[Posted 7:00 AM ET]
Last Sunday, the New York Times’ Tom Friedman related how
Secretary of State Colin Powell had blown off a speech in
London amidst the overall security concerns during President
Bush’s trip there. I agreed with Friedman that in many respects
the security bubble surrounding the president in general,
particularly since 9/11, is at times overblown. I’ve been
frustrated that the president doesn’t get out amongst ordinary
Americans, for example, thinking that just from a political
standpoint, and as a Republican, it would be a further way to
play to one of his key strengths, his likeability. If you can’t pull
off a surprise visit to a shopping mall, I reason, then it doesn’t
say much about our overall prospects in the war on terror.
Well, I needn’t have been so concerned, I guess, because
President Bush’s audacious trip to Baghdad far exceeded my
minimal hopes, though I have to admit I needed time (the old 24-
hour rule of mine) to conclude that you’d be hard-pressed to find
anything negative about the gift to the American men and
women who volunteered to place their lives in danger so that the
rest of us could enjoy Thanksgiving in peace.
As for the lasting impact of the pictures, though, just remember I
voiced my misgivings immediately following the May 1st aircraft
carrier episode and unfortunately I was right as the White House
went into a shell for 4 months, totally miscalculating the dangers
of the post-war phase while failing to buck up the American
people.
Of course the Thanksgiving trip was different, and we also saw a
more humbled leader, which is healthy. This isn’t a time to
gloat, and he didn’t. It’s a time to remind everyone of the
mission at hand, be it for the soldiers or those of us going about
our daily lives here at home.
The president of the past few weeks appears to be increasingly at
odds with some of the figures in his cabinet. He seems to be
pulling away, asserting his own, largely correct beliefs. You see
this in hints that troop levels in Iraq are not about to plummet,
my chief fear, for example.
Strong and humble are not conflicting attributes. It’s what’s
needed to reinforce the coalition and to truly begin to win over
the hearts and minds, not just in Iraq, but across the Middle East
and certain precincts in Europe.
At the same time, Americans also must not be deluded into
believing 9/11 is the worst we will witness on U.S. soil. As a
USA Today article on Friday pointed out, some counter-
terrorism experts firmly believe al Qaeda has purposefully held
off on smaller attacks here, instead gearing up for something
far bigger.
And towards that end, it was disturbing to hear Senator Tom
Daschle say that our congressional leadership really hasn’t gone
through a dry run on how to get our leaders, and those in line to
the presidency, out of harm’s way should the evil ones attempt a
decapitating strike.
This isn’t scare-mongering. It’s just dealing with today’s
realities. Thankfully, this week more gains were made in
keeping al Qaeda off stride, we hope, with key arrests in both
Britain and Yemen, but as we’ve learned over the past year, the
hydra keeps growing new heads. This seems to have been part of
the message President Bush sent to the troops in Iraq. We’re
staying the course and your efforts are deeply appreciated.
Without you, we lose. Perhaps the enormity of it all is one
reason why the president shed a tear…out of gratitude and fear.
Iraq / Afghanistan
One of the bigger positives of the week was Germany’s
announcement it supported debt-relief for the fledgling Iraqi
government. If Russia and France come on board in a similar
fashion, it would send a powerful message to the Iraqi people.
But then there is Afghanistan and the Los Angeles Times had a
telling piece on Thursday. We hear stories of how the U.S. and
NATO want to build a 70,000 strong Afghan army and as of
today we have supposedly trained just 6,000. But the Times
reports that even this latter figure is off as some 2,000 have
already quit. The reason? They were promised $150 a month
and it often turned out to be as little as $30, or roughly the cost of
bus fare home.
This is a disaster and a colossal failure of both policy and
leadership. Whether it’s homeland security and securing our
ports, or committing to a new Afghanistan, we have to spend
whatever is required. The American people understand that.
[I posted on my “Hott Spotts” link President Bush’s two key
speeches from 11/6 and 11/19 concerning the war on terror and
democracy in the Middle East. You won’t find them together
like this anywhere else, I guarantee. I just want the powerful
words to be turned into action.]
Wall Street
The equity markets recouped much of the losses of the prior two
weeks on the heels of more solid news on the economic front.
GDP for the third quarter was revised upward to a China-like
8.2%, while the figures for durable goods, manufacturing, and
consumer confidence were all better than expected. And as a
Federal Reserve survey of regional activity reiterated, the
recovery is broad-based.
