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April 2004

April 30, 2004

Playboy Magazine January 1980
Classic Magazine Series
posted by Rick Gagliano

January 1980

Price Range: $2.00 - $21.99

Average: $7.67

PLAYMATE: Gig Gangel

Amy Miller & Michelle Drake w/Steve Martin

PICTORIALS: Playboy Pajama Parties at Mansion West; Playmate Review features Missy Cleveland, Candy Loving, Dorothy Stratton, Dorothy Mays, Candace Collins, Denise McConnell and six more; 9-page pictorial on NFL Cheerleaders.

INTERVIEW: Steve Martin

FEATURES: The Playboy Zoetrope, which is a cut-out that you tape together, put on a record turntable and get action sequences of Little Annie Fanny, A female flasher, the Femlin Dancing, and Steve Martin expanding; a page of previously unpublished photos of Marilyn Monroe; nice two-page subscription ad featuring Candy Loving; Fiction: "My Uncle Oswald", by Roald Dahl and an excerpt from "Smiley's People" by John Le Carre; Behind the scenes look at the making of the first Star Trek movie; futurist Alvin Toffler looks ahead (into the 80s) while Richard Rhodes gives us 80 ways the 80s will change our lives; Little Annie Fanny explores Texas football.

PAGES: 334

Source: Collectible Magazine Online Price Guide

April 29, 2004

Don't Be Fooled By Big Money Manipulators
86 points in 17 minutes is normal?
posted by Rick Gagliano

11:50 AM ET

I've written about the manipulation of the futures and the Dow in previous articles but today's activity was so glaring and obvious I just had to make a record of it - for prosperity, if nothing else.

Prior to the opening of the markets, the futures were all negative, even up to a few minutes before the trading opened at 9:30 ET. However, when the trading began, all three major indices were higher.

What happened? Had there been some earth-shaking good news to propel stocks higher? Were the futures wrong? Or, as is most likely the case, there was heavy futures buying at precisely one or two minutes prior to the open. That is the only plausible argument and it makes perfect sense if you have some faith in conspiracies and the potential for market manipulation.

To make matters worse, what happened at roughly 9:55 ET was even more shocking. The indices had given up the ghost and were all trading in the red. Suddenly, like a twister appearing on the horizon, everything was whipped higher, with the Dow leading the charge. When it was over, about 17 minutes later, the Dow had moved from a low of 10,320.32 to a high of 10,406.62. Yes, the DJIA recorded both its low and high of the day in a span of 17 minutes! The NASDAQ and S & P recorded similar moves.

Is this unusual? Is it normal? I will allow that that individual stocks can move in mysterious patterns and jump unexpectedly in any direction on news, rumor, innuendo and hype, but eventually what moves the stock is ALWAYS trading. So, riddle me this: what makes the entire massive, overreaching, behemoth US stock market move in such a radical fashion in such a short time span?

If an earthquake rocked San Francisco, the markets would probably drop like rocks. If there was another serious terrorist attack, the markets would no doubt respond quickly to the downside. When Greenspan and the Fed make interest rate moves the markets generally respond in a rash manner, so too with other economic reports, one way or the other.

But today, there was NOTHING. Not a single reason for the sudden spurt between 9:55 and 10:12. Even the financial writers were caught with their pants down. A quick check of the major sites at 10:15 read roughly, "Stocks trending lower…"

There are three or four possible answers to today's riddle. 1. Some of the major investment houses on Wall Street got together and triggered trades to catapult the majority of heavily traded stocks higher. 2. Massive program trades were triggered by computers. 3. Somebody, purportedly the Plunge Protection Team (PPT) managed by some shadowy inter-governmental group, bid up all the futures. 4. The New York Fed pumped billions of dollars into circulation ($13.5 billion today) and the brokerages went binge-buying.

I'll admit that I don't know exactly how the NY Fed pumps money into markets, but I've read that it happens pretty swiftly and efficiently. Where it goes is actually a pretty murky business, but most of it goes to financial institutions, I suppose, like banks, brokerages, Fannie Mae, Freddie Mac, et. al.. How it gets there and what they do with it is anybody's guess. The truth of the matter is that it is credit issuance and they do it regularly. You can see what they're doing on their site, at Temporary Open Market Operations.

Program trading is a possibility, but what is the significance of 10,320 on the Dow, 1122 on the S& P, or 1975 on the NASDAQ? Really, nothing. The indices are trading in a normal range.

That leaves the investment houses and the PPT, or both, together. I can actually buy into the conspiracy argument that there are people, big money people, possibly evil people, who have a vested interest in keeping the economy looking good, the stock market up, etc. It isn't hard to imagine who these people are, and judging by the regularity in which these massive run-ups occur, it isn't hard to imagine somebody doing it. Bidding up the futures is a relatively inexpensive proposition, especially if you have billions to spend or loaned to you and probably no intent of paying the loans back or recouping your losses if your bets are wrong (which has been the case, over and over and over again).

Whatever the case, I see the markets settling back down now, with the NASDAQ in the red already and the Dow up only 8 points. Maybe I'm overreacting. Maybe I have just a little too lucid an imagination. But if I see black helicopters outside my window or this web site suddenly goes dark, you'll know I was right. And I'm right a lot more often than I'm wrong.

