Getting The Story Straight

The Daily Reckoning Presents: a public service effort to sort out “who’s on first” in the battle to win the hearts and minds of the people…

“How do I respond when I see that in some Islamic countries there is vitriolic hatred for America? I’ll tell you how I respond: I’m amazed. I just can’t believe it, because I know how good we are.”

George W. Bush,
last week in a quote now rapidly finding its way around the Internet…

No question, the assault on the World Trade Center was an abomination – a human “evil” – as President Bush is fond of repeating. But after the dust has settled, the issues that made little sense before September 11th, have resurfaced – and continue to confound. And so support for the war, reports The Economist, is waning.

In Britain polls show those in favor falling from three quarters to two thirds. What’s more, four out of ten British Muslims think the Al Queda’s attacks were justified. Some have trekked out to the Kush to join hands – or run away – with the Taliban.

In France support has dropped to less than half… in Germany and Italy a majority want the war to end.

That support is waning among former allies – and is gaining with at least one former enemy, Russia, is to say the least, ironic.

Irony, the meddling staff at the Daily Reckoning has oft noted, is a near dead art form. In fact, soon after the attacks, Roger Rosenblatt declared to the world via an article in Time magazine that “The Age of Irony” had come to an end. Irony doesn’t fit neatly into a sound bite… or satiate the desire for revenge against an enemy unseen.

The Age of Irony, we think, is more likely “in denial”. The US public – facing a deepening recession and an uncertain war – simply doesn’t have the patience for it.

Yet, there’s so much irony in the news these days, we can’t possibly resist the temptation to sort it out. Eric Margolis, writing on Foreign, takes a crack at it, reminding us in “The Bad Guys Wear Turbans: A Quick Guide To Afghan Politics” that…

The Taliban are the “BAD Afghans. These dour 11th century rustics wear turbans, dont shave, and cover up their womenfolk. They have defied the US by refusing to hand over guest Osama bin Laden, a national hero of the war against the Soviets. Nations that defy Uncle Sam get carpet bombed.

“These wicked Talibs run a state based on Islamic law, an outrage in our modern age except, of course, in the case of Israel, whose people say they were given their nation by GOD, and thats GOOD, except for troublemaking local inhabitants, called Palestinians, who are terrorists and BAD. George Bush says he draws instruction from the bible, and this is GOOD, but when Talibans Mullah Omar follows the Koran, thats EVIL.

Oh… and “the Northern Alliance are GOOD Afghans, even though they run the opium trade and are led by war criminals. They make nice parades and vow to crush the Taliban – provided the US does most of the fighting. Their arms come from Russia, their money from the CIA. You can easily spot them because they wear baggy Iranian uniforms and caps, not turbans. [One thing] They cover up their women, just like those insensitive Taliban brutes.”

Margolis also reminds us that Pakistan is GOOD… although on September 10th, they were BAD. Israel is also GOOD, and trying like the dickens to get “US ‘crusaders’ to go B-52 Iraq, Lebanon, Libya, Yemen, Syria and Iran.”

The US is GOOD, too…”minding its own business, totally innocent victim of evil Islamic-Nazi forces, according to the well-read Bush, a former business partner of the Bin Laden family.” Excepting, too, US “involvement” in Syria in 1949; Egypt in 1952; Iran in 1953 and 1980; Iraq in 1958, 1980, 1991, 1996; Lebanon in 1958, 1983; Libya in 1983, 1986; Kuwait & Saudi Arabia in 1991; The Sudan & Afghanistan in 1998…

Whew… tough work, this irony.

But perhaps the biggest twist of all… the ultimate benefactor in the story may turn out to be… uh, Russia – the original “enemy in Afghanistan” who stirred up the whole nest of hornets in the first place, with the Soviet Invasion in 1979.

Still, before we get to that part of the story we need to understand what exactly the US has been doing “over there” all this time.

“After 1945,” suggests Adam Young, attempting to explain U.S. interests in the region for the Mises Institute, “the U.S. schemed to eject the bankrupt British and French colonial empires in the Middle East-to elbow out Soviet influence, but, more likely, to secure political control over its oil…”

The interdependent network of political, monetary, and military relationships – known by some as America’s Oil Raj – mirrors Britain’s collection of territories and petty kingdoms on the Indian subcontinent. And suggests Young, “consists of the old imposed artificial colonial client states created by Britain and France.”