The only real fly in the ointment, as far as quantifiable data, is
the fact consumer spending has been flat to down the last two
months, though with a pickup in business spending and the still
robust housing market, frankly, it’s not that big a deal. Plus the
consumer is expected to whip out the plastic to the tune of a 6%
pop in retail sales over the next month.
So longer term, what’s not to like? Well, too many of us
continue to live paycheck to paycheck while relying on rising
home values, with the level of home equity loans continuing to
soar. At the same time contributions into 401 Ks are sliding, just
one example of the danger we face down the road on the savings
front. We have to put more away, but pulling in the horns and
keeping the plastic in the wallet would threaten the recovery. Oh
well, that’s an issue for 2008, not 2004, because right now the
economy is likely to be a major positive for the White House and
the polls are about to start reflecting that.
As for the trade issue, it’s still simmering, with both Japan and
China threatening to retaliate for U.S. actions. But hopefully
cooler heads will prevail and for once Americans are going to
have to get used to the fact that China’s influence on world
economic activity is only going to grow; and with that
opportunity for us.
U.S. exports to China have risen 35% since 2001 and that’s just a
start if both governments cooperate. Of course the Bush
administration has to continue to hold China’s feet to the fire
where previously agreed upon access is being denied. And if
you needed evidence that the arbiter, the World Trade
Organization, can work, the U.S. won a major victory this week
when the body ruled Mexico must grant greater access to its
telecom market.
Street Bytes
–For the week the Dow Jones rose 1.6% to 9782. The S&P 500
tacked on 2.2% (1058) and Nasdaq added 3.5% to 1960.
Volume, however, was very light and we try not to make too
much of one week’s action in this space, let alone a holiday-
shortened affair. What is clear, though, is that the super 30%
gains for corporate profits in the third quarter won’t be matched
until the next cyclical recovery off a recession.
–U.S. Treasury Yields
6-mo. 1.03% 2-yr. 2.04% 10-yr. 4.33% 30-yr. 5.13%
It was a sloppy week in the bond pits. The U.S. dollar rallied
early on, only to collapse anew by Friday and for once the dollar
and Treasuries responded more like the textbooks say they
should when a currency is faced with ever larger piles of debt.
Interest rates eventually have to rise to make it more attractive
for foreigners to buy one’s bonds. The solid economic data also
played a role in the move in the 10-year, for example, from
4.16% to 4.33%. But until we break out of this new trading
range between 4% and 4.60%, let alone hit 5%, I refuse to get
too worked up about it. At these levels, for example, housing
affordability is still a major positive.
–While growth in the U.S. economy is now expected to be over
4% in 2004, the European Union is projected to grow at a 1.75%
clip. Between the two, and despite all the wrangling taking place
within the E.U. (more on this later), the real positive surprise
could be a more robust European recovery than now thought.
Spain, for instance, is already growing at 3.5% thanks to an
incredible housing boom as everyone on the continent seems to
be buying a second home here. [Of course this will turn into a
bust at some point.]
–Japan’s core consumer price index rose in October; a big deal
following 4 years of deflation and a good sign overall.
–Brazil’s new President Luiz da Silva was a former union leader
and he is seen as a champion of the poor, so there were initial
fears he would adopt more socialist policies to reward those who
voted for him. But instead he has promoted market reforms and
clamped down on some spending programs, so even though the
country has been in a recession the past few quarters, optimists
looking to a more robust future have propelled the stock market
to all-time highs. But in encouraging business to streamline
operations, he is hurting the very poor who supported his
candidacy, meaning there could be a big backlash down the road,
particularly if employment doesn’t pick up as he promised during
the campaign.
–Canada’s growth rate for the third quarter was only 1.1% when
2.2% was expected, a rather ugly miss. The rise in the Canadian
dollar has hurt exports.
–Energy: Well, the proposed pork-filled energy bill will have to
wait until 2004, another failure in leadership on the part of
Senate Majority Leader Bill Frist, though it is only a minor
defeat for President Bush at this point and hopefully a victory for
common sense when the legislation re-emerges in January.
Meanwhile, one of our key suppliers of crude, Venezuela,
continues to have huge problems as production fell 9% in the
third quarter due to its rapidly crumbling infrastructure. A new
recall petition is going to be floated with hopes of a referendum
in the spring to remove President Chavez, which threatens to
further destabilize the country…not that this isn’t a good idea,
longer term.
–Congress failed to act on asbestos legislation this session,
another amazing dereliction of duty.
–The auditor looking into the Enron bankruptcy has laid out a
road map for the prosecution of Kenneth Lay and Jeffrey
Skilling, for those jurisdictions so inclined to act in the best
interests of the American people.