My point is to not be influenced by daily moves or intra-day activity in the markets. Let me worry about the micro elements. Pick a strategy and stick with it. And don't tell anybody what it is. Especially don't go broadcasting it on the internet. I have all the competition I need already.

Until we meet again.

April 28, 2004

The Right Stocks at the Right Time
Market Timing at it's Best
posted by Rick Gagliano

11:15 AM EST

On Monday, I reemphasized my market call that stocks were in a holding pattern for April, and that savvy investors should be prepared - with plenty of cash in hand - to reap some mighty profits. In my studies of the markets and individual stocks, I have seen good situations and bad, but none that has set up as well as the coming downtown for US equities, and I'll spell out my reasons below.

First and foremost, all three major indices have peaked and failed to return to those peaks. The DOW, NASDAQ and S&P 500 are all in a holding pattern below highs reached in February or March. We're now about to close out April and despite rock-solid earnings from companies (90% of all companies reporting for the 1st quarter either met or exceeded expectations) and the markets are stuck in a trading range. This was expected, as geopolitical and non-economic events stole the thunder from facile, positive market news.

Second, with earnings season winding down, there is nothing left to offset any bad economic or general news. This is classic risk-reward. Without solid data, traders have to rely on emotion and the emotions over past few months - which should continue over the next few months - have been skittish at best. There is a proverbial wall of worry out there over jobs, Iraq, terrorism, outsourcing, general government malaise, the elections, and most importantly, interest rates - which brings us to our next point.

#3: Alan Greenspan is either going to raise rates or not and either decision is bad for the market. The Fed is now wielding its own double-edged sword - one which it created with the over-accommodative 1% Federal funds rate - and it is about to slit the markets' throat with it.

Here's the logic: If the Fed raises rates, it will be telegraphing its thinking that the economy is strong and growing and that brakes need to be applied now to fend off inflation. The kicker is job creation. There simply is not enough evidence of solid job creation in the American economy to call our "recovery" robust. If the Fed then says that there's no inflation (an outright lie) and that the recovery is not solid (the truth - it was built on rising equity values and consumer spending, not profits) and that rates should stay at 1%, that message would be equally damaging. The Fed has its hand in the wringer and there's no easy way to extract it without damaging the momentum of the stock market.

Fourth on our hit parade of reasons to go short at the earliest opportunity is the notion that stocks are overvalued. Taken by any valuation measure you wish to use, they are. Price-earnings ratios are at nosebleed levels, indices and individual stocks are soaring over their 200-day moving averages, credit has been goosed to the upper limit and margin is - according to some reports - at or above levels last seen just prior to the 2000 NASDAQ debacle. The Dow kicked three losers out of its index, replacing them with three supposedly more representative winners and the average has gone precisely nowhere ever since, proving that even manipulation of the indices is not working to give stocks a much-needed boost.

#5: Comparisons to last year's earnings may not be as easy. Many companies had solid 2nd, 3rd and 4th quarter results in 2003, which means that beating those numbers will not be quite as easy this time around. Without the excess stimulation from tax cuts and easy borrowing, the economy may stall out big time over the next 9-12 months, and with profits not so easy to come by, 2nd quarter, and especially 3rd quarter earnings reports may not look so rosy.

#6: The bursting of the bubble has not come full circle. The dotcom implosion of 2000 evaporated a lot of capital, but most of it was confined to the NASDAQ, which is still 60% off its 2000 highs. The S & P 500, on the other hand is only off about 25% and the Dow a measly 10%. While the NASDAQ has been pretty much wiped out, there's still more downside, though many, especially in the tech sector, are not going to decline much. The serious damage that was done to the general economy, which includes NYSE and S & P stocks exclusive of the NASDAQ, has not been fully worked out. Congress recently gave some rather large firms a free pass on their underfunded pension liabilities and after the debacles of Enron, Worldcom, et. al., there has been very little regulatory action taken to force companies to clarify and rectify earnings statements. Though not as wickedly as during the boom years, there are still plenty of companies playing games with their books, including Pro Forma reports, one-time charges (lots of those) and off-the-books accounting schemes designed to boost profits. And despite the generosity in the government's reduction in capital gains taxes, dividends being paid by most companies amount to nothing more than a pittance.

Of particular interest here is the S & P which has failed to reach and poke through the resistance at its post-9/11 peak, back on March 19 of 1170.29. On March 5 of this year the S & P closed at a 23-month high of 1156.86. For all the talk of a new bull market, this one vital fact proves that we are still in the throes of a LONG TERM PRIMARY TREND BEAR MARKET, and will be until the indices recover and surpass their post-9/11 highs, all made in early 2002.

While the S & P index tried and failed, both the Dow and the NASDAQ did actually exceed their post-9/11 highs, but both failed to maintain upward momentum. Here are, therefore, the key numbers to watch:

Dow: March 19, 2002 - 10635.00
Dow: February 11, 2004 - 10737.70

NASDAQ: January 4, 2002 - 2059.38
NASDAQ: January 26, 2004 - 2153.83

So, resistance and double tops are set at Dow 10635-10737; NASDAQ 2059-2153; S & P 1156-1170. We are now well below those ranges on all three indices. Penetration and significant channeling through them would positively signal another bullish move, trashing all of my postulates. However, the evidence being what it is, look for declines of anywhere from 15-30% on all indices over the next 9-12 months. This correction is long overdue and should be well worth the wait.