Margolis points out, “in nearly every decade since the mid-fifties, a president of the United States has faced a challenge of a Muslim peril, an Arab or Muslim bogeyman that is everywhere and nowhere-Nasser, Khomeni, Khadafy, Saddam… and, now, bin Laden.

“Every time, the results have been the same: U.S. demonizes this single man, only to watch him grow into a popular hero of the Arab masses-the Arabic or Islamic David that dares to stand up and confront the U.S. oil dominion over the Arab world and the economic and political distortion that the US leaves in its wake.”

And lest we forget, in order to keep a hold on the Oil Raj – the U.S. now maintains trade sanctions on Iran, Iraq, Syria, Yemen, Libya, Algeria, the Sudan, Afghanistan, and, until recently, India and Pakistan – some of the poorest places in the world.

Meanwhile, with US mucking about in countries bordering almost the entire length of former Soviet Union’s south border, “Russia is eating into OPEC’s dominance on the world oil stage,” says the DR Blue Team’s Dan Denning.

“In the second quarter of this year,” says Denning. “The countries of the former Soviet Union beat out Saudi Arabia for total oil production. As aging Russian infrastructure has been built up, Russian production has gone up 400,000 barrels per day, or 6%. And the country expects production to increase again this year.”

What’s more, Russia sits on the world’s largest reserve of natural gas. Putin will be visiting Bush next week at his Crawford, Texas ranch, after which you might expect to see a flush of new Western investment in Russia.

“It could almost be the old times,” writes the Economist. “America’s president meets his Russian counterpart for a summit to discuss missile defenses, tallies nuclear warheads and the need to avoid unnerving instability between the world’s two biggest nuclear powers.” But this time the story has twisted to the surreal…

“Russia,” the Economist continues, could “soon find itself increasingly attractive as a non-OPEC supplier, and 20 years from now, as the European Union expands, could end up controlling the taps of well over half of Europe’s gas.”


Addison Wiggin,
London, England
November 14, 2001

The Daily Reckoning

Addison Wiggin is the managing editor of The Daily Reckoning. Mr. Wiggin is also the author of The Weekend Edition – a weekly wrap-up of contrarian investment analysis distributed by e-mail Saturdays.


The tabloid headline caught my eye as I got off the train from Paris yesterday. Today’s papers give more details. The Taliban is on the run. We don’t know about the war against terrorism, but the war against the government of Afghanistan seems to be going well. Kabul is still in the hands of murderous fanatics, but at least for the present, they are taking our money and doing our bidding.

Unlike WWI, Vietnam, the Soviets in Afghanistan, or the War on Drugs…this could be a war with a successful conclusion, if not exactly a happy ending.

Then again, while markets surprise investors, over and over, in the same old way….wars have a way of surprising people in ways no one be can anticipate. Here at the Daily Reckoning we have no more idea what course the war may take than anyone else….but we will rest easier when it is over.

Eric, how did Wall Street take the news?


Eric Fry in Manhattan…

– My, how our little rally has grown up! He’s gotten so big! The US stock market has enjoyed a very substantial “growth spurt” since September 21st. Nothing can stop it – not deranged, cave-dwelling terrorists; not potentially fatal first-class mail; and not punk corporate earnings. Despite it all, the Nasdaq has soared an astonishing 33% from its late September lows.

– Yesterday, the Dow rallied 197 points to 9,751 – a decisive 146 points above its September 10th close of 9,605. The Nasdaq surged nearly 3% to 1,892 and now stands more than 11% above its pre-Attack level.

– Like an upwardly mobile Yuppie, the market seems to gather more “friends” the higher it climbs. But Fred Hickey, editor out of The High Tech Strategist, is not one of them. He predicts the rally’s days are numbered.

– Underlying his prediction is a little something he calls the “no-news” cycle. “I suspect that the current rally is not quite over,” Hickey writes. “The market needs to suck in more victims for the next leg down. While investor confidence is rebuilding, it isn’t back to the levels seen at past market tops. The current ‘no news’ period is the perfect backdrop to drive optimism higher.

– “Each quarter (13 weeks) can be broken up into three distinct phases in which the news flow from companies dramatically differs,” Hickey explains. “The three phases are the ‘earnings reporting’ period (for most companies, the first week of October through late October), the ‘no news’ period (late October to mid- November) and the earnings of ‘pre-announcement period’ (mid-November through the end of the quarter).”

