in his visit with President Bush, is a bit discomforting. Kind of
smacks of his KGB past, if you catch my drift. And Putin
offered nothing of substance to his host, though we’re all ecstatic
they remain so chummy. Aren’t we?
The biggest issue of the moment between our two countries is
Russia’s $800 million nuclear reactor contract with Iran. Putin
isn’t giving it up, though he vows to work with the U.S. and the
International Atomic Energy Agency on matters of
nonproliferation. He also wants the U.S. to offer North Korea a
security guarantee in exchange for a pledge to re-enter the
Nuclear Nonproliferation Treaty. Not likely.
Meanwhile, I saw nothing in all the reports as to whether Bush
confronted Putin on the ongoing Kremlin crackdown on human
rights, nor, more importantly, did I see anything pertaining to the
dismantlement of its chemical and biological stockpiles as
mandated by Nunn-Lugar. In other words, the summit between
the two leaders was a major failure in my book.
Iran: There was an interesting, potentially positive development
here in the call from a long-time dissident cleric for more
political freedom. We’ll see if he’s still alive come Monday.
China: President Hu Jintao, who I keep saying has the potential
to be a true pragmatist, or at least someone we can deal with,
called for more democracy in China’s political system during an
important meeting of the Communist Party Politboro. But before
we all start dancing in the streets, it needs to be pointed out that
Hu remains largely in the shadows of his more hard-line
predecessor Jiang Zemin. The battle is between these two and
we need Jiang to finally exit stage left.
In a far different matter, the country was roiled by the story of
400 Japanese tourists who flew to a 5-star hotel in southern
Guangdong and proceeded to have an orgy with 500 local girls.
Knowing the history between these two nations, it’s not hard to
see why the Chinese viewed it all as an attempt to humiliate them
and there have been some calls for a boycott of Japanese goods.
Taiwan: The U.S. is worried that plans for a new constitution
here may provoke China if it presages a vote for independence.
Let Taiwan be Taiwan, I say.
Venezuela: From time to time I’ve written of Venezuela’s role
in terrorism, both in its housing of Hamas and Hezbollah leaders
on Margarita Island, as well as its support of rebels fighting
against Colombia, with the latter, FARC, maintaining bases on
Venezuelan soil. Long ago I noted how dangerous President
Chavez had the potential to be and this week Linda Robinson of
U.S. News (10/6 issue) had an excellent piece on the current
situation.
Joint Chiefs of Staff chairman Richard Myers compares
Venezuela’s support of groups like FARC, for example, to
Syria’s support of terrorists in Iraq. In other words, Venezuela is
a giant base for activity designed to wreak havoc not just in its
immediate neighborhood but in the U.S. as well, and we’re only
a 2 ½ hour flight from Miami. Finally, Chavez’s boys have been
handing out thousands of false identity papers, making it even
easier to travel about with Venezuelan cover.
Israel: As it continues building the controversial security fence,
90 miles of which are now complete, the government also
announced its plans for building 600 new homes in the
settlements, going against the wishes of both the U.S. and
Europe.
Turkey: I have been skeptical of those talking about an authentic,
new relationship between Washington and Ankara, yet there was
a report this week that the U.S. and Turkish militaries have
reached agreement on a plan for wiping out the PKK, the
Kurdish paramilitary that is responsible for tens of thousands of
deaths, though U.S. forces, supposedly, would do the hard work.
This is generally a good sign and possibly a precursor to Turkish
troops in Iraq as part of the peacekeeping effort, but I still
maintain the Iraqis don’t want them.
India: The government here was the first to support President
Bush with his initiative back in 2001 to scrap the ABM Treaty,
owing to the fact India faces similar threats from the likes of
Pakistan and China. So in Prime Minister Vajpayee’s recent visit
to Washington, Defense News reports that his government now
wants help in creating a missile defense shield of its own. While
this is viewed favorably in Washington, there are existing
concerns with New Delhi’s ties to Iran, a topic I broached last
week with regards to the Israeli-Indian relationship.
