Table On-Topic Summary - 13-Sep-2002
A compilation of this board's financial/economic posts From 41862 to 41928

Post  41862  by  lkorrow       Reply
Starfleet, it is pathetic. Look at this story, these people are out of their gourds and this is what we have to deal with:

Britain's radical Muslims warn U.S.
September 12, 2002 Posted: 3:26 AM EDT (0726 GMT)

Omar Bakri Mohammad talks to reporters after a warning to the U.S. was issued saying: "You will never be safe"

From CNN Senior International Correspondent Walter Rodgers

LONDON, England (CNN) -- On the day Americans mourned the victims of the September 11 attacks, one of Britain's leading Muslim extremist groups met and issued warnings to the United States.

In a mosque in London's Finsbury Park, with banners outside proclaiming: "Islam is the future for Britain," three radical Muslim clerics -- Sheikh Abu Hanza, Omar Bakri Mohammad, and Muhammed al Masseri -- held a three-hour closed-door session.

Afterwards, the clerics told reporters the United States has to suffer much more to learn "obedience."

"We do not celebrate such a day, but every action has a reaction. The outcome of those attacks may be positive for Muslims in the East," one of the clerics said.

Those comments appeared to try to soft-pedal some of the clerics' earlier hard-line rhetoric.

Before the gathering, they had released a statement, saying: "It is the plan of the West to use September 11 to wage war against Islam and their Muslims, and the plan is to steal the heart of Islam."

The three issued a broader warning to the United States, saying: "You are the most hated nation in the globe and Americans should heed the message of Osama bin Laden. You will never be safe."

The clerics also denounced U.S. and British plans to unseat Iraqi leader Saddam Hussein. They called Saddam "an apostate" and said he should have been killed before now, but they said the West has no business declaring war on any Muslim country.

The conference had been widely publicised and drew a large group from Britain's radical Muslim community. Outside the mosque, barricades separated protesters from the British National Party, one of Britain's largest extreme right-wing groups, and anti-BNP protesters who shouted: "Racist scum, off our streets."

Several people in the two groups were detained but there was no violence.

Post  41863  by  lkorrow       Reply
ferocious, I read that the deficit number isn't reality and the formula should be changed. I think it had to do with accounting for imports that aren't really imports because they are goods from U. S. multinationals or something. That would inflate the numbers. I don't recall the particulars, but it sounded a lot more upbeat than this article. And the dollar losing 10-20% helps our exports. Maybe someone will jump in and shed some light on this. . . .

Post  41864  by  ferociousD       lkorrow-
Post  41865  by  ferociousD       From George Bush Sr.-

Post  41866  by  spirare       Reply
MORGAN! MORGAN! MORGAN! The Gold Cartel defended key $320 with a vengeance, as that was the high during the U.S. trading

If $320 is taken out, gold should quickly move back up to $325 and make a run for $330.

If gold breaks $330, it should explode with $400 as the next stop.

How lovely to see the share price of JP Morgan Chase stink up the place again.
As predicted by Midas, it fell sharply as soon as soon as the Dow was hit hard. Morgan closed at $22.01, down 97
cents. Morgan acts like a $20 share price has become a magnet and is being inexorably drawn to
that crucial price level. My bet remains the same. Morgan won?t make it through the end of the year.
It will go down, merge, or be taken over ? perhaps by Uncle Sam.

They are a derivative disaster waiting
to happen.

MORGAN! MORGAN! MORGAN! Sorry, but after seeing the misery
they have caused so many people all over the world, I will
not be a hypocrite on this one.

I would like nothing better than to see them bite the dust.

*****If they go down, so many people in Africa will have a chance to live.*****

Current Price of Gold

(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)

Post  41867  by  Decomposed       OT: Table ON TOPIC SUMMARY Sep 12, 2002

Post  41868  by  Culmus       Reply

I love that "income statement entry":

"Extraordinary Income from Confiscation of Owners' Equity"

That about sums it up and I think your arguments are the ones about closest to the truth. I also agree to every single word in your post # 41404:

These are the points I tried to make before myself but obviously failed to put into proper wording (or was my wording spinned by others so it only became unclear afterwards?). Thanks for your input.



Post  41869  by  clo       Reply
LU 4th 1/4 revenues decline 20-20%
Lucent Technologies Comments on Fourth Fiscal Quarter 2002 -- Expects fourth
fiscal quarter revenues to decline by approximately 20-25% percent sequentially
-- Pro forma loss per share from continuing operations expected to be
approximately 45 cents -- Targeting new quarterly EPS breakeven revenue in the
range of $2.5-$3.0 billion

MURRAY HILL, N.J., Sep 13, 2002 /PRNewswire-FirstCall via COMTEX/ -- Lucent
Technologies (NYSE: LU) today announced that, due to continuing market softness
and ongoing uncertainty in customer spending levels, particularly in North
America, it currently expects revenues for the fourth fiscal quarter of 2002 to
decline sequentially by approximately 20-25 percent from the $2.95 billion
recorded in the third fiscal quarter.

The company currently expects to post a pro forma(1) loss per share in the
fourth fiscal quarter of approximately 45 cents, primarily as a result of the
sequential revenue decline, charges associated with a significant customer
financing default this month, and the inability to recognize tax benefits on
losses. The company had not previously provided guidance for the fourth fiscal
quarter of 2002 due to ongoing market uncertainty.

Last quarter, the company posted a pro forma loss of $1.88 per share from
continuing operations. Excluding the impact of a non-cash charge of $1.72 per
share to increase the valuation allowance on deferred tax assets, the pro forma
loss per share (assuming a tax benefit for the quarter) would have been a loss
of 16 cents. On a pre-tax basis, the pro forma loss per share would have been 24

The company stated that, given the anticipated results for the quarter, it
expects to meet the financial covenants of its existing credit facility. The
company noted that it has no outstanding balance on this credit facility.

In addition, the company said today that it is also actively developing plans to
reduce its quarterly EPS breakeven revenue to a range of $2.5 billion to $3.0
billion. With these additional restructuring actions, the company continues to
work toward a return to profitability by the end of fiscal 2003. Lucent will
provide an update on its new quarterly EPS breakeven revenue figure and its
impact on the company's headcount at its October 23 earnings announcement.

Lucent Technologies, headquartered in Murray Hill, N.J., USA, designs and
delivers networks for the world's largest communications service providers.
Backed by Bell Labs research and development, Lucent relies on its strengths in
mobility, optical, data and voice networking technologies as well as software
and services to develop next-generation networks. The company's systems,
services and software are designed to help customers quickly deploy and better
manage their networks and create new, revenue-generating services that help
businesses and consumers. For more information on Lucent Technologies, visit its
Web site at

Post  41870  by  Arkural       Reply
AEI Economic Outlook

After Irrational Exuberance

By John H. Makin

September 2002

A pervasive idea that has misled American households attempting to preserve and enhance wealth is the notion that stocks always yield better returns than bonds or other assets. The proviso--"on average over the long run"--that is usually added to exhortations to own stocks should serve as a warning. So too should the sometimes added "risk adjusted" qualifier used when comparing returns on alternative stores of value such as government or corporate bonds. Consideration of some basic principles of asset price determination and the consequences of their exclusion from advice typically given to American households by brokerage firms, banks, and investment advisers can help to identify the best course for investors to follow going forward.

Institutional Bias toward Stocks

Questions about the desirability of investing in stocks as opposed to other ways to store and enhance wealth are common now during the third consecutive year in which most stock price indices have been falling. This is only natural, but it is important to remember when thinking about how to build wealth that, ex ante--looking ahead--questions about asset allocation should always be foremost in investors' minds and should be largely independent of results achieved in the past, especially over the most recent few years. Households should also remember that the intermediary between them and their pension funds and the companies raising capital to finance investments used to produce goods and services is heavily focused on selling stocks as opposed to other financial assets. The infrastructure for selling and trading corporate bonds or government bonds (just to mention two examples) is not nearly as well developed as is the equity infrastructure. Beyond that, most mutual funds are "long only" stock funds, meaning that they cannot sell stocks short, can own only stocks and treasury bills, and advertise that a certain high proportion (about 80 percent) of their funds will be invested in stocks at all times.

These rules are promulgated by government agencies that oversee mutual funds with the stated--if not realized--goal of protecting investors. In effect, most mutual funds have a sign on the door saying essentially, "we buy stocks." Some may identify categories of stocks like "growth" or "value." These are largely useless yet always positive-sounding designations designed to appeal to different preconceptions of households about wealth preservation and enhancement. Perhaps "growth stock" is meant to hint at a higher-risk, higher-return category while "value stocks" hint at steady and safer. Over time the stocks in these categories change and their performance conforms poorly to the arbitrary characterizations applied to them.

The investment industry is a group of brokerage houses, banks, mutual funds, pension funds, and insurance companies that link household savers and investors with the corporations and governments that utilize household savings to acquire assets or pay obligations. The investment industry has adapted itself to an equity culture. For most of the industry, selling stocks to the public is more profitable than selling other financial assets.

Corporate and government bonds are bought and sold largely in a wholesale market dominated by professional bond dealers, banks, and large institutions such as pension funds. Corporations and governments sell bonds to pension funds and insurance companies with intermediation help from investment banks and bond dealers who earn a commission for their services. In principle, the same arrangement could sell bonds to households although the homogeneity of most bonds and the economies of scale in their sale probably make bonds a less attractive asset to offer most retail investors. That leaves stocks to sell to households.

The positive linkage between the profitability of intermediaries and the sale of stocks means that sales efforts are directed toward inducing households to buy stocks as opposed to other assets. Given the platform provided by the August 13 Presidential Economic Forum, Charles Schwab, the head of one of the largest brokerage firms, repeated the mantra that stocks are "still the best place to invest in the long term." Sadly, while Mr. Schwab was at that forum, his company announced that it was eliminating nearly 400 more jobs.

Stocks Bias Cuts Returns

The problem with the incessant push for the public to buy equities is that it ultimately leads to lower returns. If everyone obeys the exhortation to buy stocks, share prices will be driven up so high that expected returns on equities will collapse at the first sign of doubt about earnings prospects. The further stock prices rise, the further they subsequently fall given anything but improving news on earnings, as they have done since March 2000. As this 'Outlook' goes to press, the NASDAQ Index is now at approximately 1400, down from 5,100 in March 2000, having fallen by 73 percent in just thirty months. The broader S&P Index has fallen 32 percent, at an average rate of 14.6 percent a year, since early March 2000.

Returns over the same period on heretofore widely neglected assets, such as ten-year U.S. government bonds, have been high. Including interest and capital gains, ten-year U.S. government bonds earned a 28.7 percent total return, at a rate of 10.9 percent annually, since March 2000. This outperformance of neglected assets is exactly what one would have expected. Of course, it is no guide to what to expect in the future. But during periods when stocks outperform, the news is widely trumpeted by brokerage firms and other intermediaries. Households respond by rushing into stocks, thereby preordaining, at some uncertain time in the future, a sharp drop in equity prices. "Correction" is the polite term applied to sharply falling equity prices by account executives at most brokerage firms.

The retail mutual fund industry has learned to protect itself, to some extent, from blame for large equity losses on behalf of its investors. "Benchmarking" or relative performance indices are offered to disconsolate losers who invest in stocks. "Our fund is down 20 percent this year, but the industry is down 25 percent" is the usual consolation offered. Of course when stocks are down double digits for three years in a row, such consolation wears a little thin, so resort may be had to the observation that there are "great values" available in the stock market. Needless to say, the values are far greater than they were when brokers convinced investors to buy the stock at twice its diminished price.

