'Tis Only My Opinion!

April 2003 - Volume 23, Number 4

Looking beyond Iraq!

Is the United Nations ready for the dumpster?

After World War II, the United Nations was born largely as a result of the efforts of many within the US and British governments who were sympathetic to the socialist and communistic causes.

Since the beginning, the United States has shouldered the highest percentage of the cost of the United Nations both in funding and in the amount of blood spilled on the battlefields during United Nations peace-keeping actions.

The Security Council has shown little ability to thwart wars and other conflicts from its inception. It did nothing in 1994 to stop the Rwandan Hutu's from slaughtering 800,000 people in that nation. It remained incapable of stopping Serbia’s “ethnic cleansing.”

In Cambodia, Indonesia, Malaysia, Burma and many South African countries as well as in Latin and South America, mini-wars all have cost lives and the United Nations has been unable to stop the blood-shed, torture and massive refugee problems.

A dozen years of on-again, off-again inspections in Iraq accomplished nothing. The US still has troops in South Korea after the 1950’s “UN Police Action.”

President Bush in his recent speech to the U.N. cautioned the members that their failure to enforce resolutions made their organization irrelevant.

Now that the Coalition of the Willing has taken on the job of enforcing the United Nation resolutions vis-ŕ-vis Iraq, is it only a matter of time until the inefficiency and politics of the United Nations are exposed for what that organization has really become?

Look at almost any aspect of the U.N. and an unmistakable conclusion should be obvious - -

The United Nations is made up of nations and diplomats whose only purpose is to throw bricks at United States policies and the governmental foundation of a representative democracy on which it is based.

In my view, the idea that the United States is only equal to Lichtenstein  and other insignificant countries within the U.N. community needs to be totally re-examined.

Can an organization be serious when the head of its human-rights commission is the representative from Libya, one of the worst offenders of human-rights abuses in the world?

When an organization sponsors the Kyoto treaty based upon science which is less than compelling but which enacts a tremendous penalty against the US yet allows the worst polluting nations in the third world off scot-free, should the U.S. continue to belong to that organization?

The United Nations wants to impose its own tax on all financial transactions, exercise total power over land use throughout the world, require everyone to carry a national or international identity card, require population control, and has even instituted its own court to prosecute anyone for whatever it deems to be crimes "against humanity." In addition, the UN wants its own independent military forces. 

Perhaps, it is now time for the citizens of the U.S. and their elected representatives in Congress to decide if membership in the United Nations is in our own best interests.


The Axis of Evil . . . who will be next?

Now that the Coalition of the Willing has embarked upon the elimination of the Iraqi regime, there arises fears that the US and coalition forces will use their position in the Middle East to move against other nations that have sponsored terrorist activities.

Whether the next domino to fall will be Syria or Iran has many political strategists guessing.  However, from the activities of Syria in providing banned military items to Iraq during the past several months, providing visas to Palestinian and other Muslim supporters of the Saddam regime to enter Iraq, and based upon intelligence that indicates that some of Iraq's weapons of mass destruction was transferred to Syria in recent months, Syria is probably number 1 on the hit list.

While some believe that Iran and/or North Korea are next, there are those who expect Iran to fall from within without assistance from the Coalition of the Willing because the educated younger generation has been demonstrating against the Iranian religious authorities and if Iraq falls, the pressure within Iran will build as their citizens see another dictatorial regime fall.

North Korea will require a mass movement of troops from other theatres and involves a totally different political structure than exists in the Middle East.

It would not surprise me at all to see the Coalition of the Willing turn westward through Syria upon conclusion of the festivities in Iraq.  The end result could well be the elimination of the Muslim terrorist activities facing Israel and the creation of a Palestine state with boundaries carved from Jordan, Lebanon and Israel.


The changing Geo-political structure

Many political and military analysts throughout the world expect that the Iraq adventure will be a long and costly one in both lives lost and wounded and in monetary costs.  They suggest that acting without UN authorization will create many difficulties for the Coalition of the Willing and even if the Coalition is successful, the costs of reconstruction will be huge.

Well, let me take issue with the nay-sayers. 

First, President Bush is a different politician than these so-called experts are familiar with.  Almost since the first day that he announced for political office at the state level, his opponents have under-estimated his resolve and ability to grasp the situation.  His strengths appear to be an ability to set overall direction, select highly capable personnel on whom the job of implementation rests and providing them with the assets necessary to accomplish the mission without micro-managing the process.  These are traits that are instilled in most graduates of that well-known business school on the banks of the Charles River.

Second, he says what he means and he means what he says.  Nuff said.

As a result, the European Union and the efforts of France and Germany to dominate old Europe will come to naught. 

Moreover, there are several reasons for the stand which France, Germany, Russian and China have taken relative to the second Iraq resolution.

First, France and Germany as well Russia have been the primary recipients of trade under the oil for food program sanctioned by the United Nations.

Second, all three as well as China have been suppliers of military hardware to Iraq in the last 12 years and significant amounts of that hardware has moved through 3rd parties.  Iraq has acquired from these countries items which have been banned by the United Nations.