Pakistan: It was encouraging to see the army here launch its
biggest offensive ever against al Qaeda and Taliban positions in
the border area with Afghanistan. This is how we could finally
get bin Laden, if we’re lucky.
Burma: Senator Richard Lugar had an op-ed piece in Sunday’s
Washington Post on the urgent need to tackle the issue of the
military dictatorship here, not just on behalf of detained peace
activist Aung San Suu Kyi, but because of its increasing ties to
terrorism, let alone growing relationships with China, North
Korea and Russia on both the missile acquisition front as well as
in Burma’s pursuit of a nuclear reactor.
Britain: Prime Minister Tony Blair faced down a challenge from
finance minister Gordon Brown at the Labour Party conference
and vowed to seek a third term. It was a rousing effort.
Random Musings
–Last week when I wrote “Karl Rove has to go,” little did I
know that 24 hours later he would be under the microscope as a
result of the Washington Post story on Robert Novak’s column
from a few months earlier and the revealing of Ambassador
Joseph Wilson’s wife’s name, she being a covert CIA operative.
Wilson initially said Rove was the source of the leak, then
backed off, while the Wall Street Journal proclaimed,
“Democrats would love to run Karl Rove out of town.”
Just another example of pinning all administration concerns
solely on Democrats. Here I sit, long-time Republican, and I’d
love to see Rove run out myself! I’ve had this position for years
now, going back to when he clearly mishandled the defection of
Vermont Senator Jim Jeffords. And this past July 5 in this space
I decried the President’s failure to address the American public
on postwar Iraq, adding:
“That’s Karl Rove, for you, who obviously believes the
administration can’t admit one mistake: that being the
triumphalism of May and the claim then that formal hostilities
had ended.”
But back to the subject of the purported leak by a senior
administration official to Mr. Novak, I’m adopting my adage of
‘wait 24 hours’ on this one and I’m going to let it play out until
we have more information before commenting further.
–California: Since day one of the process, I have been against
the recall here and I have to stick by my initial opinion that Gray
Davis squeaks by and remains in Sacramento. As for those
backing Arnold Schwarzenegger I can only ask, this is the best
you can do? Issues like his lack of political experience are
irrelevant in my book, but he is a deeply flawed figure who
shouldn’t be governor. Oh well, on to Tuesday! I need to stock
the cooler.
–My brother has illustrated so many books over the years that
when I mentioned Arianna Huffington last week I totally forgot
to note that Harry did her 1998 “Greetings From the Lincoln
Bedroom,” back when Ms. Huffington was wearing Republican
clothing.
–With the arrest of a 3rd figure in the Guantanamo Bay spy
scandal, including a U.S. Army Muslim chaplain, commentator
Daniel Pipes (N.Y. Post) wrote of the political correctness “run
amok,” as the Pentagon feels compelled to review the
background of all 2,800 chaplains now when the issue is the 12
Muslim ones.
–The Washington Post had a story that the FBI’s probe into the
Wahhabi influence in our nation’s mosques and schools has
“mushroomed.” Good. It needs to move at light speed.
–A Belgian court convicted 18 of 23 suspected al Qaeda
terrorists, but the sentences were pitiful. One received 10 years,
one 6 years, the other 16 less than that. At least one was
involved in a plot to blow up a U.S. military base, for crying out
loud, but since Belgium has no real anti-terrorism statutes, this
was the best the court could do.
–Back in February 2001, I was invited to Rome to witness the
“consistory,” the elevation of new cardinals into the Roman
Catholic Church. It was a special moment for me, though
recently I have to admit I’ve struggled a bit with my faith as I
imagine other Catholics in America have. That said, I’ll always
be one and with Pope John Paul II’s announcement that 30 more
will become cardinals shortly, and with the Pontiff clearly on his
last legs, I for one hope that the new pope comes from the Third
World. I think it would help to reenergize our church in
America, believe it or not.