Investors mainly look for the highest rate of return on assets they purchase. Many unsophisticated investors forget to adjust for ex ante risk on alternative investments in the face of a steady barrage of "stocks are best in the long run" claims emanating from virtually every brokerage firm and financial planner they ask. Reference to "the long run" is meant as absolution for stocks from higher risk. After stock prices fall, the line becomes "they will eventually go back up." They usually do, but the stocks that eventually go back up may or may not be the ones an investor owns. Some companies may not be around to have their stocks go back up, as investors in many dot-com start-ups before March 2000 know only too well. Beyond that, stock prices may fall at inconvenient times such as the years close to or in one's retirement, or just before college tuition bills come due.

Experts' Advice on Stock Buying

The brokerage industry has been joined by academic and journalistic experts who reinforce the stock buying mantra. Some, like Jeremy Siegel of the Wharton School, have argued simply that over long enough periods stocks consistently yield a higher rate of return than other investment vehicles. It will be interesting to see how the "long run" absorbs the past two and a half years, since this period has witnessed substantial negative returns on stocks while returns on bonds have been far above their long-term average. This development has led Siegel to argue that, going forward, returns on stocks will be higher than returns on bonds. During some future period this undoubtedly will be true, but the fact that bonds have outperformed stocks over the past several years is no guarantee that stocks will outperform bonds over the next few years.

The most important thing to realize is that the search by investors for the highest risk-adjusted return means that returns on all assets will be equalized over time. If stocks produce a higher risk-adjusted yield than bonds, more investors will buy stocks, thereby driving up the price of stocks and lowering the return on them, while selling bonds, thereby driving down the price and increasing the return. This arbitrage holds for any type of asset, including real estate, wine, rare books, stamps, or antique cars. Of course, some "investments," such as antique cars, for instance, yield psychic consumption benefits for their owners--they can be ogled and driven--and so their expected financial returns may be lower.

My AEI colleagues James K. Glassman and Kevin A. Hassett recommended stocks over bonds in their 1999 book Dow 36,000 because, as they asserted, if stocks were no riskier than bonds, the earnings multiple on stocks should be high enough to boost the Dow Jones average to 36,000. Indeed, ex ante, a lower risk premium on stocks would imply a higher price and, by the way, would also eventually imply lower returns ex ante for new investors in stocks. Glassman and Hassett exhorted new investors to keep buying stocks until their efforts drove the Dow to 36,000--wonderful for those who are already holders of stocks, were it to happen, but not so good either ex ante or ex post for the new investors whose buying drove up stock prices, thereby lowering expected returns for those who followed.

The Dow 36,000 exhortation was followed by a plunge of the Dow from over 11,000 in March 2000 to about 8,700 in mid-August 2002--a drop of about 11 percent annually. As we have seen, the NASDAQ, whose stock prices presumably are driven by the same underlying principles as the Dow, fell more spectacularly. Again, these disastrous results coincided with above average returns on bonds, the reverse of the Glassman-Hassett expectation. The debate remains over the relevant sample period for considering relative returns on stocks and bonds. This outcome "proves" nothing about the relative performance of stocks and bonds going forward. It does suggest that investors who expect stocks to consistently outperform bonds or other assets will experience lengthy periods of extreme disappointment, not to mention distress, should the need for cash arise.

Reasons for Depressed Stock Prices

Investors may ask: What happened after March 2000 to so sharply depress the returns on equities while returns on bonds soared? Why did equities fail to provide superior returns? The simplest explanation lies with the consideration of the marginal investor thinking about what to do with his next dollar of new investment. As investment in stocks surged in the late 1990s and prices, especially those in the favored information technology (IT) sector soared, companies employing the proceeds of stock sales kept adding more and more capacity in pursuit of the faster earnings growth upon which the higher stock prices were predicated. But the extra capacity meant that the supply of IT services expanded faster than demand. Prices of IT services and profits of IT companies consequently fell, and so stock prices fell.

The pressure to conceal the loss of earnings in an environment of falling stock prices led some companies to conceal earnings deterioration by resorting to accounting maneuvers or, in some cases, by outright fraud, as in the case of WorldCom. Revelations of such desperate measures further depressed expected IT earnings and increased the uncertainty about stated current earnings of all companies. Stock prices fell sharply.

Through all or most of the disastrous period for stocks since March 2000, the retail equity business has exhorted and cajoled American investors to "hold on." The basic pitch has remained the same: "Stocks are your best bet for the long run." That notion has cost American households that did hold on about $8 trillion over the past two and a half years.

The "buy and hold" pitch by the retail money management business is a necessary condition, but as it has turned out, not a sufficient condition for realization of the promise of higher returns on stocks than on other assets over many time periods. The sale of stocks is the bedrock of the revenues of investment firms that serve households. Further, because investment firms have proven their ability to induce households to pay up for new issues of stocks, corporations seeking a lower cost of funding play along with the bullish stock story.

Merrill Lynch's "bullish on America" campaign, which blends patriotism and a preference for stocks, probably represents the ultimate cynical appeal to unsophisticated households hesitant to jump into the stock market and thereby to help sustain rising equity prices that would attract even more households into the market. The cynicism has been underscored by the release of internal memos at Merrill Lynch and other brokerage firms wherein their stock touts chuckle about the junk stocks they are foisting off onto the American public while collecting hefty underwriting fees from the companies issuing the stock.

Looking at the stock-buying-is-patriotic (and profitable) appeal from brokerage firms, one can only imagine that effective leadership at such firms required someone either stupid or cynical enough to believe this story. Both before and after stock price debacles, the principals involved are eager to assure everyone that they believed (ex ante) or believe (ex post) in whatever company's stocks they were selling.

Stock Bias Persists

Those who doubt the equity bias of the brokerage world should try calling their broker and saying they are bullish on America and so would like to buy some U.S. government securities, treasury bills, bonds, or notes. In 1999, the brokerage firm's account executive would simply have laughed. Today they ask "seriously" if the 3 or 4 percent on five- or ten-year notes "really makes sense" when stocks--on average--yield more than 7 percent. By the way, there are virtually no brokerage fees on U.S. government securities transactions.

When all is said and done, American households are left amidst the heavy losses in stocks over the past several years with a few very old truths. No single asset class guarantees superior returns, and certainly none guarantees returns of 20 (or even 10) percent a year. No single asset class should be preferable over the others once one takes account of risks existing at the time of investment. As with every other bubble, the aftermath of the equity market bubble leaves investors with the basic truth that chasing extraordinary returns on any particular asset class, be it stocks, tulips, or bonds issued by Latin American countries, is a fool's game. If nothing else, keeping that lesson in mind, American investors may hope to earn back most of their losses over the past two and a half years with a diversified portfolio of investments. But it is probably going to take at least five years to recoup those losses. Markets tend to go down faster than they go up, and there is no reason to suppose that investing most of one's funds in the stock market will speed up the process of recouping losses suffered over the past few years.


John H. Makin ( is a resident scholar at AEI.

Ph.D., economics, University of Chicago
M.A., economics, University of Chicago
B.A., with honors, Trinity College, Hartford

Post  41871  by  weevil       Reply
pmcw & others....I'm asking for opinions and I understand that you pay for what you get etc. OK here it goes. Under a 5 year plan, maybe 4 I'm looking at LU XICO INTC. This is short term trading money. Which one will give me the best chance at a long ball drive? Thanks for your input.

Post  41872  by  Arkural       Reply
OT-New York's September 11 lottery comes up 9-1-1

On the first anniversary of the terrorist attacks, a date known as 9-11, the evening numbers drawn in the New York Lottery were, 9-1-1.

A lottery spokeswoman says the numbers were picked in the standard random fashion using all the same protocols.

Spokeswoman Carolyn Hapeman said: "The numbers were picked. It's just the way the numbers came up."

Lottery officials say they will not know until later how many people played those numbers or the total payout.

For the evening numbers game, the New York Lottery selects from balls numbered zero to nine circulating in a machine at the lottery office.

Three levers are pressed, and three balls are randomly brought up into tubes and then displayed.

Wall Street had been shocked on the eve of the anniversary when the Standard & Poor's 500 futures contract closed at 911.00.

There was a buzz on the Chicago Mercantile Exchange stock index futures trading floor about why that happened, but there were no reports of collusion or price-fixing.

"It was bizarre, it was strange, but it wasn't manufactured," said Richard Canlione, vice president of institutional financial futures at Salomon Smith Barney.

"It was just the rules of coincidence... That's just where the market was."

Story filed: 05:07 Thursday 12th September 2002


Nope! No such thing as 'coincidence'.......or 'luck'!

Post  41873  by  pmcw       Reply
we, There's absolutely no question in my mind - XICO! Regards, pmcw

Post  41874  by  uponroof       Reply
Trade War Escalates...

"...The WTO approved the sanctions - the biggest yet by far - after the EU claimed the tax break was costing European companies billions of dollars in lost trade.

But Robert Zoellick, the US Trade Representative, has warned that if the EU imposed the sanctions, it would be detonating a nuclear bomb in the world trading system..."

uponroof- Systemic risk possibilities are being multiplied through this ever continuing 'escalation' on all fronts. The challenge for countries today is to absorb the increased economic/political pressure without damaging the reciprocal system we call the global economy/community.

The trade war will have huge ramifications on the likes of Japan and Europe who must protect their interests without damaging same through short sighted WTO gains. Balancing these interests becomes increasingly difficult with every down tick on the world's major indicies. A victory for the EU, which penalizes the US, is really a defeat for all given global economic dynamics.

Post  41875  by  pmcw       Reply
Myth of evil deficits needs debunking

One of the great economic myths of the age is once again being revealed for the fantasy it is.

This particular mythology represents federal budget deficits as bad for the economy because they cause interest rates to rise. Advocates of this hypothesis say as Uncle Sam borrows more to meet budget shortfalls, businesses are increasingly "crowded out" of the credit markets. Interest rates, meanwhile, rise in response to growing demand for a diminishing amount of available credit capital.

While it seems plausible, there has almost never been an instance when a cause-and-effect relationship could be proved between the level of budget deficits and interest rate behavior. Rates have been as likely to rise during times of budget surplus as to decline during times of rising deficits.

We're now seeing yet another instance of putative conventional wisdom being revealed for the poppycock it is. As the budget surplus has given way to red ink, interest rates have been falling. Homebuyers and refinancers may rejoice, but savers are in despair.

Moreover, even as the fiscal 2002 budget deficit flirts with a level not seen in more than a decade, rates may move even lower. The iffy condition of the labor market and the Federal Reserve's downbeat assessment of the economy heighten the probability of another rate cut when the Federal Open Market Committee meets Sept. 24. If not then, it will almost certainly come when the monetary policy panel meets in November -- unless the economy shows a miraculous strengthening in the next few weeks, that is.

It would not be surprising, in fact, to see the prime lending rate banks charge their best customers fall from its current 4.75 percent to 4.25 percent by year's end as the Fed lowers its key federal funds rate by a similar magnitude to 1.25 percent.

To be sure, it's an open question whether this monetary ease will help the economy even if it does come to pass. Stimulative monetary policy helped pull the economy out of what proved a mild recession, but just continuing to cut interest rates won't work miracles all by itself.

What's needed just as badly is tax relief designed to get more money directly into the hands of businesses, consumers and investors. Unfortunately, opponents of tax relief will likely keep pushing the "deficits boost rates" fiction and pray nobody catches on to what's happening in the real world.

