April

The Laurel Comment

“Logical consequences are the scarecrows of fools and the beacons of wise men.”
-Thomas Henry Huxley


Commentary

Although America has lost much of its military and economic influence during the Bush years it still remains the world’s most powerful nation in both regards; and because of this tragically incontrovertible fact, the coming November election is of greater importance to Canadians and other citizens of the world than are their own domestic political issues.

The month of March was supposed to signal the end of both primary campaigns but alas the Democrats rage on. During this latest period of silliness each of the three remaining candidates was confronted with an issue problem, two of which were directly related to what we now call “misspeak”.

It may not seem fair or even logical to define a candidate’s honesty, knowledge or intellectual depth on the basis of a “one off” comment or occurrence but what we do discover from these events is the meaning of the mistake and the capability of the candidate to respond meaningfully to the self created crisis.

In the case of Barack Obama, whom I incidentally support, the reaction to his pastor’s rather outlandish display was a measured and hopeful speech on the history and potential future of race relations in America. Oratory is one of Obama’s greatest strengths but more importantly for America it is not just the verbiage expounded by the man that gains purchase with his public but the tone of the subject matter and the hope it portends.

Hillary Clinton on the other hand misspoke about an event that never occurred, effectively creating a story that was intended to enhance her credentials as an experienced world diplomat. Worse still was the absurdity of repeating this easily fact checked fabrication on more than one occasion as part of an attack on Obama’s international capabilities. Not smart!

More egregious still was the thrice repeated gaffe by John McCain, the Republican candidate who prides himself as a military expert. McCain stated that Iran was training Al Qaeda terrorists and sending them to Iraq. It was not until he was corrected on a third occasion by one of his potential running mates, Joe Lieberman, also known in some circles as the Senator from Tel Aviv, that he revised his thinking.

John McCain, the military expert, has also adopted, as one of his main campaign themes, his belief that his Democrat opponents are weak on Iraq, that the surge is working and that America might maintain a troop commitment there for 10 more years or even 100. He also repeatedly states that a withdrawal will mean victory for Al Qaeda.

Let us grant the fact that Senator McCain is a great patriot and a war hero with terrific military genes who suffered sorely during his captivity by the Vietnamese. But let us also understand that anyone with a modicum of knowledge of Middle Eastern affairs is aware of a number of absolutes. The Shi’ite and the Sunni may be both Muslim but they are enemies in Iraq where the Shi’ite represent 60 percent of the population, the Sunni 35 percent and the Kurds 15 percent. Furthermore, Iran is 90% Shiite and Persian. The Al Qaeda movement is 100% Sunni and has no presence whatsoever in Iran. Worse still, McCain’s continued belief that America’s abandonment of Iraq will lead to an Al Qaeda victory belies all common sense as the majority Shi’ite would be busy vanquishing (a nice word), any remnants of Sunni power including Al Qaeda, in a post occupation Iraq.

This is a civil war being fought over oil and who owns it and this war will not end until one faction of the Shia is victorious.

McCain’s gaffe has deadly and costly overtones, Hillary’s was silly and self demeaning, Barack’s was countered with a positive spin, you judge.

Spending 5 years in a POW camps may make someone tough, the experience does not however make anyone a Clausewitz.

Markets

The last year has been a devastating one for many in America but for the most part Canadians and others have escaped the brunt of the housing collapse and the sub prime disaster. “Greed is good”, as Gordon Gekko said in the movie Wall Street, had become the creed of the financial engineers who created and sold fabricated products to many who should have known better. The fallout, which began last Spring among the knowledgeable, culminated recently in the collapse of Bear Stearns an 85 year old investment bank that had been worth billions only last year.

“How could this happen” many have wondered over the past few months “and when not if will another debacle reoccur?”

The answer to part one, at least in general terms is about regulation or the lack thereof; in more specific terms it may be about the Glass Steagall act which was created in 1933 to separate commercial and investment banking and replaced in November 1999 through the auspices of Republican Senator Phil Gramm, the encouragement of Alan Greenspan and the signature of Bill Clinton. The investment world that was then created may have been largely responsible for the mess that financial markets are now experiencing.

As many readers of this letter are aware our bearish position on markets that lasted throughout 2007 (save gold and oil) was repealed by our bullish stance adopted in mid-January when we stated that the lows had been made. The several tests of these lows over the past weeks have confirmed our belief in their validity. We have stated and continue to believe that financials lead markets both up and down, we now look forward to the former side of the equation.

Added to our recommendation to buy financial ETFs; XFN and HFU in Canada, XLF in the U.S. is a bullish scenario for technology. Semiconductors lead this area and there are many including Intel that will benefit. PMC Sierra and Micron are among the many.

Gold has taken a hit from the hedge funds but should settle in above 850 before it makes its next run to the upside. Inflation is a growing, not a declining factor.

Other themes continue to grow with infrastructure, agriculture and oil sands being predominant. The market should be profitable until next spring after which some new chickens may come home to roost.

Remarkably

The month of May should bring an end to the last hopes of Hillary Clinton after which the Democrats can get down to the serious business of trashing John McCain and the Republican greed machine.

The coming campaign will ostensibly be about two issues; the economy and Iraq, but in reality these two are interwoven and the Democrats must be adamant in their emphasis on this linkage.

Last month we mentioned the Stiglitz-Bilmes book entitled The Three Trillion Dollar War, a study that should become mandatory reading for every voting American.

Since its inception the war in Iraq has been an exercise in economic, moral and political suicide. The argument that America is obligated to see it through is both specious and stupid. It is the same argument that was used in Vietnam in years one through ten. In 1967 Alaskan Senator Ernest Gruening, who along with Wayne Morse of Oregon was one of two Senators who voted against the 1964 Golf of Tonkin resolution, answered a reporter’s question on how the United States could get out of Vietnam.

He responded simply by saying “in ships and in planes”. Tragically and fruitlessly that is exactly how they left 8 years and thousands of deaths later.

Barack Obama should propose a fix for Medicare, Social Security and the economy in general by proposing a massive infrastructure program. When asked how to fund it he may easily respond by saying that he will end the waste in Iraq and the tax cuts to the already wealthy. The side benefit will be a $30 per barrel drop in oil.

Geoff Ryan
March 5, 2008
GeoffreyRyan@hotmail.com
514-795-8450
http://thelaurelcomment.blogspot.com/