–Boeing dismissed its CFO for violating company policy when
he discussed a job opportunity with a government official
working with Boeing on a new contract, a major conflict of
interest, especially given the lack of competition on the defense
front.
–Mutual fund inflows were $25 billion in October, the best of
the year and a sign the average investor has not been adversely
influenced by the scandals in the industry. One operation,
Securities Trust Corporation, is being shut down for allowing
hedge funds to late-trade.
–Forecasts for online shopping this holiday season call for big
gains over a year ago, some 21% in the U.S. (ex-travel and
auction sites) and 18% in Europe, with the actual figures likely to
be far higher.
–For all the hoopla over what a great year it has been for stocks,
to put it in proper perspective consider the following. For the 5
years from 1995 to 1999, the S&P 500 had an average annual
return of 27.6% (it’s up 20% thus far in 2003), while the average
large cap growth fund returned 29% over the same period.
*Personally, I forecast Dow 9200, S&P 995 and Nasdaq 1600,
gains of 10-20%, for 2003.
–My portfolio: I forgot to note last week that I bought back into
Japan on the lows in that market of November 17. Actually, my
broker and I got lucky on the ‘open.’ My 4 energy positions,
including the Polish exploration play, have been basically flat the
last few weeks and I remain about 30% equities, 70% cash, with
the latter earning 0.05%, enough for a few stamps for the ol’
Christmas cards.
International Affairs
China / Taiwan: It was a tumultuous week in Taipei as the
parliament debated legislation that could have approved a
referendum on independence down the road and a direct
confrontation with the mainland. But in the end, legislators
basically opted to allow a vote on this hot button issue only if
Taiwan is attacked first (at which point it would be too late,
anyway). The opposition KMT (Chiang Kai-shek’s old party),
which favors eventual reunification, proved to be the difference
maker in getting even this much passed, as it told Beijing to butt
out on the right of the Taiwanese people to hold referendums if
threatened. The bottom line being that with the volatile
presidential election coming up in March, a crisis with China has
probably been averted.
Hong Kong: And while the leadership in Beijing had their eyes
on Taipei they couldn’t help but glance at Hong Kong, which
held elections for the ruling Legislative Council (those seats not
already hand-picked by Beijing). The majority party suffered a
significant loss of authority, though before anyone goes crazy
with joy, the commies still pick the Chief Executive, not the
people. Nonetheless, those who turned out sent a message that a
timetable for popular election needs to be accelerated or we
could see a return of the massive protests of this past summer
which proved to have a most positive impact, for us democracy
buffs.
Russia / Georgia: I was amused by the glowing commentary
following the departure of President Eduard Shevardnadze from
his post in Georgia, replaced in a bloodless coup by a pro-West
party. Of course it was Shevardnadze who was very much pro-
West himself during the time of Mikhail Gorbachev and in the
years afterwards while he led his decrepit homeland.
What cracked me up were all the articles touting his friendship
with Russian President Vladimir Putin and the positive role that
Putin played in the peaceful transition of power. What am I
missing here, I mused? It was Putin who applied constant
pressure on the former Russian foreign minister the past few
years, forcing Shevardnadze to accept a large Russian force on his
soil for the purposes of supposedly attacking Chechen rebels
hiding out in remote Georgia. And just within the last two years
the U.S. and Russia almost had a major diplomatic crisis over
this very issue when U.S. forces were selected to train the
Georgian army to fight the terrorists in the wake of 9/11.
So what happened in the immediate aftermath of the revolt?
Russia warned Georgia to respect the autonomy of a renegade
province, Adjara, where Russia has its base. This is outrageous,
and in keeping with the view that Putin continues in his quest to
reconstruct the Soviet Empire. Even with the government in
Tblisi slated to hold new elections in 45 days, this crisis is far
from over.
And back in Moscow, the fallout from the arrest of former Yukos
chairman Mikhail Khodorkovsky continues to spread, as on
Friday Sibneft announced it was pulling out of the proposed
merger with Yukos that would have created the 4th-largest oil
producer in the world. Shares in both companies fell sharply on
the news.
You don’t think the Kremlin had anything to do with this, do
you? As for Khodorkovsky, his defense team was finally
presented with the charges; 227 volumes worth, each 300-500
pages in length. I guarantee 95% of it was lifted straight out of
the testimony given in Stalin’s show trials.
