[Posted 7:00 AM ET]
Back in the fall of 1999, then presidential candidate George W.
Bush was asked to name four world leaders and he could come
up with only one. Among those he couldn’t identify was
Pakistan’s Pervez Musharraf; this after Musharraf had just taken
over in a coup and with real fears of a nuclear conflict between
his nation and India. I was incredulous, especially knowing that
Bush was being coached on foreign policy at the time by
Condoleezza Rice and George Schultz, and I wrote the following
in this space 11/6/99, including a rather prescient comment
concerning the global marketplace. Remember the context,
Secretary of State Madeleine Albright having described America
as “the indispensable nation.”
“I have had a queasy feeling about George Dubya the past few
weeks. Before, I was confident that a Bush administration would
be a strong one for one primary reason. He would have a cabinet
loaded with experienced, respected hands like Colin Powell and
Dick Cheney. That’s a positive. But the man who would be
head of state looks increasingly shaky…
“Believe me, I’m not trying to make more of this (the reporter’s
ambush) than is warranted, but the whole issue points to the
arrogance many of our leaders exhibit towards the rest of the
world. We’re #1! We’re #1! Just remember one very important
thing as we continue along with the Technology Revolution.
Yes, the U.S. will invent most of the great products in the future.
But it is increasingly easy to copy them. Say this to yourself.
We invent it. They copy it. And they will be able to make it
much cheaper. Yes, maybe it’s more a story for tomorrow. But
we elect Presidents to be ‘Big Picture’ guys. I hate to say this
because as a Republican I so desperately want to win this time.
George Dubya seems like a pretty small man to me. But I’ll give
him time to prove otherwise.”
President Bush did indeed prove himself post-9/11 and I have
been a consistent supporter of the policy concerning not just Iraq
but the entire region, perhaps best encapsulated by a quote from
Senator John McCain, WIR 3/29/03.
“The apocalyptic vision of a Middle East inflamed by American
intervention ignores the fact that the status quo bred al Qaeda is
hardly the basis for long-term stability.”
The existence of weapons of mass destruction was not the entire
reason for our invasion of Iraq, even as the president was
presenting it as such. We couldn’t just sit back and await a
cataclysmic attack. This, broadly speaking, is the view of the
neocons, of which in this context I am one.
But with the fall of Iraq, some of us were abandoned and let the
record show I had serious doubts about the postwar phase
immediately following the president’s “mission accomplished”
fiasco of 5/1/03. I began to question whether the “triumphalism
was appropriate” (WIR 5/3/03) and by 5/17/03, I was writing that
“postwar Iraq has been an unmitigated disaster…we’re losing the
peace.”
The neocons in the Bush White House failed to see what others
did; that we didn’t have nearly enough boots on the ground and,
as I kept pounding home, enough troops to secure the weapons
dumps, the borders and for reconstruction.
I bring this up as a way of dismissing this week’s imbroglio
concerning the disappearance of some high-grade explosives
from a site used by Saddam to store a small portion of his overall
cache. It’s not a story, friends. The real one was spring and
summer 2003 when President Bush was AWOL. For four
months, as the situation in Iraq rapidly deteriorated, he never
once went before the American people to a) discuss what we
were facing and b) ask for the American people to sacrifice while
we should have been flooding Iraq with all available forces in
order to put down the insurrection before it could take hold.
Long-time readers remember how distressed I was at this point.
No, Iraq has not been “a remarkable success story” as Vice
President Cheney put it this week.
But I still believe in the broader mission and for this reason
President Bush has my vote. I recognize that there are other
pressing issues in America, as you have told me in your
thoughtful letters, but at this point in time there is none more
important to me. We have to succeed and, just as in Afghanistan,
I pray the Iraqi people, with coalition help, can cobble together a
legitimate election early next year. Perhaps I’m wrong, but I
maintain it would have a truly transforming effect in the Muslim
world.
I do agree with a Washington Post editorial that decried the “lack
of accountability” in the White House. I concur with the Post
that President Bush “alienated allies unnecessarily.”
What bothers me most, as one who has traveled the world, eager
to learn about other cultures, is President Bush’s total lack of
curiosity. I admire his conviction, but I’m distressed by what the
Post called his “unwillingness to expect the unexpected or adapt
to new facts.”