The myth that deficits cause higher interest rates and thus weaken the economy has been a primary argument of government's tax-and-spend disciples. Now that the administration shows signs of seeking investor-friendly tax reforms with the budget moving into deficit, the myth is being trotted out again.

The economic truth is that the budget is a thing apart of the real economy. The manner by which it redistributes wealth is meaningful, but markets set interest rates. Markets respond primarily to inflation and credit availability. Inflation isn't a factor these days, and the global pool of credit capital is so humongous that Uncle Sam's need for an extra $100 billion -- or even two -- is inconsequential in the grand scheme of things.

Post  41876  by  pdowd       OT: Don't be sad about the things you want and don
Post  41877  by  pdowd       OT: I was really disapointed to see that David Let
Post  41878  by  pacemakernj       OT: Linda, you know this isn't even about republic

Post  41879  by  lkorrow       Reply
ferocious, Yes, thanks, it is an interesting story. I wish I had some more wisdom, no, I'm no expert on this at all, just conveying what I saw. Certainly a concern. . . .

Post  41880  by  weevil       Reply

Post  41881  by  pacemakernj       OT:PMCW, great post! That just confirms just how m

Post  41882  by  Culmus       Reply

I just meant an answer about the year-to-date performance to be spared as I have a rough guess how that should look. I am still interested why you start again a new "model portfolio"?

You know, investors can't re-set their portfolios to a lower starting point once something has gone awfully wrong for them, a loss is a loss and it has to be made back. Trying to ignore unfavorable consequences doesn't make them go away. Selling positions that are at a huge loss might make the red numbers go away from your computer screen but the losses are still there. So why?


May I ask why you are starting yet another new "model portfolio"? For the start of the last one you already picked the low after 911, that was after you recommended a ton of stocks at vastly higher prices before that. Now you repeat that game again? Never mind, if you continue that procedure often enough at some point you will be right like that proverbial broken clock. Pitty is just that nobody will have any funds left to follow your "advice". I'm up 10% year-to-date and you? Don't answer, you are probably up 150% or so, I know.

With all your rant you are not trying to divert attention away from something less pleasant for you, are you?

Post  41883  by  pmcw       Reply
America's Record Trade Deficit: A Symbol of Strength
by Daniel T. Griswold

Daniel T. Griswold is associate director of the Cato Institute's Center for Trade Policy Studies and the author of the new Cato study, "America's Record Trade Deficit: A Symbol of Economic Strength."

pmcw comment: The following is a February 2001classic from the Cato Institute. IMO, it is a bit too flowery in its conclusion, but hey, Cato is a think tank and they might be right. Something everyone should keep in mind is that our exports are up a striking 11.7% and surpassed $1,000,000,0000,000 for the first time in history last year.

Fundamentally, what the trade deficit means is that we are importing more than we are exporting. The alternatives are clear, either the government erects policy (trade barriers) to make it to where buying imported goods and services is less desirable or those consuming goods and services decide to take a "patriotic" buy-American stance. The latter is available to all those who scream the dangers of trade deficit today and the former is something the uninformed patriots are welcome to stump for any day.

I like jobs to stay in America. Due to this, when there is a legitimate choice that doesn't require me to subsidize significantly lesser value, I buy-American. I think many Americans do this to some degree. Heck, the most common vehicle driven by an American millionaire is a Ford F150 pickup truck - red if I recall correctly.

However, buying is as far as I will go because I know that stumping for trade barriers will most certainly harm the world economy and our domestic economy as well. Beyond getting in the face of blatant dumping, trade barriers simply don't work.

The following report talks about many of the effects of open trade and keys in on some of those that result from the US running a deficit. However, it doesn't mention what might happen if we suddenly decided, through voluntary consumer spending habits or government intervention, to be a net exporter. First, I simply don't see it as an option. Even when the mother-ship is American, much of the product content is not. This is true of everything from Harley-Davidson to Dell Computer. Second, we need to create and foster international consumers. We do this by sharing our commercial wealth.

If we quit expanding foreign labor or quit buying the goods produced by that labor we would not only be shutting down our export consumption the governments of those far off lands would likely show us what protectionism really means. Remember, it wasn't that long ago that many of these consumers did TOTALLY without the comforts of American infrastructure technology.

Without a doubt, there are dangers in the trade jungle, but building walls around the fertile ground of America is not the solution for those inside any more than it is for those in distant lands.

The U.S. Commerce Department announced today that America's trade deficit in 2000 was the biggest in the history of the world. The difference between what Americans imported and exported last year should reach about $370 billionómore than $100 billion larger than the previous record deficit set in 1999 and double the 1998 deficit.

Many headlines and quotes from trade skeptics will sound a familiar refrain: "Worst Year Ever for American Trade." "Trade Deficit Costs Jobs." "Trade Gap Undermines Dollar, Threatens Expansion." Should Americans worry about the trade deficit? Or is it a sign of our nation's strong economy? A $2-million federal commission on the trade deficit issued a final report in November that answered yes to both questions.

Economic theory and experience show that trade deficits are driven by levels of national saving and investment in the U.S. economy, not by allegedly unfair trade barriers abroad or by declining industrial competitiveness at home. America's record trade deficit is a symbol of economic strength, reflecting a strong net inflow of foreign investment drawn to America's dynamic economy.

Growing trade deficits signal improving economic conditions, while shrinking deficits often occur in times of economic trouble. During the last 25 years, the U.S. economy has on average grown about a percentage point faster, 3.5 percent vs. 2.6 percent, in years when the trade deficit expanded compared with years when it shrank. The unemployment rate on average fell 0.4 percentage points during years of rising deficits and rose 0.4 points when the deficit shrank. Manufacturing output rose much faster during years of rising trade deficits than during years of shrinking deficits.

America's largest trade deficits in recent decades occurred during economic expansions, its smallest deficits during recessions. It's no coincidence that as the economy shows signs of slowing down, the monthly trade deficit numbers have also begun to shrink with the economy's growth rate. (Those critics who demand that something be done to "fix" the trade deficit should be concerned that they might get what they ask for.)

Critics of trade liberalization often point to the trade deficit as proof that trade destroys jobs. If exports create jobs, they argue, then surely imports mean less domestic production and fewer jobs. In fact, imports and domestic production rise and fall together. Since 1987, manufacturing output in the United States has risen the fastest during years when the volume of imported goods has also risen the fastest. The two years of slowest import growth, 1990 and 1991, were the only two years in which manufacturing output actually fell. The same economic expansion that spurs manufacturing growth also attracts more imports and enlarges the trade deficit.

Another unfounded worry about the trade deficit is that it will saddle future generations with an unsustainable "foreign debt." It is true that foreign investors own about $1.5 trillion more in U.S.-based assets than Americans own in foreign assets abroad. But about half of foreign-owned assets in the United States are not debt but equity--direct investment in factories and real estate and portfolio investment in corporate stock. And the $1.5 trillion in net foreign investment in the United States is only about 16 percent of Gross Domestic Product, and 4 percent of the net wealth of all U.S. households and non-profit organizations. Net payments to finance our foreign "debt" were less than $20 billion in 1999, about one-fifth of one percent of GDP.

Yet another worry is that chronic trade deficits will spook foreign investors and undermine the foreign-exchange value of the U.S. dollarósending stock and bond markets and the real economy into a tailspin. The problem with that scenario is that it ignores the fact that trade deficits are linked to a strong, not a weak, dollar. The trade deficit increases the supply of dollars in the global economy, as foreign producers accept more dollars in payment for imports. But in times of economic expansion, the demand for those dollars by foreign investors seeking to buy U.S. assets is even greater. As long as foreign demand for U.S. assets remains strong, the dollar will remain high, and so will the trade deficit.

The best policy is to ignore the trade deficit, however large it may now seem, and concentrate on maintaining a strong and open domestic economy that welcomes foreign investment. As long as investors world-wide see the United States as a safe and profitable haven for their savings, the trade deficit will persist, and Americans will be better off because of it.

Post  41884  by  lkorrow       Reply
Ark, that's not all of it. The wind storm in NYC, with gusts to 50mph started at precisely the time the first tower was hit, according to NBC. It was an angry wind, whipping tree branches here. At Ground Zero it kicked up sandstorms. Desert Storm? I noticed the wind subsided before GWB went into the U. N. the next day. And at dusk, a black cloud, roughly the size and shape of a jetliner crossed Manhattan from West to East. I face downtown. As is my custom of taking pictures of everything, I took one. Don't know if it will come out because my autofocus was having a problem with it and it was losing shape as it got closer. But it was shocking. Nothing? A warning? Anger? Remember? Act?

Post  41885  by  pmcw       OT: pace, Please take my comments in context and w

Post  41886  by  jeffbas       Reply
I have written several times about my view that Price/Sales is a much better measure of valuation at the bottom of a cycle than P/E used by most writers (because E tends to disappear at cyclical bottoms and because of major changes in accounting for acquisitions, leading to immense writeoffs now versus the past).

I came across the following which contains the first historical info I have seen relating to my interest: 2DD23BE3036631%7D

I find it very interesting that software companies are back to 1990 P/S valuation levels, especially since at that time NASDAQ looks to have been under 500.^IXIC&d=c&t=my&l=on&z=b&q=l

What this suggests to me is that we are possibly already in a price zone where prices will no longer move unilaterally in one direction and totally ignore fundamentals. In other words breadth may start improving, or stop deteriorating - and good stock pickers with a longer term perspective can make good money again.

Post  41887  by  Tampathom       OT: Is the U.N. irrelevant?
Post  41888  by  Briguy       OT: Hey gang...

Post  41889  by  pdowd       Reply
Ikorrow The S&P futures also closed out at 911 on 9/11. You can't have so many innocent people massacred in one spot and not have their collective spirits (the wind) be calm at a time like that !!! PD.

Post  41890  by  lkorrow       Reply
pdowd, Hopefully they'll guide us. We saw and heard the wind.

Post  41891  by  maniati       Reply
srudek: I had really hoped that we were done with this discussion. And you really need to be more careful about what you claim that I understand or don't understand, as you will see.

You said in your last post:

A long time ago I proposed that options COULD be run through a double entry accounting system without "breaking" it by accounting for them as "Extraordinary Income from Confiscation of Owners' Equity". I proposed this in a jesting entry -- but I still haven't seen a rebuttal of my logic.

Yes, once you then EXPENSE the options at market value, the total transaction has a net zero result. However, this DOES allow options to be expensed -- so Buffett and the FASB aren't necessarily caught with their pants completely down.

Maniati, as I recall, cited the "net zero" effect as a reason to not bother doing what I suggested. Imo, in this regard he was showing his lack of understanding regarding the discipline of accounting. LOTS of economic transactions have a net zero effect but they still must be journaled. And the existence of that "Extraordinary Income" account would be a good tip-off, even if it netted to zero.

No, that's not true. You sound very, very confused. What you initially proposed was that options be treated as income. I was the one who pointed out that, even if we did that (which is still wrong for all the reasons that I have enumerated repeatedly), there was an off-setting expense (which is equally wrong), which would result in no net impact to the company.

Now, you turn around and say that that still allows the expense to be shown on the books, and you think that's good, even if there is off-setting income.

But, that wasn't your idea in the first place!!

Your idea was only to recognize options as income. Go back and re-read your own post, # 41125. Now talk about wrong, that couldn't possibly be more wrong! Your proposal would have resulted in companies over-stating their income!

Even though expensing options is wrong, at least that makes the company look worse, not better. But your proposal was to make companies look better by recognizing income which they didn't really have.

That's a fact. That's exactly what you proposed in 41125.