–Reader Kip W. took issue, in a kind way, with my blurb last
week on the death toll in Europe from the summer heat wave. In
re-reading my comments he was right. I should have mentioned
that the 19,000 figure (including an estimated 15,000 in France)
was backed into using mortality figures for the period in question
and then comparing these to “normalized” death rates for
preceding, non-weather related periods. In other words, we’ll
never know the exact number.
–Another reader, John L., said that with regards to my
commentary on the new Hummer commercial, the one with Jack
and the soap box derby, it’s possible that Jack was thinking
outside the box rather than merely cheating. You know, fastest
one down the hill regardless of the course. Good point. I’m
going to “Zapruder” the spot next time. Of course John also
admitted the commercial helps explain the driving habits of SUV
owners in his native Chicago.
–To my friends in Nova Scotia, hang in there following the
destruction wrought by Hurricane Juan. And so much for the
theory that when hurricanes hit colder water they lose their
punch.
–George Soros is a truly despicable figure. In case you missed
it, the financier / speculator called for “regime change in the
United States” and is bankrolling all manner of Democratic
political organizations targeting President Bush. That’s not
necessarily what bothers me, though. Rather this is the same
dirtball who over the years has used his clout in the currency
markets to wreak havoc on a number of countries, including
Malaysia, and it’s a reason why I’ll always respect the admittedly
autocratic Prime Minister Mahathir for standing up to Soros and
others of his ilk.
–Regarding the story of the Florida mother who abandoned her
2-year-old child for 19 days, give me one reason why she
shouldn’t receive the death penalty……time’s up. [She probably
would get it in Malaysia!]
–Worldwide music sales were off 11% in the 1st 6 months of this
year, while in Germany, Japan and the U.S. illegal downloads are
matching or exceeding commercial sales. [BBC News]
–CNN’s Aaron Brown, of all people, who I caught the other
night while channel-surfing, said of Rush Limbaugh’s comments
on Donovan McNabb and the media coverage of the quarterback
that “It’s just an opinion!” Not a particularly smart one, I should
add. [No need to comment on the drug allegations yet.]
–I want to take a moment to acknowledge the environmental
efforts of a great friend of my brother’s, Karl Baymor, who has
led a long fight to secure 1,200 acres from future development in
the environmentally sensitive region surrounding Cape May, N.J.
Karl’s most recent victory was to convince an 86-year-old farmer
to accept his commission’s offer for his land rather than sell out
to developers. Yes, one man can make a difference. It reminds
me of a time about 40 years ago, when a local woman up where I
currently live almost single-handedly spearheaded an effort to
prevent a new airport in what’s known as the Great Swamp, an
act for which the rest of us in this area are eternally grateful.
–But fear not, my fellow conservatives. I haven’t gone wobbly
on you, as Margaret Thatcher might say. We still have to drill in
the Alaska National Wildlife Refuge!
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $370…a huge decline on Friday in the face of a
stronger dollar, though mostly technical in nature.
Oil, $30.40
Returns for the week of 9/29-10/3
Dow Jones +2.8% [9572]
S&P 500 +3.3% [1029]
S&P MidCap +4.4%
Russell 2000 +5.6%
Nasdaq +4.9% [1880]
Returns for the period 1/1/03-10/3/03
Dow Jones +14.8%
S&P 500 +17.1%
S&P MidCap +23.5%
Russell 2000 +33.7%
Nasdaq +40.8%
Bulls 56.0
Bears 20.0 [Source: Chartcraft]
Notes:
If you want to read about someone else’s surgery, check
out Dr. Bortrum’s column.
Hey, kids! Is your teacher asking you for a report on the Wright
brothers as part of the 100th anniversary of the first flight? Save
time…rip off mine! See our “Wall Street History” link.
Have a great week. Go Twins! [When you hate the Yankees,
one adopts the opposing team.]
Brian Trumbore