Iran: The U.S. and Europe attempted to move closer to
agreement on Iran’s nuclear program, but the final proposal by
the International Atomic Energy Agency certainly appears to fall
short. The onus is now on the IAEA to conduct snap inspections
and report back to the UN should breaches be found, though a
once-hoped for sanctions regime doesn’t seem to be likely in the
short run. In other words, just as in North Korea too much time
has elapsed without both members of the Axis of Evil having to
face the music and it bears repeating, this is why we need the
U.S. to keep a substantial force in Iraq…with engines running.
European Union: Negotiations continue on a new constitution
and the battle over voting rights has reached the boiling point.
Coupled with this week’s cave-in to France and Germany over
their failure to adhere to the 3% budget deficit restriction, you
get the idea that the utopian goal of a purely united Europe is
about to crumble far faster than anyone initially thought,
including yours truly. Spain, the Netherlands, Finland and
Austria, for starters, were more than a bit upset over the deficit
issue, while Italy supported France and Germany.
[Personally, I believe the mandated target was ludicrous to begin
with because it provided no relief for those governments bent on
combating adverse economic conditions with progressive,
stimulative policies such as tax cuts.]
Israel: Prime Minister Sharon said it was inevitable that Israel
would have to make some territorial concessions, but the
settlements keep going up. Washington then weighed in by
deducting $290 million from loan guarantees to Israel due to
both the settlements issue as well as the building of the security
fence. [I’m for the fence, against the settlements.]
Turkey: As predicted, the recent spate of bombings in Istanbul
has accelerated debate on Turkey’s entry into the European
Union, with Britain leading the charge for acceptance while
some, such as Germany, worry about Turkey’s population and
the potential voting block under an E.U. constitution. Germany’s
opposition leader added that Turkey’s accession “would import
the terror problem to Europe.” For his part, French President
Chirac supports Turkey, but former French President Valery
Giscard d’Estaing, intimately involved in the making of the E.U.
constitution, doesn’t.
As for Turkey’s Prime Minister Erdogan, thus far he has held up
well with the investigation into the bombings and if al Qaeda
thought they would inspire their own supporters in the country to
rise up, once again their plan has backfired. There also appear to
be ties between the bombers and Hezbollah, a worrisome
development, but then all these employees of Satan look alike
these days.
India / Pakistan: The first ceasefire since 2000 was implemented
between the two armies in Kashmir, even as the terrorists attempt
to disrupt it. India has shown amazing patience over the past
year in particular, while Pakistan’s President Musharraf is doing
about as much as Washington can expect from him.
South Korea: President Roh is in big trouble over the ongoing
corruption probe into members of his cabinet. The opposition is
talking impeachment.
Mexico: President Fox, once seen as a beacon of hope for his
countrymen, has failed miserably and the people are growing
more than a bit restless.
Croatia: Joining neighbor Serbia, a hard right party won a key
election here.
Zimbabwe: President Robert Mugabe was not invited to the 54
nation Commonwealth summit in Nigeria slated for next month
as some African leaders actually showed some spine for a
change.
Northern Ireland: Hard-liners from Ian Paisley’s DUP and Sinn
Fein appeared to be the real winners in elections for a new
assembly, both garnering their best showings yet and overtaking
the two moderate parties, the Ulster Unionists (the party of David
Trimble) and the SDLP. Unfortunately, this means the original
idea of the 1998 Good Friday peace accord, a power-sharing
government, is in serious jeopardy since Paisley has long vowed
to scrap it.
And if you don’t know much about this despicable figure, David
Lister of the Times of London offered this account.
“The most memorable moment of the day occurred when a
journalist for Ulster Television asked: ‘Mr. Paisley, will you talk
to Sinn Fein?” ‘No,’ Mr. Paisley said as he grabbed the reporter
by the collar. ‘Do I need to repeat it? Do I need to take you by
the neck and say no I’m not, I’m not talking to Sinn Fein and my
party’s not talking to Sinn Fein, and anybody that talks to Sinn
Fein will be out of my party?’”
He can’t pass away soon enough.
Random Musings
–Despite the talk in financial markets and among Democratic
presidential candidates that large federal budget deficits over the
long haul aren’t good for the economy or stocks and bonds, the
fact is this isn’t a campaign issue that will resonate with the
electorate, especially when compared with Iraq, Medicare
reform, or the overall state of the economy. But it’s amazing
how the Republican Party has turned its back on fiscal
conservatism, with non-defense discretionary spending slated to
rise 9%, compared with the president’s promise of 4%. And the
difference can not merely be laid at the feet of homeland
security. Just once, once, Mr. President, veto one of these
spending bills.