My response was, even if, for the sake of argument, I agreed with that - and I said at the time I did not - there would also have to be an off-setting expense.

So, the off-setting expense was my idea not yours. Sorry to burst your bubble, but you have to credit me with the off-setting entries idea. That's a fact. Go back and re-read the posts. I have.

That being the case, I want to tell you how truly funny it is that you would write this:

Maniati, as I recall, cited the "net zero" effect as a reason to not bother doing what I suggested. Imo, in this regard he was showing his lack of understanding regarding the discipline of accounting.

Now, that just drips with irony, n'est-ce pas?

sr, let me give you two pieces of unsolicited advice:

First, stick to the substantive issues. Don't go venturing into the personal stuff, like questioning people's understanding. Just stick to the issues. It's much safer. It's also what people are interested in.

Second, read the posts more carefully. You're going to have to get up incredibly early if you think you're going to put one over on me, you know. If I respond to an issue with a lengthy post, chances are I've read all the relevant posts several times over. I might know what you said better than you do. That's why this latest mistake of yours was a no-brainer for me: I knew what you had actually proposed, and I knew what I said in response.

That said, I must repeat that your proposal, even as modified by me, is not a good idea, because there is nothing of value flowing into and out of the company. The fact that there is a "double-entry" system of journaling has nothing to do with it. Yes, every transaction has off-setting debits and credits, but the transaction, itself, has to have some bearing on the company. If a company purchases a computer, you have off-setting entries in, let's say, Cash and Equipment. There's no change in Total Assets, but, there is a difference in the composition of the company's assets, so it's relevant.

But "wealth confiscated through theft" is a fiction. I grant you that it's funny, and I've gotten quite a good chuckle out of it, and it still makes me laugh, even now. I wish I had thought of it. But, unfortunately (for you), it's not true. That wealth that passes from the shareholders to the option holders never passes "through" the company. As I said before, the one and only place on the entire planet where a share in a company has no value is in the treasury of the issuing company itself. The company never holds that wealth that is being transferred, not even for a nanosecond. The company itself never sees the economic benefit of that wealth, and that's why it doesn't belong on the books.

Oh, by the way, I realize that the market hasn't been doing so well these last few years, but, actually, I predicted that. Go back and read some of my old posts. So, I think it's a bit of a stretch for you to blame pmcw and me for what has happened to the market. I didn't do it. I promise. I wouldn't lie to you. But, if you insist, I'll see what I can do to fix it, just as soon as I finish my lunch. But, I'm not promising anything.

Post  41892  by  tinljhtkh       Reply
In re T and Wcom!

"I see T and WCOME being bought as a near certainty and FON as a wildcard. I also see consolidation in wireless, but I'm not sure which will be buyers and which will be acquired."

It would be interesting to note which, if any, misrepresentations on some of Wcom's balance sheets might have led to expansion that should not have occurred if the books hadn't been cooked! As an expansion on that theme, it would be interesting to contemplate just how many mergers and acquisitions might not have occurred at all if the many 2002 revelations had been applied across the board in the business community.

When we look at people like John Marie Messier of Vivendi, Bernie Ebbers of Worldcom, and so many other "captains" of their various industries and the roles that they played during the last half of the 1990's, the influence that they exerted and the changes that they brought about are just phenomenal in their dimensions and scope!

What would the world of business look like right now if any sort of traditional ethics really existed? Even in the rough and tumble landscape of the American corporate world as it has always existed, the excesses that have been revealed in the last twelve months will always stand out. We have never had such a gathering of investors, media, and opinion concentrated on one sector of our society--stock equity--as we have had in the last five years. And never has so much actual money been lost by so many--lambs and wolves alike--in any comparable period of time, including the Great Depression! I still marvel at the collective statement: "This is a ten trillion dollar economy and (fill in the blank) is but a drop in that bucket!"

There have been a lot of "fill in the blanks" lately! You have to wonder just how long its going to be before whatever has dropped into this economic pond out of those fills begins to create a reef that the course altered by all of these crooked captains might bring us afoul of! The great dishonesty and loss of any moral heading at all has created a different course and even brought into question where we were heading in the first place! As we look back on the Great Internet Bubble and the amount of resources, including investor faith, that was expended during that period of time we might begin to understand our current situation and the uncertainty that goes with it.

As I look at the idea of T (AT-T) being bought and not knowing who might be able to do that, it just shows me how far we have come in the last twenty-five years! If Verizon or one of the other baby bells were able to acquire T, the parent would, in its old age and loss of self-determination, have returned to the custody of one of its children! It makes you wonder about the circle of life and whether we have simply been going in circles, exhausting resources and people, for all of these years. American business has always gone in cycles and that supposed economic truth has been the reasoning used by so many when they try to rationalize what has gone on, particularly in the last few years! Yet we deny the completion of the cycle as we steam along our way!

They planned and built the World Trade Center about the same time that they decided to break up T and you have to wonder about that! Are the imperfections of planning in both of those designs now reflected in our whole economic world! They just never planned for the bigness that would collide with those buildings and the intention that would be behind it all. It's a ten trillion dollar structure that we're living in here--we've admitted as much--and I just wonder if its a building, a ship, or an airplane?

As I look around me at all of the passengers and some of the crew, I just have to wonder if we've found enough of the evil, and why I keep seeing so many blank stares! As we exchange glances in our attempts to make some sense of it all I also wonder about those who perpetuated so much of what has gone on and what their real intentions really were. Were their attempts at theft and deception really simply only their efforts to buy a better place in one of the lifeboats among those made helpless by their actions? Or did the moral starvation of their materialistic lives unwittingly recruit them into a corps of fanatics bent on the destruction of it all?




Post  41893  by  pmcw       Reply
tin, I'm not sure where you intended to go with your post so I'm not sure how to respond. However, since you launched from one of my posts and included a quote from the same, I would like to comment on what I see as two oversights:

1) Romancing history is fun and makes for interesting prose. However, it doesn't necessarily make for an accurate representation of reality.

You said: "What would the world of business look like right now if any sort of traditional ethics really existed?"

When you made this comment you were referencing the ethics lacking in the 1990's. I find it ironic that our country was embroiled in exactly the same debate about the 1890's a century ago. The debate then was "were they captains of industry or robber barons?" As was the case during the last decade, they were both. There will always be good and bad, those that succumb to the elixir of power and those who don't. As the Bible teaches us, we are weak and susceptible to sin. That will never change.

2) Romancing the days of Ma Bell totally ignores the reality of her sorted history. You do realize what she did to competition when her first patents expired don't you? If not, you might want to re-read my post from last fall on the history of T. She's not always been a lady.

The 1984 decision that led to breaking up the family has done wonders for our economy and was executed with near perfection. Let's not even consider what it would be like if we were paying inflation adjusted rates of dollars per minute for our cross-country calls today. The central problem with telecom today is that they were thrust into the clutches of a perfect storm when the Telecom Act of 1996 was passed. The evolution of the Internet coupled with cheap money and unrealistic dreams from this flawed legislation lead to roughly $1.3T of debt - much of it invested poorly.

Between the crushing blow the Babies delivered to mom through their entry into the LD market and the absolutely ruinous order that blocked T from entering the converged media market via cable, Ma is probably going to need a place to stay. If you want to romanticize this do it from the perspective of an aging parent who had their retirement in T stock for the last 40 years and now can't afford to live on their own.

I think your other theme of how many cooked books were passed along in the form of acquisition makes for something worth pondering. This is particularly true for the companies where growth was dependant on this strategy. However, I would hope that the due diligence process of he acquisition would catch most and that a reasonable period of unified operation would catch the rest.

Regards, pmcw

Post  41894  by  Arkural       Reply

So called phenomenon, ALL has a reasoning that is quite bona-fide in its manifestation brought visible, no matter the apparent form taken. However 'visibility', and/or 'apparent visibility', is subject to the viewers ability of 'sight', of which there are various forms.

Off the top of my head, the easiest way to present an analogy to this, is that likened to physical eyesight measured by a standard where so called normal (good) eyesight is 20-20. Those who have eyesight of 40-100 or what have you, can not see what those of 20-20 see without certain devices, we call eye glasses. The handicap does not permit 'good' eyesight therefore, the perception of the individual is, well, handicapped. Of course interpretation is paramount but I am leaving that aside, which isn't really fair, due to the immutable marriage of brain and sight, but I don't want to get into more of this right now.
In the case of events you spoke of, rest assured the meaning is far from, "nothing".

Post  41895  by  abveldeh       Reply
firered1:We must have a consistent policy against states that may employ Weapons of Mass destruction. I am looking at the US' consistency in policy.

Some wise words from you. The USA has abused his might as you call it far too long in mostly the wrong places.

And when they should have done they didn't.

To take the Kurds as an example , they were gassed in Iraq with the the help of the USA which at that time was a Friend of Iraq.
The USA is also a Friend of Turkey which still murders Kurds by the thousands.

Rather hypocrite to use the fate of the Kurds to invade Iraq to hide the real reason: oil for cheap

Post  41896  by  abveldeh       Reply
pmcw, this board is called Briguy's Dollars & Sense Table.

The word sence means also global USA politics devastating the planet and for that matter my portfolio

Post  41897  by  pacemakernj       OT: PMCW point taken and I agree. It just that the

Post  41898  by  lkorrow       Reply
Ark, well said. :-)

Post  41899  by  abveldeh       Reply
It's no accident that Iraq has weapons of mass destruction. U.S. corporations helped supply them.
By Dennis Bernstein
Photos by Mark O'Neil
IN JANUARY 1991 Iraqi president Saddam Hussein launched a barrage of long-range Scud missiles against Israel and Saudi Arabia. Dozens of people were wounded or killed -- including 28 U.S. soldiers who were asleep in their bunks when the Scuds hit. According to declassified secret nuclear, chemical, and biological logs kept by the Pentagon, Israeli police "confirmed nerve gas" at the site where the missile landed in downtown Tel Aviv.

While the incident was widely reported in the press, it was rarely mentioned that the technology used to increase the range of the missile that hit Israel, and to create the nerve gas that was apparently carried inside, was supplied to Iraq by U.S. and western corporations. Likewise, when U.S.-led allied forces bombed more than 30 chemical and biological weapons facilities during the 1991 war with Iraq, much of the deadly toxins that were released into the upper atmosphere, only to fall back down on the heads of U.S. forces, were created with the generous support of U.S. firms and America's leading politicians.

At one point, just a year before Iraq invaded Kuwait, Pentagon officials invited key Iraqi military technicians to a special conference in Portland, Ore., that amounted to a crash course in how to detonate a nuclear bomb.

Even today, the chemical, biological, and possibly even nuclear weapons U.S. troops could face in Gulf War II might as well be stamped "Made in the USA."

As the United States threatens to bomb Iraq for the third time this decade, the irony is brutal: Many of the same politicians, news media outlets, and interest groups that are promoting Gulf War II either supported or ignored the policies of the Reagan and Bush administrations that gave Iraq its deadly arsenal.

In fact, the problem goes far beyond the Middle East: If Saddam Hussein is capable of launching chemical, biological, or nuclear attacks, it will be the result of a long-standing U.S. policy of allowing defense contractors and other powerful corporations to sell the technology of death to almost anyone in the world who is willing to pay for it.

The Iraqi situation, former CIA military analyst Patrick Eddington told the Bay Guardian, "goes to the heart of the concept of nonproliferation and whether something like the international Chemical Weapons Convention is going to have any credibility."

"It has no chance of working if the countries who are the primary signatories, and for that matter the primary suppliers of dual-use technology," Eddington said, referring to technology that can be used for both civilian and military purposes, "are still cranking this stuff out and supplying it. It's a two-faced policy -- and that definitely includes the United States."

