If there is one thing that truly infuriates me in the investment business it's the goofy gurus I call French Bears.The French, you see, are intellectual descendants of the 17th century philosopher René Descartes. Descartes taught his fellow Frenchmen that consciousness somehow creates reality. His most famous quote is cogito ergo sum -- I think, therefore I am. This of course is exactly backwards: it's because Descartes is what he is, a human being with a brain, that he can think at all. The French have been getting things backwards ever since, always putting theory above reality.

The root cause of the Arab-Israeli conflict is envy. The Jews created a civilization out of the wilderness and a garden out of the desert, while the Arabs continued to mire themselves in medieval tyranny and poverty.Read the following compendium of facts about Israel while imagining yourself to be Arab. Knowing that their two basic exports to the world are oil and suicide terrorists, reflecting upon the totality of the facts below by comparison has driven Arabs criminally insane with envy.

I do not have a crystal ball and cannot predict the future.  Yet there is now in place a full alignment of “the correlation of forces,” driving the US economy forward.  Thus I am going to predict that the DOW will be above 10,000 by October.  What’s more, it will stay above 10,000 throughout 2004. Did Y2K Cause the Recession?

There is an interesting theory claiming that Y2K helped precipitate the recession.  Remember that it began March 2000 when the Dow and Nasdaq peaked.  What happened was that in preparation for Y2K, corporate America compressed four years of IT budgets into one year.  Instead of spending $200 million on IT a year, Citibank for example spent over $800 million in 1999 alone.  Thus, for the next three years, 2000-2002, IT budgets remained a fraction of what they normally would have been.  Finally now, they are getting back up to speed — and so are tech stocks.  We all know the Nasdaq is up over 20%.  But have you been watching the Goldman Sachs Internet Fund lately?  It’s up almost 60% for the year (i.e., in the last five months). The Correlation of Forces

Al Qaeda on the run, victory in Iraq (albeit with a messy cleanup), low-low dollar, low-low interest rates, low-low inflation, front-loaded tax bill, looser credit rules (re secondary source collateral for business loans), high productivity, lower labor costs, solid consumer confidence and optimism, creative energy and ingenuity exploding — it’s all there, ready to roll, folks.  All 16 of the Lipper Stock-Fund Indexes are up for the year (except for gold), nine of them in double digits — and this economy is only emerging from slumber, just starting to build up a head of steam. Read My Lips

The bottom line is that there is No Way José that GW is going to make his Dad’s mistake.  The American economy is going to be Moving and Grooving for a year or more before November 2004.  There is as much chance that the Democrats can pull a repeat of 1992 as Al Sharpton has of being their nominee.  Rational Exuberance

Sure, a lot of things could go wrong.  Even weak and confused, Al Qaeda could still pull off a major hit (but not a series of them).  China could recover from the SARS crisis and continue to suck jobs out of the US, prolonging a “jobless recovery.”  All kinds of disasters are imaginable.  Yet right now the rational odds are for America’s economic revival.  I think you can bet on it.  Frankly, the one thing I’m queasy about is that I’m being too cautious.  Stay above 10,000 for 2004?  I won’t be shocked if the DOW is at an all-time high — that’s above 11,722.98 — by Election Day.

When was the last time you thought or worried about the price of aluminum?  How about copper?  Nickel?  Lead?  How about cattle, coffee, or cocoa?  Wheat?  Corn? All of this stuff is important in our daily lives and in world commerce.  But unless you are a commodities trader, their prices are not of much concern to you.  One principal reason they are not is that they are plain and simple commodities.  Their prices and markets are not politicized. Thus the single greatest impact of America's victory in Iraq will be the commoditization of oil and the end of its politicization. 

There is a group of human beings whom I find to be unintelligibly mysterious.  In fact, I believe them to be aliens who, while visiting earth occasionally, actually reside in a space ship floating in the interstellar ether.  I am referring, of course, to currency traders.

For the most part, other kinds of traders — guys who make it their profession to trade things like stocks or bonds or commodity futures — are normal people.  For the most part, currency traders are nuts.

There is simply no explanation for the euro rocketing up far above the dollar since the US victory in Iraq.  Yesterday (5/6/03) the euro closed above $1.14.  The aliens at UBS Warburg are predicting the euro will go to $1.20. 

One reason given is the money flows into European bond markets.  Irresistibly attractive, claim the aliens, are 10-year German government bonds at 4.07% and Italian government bonds at 4.27%, as compared to the paltry 3.82% for US Treasurys.