There are many, many more factors that could be called into this argument, such as globalization, the November presidential elections, Iraq, the commodities boom, the housing boom, the credit boom (enough booms already), which could and probably will all go bust at some time. The overall picture for stocks over the next 9-12 months is decidedly not great.

I would recommend buying puts on any stocks that look weak on the following criteria: no forward momentum, earnings from 2003 that may be tough to replicate, general sideways trading pattern from February through April. I would avoid the tech sector for the most part, though the biotechs and telco stocks may be quite vulnerable. Many of the biotechs in particular have strong earnings growth and may not be dampened much in an all out decline. Same with other tech high fliers. Telco and communications stocks may be hit hard, but the cyclical stocks, consumer, retail, health care, financial and recreation/hospitality sectors will probably take the biggest hits.

Good luck. As I end this, I see the markets have gotten a jump on the old adage, which goes something like, "October through April, come to play; May through September, stay away."

April 27, 2004

Fast Ferry, Finally!
Big Ship Arrives at Port of Rochester
posted by Rick Gagliano

The long-awaited arrival of the Fast Ferry, the Spirit of Ontario, came to be today as the mega-cruiser docked at the Port of Rochester in Charlotte.

The ferry arrived in Rochester just after 9:00 am, after a long, arduous journey from Australia, which included a minor accident and lengthy layover for repairs in New York City.

After squeezing through the locks of the St. Lawrence Seaway, the ship sailed across the waters it will now regularly traverse - Lake Ontario. A crowd of earger onlookers cheered and watched in awe as the giant ship, one of the largest ever to be seen in Rochester waters, made it's way partway up the Genesee River to a safe first docking.

The initial voyage of the Fast Ferry - officially sold out - won't be for another two to three weeks. The US Coast Guard must perform mandatory safety inspections and the skippers, crew and related workers must undergo training.

Once the Ferry departs on that initial voyage, it will continue to cross Lake Ontario on a regular daily schedule between Rochester and Toronto, Canada - twice a day to begin, and three dialy round trips after May 28.

Source: C.A.T.S. Fast Ferrry

Upcoming Rochester Red Wings Promotions
Career Day, Thursday, April 29
posted by Rick Gagliano

Wednesday, April 28 - 6:35 pm vs. Buffalo
Democrat and Chronicle Wings Wednesday ... M&T Community Night, A local community is recognized at each community night, discount vouchers will be available at the Gates, Greece, and Latta Rd. Offices ... Excellus BlueCross BlueShield Pre-Game Autograph Booth.

Thursday, April 29 - 11:05 am vs. Buffalo
Career Day, area high school students are invited to the ballpark to visit with area colleges and job recruiters including Roberts Wesleyan, Bryant & Stratton, Rochester Business Institute, Wegmans, Gleason Works, and many more ... Additional Parking Available - One block from the ballpark, at the corner of Oak and Brown Streets for $5 ... Kemps/Red Wings Express - Free transportation to and from the ballpark for this special afternoon game. The Express will start at the Genesee Crossroads Garage and work its way east around the City of Rochester, making stops at the East End Garage (corner of Main St. and Chestnut St.), Midtown Garage (Broad St. behind Midtown Plaza - Gate 2), and the South Ave. Garage (corner of Broad St. and South Ave.) before making its way to Frontier Field. The Red Wings Express will have three buses en route, making stops at each location approximately every five minutes. The buses will run continually from 10:00 a.m. to the end of the game, taking fans back to their garages ... Excellus BlueCross BlueShield Pre-Game Autograph Booth.

Source: Red Wings Basball

April 26, 2004

Ladies and Gentlemen, Get Ready to Make Some Money
Daily Drift for Monday, April 26, 2004
posted by Rick Gagliano

9:55 AM EST

In my continuing quest to capture the market trends, I have to slap myself on the back for the call I made near the end of March - for the markets to trade sideways until the end of April.

Looking back, we see the Dow closed at 10381.70 on March 30. At the close Friday, April 23, it was 10472.84. Similar non-movement was seen in the NASDAQ (2000.63 - 2049.77) and the S & P (1126.21 - 1140.60).

While all three indices are slightly higher, the moves are marginal, especially considering the wealth of exceptional earnings reports that have already been released. The ongoing struggle in Iraq and the hints of higher interest rates and the very obvious signs of inflation in the US economy have contributed to the less-than-stellar performance in stocks over the past 20 trading days.

The street will be gnawing on earnings reports from some big names this week, including Boeing, McDonald's, Gillette, Verizon, Exxon Mobil, Chevron Texaco, Raytheon and Lockheed Martin, Electronic Data Systems, Chubb and Entergy among the biggest.

While the impact of these releases will be positive for the most part, volume has been indicating the potential for a pullback, especially in mid-April when volume was downright anemic. Despite all the good earnings news, the markets seem ready to sell off on any hint of bad news, making for some very jittery moments and the overall resultant sideways movement.

Being that we are a now less than two weeks away from the end of the earnings season, we have to be ready to pounce on opportunity as it presents itself. Once again, our overall bias is to the downside, merely on valuation, i.e., stocks are overpriced.