Our friend Saddam
Documents obtained by the Bay Guardian -- many of which have been available for years, released during Congressional investigations -- shed disturbing light on the U.S. policy of arming Saddam Hussein, a policy that may again result in the exposure of hundreds of thousands of U.S. soldiers -- and millions of civilians -- to dangerous chemical and biological weapons.

"If tomorrow the Iraqis fired a missile with biological warheads on it," Gary Milholland of the Wisconsin Project for Nuclear Arms Control told the Bay Guardian, "the missile itself would have been purchased from Russia, upgraded with help from Germany, and the bacteria would be based on a strain imported from the United States.

"What we're looking at is a program made in the west," said Milholland, who testified as an expert witness before Congress in 1992 on the arming of Iraq by the west. "The west supplied the materials, the knowledge, and the people."

In fact, some critics say that Iraq's deadly arsenal is the best argument against the Clinton administration's planned bombing campaign.

"A bombing campaign against suspected chemical and biological storage sites is literally a game of chemical and biological Russian roulette," said Eddington, who resigned last year to protest the agency's refusal to tell Gulf War vets the truth about their potential exposure to chemical weapons.

"We are looking at potential fallout that can kill a large number of people. You could be looking at anywhere from hundreds to tens of thousands of deaths."

In the early 1980s the Reagan administration chose to support Iraq over Iran in their bloody war. Neither country was exactly an ally, but the White House considered Iran the worse of the two nations, and cold war politics (along with a U.S. desire to maintain control of oil supplies in the Middle East) put us on the side of Iraq.

In accordance with a long and continuing tradition and policy, that meant the U.S. would arm Iraq to the teeth -- without much concern for the long-term consequences.

According to a 1990 report, "The Poison Gas Connection," issued by the L.A.-based Simon Wiesenthal Center (See sidebar), more than 207 companies from 21 western countries, including at least 18 from the United States, contributed to the buildup of Saddam Hussein's arsenal. Subsequent investigations turned up more than 100 more companies participating in the Iraqi weapons buildup.

The frontline cheerleader for America's corporate contributors to Saddam, the man who paved the way for Iraq to purchase millions of dollars worth of weapons and dangerous dual-use technology from U.S. corporations, was none other than the architect of Gulf War I, former president George Bush.

In a stunning July 27, 1992, speech on the floor of the House of Representatives, House Banking Committee chair Henry Gonzalez drove the Bush connection home in no uncertain terms:

"The Bush administration deliberately, not inadvertently, helped to arm Iraq by allowing U.S. technology to be shipped to Iraqi military and to Iraqi defense factories," Gonzalez said. "Throughout the course of the Bush administration, U.S. and foreign firms were granted export licenses to ship U.S. technology directly to Iraqi weapons facilities despite ample evidence showing that these factories were producing weapons." (See sidebar)

Gonzalez, who was accused by administration officials of jeopardizing national security for going public with his gritty revelations, also stated: "The president misled Congress and the public about the role U.S. firms played in arming Iraq."

Documents gathered by Gonzalez and other independent investigators show that despite U.S. intelligence reports dating back to 1983 documenting Saddam's mass gassing of the Kurds and Iranians in the ongoing Iran-Iraq war, Bush pressed for support of the Iraqis. In a damning Oct. 21, 1989, cable from Secretary of State James Baker to then Iraqi foreign minister Tariq Aziz, only a year after the mass gassing of the Kurds, Baker assured the Iraqis that the United States was very eager for a close working relationship with Saddam Hussein. "As I said in our meeting," Baker wrote, "the U.S. seeks a broadened and deepened relationship with Iraq on the basis of mutual respect. That is the policy of our president."

According to Gonzalez, senior Bush aides successfully lobbied against the concerns of other government officials to allow Iraq to purchase the technology -- technology that could be adapted for both civilian and military purposes. These high-level Bush officials, including Baker, forced this policy through despite substantial available evidence that the Iraqis were furiously working on developing nuclear weapons and other devices of mass destruction.

The CIA reported at a top-secret intelligence briefing in November 1989 that Iraq "is interested in acquiring a nuclear explosive capability" and to this end "is ordering substantial quantities of dual-use equipment." Nevertheless, Bush and other top U.S. officials continually pressured the Agriculture Department's Commodity Credit Corporation (CCC) and the U.S. Export-Import Bank to give Iraq credit for farm products and manufactured goods. From 1983 to 1990 the CCC provided Iraq with $5 billion in credits and loans to purchase U.S. exports. Between 1984 and 1990 the Eximbank insured $297 million of additional exports. As recently as seven months before the 1990 Iraqi invasion of Kuwait, Bush issued an order allowing the bank to provide even more credit to Iraq.

Nuclear know-how
State Department documents drafted after Bush became president in 1989 warned that Iraq would rise out of the ruins of its eight-year war with Iran as a "great military and political power, and [Iraq] is aiming higher." They also indicated that Iraq was planning to use "a big-stick approach" to the border conflict with Kuwait.

According to Gonzalez's July 27, 1992, floor speech, as late as the fall of 1989, only months before Iraq invaded Kuwait, George Bush signed a top secret National Security Decision directive, known as NSD 26, ordering closer ties with Saddam Hussein and Iraq: "Normal relations between the United States and Iraq would serve our long-term interests and support stability both in the Gulf and the Middle East," stated the top secret directive. "The United States remains committed to support the individual and collective self-defense of friendly countries in the area."

The Bush directive also encouraged U.S. firms to participate in the reconstruction of the Iraqi economy, "particularly in the energy area, where they do not conflict with our nonproliferation and other significant objectives."

And participate they did. According to House and Senate Banking Committee investigations, in the five years preceding the Gulf War, the U.S. Department of Commerce licensed more than $1.5 billion of strategically sensitive American exports to Iraq. Many were directly delivered to nuclear and chemical weapon plants as well as to Iraqi missile sites. More than 700 licenses were issued to U.S. corporations doing business in Iraq; many of these licenses were for the shipment of this dual-use technology to Iraq.

In April 1990, U.S. intelligence reported to the Bush administration that Hussein "has strengthened his ties to terrorist groups and may use terrorism to intimidate his Arab and western opponents." But Bush administration back-channel and international diplomatic and financial support continued unabated.

The cooperation between U.S. suppliers and Iraqi weapons planners continued up to the beginning of the war. U.S. technicians and officials moved back and forth easily between the two countries.

In one of the more stunning incidents, in September 1989, just one year before the Iraqi military stormed over the Kuwaiti border, U.S. military officials invited several Iraqi technicians to attend a "detonation conference" at the Red Lion Inn in Portland, Ore.

The conference -- the Ninth Symposium (International) on Detonation, was a crash course from the world's experts on how to detonate a nuclear weapon. Among the named sponsors of the conference were the Office of Naval Research, the Air Force Armament Laboratory, the Army Armament Research, Development and Engineering Center, the Army Ballistic Research Laboratory, Lawrence Livermore National Laboratory, Los Alamos National Laboratory, the Naval Sea Systems Command, Naval Surface Warfare Center, Office of Naval Technology and Sandia National Laboratories, according to the conference proceedings.

The three Iraqis attending, M. Ahadd, S. Ibrhim, and H. Mahd, were all representing Al Qaqaa State Establishment in Iraq. Al Qaqaa, according to an Oct. 27, 1992, report by the Senate Committee on Banking, Housing, and Urban Affairs, "was Iraq's major explosives and rocket fuel factory." It was also a "filling station for ballistic missiles" and home for Iraq's nuclear weapons program.

Joining the Iraqis in this quaint setting on the Columbia River, learning all about nuclear bomb detonation, were 445 participants from 20 countries, including Israelis and technicians from South Korea.

The list of U.S. corporations that teamed up with Saddam reads like a who's who of America's favorite defense contractors. According to the Wiesenthal report and the Senate Banking Committee they include Hewlett-Packard, Honeywell, and Sperry/Unisys among others.

Bush's secret weapons
In a letter dated July 9, 1992, twenty Democratic members of the House Judiciary Committee petitioned the attorney general to appoint a special prosecutor to investigate "serious allegations of possible violations of federal criminal statutes by high-ranking officials of the Executive Branch."

Among the potential criminal violations cited in the petition were making false statements, obstruction of justice, concealment or falsification of records, perjury, mail and wire fraud, conspiracy to defraud the United States or to commit an offense against the United States, and financial conflict of interest by high executive branch officials.

The 1992 letter further cited the Bush administration's "willful and repeated failure" to comply with requests by the House Judiciary and other committees for both documents and witnesses.

According to the 27-month Gonzalez Investigation, the Bush administration set up an "interagency" group after the Gulf War to prevent Congress from finding out about U.S. aid to Iraq before the Kuwait invasion.

Gonzalez's concerns centered on the handling by the Justice Department of the investigation into Banka Nazionale del Lavoro (BNL) in Atlanta. Most of Iraq's purchases of sensitive technology were handled by BNL. According to Gonzalez, Iraq had set up a secret network to buy equipment for missiles and for nuclear, chemical, and germ weapons. More than $5 billion in soft loans were funneled through the bank to the Iraqis in the five years leading up to the war. According to Gonzalez's compelling investigation, almost half of the $5 billion was funneled directly into Iraq's ambitious weapons program.

The Bush administration's task was to limit the investigation to one low-level bank official in Atlanta, resisting any attempt to connect the Iraqi loans to high administration officials or to BNL's mother bank in Italy and other shady institutions, such as the Bank of Credit and Commerce International (BCCI), the CIA's bank of choice.

To this end, at least five federal agencies apparently misled, lied to, and blatantly stonewalled prosecutors in charge of the BNL investigation. According to a strongly worded October 1992 statement by the then chair of the Senate Intelligence Committee, David Boren, in support of the appointment of a special prosecutor, the CIA "with strong advice" from the Justice Department "authored a misleading letter to the acting U.S. attorney in Atlanta" regarding the BNL investigation. "In light of this new information," Boren stated, "I call on the attorney general to meet his obligations ... and appoint a special prosecutor."

To make his case, Boren cited the concerns of the federal judge in the stymied BNL case. In a sharp rebuke of the government's behavior, Judge Marvin Shoob accused Bush officials of stonewalling and deception in the BNL case and joined the call for a special prosecutor.

"High-level officials in the Justice Department and the State Department met with the Italian ambassador," stated the frustrated federal judge, and "...decisions were made at the top levels of the United States government and within the intelligence community to shape this case." Shoob also noted that "the local prosecutor in this matter received ... highly unusual and inappropriate telephone calls from the White House Office of Legal Counsel."

Despite the strong words from Boren, Gonzalez, and Shoob, a special prosecutor was never appointed, and no administration officials were ever indicted or even forced to testify. Low-level bank officials ultimately took the rap for a multibillion-dollar, illegal, secret government scheme, spearheaded by the president of the United States, to arm Iraq.

And the coverup, thanks to Clinton officials, continues to this day. During the 1992 presidential campaign, Gore called the coverup of the secret Bush policy to arm Iraq "bigger than Watergate ever was," but in a Jan. 16, 1995, report, the Clinton Justice Department absolved the Bush administration and stated that it had found no evidence "that U.S. agencies or officials illegally armed Iraq."