As for Medicare, the president will crow he kept a campaign
promise to enact a prescription drug benefit, but this is an
immensely complicated and wildly expensive piece of
legislation, with most provisions not slated to kick in until 2006.
I wish they had just strengthened the provision for a prescription
savings card for all seniors instead. Then again, I plead
ignorance on this topic, being a youthful (ahem) 45.
–It’s the time of year when I go through all my files and throw
out half the stuff I have collected. I also have files for pieces that
make the cut, year after year. One such gem is from July 5,
2000, the late columnist Michael Kelly, who you’ll recall died
during the initial phases of the march to Baghdad.
“Ironic nations are formerly great nations; irony on a national
scale is an expression of fatigue with the expensive, exhausting
business of being great. The ironic nation is the nation as self-
willed has-been, formerly earnest and formerly consequential,
now marking time in the twilight state that is halfway between
mattering and not, in permanent danger of being annexed by
Disney. France is the exemplary ironic nation. France has been
ironic for nearly the entire modern age, which is why it has been
impotent for nearly the entire modern age. No nation provides so
clear an illustration of the dangers of irony as France: You sit in
a café long enough, wearing black and muttering ironic
observations on the passing scene, and one day the passing scene
is the German army, again. Isn’t that ironic?”
We miss you, Mr. Kelly, more than ever.
–In China, 1,300 have died from rabies this year, 63% more than
last. By comparison SARS killed 350.
–So I’m playing some Strauss waltzes, the best music for getting
in the holiday spirit, and I’ve always felt if I could go back in
time it would be to this era, the late 1800s, Vienna, as prince, of
course, with a slew of courtiers…yeah, that’s the ticket.
–I’ve watched “Queer Eye for the Straight Guy” as I’m channel-
surfing and I find it mildly entertaining, but for NBC to air it at
8:00 p.m. is flat out wrong.
–While nationwide a vast majority of Americans are against
legalizing gay marriages, a Boston Herald survey revealed 49%
support for such a measure, 38% in opposition, in Massachusetts.
–Greece is committed to a security force for the Olympics
comprised of 10,000 troops and 40,000 police; the largest of its
kind, ever. You’re crazy, though, if you’re even thinking of
attending these Games.
–New York Mayor Michael Bloomberg went to Kosovo to visit
U.S. troops there; why, I’ll never know. And to compound
matters he told them he left the New York Giants cheerleaders
behind, when the Giants don’t have any. In other words, he was
a total jackass. So it’s also no wonder why only 23% of New
Yorkers want him re-elected in November ’05 and 62% want
someone else, and believe me, if you aren’t from the area just
understand the potential field of alternatives to Bloomberg is
equally bad. For my New York friends, for example, Gifford
Miller? You have to be kidding me.
–ESPN Classic aired for the first time the tape of the historic
college football game from November 1966 between #1 Notre
Dame and #2 Michigan State, the contest that ended up in the
controversial 10-10 tie, with the Fighting Irish then going on to
win the mythical national title. What’s funny to see, though, is
the total lack of histrionics on the part of both defenses after each
play. Men just doing their job, nothing more, compared to the
showboating of today after every freakin’ tackle. I’m more sick
of it this season than ever before.
–So one of the topics at the dinner table on Thanksgiving
concerned this one particular company and how it beats up its
low paid employees to give to the corporate charity so that the
owner(s) can then donate large sums, get their name in the
society pages, and have average schleps and know-nothings
grovel at their feet…even as some are then later led off in
handcuffs for financial misdeeds. Ah yes, the most
underreported scandal in America, except in these pages.
–The percentage going to the polls in Northern Ireland was
around 60% of eligible voters. Recently, the electorate in Serbia
failed to hit the 50% margin for a 3rd straight try and only 44%
went to the polls in Hong Kong this week. In the U.S.,
presidential elections normally see turnout in the 50% range. In
other words a lot of us are taking the right to vote for granted,
both out of complacency and a sense it doesn’t matter. A bit
disconcerting and a good topic for a thesis, the editor wrote to his
college audience.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $398
Oil, $30.41
Returns for the week 11/24-11/28
Dow Jones +1.6% [9782]
S&P 500 +2.2% [1058]
S&P MidCap +3.4%
Russell 2000 +3.9%
Nasdaq +3.5% [1960]
Returns for the period 1/1/03-11/28/03
Dow Jones +17.3%
S&P 500 +20.3%
S&P MidCap +31.9%
Russell 2000 +42.7%
Nasdaq +46.8%
Bulls 58.3
Bears 22.3 [Source: Chartcraft]
Have a great week. I appreciate your support.
Brian Trumbore