This is conclusive proof currency traders live in outer space, believing that 0.45 of 1% is too high a risk premium to pay for betting your life savings on the credit worthiness of the US rather than that of an Italian government.

Pricewaterhouse Coopers is now projecting that the best to be expected from the French and Italian economies this year will be at little over 1%, Germany’s under 1%.  2004 will be worse.  Euro-zone unemployment is now at 8.7% and heading towards 9.  Germany is at almost 11% unemployment.  The French Finance Ministry projects the government deficit will be 3.4% of GDP for 2003.  Germany will be higher.  This is far above the upper limit of 3% agreed upon for euro-zone membership.  The US’ “record deficit” that worries the aliens will be coming in at around 2.8% of the $10+ trillion US GDP.

 Donald Rumsfeld’s quip about “Old Europe” is pinpoint apt not just politically but economically.  The major economies of continental Western Europe, particularly France and Germany are aged, inflexible, unresilient.  The American economy is the opposite on all three counts.

There is no possible rational reason for betting that euro-based economies will outperform the US over the foreseeable future.  Yet the currency traders in rocketing up the euro over the dollar are making precisely that bet.  For whatever reason, currency traders are indulging in a spasm of collective insanity similar to the dotcom delusion of the late 90s.

Since rationality is too much to expect of them, it is best to ignore this market entirely.  Ride the DOW and Nasdaq, place your investment bets where you otherwise feel comfortable, but it’s best to let the currency traders sail off into space all by themselves.

I could not suggest more strongly that you read Bernard Lewis’ latest book, The Crisis of Islam: Holy War and Unholy Terror (Modern Library, 2003).  Its compact 164 pages contain an abundance of revelations. 

We are so often told, for example, that a basic cause of the hatred radical Moslems feel for the West is the Crusades.  Yet, Mr. Lewis explains, the capture of Jerusalem by the Crusaders in 1099 was largely ignored by the main Moslem powers in nearby Damascus and in Baghdad.  After Saladin retook the city in 1187, the Moslem world forgot about it for 700 years, until it became the focus of Jewish immigration.   Rage and humiliation over the Crusades is a very modern bellyache.

Every liberal boffin and pundit from those infesting the State Department’s Bureau of Near Eastern Affairs to Robert Novak could benefit from grasping Mr. Lewis’ observation that the Palestinian issue is “the licensed grievance.”  Far from being “the key to peace in the Middle East,” the “Arab-Israeli problem” is merely a useful deflection and scapegoat for Arabs who have little or no political and economic freedom in their own countries and whose governments grant little or no permission to complain about it.

You’ll find dozens of similar revelations here, all lucidly and concisely expressed.

If you want a clear grasp of why Saudi Arabia is such a fount of Moslem terrorism and radicalism today, read Dore Gold’s Hatred’s Kingdom:  How Saudi Arabia Supports the New Global Terrorism (Regnery, 2003).  Saudi Arabia is the worst religious dictatorship on this planet, controlled by a heretical Islamic sect called Wahhabism (named after its founder, Mohammed ibn Abdul Wahhab, who established a mithaq or covenant with a tribal leader, Mohammed ibn Saud in 1744, to create a Saudi political-religious state).  Billions of Saudi petro-dollars have enabled the Saudi state religion to spread its message of hate and intolerance to mosques and medressahs (religious schools) throughout the world — including 80% of the mosques in America.  As former CIA Director Jim Woolsey says, “If you read one book to understand the roots of al-Qaeda’s fury, it should be this one.”

As we focus on foreign threats to our freedom, let’s do so on domestic threats as well.  One of the greatest comes from the left’s relentless assault on the morality of capitalism.  Enron-type corporate scandals fuel endless denunciations of business and businessmen, and assertions that “business ethics” is an oxymoron.  It is of the most critical importance that this fury be prevented from achieving its goal: to serve as a rationale for more government control over our lives and possibilities to prosper.  This requires a moral defense of the morality of capitalism.  Two philosophy professors have done just that in A Primer on Business Ethics, by Tibor Machan and James Chesher (Rowman & Littlefield, 2003). 

For Machan and Chesher, business is an honorable profession.  It is “the specialized, professional dimension of human commerce, and as such has its moral foundation in the virtue of prudence.”  The authors apply this concept to advertising, financial services, management, employment, corporate ethics, and public policy.  What they have to say about insider trading (they’re for it) and bribes/kickbacks (it depends) are solid eye-openers.  This book should be required reading for all college professors teaching business classes, not to mention their students.

All three of these books are available at Amazon.com.