War criminals
London Independent reporter Robert Fisk has written movingly about riding back to Tehran in a train with young Iranian soldiers returning from the front during the bloody war with Iraq -- a war fueled by western politicians and western arms dealers. "All of them were coughing up Saddam Hussein's poisons from their lungs into blood-red swabs and bandages," writes the veteran Middle East reporter. "And the mustard gas that was slowly killing them permeated the whole great 20-carriage train as it thundered up from the desert battlefields of the first Gulf War." Fisk points out it was not only technology that the United States and the Europeans provided Saddam with to create nuclear, chemical, and biological weapons, but the means to efficiently deploy them.

"The Americans had sold him helicopters to spray the crops with pesticide," Fisk said, "the 'crops,' of course, being human beings." And in an astounding revelation Fisk stated, "I later met the [German] arms dealer who flew from the Pentagon to Baghdad with U.S. satellite photos of the Iranian front lines to help Saddam kill more Iranians."

Iranians weren't the only victims. Tens of thousands of U.S. soldiers and military personnel were doused with chemical and biological warfare agents in the first Gulf War. In fact, Gulf veterans have filed a billion-dollar class action lawsuit in federal court in Galveston, Texas, against companies that supplied Iraq with the dual-use technology to create its weapons of mass destruction. Among the companies named are Bechtel, M.W. Kellog, Dresser Industries, and Interchem Inc.

Vic Silvester, a plaintiff in the lawsuit, told the National Law Journal, "The companies that made the chemicals and biologicals should pay." Silvester said his son, a Gulf vet, suffers from a variety of serious medical conditions from exposures, including nerve damage, rashes, severe headaches, and chronic fatigue. "He can't sleep," Silvester said, "and when he goes to the store, he can't remember what he went to get."

Silvester makes a compelling point. After WWII, several German civilians were hanged for making chemical gas available to the Nazis. Employees of IG Farben were convicted in a British court in Hamburg of crimes against humanity because it was shown they had known that Hitler's regime was using Farben's gas to slaughter civilians in Nazi concentration camps.

"Two of the principals of that firm were hanged for aiding in crimes against humanity," wrote Rabbi Marvin Hier in the introduction to "The Poison Gas Connection," put out by the Simon Wiesenthal Center. "International legal scholars should look seriously at this relative precedent."

Post  41900  by  abveldeh       Reply
The original Stockholders of the Federal Reserve Banks in 1913 were the Rockefeller's, JP Morgan, Rothschild's, Lazard Freres, Schoellkopf, Kuhn-Loeb, Warburgs, Lehman Brothers and Goldman Sachs. The MONEYCHANGERS wanted to be insured they had a monopoly over our money supply, so Congress passed into law Title 12, Section 284 of the United States Code. Section 284 specifically states, "NO STOCK ALLOWED TO THE US" *

Post  41901  by  danking_70       OT: Can't you guys take a joke?

Post  41902  by  jeffbas       Reply
Excellent post, pace.

Isn't it interesting that opposition to school vouchers is most strong from those same liberals whose underclass would shrink if they could get out of disastrous urban public schools?

Post  41903  by  artsuh_taraz       Reply
The More Things Change . . .

The Sept. 11th anniversary impelled me to visit Table and see if anything was new with old posting acquaintances. (Hi Clo!)

Looking some things over, the one-two punch of PMCW and Maniati still seem to be hard at work. I see that some other helpful posters are still in the game and occasionally offering up some insights.

Though rejoining the interactions (with likes of Ark, IAC, Briguy, Culmus, Motordavid, Decomp, Warstud, Uponroof, Clo, etc.) has its lingering attraction, I am simply too busy these days to consider it. Fortunately, I am busy with endeavors that I thoroughly enjoy Ė blessed indeed.

But, even so, long time posters might agree with me that the Table (from what I felt before taking leave and from what I could ascertain from looking over a few weeks worth of posts) does not have the money making focus of years gone by. Maybe the game has gotten tougher. When I began investing time in Table, it was with the intention that combined with other Table participants/investors we could leverage our respective talents and show greater gains than any one of us alone could achieve. (Forgive a simple AT for having such a utopian idea!) Still, kudos to those who have continued to reciprocate money-making ideas in such an unqualified and unentangled fashion.

Well, if any of my old acquaintances have specific thoughts they would like to share or ask (or simply share greetings), I will check back to Table for the next few days (but only a few days). I have no interest in lengthy arguments . . . trying to prove that I know more than someone else. Those with such a need are at liberty to run unfettered. My record of posts and performance is both decent and unselfish, and I (and by extension my comments) will stand on it. All that is to say . . . I will not be engaging in time-consuming arguments/counter-arguments; so I will be easy pickings for anyone who feels he must "win" an argument.

I will leave you with a quote from the 17th century Haiku poet Basho:

"Do not seek to follow in the footsteps of the wise.
Seek what they sought."

Best regards,

Post  41904  by  srudek       Reply
Roach calls a real estate bubble -

Stephen Roach's article is below. It talks about more than a housing "bubble" and it is the most gloomy article I've yet seen from him. I heavily weight economic predictions based on how accurately people have predicted the last few years. In this regard, Roach gets a very high weight from me. That's not good news.

Let me preface Roach's article a bit with regard to housing.

The Aug 31-Sep 6 issue of The Economist updated their global housing price index, begun earlier this year. I had intended to post a warning that they are now calling a bubble in housing prices of industrialized nations, apparently including the U.S.

In a post I made a few months ago, I noted that our national housing price increases have been much smaller than those in some other countries, especially England and Australia. Furthermore, I've said several times that I didn't think we had a housing Bubble (by which I meant something which was grossly irrational, unsustainable, and would definitely "pop" sharply lower). What's "irrational" in this environment? On the other hand, I have acknowledged that our prices are getting expensive and we do have, imo, a number of regional Bubbles.

For the time being, I'll stick with my earlier stated opinion that, on a national basis, the U.S. does not yet have a housing Bubble -- by that I mainly mean that we aren't yet in a buying mania and you can still find property which makes cash flow sense in many areas of the country. I've got to say, however, that with no agreed definition of what constitutes a "bubble" it is hard to be either right or wrong on this issue. Bubble or no Bubble, I consider housing prices precarious enough that I'm selling pretty much all my residential real estate. I do hope the price increases stop soon; this is dangerous.

What's especially interesting about this "housing bubble" talk, as noted before, is that prices are going up around the world. So, if we do have a global housing Bubble, what would be the likely global outcome?

The latest Economist numbers are:

Latest 2002 vs. mid-2001

Britain: 20.9%, 9.4%

Australia: 17.3, 8.2

Spain: 15.7, 15.5

Canada: 9.9, 4.9

Italy: 9.5, 8.9

France: 8.0, 8.1

U.S.A.: 7.0, 9.0

Netherlands: 6.4, 10.0

Belgium: 5.9, 5.7

Ireland: 5.2, 15.1

Sweden: 3.6, 8.4

Germany: 1.6, 1.6

Japan: -4.4, -4.1

Here's Stephen Roach's take:

Sept 13, 2002

Global: A Post-Bubble Chronology

Stephen Roach (from Paris)

Back on the road after the summer break, I find that investors are more interested than ever in what ails the global economy. Most of them have finally lost their patience -- promises of the proverbial recovery around the corner have rung hollow for all too long. Itís more one step forward and one step back -- the telltale footprints of a U-shaped world. The most frequently asked question: When, and under what conditions, will this tortuous road come to an end? The key, I answer, lies in the chronology of this post-bubble era. It goes something like this.

There are two basic building blocks to this chronology -- the first being that the world economy remains very much on a US-centric growth path. Since 1995, our estimates suggest that America has accounted for approximately 40% of the cumulative increase in world GDP -- roughly double the US share of global output (as measured by the IMFís purchasing power parity metrics). Sadly, there is no other growth engine in the world capable of driving the global economy. That means when America booms, so does the rest of the world. But it also means when the US economy swoons, the rest of the world canít be too far behind. Thatís certainly evident here in Europe, where any semblance of economic recovery now seems to be disappearing into thin air. Eurolandís 2Q02 GDP report said it all -- a 0.1 percentage point contribution from domestic demand (not annualized). Little wonder why this summerís double dip scare in America has had such a devastating impact on Europe, Japan, and other parts of Asia. Lacking in autonomous domestic demand, a US-led slowdown in global trade has quickly brought the world economy to its knees.

Like the ones before it, this shortfall will undoubtedly pass. But most likely, it wonít pass for long. Thatís because the modern-day US economy -- the worldís growth engine -- is now sputtering as never before. Enter the second building block to this chronology -- Americaís post-bubble business cycle. The basic message is that post-bubble shakeouts donít end quickly. To me itís like peeling away the layers of an onion. Nasdaq was the first layer to go, followed by IT and then telecom. But there are still more layers to come off this onion. They include the dollar bubble, the property bubble, and the biggest bubble of them all -- the American consumer. In the end, there was far more to the excesses of the 1990s than just an asset bubble. As I see it, the financial-market mania went on for long enough and high enough to have infected the real side of the US economy, as well as its balance- sheet underpinnings. Until those excesses are purged, I believe that thereís a good deal more to come in the chronology of Americaís post- bubble adjustments.

Thereís one key aspect of the above that does represent a change in my thinking -- that America is now in the midst of a property bubble. I havenít come to that conclusion lightly. Two piece of evidence have pushed me over the edge: First, the sleuths at The Economist report that inflation-adjusted US house prices have "risen more in real terms since 1997 than in any previous five year period since 1945." Second, thereís an excellent study by Dean Baker of the Center for Economic and Policy Research (CEPR) that comes up with a perfectly reasonable way of assessing whether this surge in house prices qualifies as a bubble, or not. The CEPR test hinges on the relationship between housing rents -- the intrinsic returns on the asset -- and market- clearing home prices. Baker finds that inflation-adjusted house prices have risen by about 30% since 1995 -- literally three times the cumulative 10% rise in the real rental index over that same period. In fact, this gap between house-price and rental inflation has never been wider in the post-1975 history of these data. If thatís not a bubble, I donít know what is.

The consumer bubble will undoubtedly be the last to go. But here as well, the fundamentals scream for adjustment. Saving-short and overly-indebted, the aging America population is coming to that point in the life-cycle when it must begin to come to grips with the looming reality of retirement. Yet it must now do so in an era of defined contribution pension plans whose performance has been battered by this wrenching bear market in equities. We all know that Americans are addicted to shopping. We also know that the fundamentals are screaming for an increased preference for income-based saving and a concomitant decline in spending propensities. So what might cause this last bubble to pop? Itís hard to say -- predicting bubble-puncturing shocks is not my thing. Thatís not to say several possibilities donít come to mind -- namely, a spike in oil prices, a surge of white-collar layoffs, or a deflation of the property bubble. Any one of those developments, in my opinion, could send a wake-up call to the overly- extended American consumer. Logical as all this may sound, I am mindful that bubble-popping can just as easily be triggered by a series of little things rather than by a big event. Whatever the trigger, I have little doubt of the end game for the consumer bubble.

Yet just as it was when Nasdaq was lurching toward 5000 in early 2000, the overwhelming majority of observers remains in denial over the possibility of another bubble. This bubble-denial syndrome is perfectly understandable. After all, asset-driven domestic demand has long been a part of the Great American Boom. Thatís what the equity wealth effect was all about in the late 1990s and thatís what the property wealth effect has been about in more recent years. Yet this extraction of "extra" purchasing power from ever-rising asset values is hardly a costless endeavor. It leads to a reduction in income-based saving rates and ever-higher debt loads -- the telltale signs that any asset bubble has infected the real economy. Sadly, few want to admit that this strategy is flawed if it draws the crux of the recent boom into question. I guess thereís just too much at stake. As we should have learned a scant two and a half years ago, asset bubbles have an uncanny way of staying inflated for a lot longer than we think. But that doesnít mean there isnít a bubble. I was early in doubting the New Economy hype that was used to justify the Nasdaq bubble. Maybe Iím early in sounding the alarm over the property bubble as well. But in this critical instance, I think it pays to be early rather than late.