Adding to the worries are concerns about the price of oil and the legitimacy of the US incursion in Iraq and the overall war on terror. While terrorism events seem to have had little reaction in stocks, the persistency in the high price of crude is leading to higher prices not only at the gasoline pumps but also in nearly every sector of the economy in which oil or its byproducts are employed.

As for the Iraqi situation, there seems to be little for the US to do except hang in and wait it out. The violence will continue until we pull out or use overwhelming force to absolutely shut down the insurgents. June 30, the date given for the handing over of authority to some kind of Iraqi-led government, will probably come and go without much change. We're stuck in the desert for now and more forces will be sent, almost for certain.

The only noticeable trend for April has been the dual-edged trade of dollars and gold. The former has strengthened while the latter has fallen. In particular, gold has retreated from a high of $428 per ounce to trade below $400 in the past week. Silver, it's thriftier brother, got pumped above $8 briefly on short covering and has too retreated - to just a shade over $6/oz. This looks like a buying opportunity in the precious metals, but I believe more downside is coming and recommend buying gold at no more than $380 and silver at $5.60. Keep a close eye as all of the markets - bullion, stocks, oil, commodities - could take a hit as the dollar gains ground. The dollar rally is for real, and it is just getting started. Even though we think little of it long term, the short-term rise in greenbacks could be quite remarkable.

April 22, 2004

Poems for the weary, no alms for the poor
Daily Drift for Thursday, April 22, 2004
posted by Rick Gagliano

8:35 AM EST

Don't tell me

Don't tell me
You've been around
On the ground
You get down.

Don't tell me
You know the way,
The time of day

Don't tell me
This crap man,
Until you've walked through a shooting gallery
The only white man
Unscathed, and unafraid,

When you've stolen the keys
Out of the back seat of a Corvette,
Walked through the ghetto alone
And come out the other side six days later -
Talk to me then.

Because I've seen the wars, the whores
The sores,
The scars,
The fears, the reality and the tears.

Where've you been
In you your white shirt,
Pimp suit
Blue hat, brown nose?

You ain't seen nothing,
Been nowhere
Done anything,
So, don't tell me.


I'm Back

This morning three poems popped into my head.
One escaped.

It's been fifteen years or so,
Since I last put the keys to rhyme and verse,

What's worse, I'm older now, no,
Wiser now, or maybe simply angrier.

But I'm back, and full of vigor
Liquor, vice and twice I've tried,

And failed. But I'm on my feet again,
And singing in my head. Not dead,
I sing a song of what I've seen,
Where I've been -

A bleak, black hole of desperation,
Perspiration, exasperation,
Inspiration, desolation

Somehow I escaped.


April 19, 2004

Likely Outcomes for the Middle East and the USA
Daily Drift for Monday, April 19, 2004
posted by Rick Gagliano

1:45 PM EST

Apologies are in order for taking ten days off without notice. Then again, I don't think too many people would begrudge me a little down time. In any case, it's Monday, I'm back and ready to plunge ahead.

In Iraq, we're backtracking severely. Not only are we fighting in Najaf and Falujah, but on the border with Syria and elsewhere. All roads in and out of Baghdad are closed to pedestrian traffic. Is this any way to foment democracy?

I have to pat myself on the back for having illuminating and novel concepts, which are being parodied by major writers, notably Patrick Buchanan and the Daily Reckoning web site, both of whom parrot my thinking from two weeks ago that the Iraqis may not even want a democratic form of government. I have such a flair for the obvious, I suppose anybody else could have thought of the same thing, except, of course, Condolezza Rice, George (slam dunk) Tenet, George Bush and that guy hiding in some undisclosed location… oh, yeah, Dick Cheney.

Speaking of Mr. Cheney, reading between the line in Bob Woodward's newest exposé of the Bush administration, it seems that Cheney all along was the progenitor of the Iraqi expedition. George Bush may not be all the man he thinks he is, but with Cheney at his side - as he will be at the closed-session 9/11 hearings - he's twice the guy. Too bad Cheney is the VP. He reminds one of a caricature of some 40's horror flick mad doctor - scheming, plotting to wipe out his enemies, hiding from public scrutiny. In a few short months, hopefully, he will be gone completely. Maybe they'll hire him back over at Haliburton.

While I am confident that Mr. Cheney is the absolute root cause for the war effort in Iraq, his other motivations are unclear and therein lies the danger of this man. Will he propose even more draconian measures for the "safety" of our nation? What will he do to ensure a Bush-Cheney victory in November. Shades of Watergate, dirty tricks, sleazeball politics and heavy-handed rhetoric come immediately to mind. He really MUST go.

Not that Mr. Kerry will be much better, but at least the American public can believe him more than half of the time. Besides wanting to be president for the obvious ego-boosting experience of it all, I think John Kerry is basically a good guy and has the best interests of the nation at heart. Whether he can deliver on his promises if elected is just about a 1-100 proposition, but better to have him in there plugging away than the Bush-Cheney horde who manage to routinely run secretly whatever their political agenda may be.

November will be an interesting time, as will the few months after the conventions. This one looks to be too close to call, though I have an idea that the American public will get a little tired of GWB and his hollow-sounding bravado by then.