Like all of you I’m glad this campaign is winding down, but
perhaps for different reasons. I’m distraught at the divisions in
this country. Regardless of the outcome, the rancor the next four
years will be worse than the past four. America is going to slog
through some ugly moments and democracy as we know it will
be the primary victim of a large-scale terror attack should this
come to pass.
I’ve lost more than a few readers since the fall of Baghdad
because I refuse to be a sycophant of the right. I’m disgusted by
the likes of Sean Hannity and their twisting of the facts on the al-
Qaqaa issue. Tom Friedman and Fareed Zakaria were correct in
writing this week that there is no middle anymore.
Friends, this was an election where I would have voted for
Senator McCain had he run, even as a third party candidate. As
for Senator Kerry, he has run a pitiful campaign, to put it mildly.
This is a man of zero vision and a stunning lack of character.
Finally, the above is all but an opinion. I would change horses in
midstream if I thought it would bring us closer to stability in the
Middle East and elsewhere. I don’t believe John Kerry could do
so, and perhaps President Bush can.
But we live in truly tumultuous and volatile times. My dictum of
“wait 24 hours” will remain my guiding principle, witness bin
Laden’s October surprise. I try not to jump to conclusions in this
instapundit world. You may not agree with my politics, and I
respect those in opposition, but many of you stay with me
because you know one thing. You share my curiosity and want
to keep abreast of events that could have an impact on your
future, including your financial well-being. Thanks for coming
along for the ride and God bless our democracy.
—
Foreign Affairs
Iraq is not the only key issue these days. Any of the next five
could have occupied the top slot. To wit.
China / Taiwan: For decades the United States has supported a
“one China” policy in the hope that China and Taiwan would
settle their differences peacefully. It is a purposefully muddled
dogma allowing Washington to play both sides without
offending either, except in one critical area. The U.S. will aid
Taiwan with its defenses.
But this week it may have all begun to change and it’s most
distressing to a vast majority of Taiwanese as well as yours truly.
Secretary of State Colin Powell, in the region, said the U.S. seeks
“reunification,” adding “Taiwan is not independent. It does not
enjoy sovereignty as a nation, and that remains our policy.”
Taiwan’s President Chen Shui-bian, speaking for a nation in
shock at Powell’s remarks, said “Taiwan is absolutely a
sovereign, independent nation.” A Chinese foreign ministry
spokesman said Powell’s remarks were welcomed.
Earlier in the week Chinese President Hu Jintao told Powell that
Taiwan is the cause for regional instability and he blasted the
secretary and the Bush administration for selling arms to Taiwan,
even though we have long been committed to doing so. Then
you had Powell’s reaction.
This is depressing. Understand Secretary Powell is a man who
has always chosen his words carefully. The White House is
getting ready to abandon Taiwan, perhaps in exchange for a
legitimate deal on North Korea. Far-fetched? I’ve studied this
area closely for years and I repeat; the world wouldn’t give a
damn if Taiwan was attacked and within months it would be
business as usual. Should this ever occur, it is a disaster for all
of us and throws any shred of credibility we have as a “freedom-
loving people” (President George W. Bush) out the window. No
more “Democracy is on the march.” I strongly urge the
administration to see the error of its ways.
[Senator Kerry, incidentally, weighed in this week on Hong
Kong, calling on Beijing to live up to its obligations to open up
democracy here.]
North Korea: A prominent former South Korean general said he
is not optimistic on the status of six-party talks as he observes
China is not trying hard enough. [Letting Washington sweat
outweighs regional instability at this point…at least that appears
to be Beijing’s position.]
Russia: As a follow-up to my comments on this Sunday’s
election in Ukraine, Jackson Diehl, writing in the Washington
Post, pointed out that the Kremlin has supplied half of the $600
million spent by President Putin’s hand-picked successor to
President Leonid Kuchma. $200 million of this has come from
energy giant Gazprom. The opposition candidate, however, is
polling around 70%, last I saw. Massive demonstrations are
planned for Sunday, with democracy advocates pitted against
coal miners and soccer goons; a true mismatch if there ever was
one. No doubt Putin’s choice will attempt to steal the election
and the repercussions are huge. Putin will then have Belarus and
Ukraine firmly in his grasp with two leaders of his liking. Next
stop would be Georgia.