And so the world economy is likely to remain in the doldrums for some time to come. Not only is this the unfortunate legacy of Americaís asset bubble but it also reflects the persistence of a US-centric global growth dynamic. I see only two ways out from this vicious circle -- a purging of Americaís post-bubble excesses or the emergence of a new engine of global growth. Until I am convinced that either one of these two saviors is on the scene, I see little reason to alter this dour prognosis.

Post  41905  by  maldinero       OT: AT Ė Thanks. Wish you could stay longer. Ėeom

Post  41906  by  clo       Reply
Oh artsuh taraz!

How appropriate for you to take a chair at Table at this time!
If only for a cup of kindness, it does my heart good to see your name again...

You are correct there is difficulty in coming up with little pearls in this market of swine's...

There have been many a retirement delayed, if not temporally permanently due to the greed of too many...

Now I think many are too stunned and filled with more fear than funds to invest...

Still Table offers the best that money can buy ;))

I'm happy to know you are doing what makes you feel fulfilled! That is a blessing...

Please stop by when time allows, you have been like an oak tree, very grounding yet able to withstand the wind in the storms...
I have missed you.

Warmest wishes, clo, Claudia

Post  41907  by  pmcw       Reply
Hi AT, your name came up in a post just the other day. Fond memories - your inputs are missed. How about your take on the macro-picture and what you see as the undetermined variables that could alter the course you to as most likely? Regards, pmcw

Post  41908  by  lkorrow       Reply
pace, they could use more of the Protestant work ethic, for sure. p. s. it has been compromised by the credit card.

Yes, September 11th has changed everything. The game has changed. It's all about oil? Not any longer. It's not a dance, an economic juggling act. We're in a transition. It's about survival now, that's a fundamental change. The WTC was the wakeup call, now we have West Nile and blackpox and nuclear threats from the most evil people on Earth. Those individuals and countries not recognizing that fundamental shift also don't understand, did not hear, that we entered into a World War on September 11, 2001. Imho, countries that do not support the cleansing of terrorism from their shores are themselves guilty and certainly are not worthy of the protections of the United States. They should be cast adrift to sink or swim. Yes, cut off the aid if there is any). We fight against terrorism, not to take over countries. The United States, Britian (but not all its subjects) and Russia seem to recognize this. How many others do? All the countries of the world should be contributing to this effort or there should be sanctions enacted and moves to cut off business with them. I am speaking of all nations. The good people of the world should all have the attitude, "I'm madder than he11 and I'm not going to take it anymore." If we don't we're as good as dead. jmho.

I'm sorry to hear about the loss of your friend in the WTC. I was lucky in that I didn't know anyone directly who died at the WTC. But we all knew all of them, they were us.

There's awesome WTC exhibits at the New York Historical Society at 77th and Central Park West. I saw some of the Twin Towers Remembered exhibit on TV. Beautiful.

Post  41909  by  lkorrow       Reply
Jeffbas, I would venture to say, but can't back it up, that most people against school vouchers are not liberals. I won't recant all my points that were already expressed, but you might see it differently (although those that consider it only as a socialist financial benefit will not) if you consider the national security issue presented by the Islam schools here and in the UK that teach evil acts and takeover plots today. School vouchers? A direct subsidy of terrorism and counter to our well being and national ideology of a melting pot. jmho.

Post  41910  by  pmcw       Reply
sr, This seems to be consistent with my comments that it's a race between the end of the consumer and the beginning of cap/ex. I also agree that the consumer "bubble" as he calls it (I don't think it is an accurate description) can be at least pricked by raising interest rates, increasing oil prices and/or another wave of unemployment.

I think housing collapse could obviously change consumer sentiment, but see the two as better represented in a bubble chart where the consumer and the real estate are the two larger bubbles, overlapping to a degree, and interest, oil and employment lay over the top. In other words, there's considerable connection.

I feel there is little doubt that we'll have a oil price spurt within months. This is why I see it as perfectly rational for the strategic reserves to be replenished. How an increase in oil prices will roll through the other bubbles will depend on the length and height of the change. In the 1970's commute distance became a real estate issue, I expect we'll at least see that again.

Probably the two most fragile components of the consumer bubble are new car sales (automotive employs a ton of Americans directly and in related industries) and new housing (sales of new homes is at the foundation of durable goods and durable goods is what is holding up our GDP). New homes tend to also be on the edge of the commute fringe and therefore will be most susceptible to the impact of increased consumer costs. Of course, a slow up in new home sales will at least buffer the closer-in existing home market, but it will also drive a spike through the heart of durable goods.

However, as bleak as these point appear, there is still some sunshine. The liquidity bubble that so many like to bounce around doesn't exist - it's a fantasy. Corporate debt is actually shrinking so the bad debt gas is actually working it's way out of the system. Excluding auto's consumer credit is up only marginally and is very manageable from a debt service to disposable income ratio.

Probably the brightest star on the horizon is the record low inventory to sales ratio. It set a ten year record low earlier this year and is within an eyelash of that record last month. This means that any uptick in the broad economy will ripple through the entire industrial supply chain all the way to raw material.

In other words, there is enough to make an argument that we will move to either side of the fine line we walk, but clearly not enough to say we will absolutely move to one or the other. Roach's look is realistic in what it covers, but I feel when the rest of the story is added the position we currently occupy is a bit more balanced.

The race is most certainly on and the informed can easily see the key is moving infrastructure spending forward (cap/ex). This will increase employment which will improve consumer sentiment which will lead to increased non-durable goods spending and will soften the blows felt when interest rates are raised gently to more typical levels and any temporary impact we feel from increased fuel costs.

Regards, pmcw

Post  41911  by  jeffbas       Reply
sr, I am suspicious of his logic about the dichotomy of price and rent increases for two reasons:

-There is rent control in places like NY (and elsewhere I am sure) which prevents matching rises in rents.

-Rent is a function of what was paid when the property was bought, related financing costs, and subsequent rises in operating costs such as RE taxes and heat, or DECREASES in costs as in refinancing of property mortgages. It is not driven, except opportunistically, by current increases in property prices.

So to say we have a housing bubble because rents have not risen as fast as prices seems to me to be a very questionable argument. (Relating it to past gaps as in, "this gap between house-price and rental inflation has never been wider", seems to have somewhat more merit.)

You know my previously-stated view that what ought to be looked at is the trend in monthly payments for houses, not the price itself. I think in this context that is especially important - to compare the monthly payment for buying a house against the monthly payment for the rental alternative. That, for sure, is what a potential home buyer does. I will bet that the big gap he talks about largely disappears.

Post  41912  by  lkorrow       Reply
Jeff, just a fyi on rent stabilization in NYC. Gov. Pataki is against it, so now when apartments turn over, they are off rent stabilization. Two BR apartments more than double overnight from $1K-$1,500 to $3K-$3500/mo. And when rent stabilized apartments reach $2,000/month, they're off stabilization and anything goes.

Post  41913  by  lkorrow       Reply
From Roger Bentley Arnold . .

FRANKFURT, Germany, Sept. 4 (UPI) -- One of Germany's top economists is warning the country's leading bankers that Europe, and the rest of the world, are in dire danger of following Japan into a deflationary depression -- far more serious and prolonged than a conventional recession.

"The people running the world's central banks and those responsible for economic policy should take the signs much more seriously," argues Norbert Walter, chief economist for Deutsche Bank, Germany's largest, in a paper made available exclusively to United Press International.

Speaking in his Frankfurt office as the New York and European markets followed the plunge of the Tokyo stock market Tuesday, Walter warned, "If we don't get this right, we face a second leg of recession, a double-dip, combining with deflation."

The world last experienced deflation on a serious scale during the Great Depression of the 1930s. It is a condition when prices start falling, investors stop investing and companies and individuals still committed to paying off old loans go bankrupt because lower prices and lower wages give them no money to repay.

Full story:

Post  41914  by  lkorrow       OT: Well someone's getting with the program!

Post  41915  by  tinljhtkh       Reply

"1) Romancing history is fun and makes for interesting prose. However, it doesn't necessarily make for an accurate representation of reality."

If this has been a romance, I'm not sure just what we should compare it too! I was going to mention Romeo and Juliet but both of the lovers died at the end and I would hope that there might be more hope here than that! If we use Romeo and Juliet, however, I think that its updated version, West Side Story with its classic lines:

"Everything free in America, For a small fee in America."

might be a better comparison!

As far as these comments go: "When you made this comment you were referencing the ethics lacking in the 1990's. I find it ironic that our country was embroiled in exactly the same debate about the 1890's a century ago. The debate then was "were they captains of industry or robber barons?" As was the case during the last decade, they were both. There will always be good and bad, those that succumb to the elixir of power and those who don't. As the Bible teaches us, we are weak and susceptible to sin. That will never change."

I have only this to say:

We put in place many safeguards since what occurred over a century ago took place and we had a much better educated populous back then! In the last century we have seen what the rise and decline of "those that succumb to the elixir of power" can do to "those who don't!" And we have seen, as never before, what the abdication "of the elixir of power" by those who don't want to be associated with it can lead to!

If all that you say is true, then we can only look forward to the death of another Titanic in 2012, and another great world war around 2014! I won't carry the timeline beyond that 2014 date because we have new players on the scene that were not available in 1914-- weapons of mass destruction so terrible that to contemplate their use takes us to a time beyond history and the very death of sane contemplation itself!

"2) Romancing the days of Ma Bell totally ignores the reality of her sorted history. You do realize what she did to competition when her first patents expired don't you? If not, you might want to re-read my post from last fall on the history of T. She's not always been a lady."

Many have their rowdy days of youth! T, over the last few years, however, has been a model corporate citizen in her conservative accounting practices and the values that she has given to her employees and her customers. It would be nice if some of her offspring had faired so well!

"The 1984 decision that led to breaking up the family has done wonders for our economy and was executed with near perfection."

Has it now? It helped lead to Worldcom! It helped to lead to that 1.3 trillion of debt that you mention in this part of your post:

"The evolution of the Internet coupled with cheap money and unrealistic dreams from this flawed legislation lead to roughly $1.3T of debt - much of it invested poorly."

I wonder which came first, the cheap money or the unrealistic dreams that might have resulted from its availability? The Internet was already evolving before T was broken up, and if you believe some history, T's research arm actually invented the whole thing!

"If you want to romanticize this do it from the perspective of an aging parent who had their retirement in T stock for the last 40 years and now can't afford to live on their own."

The part about the retirement in T stock is the real tragedy of this whole romance! Do yourself a favor and run the number of spins that came from a single share of T stock in the last 40 years and take a look at what it was once all worth! A better analogy might be to say "from the perspective of an ungrateful and unruly child who was given an inheritance in T stock and now can't afford to live on their own."

I didn't reply to this to do anything other than to offer a different perspective and provoke some different thought! I hope that you will accept it in the manner in which it was offered. I will close by returning to West Side Story one last time as I discuss those fees once again!

We have found out in this last year how high the fees can really be and now we must decide where the "somewhere" really is:

"We'll find a new way of living. We'll find a way of forgiving. Somewhere!"

We can either find a new way of living, and of forgiving, or we will surely end up "somewhere." We cannot afford to keep repeating the sins of the past; our inheritance is rapidly running out! And, as you say: "As the Bible teaches us, we are weak and susceptible to sin." It also teaches us that "the wages of sin is death!"