There's also a very good chance that the stock market will commence into a singularly sweet summer swoon and the economy will pick up enough steam to get Mr. Greenspan off his duff for a while to raise the interest rate switch a notch or two. Greenie had better move quickly or he's going to miss the inflation boat. On the flip side, there is the promise from the Saudis to lower oil prices in time for the election, if Woodward's teling is true, but can we trust them? On the flop side, there's a very good chance that Iraq will still be quite unsettled. Our policy-makers have bungled this one all the way so far, so eruptions of violence in Iraq and elsewhere in the world - designed to upset our electoral process and dethrone George Bush - are pretty much a forgone conclusion.

Therefore, without further ado (I think the preceding paragraphs were enough ado already), here's what my crystal ball tells me about Iraq and the US in the 7 or 8 months ahead:

Iraq will be a quagmire, US troops will still be stationed there, and probably more of them will be there than are there now. Whatever kind of patchwork government the US installs there on June 30 will satisfy just about nobody and the whole thing will collapse within a year. While Bush focuses on getting himself re-elected, the country of Iraq will demand his attention and take much of the punch out of any speeches he may give. More of our kids will die over there for what amounts to practically no gain for the United States. It will become more and more apparent that we have no business being there.

John Kerry will surge in the polls mostly on the weakness of the Bush administration and will win handily in November. (Dick Cheney will be dragged kicking and screaming from his undisclosed location). Once in office, Kerry will attend to the unenviable task of extricating the US from the mess it created in Iraq. Kerry will call for a gradual reduction in troop strength, but in the final reality of it all, the last troops leaving Iraq will look oddly similar to the departure from Saigon thirty years ago.

Kerry will also implement some of his ideas for fighting terrorism with an intelligence and police posture, rather than a military force. The CIA will get back to doing what it does best - black ops - clandestine operations like following people around, running misinformation and killing bad guys. In three years or so, the war on terrorism will have been won, Iraq will still be a mess - but not OUR mess, and the world will be a safer place without Osama bin Laden and Dick Cheney at the top of the food chain.

Of course there are a few predicates to consider, notably, that the Bushies don't pull off the ultimate dirty trick, which is so unthinkable that I cannot even mention it here, and that the Palestinian-Israeli conflict continues without interruption. There will always be some form of terrorist threat, mostly islamic, but after a few years it should diminish greatly. If all of this comes to pass as I predict, I will be more amazed than even you readers, because, as we all know, nobody can predict the future.

That said, have a happy day,

Fearless Rick

April 07, 2004

Three Days of Pain? Markets Look to Erase Recent Gains
Daily Drift for Wednesday, April 7, 2004
posted by Rick Gagliano

11:00 AM EDT

As the NASDAQ failed yesterday to follow up on Monday's dramatic late-day gains, we are seeing a set-up for a significant decline over the very short term - perhaps only three days worth.

Obviously, today's troubling reports from Iraq, coupled with downbeat economic news - higher import prices (here comes the inflation that the Fed continues to purport does not exist) and a slowdown in mortgage applications and equity loans - are fueling today's broad decline. The damage being done today should easily spill over into the rest of the week as investors focus on news rather than earnings, which are only a trickle right now.

This very short-term decline is likely to be broad and powerful, slamming the NASDAQ back under the 2000 level and the Dow down to the 10,250 - 10,325 area before it is done on Friday. Assuming that earnings season gets into full swing next week, along with options expiry, this quick downdraft was predictable after two weeks of generally rising equity prices.

Expect the markets to resume their sideways pattern but eventually test recent lows. Stocks are still richly valued and news may begin to drive prices, shunting the effect of what should be a solid earnings quarter. The wild cards of Iraq and terrorism still send shudders through the trading pits, as the war fronts seem to be expanding exponentially in Iraq, though thankfully, outside that country, terrorism seems to have taken a bit of a respite.

Any new developments within these areas could send stocks either soaring or slumping, but the overall trend is still sideways at best.

The indices have attempted a rally of an interim low and has failed. The next meaningful bout of movement in the markets is still a three weeks to a month away, as earnings need to be fully digested before the next market event. We are, however, committed to a worsening market, and are advising mostly short positions and option puts. Any profits made off the recent rise should be taken today, as seems the case with many. Today's declines are beginning to look a little nasty and there will be follow-through tomorrow and Friday further to the downside.

At 10:57 AM EDT
Dow 10,478.66 Down 92.15 (0.87%)
Nasdaq 2,040.16 Down 19.74 (0.96%)
S&P 500 1,141.87 Down 6.29 (0.55%)

April 05, 2004

The No Win Democracy in Iraq - Or, "What were we thinking?"
Daily Drift for Monday, April 5, 2004
posted by Rick Gagliano

9:55 AM EST

The recent gruesome killings of 4 American contractors in the city of Falluja last week and the uprising by the followers of Moktada al-Sadr, the radical Shiite cleric who has consistently called for his followers to resist the American imposition of a new ruling government, should come as no surprise to anyone who understands a little history.

History will tell you that: a. Invading armies (in this case the US) are usually met with resistance; b. the more the invading army tries to impose its will, the harder the resistance fights against it, and; c. imposition of a new government by an invading force usually does not work.