– We are currently in the “no news” period. This void of official company reports is usually a good time for Wall Street to stoke all sorts of bullish rumors and hopes.

– True to form, the bulls are running wild on Wall Street. Nearly every guest on CNBC yesterday dished up heaping portions of bull-speak. “Ya gotta love the way this market’s acting,” one forgettable analyst remarked. Yeah, we love it alright. We just wish we loved what we are seeing out in the real economy.

– To be sure, stocks can soar just as high as buyers wish to carry them. But that doesn’t mean that corporate sales and earnings automatically follow along. Gap shares climbed almost 5% yesterday. But Gap’s sales and earnings are heading south faster than the Taliban army. What do investors see?

– The beleaguered retailer reported that its October sales at stores open at least a year plunged 17% for the second month in a row. Overall revenues fell 9%. Share prices cannot ignore harsh realities forever, as much as we might like them too. Either the realities improve, or the share prices fall.

– Hickey expects the current rally to top out on or about Thursday when Dell Computer reports its latest earnings. Here’s his theory in a nutshell: Hopeful investors have been buying stocks like Dell for weeks because they believe that the tech sector has touched bottom. But as the “no news” period gives way to the “pre-announcement period,” investors will encounter more than enough bad news to trigger a wave of selling.

– “There’s really no polite way to say this without offending people who’ve bid up Gateway 30% in November alone,” writes Igor Greenwald of “So here goes: Tech valuations are silly and getting sillier.”

– Silliest of all is the tendency of some investors to chase after whatever stock or fund has already been doing well, rather than trying to identify the investment that WILL BE doing well.

– It is a time-honored truism on Wall Street that last year’s heroes are often next year’s goats. Consider the doleful tale of hot-shot mutual fund manager James D. McCall. About two years ago, Merrill Lynch wooed Mr. McCall away from Pilgrim Baxter. Merrill actually fought Pilgrm Baxter in court for the right to get this guy. (Talk about a Pyrrhic victory!)

– Merrill wasted no time raising $1 billion dollars for their new wunderkind to manage, and McCall wasted no time losing 80% of the money in his “Focus Twenty Fund.” So will McCall now focus on the 20% that remains? Nah…he quit. And he took a fat severance package with him.

– Too bad his investors can’t quit and take a plump severance package. Beware the bull market genius, my friend.


Back to London…

*** “Consumers Too Afraid to Spend,” worries a NY POST headline. The article, by John Crudele, warns that consumer confidence polls reflect what people think they should think….not what they really think. Consumer confidence – even by these measures – is dropping rapidly. According to a research outfit, G-7, if you strip away the rosy flesh of patriotic duty – that is, to voice optimism about the economy – you find a paler, more fearful cautious consumer.

*** “Deflation Not Likely To Happen,” says a headline on “S.F. Gate” website.

*** “Economists say U.S. should be able to avoid Japanese-style deflation,” the article tells us, “because U.S. leaders reacted to their slowing economy much more quickly than Japanese leaders did.”

*** Is that all there is to it? Is the whole secret to managing an economy merely to cut rate quickly? Tune in tomorrow as we pose the question again and attempt an answer.

*** Diners were in high spirits at the Gay Hussar, a Hungarian restaurant in North Soho last night. Britain is an active partner in the war in Afghanistan. At a table near ours, a group of real estate agents were confident.

“Prices in London have been going up since 1993,” they said. “But they’ll go up more. ”

“It’s the financial industry driving prices,” they explained. “London is one of three top financial centers in the world….along with N.Y. and Tokyo. But Japan is going downhill. And New York? Well, ask yourself….if you were a hot-shot international investment banker… where would you rather have your headquarters? Near what used to be the World Trade Center….or in the City [London’s financial district]?”

“Waiter,” said the middle-aged estate agent, gesturing towards our table and obviously enjoying himself, “bring these people all a round of omnium”

“Omnium” I asked. “What’s omnium?”

“Don’t tell them,” said a young woman, with reddish blond hair, thin lips, and a beautiful, Vanessa Redgrave face.

“Don’t smell it, just drink it straight down,” she advised us.

Ignoring her advice, I sniffed. It smelled like airplane glue. Fortunately, I like airplane glue. So, I shot it down.

“Whew, that was awful….”

“Yes, you have to chase it with wine to get the taste out of your mouth,” she explained.

“Thanks a lot…”