PS--Just so that this doesn't become unbearably dreary, and to remind everybody that a sense of humor will carry you a long way, I present this quote by Paula Poundstone: "The wages of sin are death, but by the time taxes are taken out, it's just sort of a tired feeling." I suppose that is just another manifestation of the ďlaugher curve.Ē ;-)

Post  41916  by  jeffbas       Reply
Ahhh, but how fast do they turn over. Twenty years ago we gave up an apartment in Queens on which we were paying $200+ per month - to my wife's aunt, who we put on the lease before we left (except that she changed her mind and did not take it). They ARE handed down in families routinely though. My best friend lives near Lincoln Center paying about $700 per month for a 2 bedroom apartment he has lived in for 30 years or so.

As far as vouchers go, the strongest opponents by far, and an important factor in Democratic Party politics, are the teachers' unions. They are so liberal they never poll their members on their political views before spending part of union dues on political activities, supporting liberal causes and Democrats. It is all about jobs and power, and not one bit about what is good for inner city kids. I know, as my wife is an inner city high school teacher union member (in favor of vouchers).

Post  41917  by  tinljhtkh       Reply

I don't suppose that we ever spoke and I probably do not fit your investment mold, however, I do offer this advice from an unknown, at least to me, 20th century investor:

"Buy low and sell high--and have the wisdom to know the difference!"



Post  41918  by  pmcw       Reply
tin, Freedom is never free!

As always, you write a nice story, but your historic perspectives of telecom are not accurate. Please take the time to read the following post carefully. And, this time, please don't just look for concepts you can turn nit-pick into an argument.

The deregulation of LD had absolutely nothing to do with the $1.3T in telecom debt generated between 1996 and 2000. That was strictly due to the Telecom Act of 1996 - the greatest deregulation failure in the history of America. It, as much as anything else, led to WCOME taking over MCI as well. Prior to WCOME and the excesses of the late 1990's, MCI was a healthy company.

We'll pick up the rest later, but if you have any questions about definition, please refer to Webster and not a medical dictionary (efficient implies effective, etc.). ;o)
Regards, pmcw

Post  41919  by  lkorrow       Reply
Jeff, Boy do I envy that $700/month and the location! My rent has tripled in 21 years. The dynamics might be different in Stuyvesant Town, there's probably more turnover here as older people pass on. There are still people here from the '40's when MetLife built it to house the troops coming back from WW II. Their children are often firmly established elsewhere. It's very difficult to sublet too. There are 14,000 apartments. . . .

The teachers unions, I guess that stands to reason. You have a birds eye view, it will be interestng to see if your wife thinks Bloomberg makes any progress in the schools. The union's probably against that too, because it represents change and a threat to tenure. Interesting that the City teachers are unionized, the unions don't seem to have been able to get their teachers decent wages. . . .

Post  41920  by  ttalknet2       Reply
Perils of the debt-propelled economy
By Henry C K Liu
Chairman of the New York-based Liu Investment Group

TT -- It's a pretty long piece and well written in spite of a few typos. Covers a LOT of ground. I had to stop reading a couple times to digest. But I'm sure the thinkers on this board can find some nuggets. The article starts a little slow, but improved immensely as I read more. Here's a sampling:

OTC derivatives are traded off exchanges, directly between counterparties, and as such are not subject to disclosure rules. Adding estimated data from the Bank for International Settlements for OTC derivatives to published figures for exchange-traded derivatives, the total notional principal balance of the reported derivatives market in June 2001 was $119 trillion, about four times the gross domestic product (GDP) of the Organization of Economic Cooperation and Development (OECD) countries and twice the value of global trade. The amount unreported remains unknown.

This shows that derivatives performed more than a hedge function, as apologists claim. Derivative trading has become a profit center for banks and non-bank financial institutions. True, the notional principal amount is never at risk, because no principal payments are exchanged. The interest payments that are linked to that notional principal amount are at risk. A loss on a derivative contract becomes possible when (a) interest rates or commodity prices move in a direction that makes the contract more or less valuable, and (b) the counterparty on the other side of the contract defaults. Derivatives credit exposure is the present value of the cost of restoring the economic value of a contract should a counterparty default.

All kinds of street rumors are flying at this very moment that one of the world's biggest banks (cough cough: JPM?) is exposed to derivative trades that would cause serious counterparty credit problems if the market capitalization of this bank should fall below a triggering level, or the price of commodities or interest rates should move against its derivative positions. Because there is no way to dispel or confirm such rumors, and the bank involved remains tight-lipped about its true financial conditions, the uncertainties weigh down on the economy.

Post  41921  by  lkorrow       Reply
Tin, that last part's the tough part, don't ya know!

Noticed your/pmcw's conversation on telecom, esp. possible acquisitions of T and WCOME. I wonder what's going on there, the last I heard Powell was begging the LECs to buy WCOM and getting no takers. Perhaps they might buy on emergence from chp 11. T seemingly is making good progress on teir debt by spinning off broadband and associated debt and getting back into local voice service, since wholesale rates were reduced. Powell also said some combos would be n/g since they'd be anticompetitive (T and VZ coe to mind). The thought occurred to me that the LECs would be buying their biggest local service competitor!

Post  41922  by  uponroof       Reply
McDonough-judge and jury of societal values...

criticizes CEO compensation, calling for pay cuts on the basis "love thy neighbor as thyself".


The FED is becomming the fourth branch of the gummint through popular public opinion. Problem is they are unelected or appointed through proper political protocol.

Their politics are based on 'sugar daddy' distributions of money...period.

Mr. McDonough as much as I agree with you in principal wrt CEO compensation, lets leave the correcting up to what's left (very little thanks to you) of the 'FREE' market...

in other words...please SHUT UP!

btw-this is the guy who is being groomed for Greenspan's job.

Post  41923  by  pricegriz       OT: AT

Post  41924  by  uponroof       Reply
More evidence Asian CB are increasing gold reserves...

"...Central banks around the world hold about 33,000 tons in gold reserves, but Asian central banks only own a fraction of this total. Typically and traditionally, Asian central banks hold between 1 percent and 4 percent of their total reserves in gold, as a ratio. This compared with a 7 percent to 12 percent ratio in the Middle East, a 35 percent to 45 percent ratio among European central banks and 58 percent for the U.S. Federal Reserve...


"We have seen 4 or 5 central banks which are now committed to writing a policy on gold, though I'm not at liberty to tell you who they are. But I have been assisting them," he said.

Thiedeman indicated that one central bank, appreciating that U.S. interest rates are at a 40-year low, is looking to reallocate its assets, reducing its exposure to U.S. Treasuries and increase its holding in gold..."

Post  41925  by  spirare       Reply
September 13, 2002, Spot gold in New York settled lower at $316.50 an ounce, down $2.20 an
ounce from yesterday?s close.
The price of gold held fairly steady until fund and
bank selling at the end the trading session.
The price of gold started off strongly
rising to $321.40 an ounce on the December contract on the weak U.S. equity
markets and dollar. However, the U.S. Dollar rallied to help push gold to its daily
low at the end of the trading session.
Frank Holmes, chief executive of US Global
Investors, said investors buying gold as a safe haven in the event of a war were
helping to support the short-term price.
Investors were also betting on the
potential cost of a war, which would lead to a long-term deficit in spending and
put pressure on currencies. Gold leapt higher after Desert Storm in 1991, which
was an $800bn operation. "Iraq is the wild card.
It could be an expensive war,"
he said, adding that gold could reach $370 an ounce this year.

London gold was fixed this afternoon at $318.80 an ounce, up slightly from
$318.50 an ounce at the morning fixing.
The price of gold remained firm even
after U.S. President George W. Bush ordered the United Nations to force
Baghdad to disarm, failing which, action would be inevitable.
Though the
President would rather be part of a wider coalition to enforce weapons
inspections in Iraq, he did suggest that the United States would still be willing to
go it alone if necessary. "It was a very middle-of-the-road speech but while the
threat of war remains in place, people aren't going to be keen to get rid of gold,"
one broker said.
The price of gold should hold up through the weekend as the
markets digest the war talk and Federal Reserve Chairman Alan Greenspan?s
comments about the weak U.S. economy according to London Traders.

Earlier spot gold rose 30 cents in Hong Kong to close at $318.55. Spot gold was
steady Friday in Asia, holding up well despite a less aggressive than expected
speech by U.S. President George Bush to the U.N., traders said.
"I'm surprised it
held up, considering Bush's speech was reasonably tempered," said Martin
Mayne, a bullion trader with NM Rothschild & Sons (Australia) Ltd.
"Nobody wants to do anything, with Japan closed on Monday.
Most banks and speculators
are long or happy to stay long," said Mayne.
Part of the reason for gold's
steadiness is the negative employment and trade data from the U.S., said Jonathan
Barratt, director of foreign exchange and commodities at Tricom Resources in
"It's more to do with the negative economic sentiment in the U.S. rather
than Bush's comments," he said.
"We have just seen position squaring today...not
many clients have any interest in opening new positions," said Leon Lee, trader at
the Bank of China Hong Kong.
"We have only seen about a US$1.00 range in
Bush's speech at the United Nations served to encourage investors to shift
funds into safe-haven gold, it also reassured financial markets that war in the Gulf
was not imminent.
Bush said he would work with the United Nations on a new
resolution forcing Iraq to disarm before taking any action to overthrow the Iraqi
"For the time being, war looks to be on hold while the United States tries
to work with the U.N., and that's trimmed gold's war premium," a trader said.

Economic data was mixed today.
Retail sales rose 0.8%, however, much of that
increase is due to zero percent financing at the retail level.
The Labor Department
said its producer price index, a closely watched gauge of inflation at the wholesale
level, was flat in August, undershooting analyst expectations for a 0.2 percent rise.
That compared to a 0.2 percent decline in July.
The core rate, which excludes
volatile food and energy prices, fell 0.1 percent, confounding analyst forecasts for
a 0.1 percent climb.
The core was down 0.3 percent the previous month.
Inflationary in critical commodities and deflationary in non-critical items.
Any comfort that investors were looking for in the economic data

Post  41926  by  lkorrow       Reply

Do you view the Telecom Act as being a bad thing as far as local and long distance competition goes or the whole ballgame? I see the voice and wholesale rate issue today that's causing mickey mouse telcos to pop out of the woodwork and do resale rather than inspire facilities-based competition. That seems to be a Telecom Act objective.

I wonder how much of today's telco debt was aquisition related (T paying outrageous prices for catv comes to mind, $100B I think it was, and wireless business was a cap. ex. sinkhole that cost $13B with umpteen tens of billions in upgrades, a massive negative ROI since 1986) versus capital spending and loss of business due to competition (like the LD resellers). The telcos were selling services like crazy during the bubble, they couldn't provision T3s fast enough during the dotcom boom. And they spent like crazy building out their SONET and DWDM fiber systems and ATM and IP networks at te same time. One wonders if they saw an ROI on those investments, it's possible the traditional telcos did.

There sure was a frenzy from easy VC money to build new companies with unrealistic business models. The market couldn't sustain all that competition. The VC people were clueless. It had to contract when the good times ended.

Poor managers with sky's the limit mentalities and poor timing took their toll as well . . .

Post  41927  by  lkorrow       Reply
roof, wonder when they're going to start spending, POG down today! Or maybe Japanese buying and NEM dehedging are keeping the price up? It never did have the projected summer slump. . . .

Post  41928  by  ferociousD       OT: Russia's Interest in Iraq Is Not Saddam