Israel: Yassir Arafat simply won’t die, which is a shame, though
not that it would make the Israeli-Palestinian situation any more
manageable because it boils down to whoever wins the
succession battle to represent the Palestinians. Anyone who
knows the result today is blowing smoke.
Assuming Arafat lives a bit longer and remains de facto leader,
even if from Paris, the chief story this week nonetheless concerns
Prime Minister Sharon and the 67-45 vote he secured in the
Knesset approving his withdrawal plan from Gaza and miniscule
parts of the West Bank. While this was historic and a coup for
Sharon, it came at the expense of major support from his own
Likud Party with rival Benjamin Netanyahu insisting on an
immediate referendum before proceeding with the plan to
abandon the Gaza settlements. The ultra-nationalists continue to
threaten civil war, as well as Sharon’s life, while Sharon insists
that pulling the 8,000 Jews that are living among 1.3 million
Palestinians in Gaza is the right thing to do in making Israel
easier to defend while sealing its grip on the West Bank
settlements.
It’s way too early to know if the withdrawal could proceed
peacefully (I’m doubtful) and now the Palestinian succession
issue comes into play even more. What I do have to note is the
fact that one U.S. administration after another has turned a blind
eye to the West Bank settlements and it is here that conflict is
inevitable because should there be a true, negotiated peace down
the road, it would only be the result of Israel giving up some of
their more strategic West Bank holdings and that’s just not going
to happen… period.
Iran: Emadeddin Baghi, an Iranian journalist, wrote an op-ed in
the Post this week wherein he noted there are powerful social
forces for change in his country that will be impossible to stop;
for example, the rapidly changing status of women. There is
hope …and all the more reason to keep the heat on.
Afghanistan: I thought New York Times columnist William
Safire had a brilliant description of Afghan President Hamid
Karzai. He is his nation’s Ataturk.
Thailand: Last spring 107 Muslims were killed in a massacre by
police (guns vs. knives) and since then tensions in the south have
been simmering, approaching the boiling point. This week we
reached it as 2,000 demonstrators went to a police station to
protest the detention of some Muslim youths and police turned
on them, killing six. Scores were then arrested and packed into
trucks for a five-hour trip to a military barracks. 78 died in
passage, suffocated.
Prime Minister Thaksin’s initial response was disgraceful, saying
they died because they were weakened from fasting during
Ramadan. Obviously, the insurgency will now spread…a
worrisome development for the entire region, including
Indonesia and Malaysia.
Turkey: Talk about a two-faced SOB, French President Jacques
Chirac said Turkey’s admittance to the European Union was his
“dearest wish,” then in the same sentence he noted that
negotiations “could last 15 years” as he also pushes ahead with a
referendum in France before the E.U. summit issues its final
declaration on December 17. Understand that regarding the
referendum, none were held anywhere in Europe before the 10
new entrants were admitted to the club this year.
E.U. / European Commission: Unrelated to the above, the big
brouhaha on the continent this week concerned the attempt by
the president-designate to fill the 24-member European
Commission with like-minded social conservatives. The rest of
the E.U. voiced its displeasure and he was forced to back down.
Uruguay: Just a note to my friends down here, Uruguay being
among the top 15 nations in traffic for StocksandNews. I’m
aware you have a big election this Sunday as well. A leftist
physician and former mayor of Montevideo is favored and he
would join others of his ilk in the region, such as Brazil’s Luiz da
Silva, Argentina’s Nestor Kirchner, Chile’s Ricardo Lagos and
Venezuela’s Hugo Chavez. Anti-U.S. sentiment is a plus for a
candidate in these parts. The U.S. ignores this continent at our
own peril.
—
Wall Street
The White House received what it wanted just days before the
election, a solid figure on gross domestic product for the third
quarter, up 3.7%. On top of gains of 4.5% and 3.3% in the prior
two quarters, at least from this standpoint it’s tough for Senator
Kerry to paint an ugly picture. Of course where Kerry does have
an issue is on the jobs creation front, but that’s enough politics
for now, except for the fact the Dow Jones closed above 10000,
a crucial level from a sentiment standpoint in my opinion.
Meanwhile, the government reported further strength on the
housing front, ensuring 2004 will be the best year ever for the
sector. But increases in housing starts don’t necessarily mean
prices are rising and the median selling price across the country
is down $2,200; from $188,800 to $186,600.