The World Health Organization or WHO announced today that “the worst is over” regarding the SARS epidemic in Vietnam, Hong Kong, Singapore, and Canada.  WHO pronounced Vietnam for being the first country to eradicate the disease, and praised it for doing so transparently, quickly, and efficiently.

One reason Vietnam was able to do so is because it closed its border with China.  For notably absent in the WHO announcement was any praise for China.  The worst is not over for China.  The worst — far worse — is yet to come.

90% of SARS cases worldwide to this day are in China.  This percentage will climb.  By covering the epidemic up when it first emerged in Guangdong province last November, rather than institute the sort of health security actions performed by Vietnam, the PRC government has let the SARS toothpaste out of the tube. 

Much has been made by the mandarins of Beijing shutting down theaters et all, taking all sorts of measures to bolt the Beijing barn door shut.  Too late — SARS is streaking across the Chinese countryside now, on the loose and uncontrollable.

Further, the cover-up continues.  TIME Magazine Asia Edition today (4/28/03) disclosed the city government of Shanghai is suppressing info on SARS, treating SARS cases as “a state secret” to prevent panic not only among its 17 million citizens but among international businessmen doing business there.

Thus while the rest of the world — provided it remains alert and doesn’t let it’s guard down — may have dodged the SARS bullet, China may be gut shot.  The economic consequences for both China and America may be enormous.

For the first time in years, China admitted that it ran an overall trade deficit for the 1st Quarter of 2003, in the amount of $1.03 billion.  China has been claiming huge trade surpluses year after year, but as with most stats coming out of Beijing, these are phony — as imports from Hong Kong are not counted.

The putative reason given for the deficit was higher oil prices, but the real reason is people doing less business and buying fewer Chinese goods due to SARS.

From Wal-Mart on down, company after major company is banning all travel to China.  Nike, which produces almost 40% of its shoes in China, is planning to move its production out of the country. The Canton Trade Fair, the single largest in China, is canceled.

The reverse quarantining of China by international businessmen is bad enough, but as SARS really explodes throughout the countryside, and within major cities like Shanghai, Americans and others will become afraid of buying Chinese-made goods.

It is already starting to happen with Nike shoes labeled “Made in China.”  There is little rational chance of such shoes, or other items such as shirts and clothing being infected, but once fear sets in, that rational chance doesn’t matter.  China’s exports are set to fall off a cliff.

The World Bank reported 8.0 economic growth for China in 2002, and projected 7.2 for both 2003 and 2004.  You can kiss that latter number goodbye.

These growth numbers are just as phony as the trade numbers, in any regard.  They are pumped up by state spending and subsidies for state-owned enterprises (SOEs) making stuff nobody buys.  The “state secret” the Chinese government is more afraid of being exposed than SARS in Shanghai is that its banking system is bankrupt.  That system goes over the SARS cliff with the exports.

As the fragile China economy implodes, the Beijing Mandarins will be forced to start spending their stash of over $240 billion in foreign reserves.  The Chinese currency — called renminbi domestically, yuan internationally — is de facto pegged to the dollar.  As they spend those reserves to import goods and prop up the banks and currency, the dollar’s value against the euro (already improving since the end of the Iraq war) will accelerate.

The stock of any US companies who are exporters, or whose US-made products have been suffering from Chinese competition, should be good buys.  Short those folks who are in China deep, who are dependent on selling stuff labeled “Made in China.”

Following Nike, companies are going to flood out of China to set up shop elsewhere in Southeast Asia, particularly Vietnam, Thailand, and Malaysia.  The stock exchanges of these countries will be buys.  Possibly India as well, but only if Indian bureaucrats can miraculously evolve from ponderously slow-moving elephants to critters that can move quickly to drain regulatory swamps and barriers to competition.

History moves in funny ways.  China has sought to insulate itself from being infected with the economic maladies of its neighbors, from Thai banking crises to Japanese stagnation.  Now an infection from within — a homegrown disease coming from nowhere out of the filthy mixture of ducks and pigs and people living tightly together in vast numbers — may prove lethal to its economy, its social structure, and its communist government.

No matter how bad SARS gets, China will recover.  Business and businessmen will return.  But that is later.  Right now, there is a disaster, and it’s going to get a lot, lot worse before it gets better.  There is no virtue or altruistic nobility in ignoring the opportunity this represents to make money by shorting China.

It is important to understand that that the actual death rate for SARS is far higher than the currently reported rate. The death rate publicly given in press reports is a percentage of the reported cases, now running at a little over 2%. The figure to focus on however is the death rate as a percentage of the recovered cases. This figure is much higher, over 10%.