What we have in Iraq is a contradiction in terms. The US government wanted the world to believe first, that Iraq was in possession of weapons of mass destruction and that their leader, Saddam Hussein, was ready and willing to use them against the US and/or its allies. Secondly, after no WMDs were found and the invasion was nearly complete (remember George Bush's "Mission Accomplished" speech aboard the aircraft carrier?) the administration wanted the world to believe that ours was a just cause and our army one of "liberation."

There's actually some truth the this second premise, since we did destroy the power structure of Saddam Hussein and eventually capture him. The part about liberation is a little hard to swallow, as our troops met the textbook definition of invasion. There are many, but this one is succinct: A warlike or hostile entrance into the possessions or domains of another; the incursion of an army for conquest or plunder.

(As for the argument that the effort in Iraq is somehow connected to the war on terror, consider that terrorists, as we know them, are not tied to nations or sovereign states. What we have done in Iraq - and in Afghanistan - is attack a sovereign state in the name of fighting terrorism. In Afghanistan it may have been justified because the ruling power, the Taliban, openly supported terrorism and served as a safe haven and training ground for terrorists. No such argument could be made for Iraq, thus, the argument is specious.)

We weren't there to liberate anyone or anything, except maybe some of Iraq's oil. So, there we are, and we are occupying Iraq, but there are problems everywhere and they seem to be getting worse. All along our "liberators" have kept to the notion that we would hand over control to the Iraqis come June 30, and they would establish a democracy.

Now, handing the country back to those to whom we just conquered is a little odd, and diametrically opposed to what most invading armies do. Take the Nazis, for instance. They were invaders of the first order and made no bones about it. Poland, Czechoslovakia, Belgium, etc. - they just marched right in with no pretense other than, "we're here to take over." Anybody who opposed them was killed or imprisoned and the Nazis made no pronouncements about the establishment of ANY kind of government. They basically took over and did whatever they pleased.

That's what ordinary invading armies do, and they do it at their own peril, as generally this kind of activity is frowned upon by other nations and the people who are being invaded. And history tells us that invading armies usually fail in the long run and are eventually ousted by either other nations or the very people they overran, and usually by a combination of the two. The Nazis overran most of Europe and were eventually beaten back and destroyed.

This is the fate to which the US military must now be resigned. It happened to us in Vietnam and is about to happen to us again in Iraq.

Because the invasion of Iraq was such a complete and total sham and an absurdity from the very start, George Bush and his administration will have to continue putting on their best brave faces and massaging the media with all this talk of "exporting democracy" and other stupid nonsense.

The basic concept of democracy in the Arab world is somewhat of an abstraction and it is not proven that those people even want a government whose principles are founded in the entirely Western tradition. The people of Iraq are more accustomed to kingdoms, fiefdoms, sheikdoms, and kings, sheiks and monarchs. The basic concepts of democracy are also at odds with the dominant religion of the region, Islam.

I don't claim to be an expert on Islam, but I would wager that the majority of Islamic men would be opposed to giving women the same rights as they enjoy, especially voting rights. Even in the United States, through our history, certain kinds of people were denied rights, especially voting rights. It would be folly to assume that Iraqis would evolve from a feudal system to a complete 21st Century democracy overnight.

Originally, in the US, according to the constitution as accepted in 1776, voting rights were limited to white male property owners. Suffrage was the prerogative of the states. It wasn't for many years that blacks, women and other minorities were given full voting rights in all states. For an excellent timeline of US suffrage rights, see this exceptional resource on the Women of the West web site.

It is easy to see why we would like everyone in the world to have the same rights and government as ours. We are, after all, the freest, most dominant nation in the world, no? Some may well argue that point, but it should be equally easy to understand that not everyone shares the love of nation and democracy and capitalism we do. In fact, many are opposed to the very same ideas we hold near and dear.

This is a concept lost on the neo-cons, ideologues and the administration who started this war and now find themselves mired in a clash of religion, culture and ideology. To make matters worse, the people in charge of overseeing the transition of power to the Iraqis - the coalition - have done some things that are basically quite un-democratic, not the least of which was shutting down the weekly newspaper, al Hauza, which published Moktada al-Sadr's virulent anti-American articles and was seen by the coalition as a threat to its mission.

If that isn't a twist of noteworthy twist of irony, then nothing is. The coalition, dedicated to installing democracy in Iraq, denies freedom of the press. How very un-democratic, indeed! It is just this kind of twofaced hypocrisy that the Iraqis find most unsettling. They neither trust the US military nor the coalition, nor the ruling council, and the majority will not sit by quietly and allow a new constitution, elections and the resultant government to take control. There's going to be bloodshed, tumult, terror and horror, and the US military is going to be stuck right in the middle of it for a lot longer then the American people were originally led to believe, unless we begin to make plans immediately to abandon our mission (whatever that was) and to get out now.

Instead, we see our top administrator, Paul Bremer, increasingly looking and sounding like a fascist dictator, calling al-Sadr an "outlaw" and threateningly mouthing what are the famous four words of desperate dictators and fascists, "this will not stand." He's now said it twice in the past week - first, in reference to the atrocities in Falluja and yesterday in response to the Shiite uprising in Baghdad, Basra and elsewhere. I'm quite sure similar expressions, like "we will not stand for this," or "this must cease" will come out of the mouths of Bremer, Bush, Cheney, Rumsfeld, Powell, et. al. These kinds of expressions are especially pronounced when one is losing control, like a mother telling unruly kids, "wait until your father gets home." It's an admission that control has been lost and that retaliation will be coming, just you wait and see.