Housing has always been one of the three key factors for our
economy; the others being consumer and capital spending. As
long as mortgage rates remain as low as they are, it’s tough to
see a collapse. But as I noted last week, that doesn’t mean we
can’t have a protracted period of stagnant prices and that’s the
big concern I have for consumer spending, real estate being an
obvious component of the ‘wealth effect.’
Elsewhere, readings on consumer sentiment continue to slide,
while the latest data on durable goods was positive as it reflected
increased levels of capital spending. But you still have
statements from the likes of Taiwan Semiconductor, the world’s
largest producer of contract-made chips (such as for Texas
Instruments and Philips Electronics). Last July, TSM forecast an
increase in global semiconductor sales of 10% in 2005. Over the
last few months, however, the company has been ratcheting
down this number and it now sees flat sales for next year.
Back to the positives, the falling price of crude was the primary
cause for the mini euphoria in the equity markets this week,
declining $3.50 to $51.76. Inventories continue to rise and a
hoped for slowdown in Chinese demand helped in a big way.
China raised its interest rates for the first time in 9 years in an
attempt to put the brakes on its economy. No doubt crude also
fell because the hedge funds playing this game suddenly all
realized at once, as they are wont to do, that the $60 price level
may be a ways off.
The picture for natural gas was not as sanguine and we finished
the week hovering around the $8.70 level. Inventories for this
product are more than ample, but it’s all about the weather at this
point.
Longer-term, a Russian energy official said his country “could
produce 10 million barrels per day within a year or two (it’s
currently running about 9.4 mmbd), but I think that’s the
maximum possible (for a decade or more).” [Wall Street Journal]
Finally, the U.S. dollar continues to struggle, near a record low
against the euro. The Bush administration had helped engineer
the fall over the past few years as a way of boosting U.S.
exporters, which in turn hurts their European and Asian
counterparts owing to the fact foreign products would be more
expensive for U.S. consumers. But while Japan has interfered in
its currency to protect its trade, the euro has been floating
according to market whims and this has hurt European growth.
But it was always felt that with regards to the U.S. and its trade
deficit, rising exports would help lower the deficit, right? So
why has the picture actually worsened? Because we import gobs
of oil, that’s why, and we are being slammed by the rising price
of it. To be continued.
Street Bytes
–The Dow Jones and S&P 500 broke 3-week losing streaks in
registering solid gains of 2.8 and 3.1 percent, respectively, to
close at the 10027 and 1130 levels. The S&P is now back in
positive territory for the year, while the Dow Jones remains 4%
in the red. Nasdaq is almost back to even for ’04, off just 1.4%
following its own 3.1% gain for the week to 1974. Despite the
news from Taiwan Semiconductor, Smith Barney issued a key
upgrade of 15 stocks in the group and other techs benefited from
the perception that capital spending is picking up in earnest.
And it needs to be noted that from a technical standpoint, the
major indexes desperately needed this week’s rally as all three
were flashing danger signals beforehand.
–U.S. Treasury Yields
6-mo. 2.12% 2-yr. 2.55% 10-yr. 4.03% 30-yr. 4.79%
A Bloomberg survey of economists forecasting the Fed Funds
rate for 12/31/05 has Merrill Lynch at 2.0% (currently 1.75%)
and J.P. Morgan Chase at 4.25%. Most market participants
anticipate another 25 basis point increase by the Fed at either the
November 10 or December 14 confabs.
And for those following the deficit picture, the White House is
expected to put in an additional request for $70 billion to fund
ongoing operations in Afghanistan and Iraq. But if growth were
to continue in the 3.5-4% range, the budget deficit would shrink.
Incidentally, nothing I’ve seen in the economic releases of the
past few months changes my own outlook for 2005; a global
recession with increasing deflationary pressures, precipitated by
a stagnant, if not falling real estate market worldwide, a popping
of the China bubble, and reduced consumer spending owing to
huge personal debt levels. [Corporate balance sheets, on the
other hand, are in good shape.] High oil prices are just a kicker.