Third, France, Germany and Russia all have lucrative contracts with the Iraqi regime to develop natural resources, primarily, oil, within Iraq and if the regime falls, the contracts worth billions may be voided.

Fourth, Iraq owes these nations billions of dollars in loans.

Further, the downfall of the Iraqi regime will unmask the actions of these countries and could provide a major intelligence coup for the Coalition of the Willing. Getting one's hand caught in the cookie jar is embarrassing!


What will cause the secular bear market to end?

The war in Iraq can cause significant trading rallies to occur as events unfold.  However, it is doubtful that we are in anything other than a bear market rally.

The only thing that will end the secular bear market is an improvement in corporate profits after tax. 

Lets look at where the current S&P 500 P/E ratios are based upon almost complete reporting for the fourth quarter of 2002 and March 31, 2002 prices

Earnings based upon:   S&P 500 Earnings   P/E
GAPP 2002 $28.00 31.39
Core 2002 per S&P $23.75 37.00
Proforma 2002 $45.98 19.11

Looking at the pre-announcements for the S&P 5000 for the 1st quarter, it does not appear that corporate profits are going to improve.  During the 1st Quarter 2002, negative preannouncements exceeded positive ones by a 1.7:1 ratio whereas so far in the 1st Quarter 2003, negative preannouncements are running 3:1, almost double.

While government and military spending can be beneficial to the economy, there appears to be major problems confronting this nations economy that won't find a quick fix.

During the last 12 years, corporate profits benefited from financial engineering strategies which boosted short-term profits at the expense of the long-term prospects of the nation.  As a result, we have seen NAFTA enacted.  First, we lost jobs in the manufacturing sector and now we are seeing our technical and professional jobs also going overseas.

Many believe that we must live in a global economy.  However, the end result of that course of action is the destruction of the US economy.  For all intents and purposes, the manufacturing base of the US other than high-technology has already been destroyed.  A 30-minute tour through any Wal-Mart or other retailer will convince you that the U.S. makes hardly anything today.

For years, our scientific, technical and engineering schools have been training foreign students.  In many universities and colleges, the majority of students in these curriculums have been non-native Americans.  We are training our competition. While some of them remain in the U.S., significant numbers return to their homes and are able to underbid U.S. citizens for work.

Only when U.S. corporations begin returning manufacturing jobs to the U.S. and the dollar allows U.S. goods to compete in foreign markets will we see the end of the secular bear market.  That may be a few years in the future.

Will the Democrats pot-shots cost them in the upcoming elections?

As we move into the Iraq, several prominent Democratic politicians and media have criticized the Bush administration.  Their comments and motives seem to be politically-based with an eye on the 2004 elections.

One can only wonder if their words might not be used against them if the U.S. and its coalition partners are successful in Iraq.

Certainly, Daschle, Kerry, Pelosi, and Sharpton might have reason to wonder.

The Estrada nomination

The Estrada nomination is still hung up in the Senate as well as many other nominations by this President to the federal courts. If the Senate majority leader, Frist, continues his wishy-washy leadership and does not force the Democratic minority to filibuster 7 days a week and 24 hours a day, the Republicans will find themselves being blackmailed not only on the issue of judges but also could lose the upcoming elections irrespective of the outcome of the Iraq war and other aspects of the War on Terrorism.

Failure to place conservative judges on the courts will be seen as a betrayal of the rank and file of the Republican party. Many will just stay home during the next election since winning the election did not change either big government, significantly reduce taxes, increased the budget deficits, and further eroded the liberties our nation formerly enjoyed prior to the enactment of the various acts purportedly enacted to reduce terror but ended up restricting liberty.

Estrada is a litmus test and I am afraid that the Senate republicans fail to understand the significance of this nomination.


How should a conservative investor play this market?

As the war in Iraq ebbs and flows, emotions will drive this market up and down. Economic statistics will be pushed into the background as TV focuses on the war.

As a result, a prudent investor will probably sit on the sidelines in cash or in a significant cash position.

Traders and aggressive investors may try to catch the ups and downs but will probably spend capital and energy in a futile effort.  Perhaps, these investors will be like the gerbil on the wheel . . .  going nowhere fast.

The aftermath of the war will probably find the market concentrating more on economic facts and as we stated earlier, it don't look good.

Stocks that fail to meet expectations of revenue and earnings are often hammered mercilessly by large investors. 

As a result, the best plays will be in those few stocks that continue to show growth in earnings and revenues and whose industry sectors are rotating upward.

For now, we are content to remain nearly all in cash.


We live in interesting times.

After two terms of the Clinton administration, many foreign nations figured that the U.S. had lost its will to act.  President George W. Bush's actions will cause much consternation throughout the Middle East and to those nations that harbor terrorists or finance them.

If our military is as successful as I believe they will be, the shock and awe will not be in Baghdad, but will be located in capitals of nations throughout this world.

But then - 'Tis Only My Opinion!

Fred Richards
April 2003

Corruptisima republica plurimae leges. [The more corrupt a republic, the more laws.] -- Tacitus, Annals III 27

This issue of 'Tis Only My Opinion was copyrighted by Adrich Corporation in 2003.
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'Tis Only My Opinion is intended to provoke thinking, then dialogue among our readers.

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