Bremer, the Iraqi governing council and the US-led military have lost whatever control they thought they had in Iraq. The consequences are obvious - a continuing cycle of violence, uprisings, quelling, more violence, etc. Iraqis die, our soldiers die, and eventually, support for our effort over there - of Americans, our allies and the Iraqis themselves - dies as well.

There's really no need for us to be there, never was in the first place, and we face now what is essentially a no-win situation. Iraq had been held in check with sanctions and no-fly zones for more than a decade before our rush to judgment and invasion. Saddam Hussein was a threat only to his own people and it was none of our business to intervene militarily.

We should have known this from the very start. It's what happens when you invade other nations.

Answer to Friday's Quiz: Descartes.

April 02, 2004

Employment highest in 4 years - Retail, Construction Jobs Zoom
Daily Drift 4/2/04 now with a quiz!
posted by Rick Gagliano

10:35 AM EST

The April Fool's joke came a day late for the Bear camp. The government's monthly data for March employment came in at a robust 308,000 new jobs. While much of the job creation was in construction (71,000) and retail (47,000), the overall picture was much brighter than analysts expected - on the magnitude of 3x higher. It begs the question, what are these experts smoking that routinely puts them so far off track?

In any case, the employment data has temporarily lifted the cloud of gloom that has hung over Wall Street like a London fog and the indices are zipping higher on the news. Just ten minutes into the trading day, the Dow is higher by over 115 points and the NASDAQ up nearly 40. The Bulls are back in charge for today at least.

What happens next is anybody's guess, but some of the same experts who undershot today's giddy gains in employment are now looking ahead to what the FOMC will do at upcoming meetings - a slight rise in the federal funds rate is expected if the nation's employment picture continues to improve.

As the Labor Department also revised January and February data upwards, the pressure on the Fed to raise rates grows, though nearly everyone agrees that one solid month does not make or even imply a trend. The Fed is certainly privy to advance data (how accurate nobody can be certain), so if the jobs picture is indeed showing continuing strength, the Fed may act as early as their next meeting on May 4. The timing of the FOMC meetings puts Greenspan and his board of Fed governors in a bit of a quandary, though. The May meeting will occur prior to the next Labor Department monthly employment report, and the June meeting, set for the 29th/30th, will be after two more employment reports.

Being that the Fed is generally an overcautious bunch, it is doubtful that they would make a move to raise rates in May as they simply would not have enough timely information. The June date, however, may be too late if the economy is really gathering momentum. June also will mark the one-year anniversary of the Fed's last rate move, when they dropped the federal funds rate to the current 1%.

One thing is for sure, the Fed;s loose and easy credit policy cannot last forever. Sooner or later they will have to raise rates, and, as is usually the case, they will be behind the curve instead of in front of it. With inflationary signals popping up all over the place and now the potential for a solid round of hiring a distinct possibility, it might be wise for the Fed to act sooner than later. My bet is that they wait until at least June to get rates off the floor, though, as historically the Fed ends up doing too little too late. A quarter of a point move in May might be just the tonic needed to keep inflation in check without derailing the slow-forming recovery.

Furthermore, the Fed will have to increase rates in a series of moves, as they usually do. Once rates start going higher, they continue until the economy reaches a perceived balanced state of growth without inflation. This has always been the objective of the Fed, and there's little reason to think that they have wavered far from this. The overarching feature of the future Federal Reserve policy has to be a reigning in of credit while not disrupting the dual engines of capital formation and the resultant economic prosperity - in essence, a "soft landing."

Whether or not the Fed can accomplish this delicate balancing act is an open question, though with history as our guide, we can safely assume that they will do too little, too late. Presidential election politics also plays a key role in any Fed decision this year, and rising rates will almost certainly be seen as a negative for George Bush, though he can readily claim - and potentially be right - that any rise in interest rates is the result of an improving economy.

I'll go out on a bit of a limb here and predict the near future for the Fed. They will not act in May, in June they will send a message, via their press release, that they are considering raising rates, and on August 10 they will actually do the deed. The rationale is that employment data will probably not look quite as strong as seen this month, and may stall in June, but CPI and PPI will look ominously inflationary and eventually force the Fed's hand.

Of course, as I have stated previously, whatever the Fed does will be late and insufficient to stave off a serious bout inflation. With energy prices at record highs, food prices will surely follow the trend, and the wild cards of potential increased tariffs and the ongoing wars in Iraq and elsewhere will play a significant role.

Even as I write, the efficiency of the markets are already at work, discounting possible rate increases and halving the gains already made today at 10:25 AM. The world turns, the markets churn. See you back here on Monday.


As promised, a couple of features are being reintroduced today, those being the daily quiz and quote. For now, I'll combine the two to keep things interesting over the weekend with this:

Who said, "It is not enough to have a good mind. The main thing is to use it well."


Answer to yesterday's quiz: Quickdraw McGraw.