–New York Attorney General Eliot Spitzer couldn’t have
handled the insurance scandal any better, at least thus far in my
estimation. Marsh & McLennan CEO Jeffrey Greenberg was
forced to resign, replaced by Michael Cherkasky, and Marsh will
pay a reported fine of $500 million for bid-rigging and price
fixing. But while individuals still face criminal and civil
prosecution, and with Marsh still subject to countless shareholder
suits, Spitzer correctly let Marsh off as a firm and in avoiding
criminal prosecution the company can continue on as a leader in
the brokerage industry with hopefully limited adverse impact on
employees. [Aside from seeing their 401(k)s decimated.]
Meanwhile, AON, the second-largest broker, now faces the same
charges Marsh did. Together, AON and Marsh control 70% of
the sector.
–Here are two items that really ticked me off because I am very
familiar with the issues through past experience on the Street.
First, Citigroup was fined $250,000 by the NASD for improper
sales material in marketing hedge funds. $250,000 may not seem
like much but it was the largest action of its kind by this
watchdog. Citi’s promotional pieces advertised various rates of
return without any basis in fact. Total b.s.
Then there was the State of Massachusetts, which charged
Franklin Templeton Investments with civil fraud. The secretary
of state here alleges that an SEC filing by Franklin contained
“false and misleading statements.” Specifically, in discussing
previous charges and settlements, Franklin “did not admit or
deny engaging in any wrong doing,” a standard arrangement
used by weasels in dealing with regulators in the world of
finance. But in this case, Massachusetts contended Franklin did
just that; admit guilt in the market-timing debacle. So they then
blatantly lied in their SEC filing. Again, this may seem like a
trivial matter on the surface but it’s far from being so. It is
egregious behavior…and it’s as if Franklin’s attitude is “Yeah,
yeah…up yours.”
Back to Citigroup, and on a different matter, Crain’s New York
Business reports that Citibank continues to lose market share in
the New York City area, down to 15% from 18% in one year due
to increased competition from the likes of Washington Mutual,
Commerce Bank and Wachovia. CEO Charles Prince has his
hands full.
–A sign of the times in the Yukos matter. Schlumberger has
been removing its equipment from Yukos-related projects
because of a lack of confidence that the situation will be handled
without severe disruptions of one kind or another, let alone
Schlumberger’s fear that it won’t receive payment for services
rendered. Yukos’s market cap, by the way, has fallen from about
$32 billion to $8 billion.
–A Barron’s poll of institutional investors revealed that only 4%
are bearish on Asian stocks over the next 12 months. As a holder
of the Singapore Fund, and a contrarian to a certain extent, I
don’t like to see this level of bullishness.
–ATA, the 10th-largest airline, filed for bankruptcy as it’s
hammered by fuel prices and a humongous debt load, while
USAir and United reported mega losses for the third quarter as
they struggle to survive. But Delta may have avoided Chapter 11
when it reached a wage agreement with its pilots union. Delta
shares soared 60% on the news, roughly $3.50 to $5.50. Still
seems like a crap shoot to me.
–Ask Jeeves’s stock fell $8 on Thursday thanks to disappointing
earnings and lowered expectations for the future. So I went to
the site (ask.com):
“Why did Ask Jeeves’s stock go down?”
I got back a bunch of jive. So I tried it a different way.
“Why does Ask Jeeves (underperform)?”
Still nothing I can use. And there’s your answer.
–Boy, Dell and Microsoft have been dead money for basically
two years now. Dell 37-31, Microsoft 30-24.
–Exxon Mobil reported net income of $5.68 billion for the third
quarter, or about $1.5 billion less than the net worth of each of
Google’s founders, Sergey Brinn and Larry Page. Google hit
$199.95 on Friday before finishing around $190.
–DreamWorks Animation’s IPO was received with hosannas.
The offering was priced at $28 and closed the week at $39.
–My friend Dan L. and I continually bemoan the fact we have
too many gas guzzling behemoths on the road these days, so Dan
passed along a note pertaining to Navistar, which is going to be
producing the “world’s biggest pickup” with a sticker price of
$95,000. The vehicle is two-feet taller than the Hummer and
gets a whopping 8 miles to the gallon.
–The International Herald Tribune reported the fencing of
stolen goods on eBay is exploding; everything from rare books to
plasma TVs. So the question is, “Is eBay liable for facilitating a
fence?” The company says no.
–Inflation Update: I received my healthcare renewal policy for
StocksandNews….up 21%! I have just one word to say about
this…drat!
–I wish Eliot Spitzer would launch an investigation into the ink
cartridge business. What a freakin’ rip-off.
–For the first time the sage grouse finds its way into “Week in
Review.” About 180,000 of these game birds remain in North
America, down from 2 million over 100 years ago, and it could
be placed on the endangered species list. So what’s the problem?
The grouses’ habitat is prime ground for drilling for natural gas
in states such as Colorado, Montana, Wyoming and Utah, ergo,
there would be substantial delays in securing mineral and drilling
rights if the government makes the move to protect the grumpy
birds. [Source: High Plains Journal] I’m assuming they’re
grumpy, having to live in sage brush and all.
Random Musings
–Robert Gallucci is a classified consultant to the CIA and
Energy Department as well as dean of the Georgetown School of
Foreign Service. In addition, he held arms control posts under
presidents Ford to Clinton. These days, as he told a Washington
Post reporter, he finds himself “on the edge of saying really
shocking things” concerning the failure to secure nuclear
weapons grade material around the world.
“If tomorrow morning we lost a city, who of us could have said
we didn’t know how this could happen? I haven’t felt like this in
all the years I’ve been in government or the nine since I’ve been
(out). I am – I don’t want to say scared, because that’s not what I
want to project, but I am deeply concerned for my family and for
all Americans.”
–According to a Pew Research Center poll, as cited by Robert
Samuelson, 62% of Americans are “very confident” their votes
will be correctly counted, 26% “somewhat confident,” 11% fear
they won’t be accurately counted. Put me in the “very
confident” category for now. But ask me again on November 3.
–Washington Post military affairs expert Thomas Ricks,
appearing on the Frontline program “Rumsfeld’s War,” had the
following statement concerning General Tommy Franks.
“Franks is not one of those guys who goes off to the War College
to read Clausewitz. He goes off to the War College to play golf.”
Perhaps some of you are beginning to understand why I’ve been
bashing the general the past few months.
–The following is a true reflection of our politics today. In New
Jersey, over the past 20 years House members who ran for re-
election have won 116 of 120 races, with 100 being landslides.
This year the 13 incumbents will outspend their challengers by
10 to 1. [Star-Ledger]
–Part of my reason for just taking a guess last week that John
Kerry will defeat George Bush was that the polls then showed
Kerry reassuming a big lead in New Jersey, more in line with
history. But then this week one poll has it dead even again. Al
Gore won the state by 16 in 2000 and I suspect Kerry will still
win it handily.
**By the way, print out my current “Hott Spotts” piece on the
election. It’s a good cheat sheet for Tuesday…including whether
Ralph Nader can possibly have an impact in some key states.
–Too bad…the case of Mackris vs. O’Reilly never saw the light
of day as the two ended up settling out of court. Mum’s the
word, Bill tells us. Funny how he hasn’t mentioned “The
O’Reilly Factor For Kids” since we learned of his penchant for
phone sex and Caribbean adventures.
–It might be hard to believe, but the overseas traffic (including
Canada) for StocksandNews is now 56% of our total, the highest
it has ever been. In fact, Riyadh, Saudi Arabia is the #8 city
ahead of New York, #10. Amsterdam and Sao Paolo are #2 and
#4, respectively. To my international audience, I greatly
appreciate your tuning in and spreading the word. It helps make
up for all the Americans I’m ticking off.
–Reminder…with the Red Sox winning for the first time since
1918, it’s time to refocus attention on the Chicago Cubs, whose
last Series title was 1908. But a franchise that’s always lost in
the mix is the Chicago White Sox…last winners in 1917. The
ChiSox deserve to be properly recognized for this futility.
—
God bless the men and women of our armed forces.
God bless America.
—
Gold closed at $429
Oil, $51.76
Returns for the week 10/25-10/29
Dow Jones +2.8% [10027]
S&P 500 +3.1% [1130]
S&P MidCap +2.6%
Russell 2000 +2.8%
Nasdaq +3.2% [1974]
Returns for the period 1/1/04-10/29/04
Dow Jones -4.1%
S&P 500 +1.6%
S&P MidCap +4.6%
Russell 2000 +4.8%
Nasdaq -1.4%
Bulls 56.4
Bears 25.5 [Source: Investors Intelligence / Chartcraft]
Have a great week, in spite of the election.
Brian Trumbore