At 10:33 AM EST
Dow 10,436.74 Up 63.41 (0.61%)
Nasdaq 2,037.74 Up 22.73 (1.13%)
S&P 500 1,139.82 Up 7.65 (0.68%)

April 01, 2004

Fools Rush Out - Addition by Subtraction
Daily Drift for 4/1/04
posted by Rick Gagliano

5:55 PM EST

It's not that I purposely waited until after the market closed to insert my fabulous opinion into the world of journals and literati, I was busy - doing almost nothing.

It's a pleasant pastime. One can learn quite a bit by standing occasionally on the sidelines and watching the rest of the world writhe and wriggle its way through the day. Of course, one becomes stiff after a while and that's not such a good thing. So, before rigor mortis began to set in, I decided that I best get the digits loosened up with a good dose of scribal calisthenics, so much to entertain the masses… and myself.

The big news on the financial front today was the outsourcing of three components from the Dow Jones Industrial Average (DJIA), they being Eastman Kodak (EK), International Paper (IP) and AT&T (T), the old Ma Bell, that last one.

It struck me as unusual that the old phone company got the boot. After all, it wasn't but a quarter century ago that our ever-watchful Justice Department decided that Ma was getting a little large and split her up into, I believe, 5 regional operating companies (RBOCs). AT&T was downsized via government fiat and out of it came local monopolies instead of a single big nationwide one, a slew of overlapping regulations, bureaucrats, taxes, levies and surcharges, and of course, competition which eventually spawned MCI Worldcom, which ended in the largest fraud ever perpetrated upon the investing public.

Of course, AT&T was brought under the anti-trust microscope during the Reagan Administration, and the punishment meted out by the redoubtable William French Smith. Ah, I remember him well. Not really.

So, thank you once again to the federal government for fixing what wasn't broken. And now the company lies fairly in ruins. An investment in AT&T in 1980, sold today, would have yielded a nasty loss of roughly 90%. Of course, AT&T actually stood higher in 1999 than in 1980, so the biggest loss came in the market debacle of 2000 and beyond. The loss from there is more like 95%. In a few years, they will be sold and forgotten probably, another remnant from a time long ago when the United States was a prosperous, growing, safe place.

Times change. Businesses need to adjust. It's just that the biggest and best seldom need help from the government to do so.

Which brings us to the other two poor dogs of the Dow, Kodak and IP. I believe we should just start calling International Paper "IP" as a way of signifying its notable insignificance in the overall scheme of things. It also sounds like something a dying gerbil might say. So IP it is and IP it shall ever be. Not knowing a great deal about IP, I won't venture much as to its fate - now sealed - except to say that it cuts down trees and makes paper. That seems like such a brutish business, and so antiquated as well. Years from now people will ask our grandchildren, "what the hell is paper?" Already it has grown out of fashion, largely replaced by electronic bits and bytes which take up no space and don't kill any trees in the process. So, bye-bye, IP. You've seen better days.

I've saved the best for last, for that perfect "Kodak Moment" for which we've all been so patiently waiting. But first, I have to remind everyone that Kodak's CEO was named the Photo Imaging Manufacturers & Distributors Association (PMDA) "Person of the Year" for 2003.

Don't believe me? Here's proof. Shows what they know.

Yes, sir, that Carp, he's one heluva guy. In just the last year, he's been at the helm as Kodak cut it's dividend 70%, announced worldwide layoffs of 20% of its workforce and driven the stock from over 32 to… um, 25. And now the company is being booted off the most prestigious index in the world. What will this guy do for an encore?

Simply put, Daniel Carp is the product of the old-school hierarchy system which promotes worthless garbage like him to positions of authority based solely on longevity and corporate-culture politics. The man is a tool, a moron, a nitwit. And for all he's done he gets a fat salary (over $7 million last year), a cozy office, generous stock options and the requisite golden parachute.

Honestly, a golden shower would be more appropriate. Drawing and quartering is illegal in the US, so I suppose that's out of the equation as well.

This "leader," "person of the year," blah, blah, blah, who has been President of Kodak since 1997 and CEO since 2000, completely missed the obvious migration of picture-taking from film to digital. The entire existence of the company is tied up in picture-taking. Now, a full seven years later, Kodak is snapping up small digital photography and related companies faster than they can snap their collective shutters. Unfortunately for workers and shareholders, it's too late. The company is virtually profitless and without a future. Currently trading at $25, it is masquerading. The company is worth no more than $10 a share. ValueLine gives its intrinsic value price target at $17. Pensioners and former employees may die broke, but Daniel Carp will retire a rich man. That's justice. Yeah, sure.

By the way, the three amigos will be booted from the Dow officially on April 8, a week from today. They will be replaced by American International Group (AIG), Pfizer (PFE), and Verizon Communications (VZ). Someone mentioned earlier today that getting the three under-performing stocks out of the Dow and replacing them with three more solid companies will improve the performance of the Dow. Most certainly it will, and it will also skew perception. We're supposed to be in a recovery after all, aren't we?

Tomorrow, I will be reintroducing some features to the Daily Drift, like a pop quiz and some other gimmicks to keep you and I entertained. For a teaser, try this: Who was, according to promos, the "high-falutinest, fastest-shootinest cowboy you ever saw?"

Answer tomorrow. Stay tuned.

At the close:
Dow 10,371.70 Up 14.00 (0.14%)
Nasdaq 2,010.41 Up 16.19 (0.81%)
S&P 500 1,133.93 Up 7.72 (0.69%)


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