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%.

Dr. Wheeler's Final Behind The Lines Column from Strategic Investment

This month we’re going to focus upon books on Islam.  The first thing to do in this regard, however, is to go into the To The Point  Archives and read the Myth of Mecca article.  It explains how the religion of Islam was invented as a religious rationale to justify Arab imperialism.  At the end of that article, you’ll see a list of sources, all of which I strongly recommend as works of serious professional scholarship:

 • Al-Rawandi, I.M. Origins of Islam:  A Critical Look at the Sources.  Prometheus, 2000 • Crone, P.M.  Meccan Trade and the Rise of Islam.  Oxford, 1987.** • Newby, G.D. The Making of the Last Prophet:  A Reconstruction of the Earliest Biography of Mohammed.  Columbia, 1989. • Wansbrough, J. Quranic Studies:  Sources and Methods of Scriptural Interpretation.  Oxford, 1977.** • Warraq, I. M. The Quest for the Historical Muhammad.  Prometheus, 2000.*

[A * denotes that it is currently available at Amazon — www.amazon.com — while ** means Amazon lists it as out of print but possibly available used.  All of the books below are in stock at Amazon.]

There are a number of “popular” books (written for the “intelligent layman” rather than the academic scholar) on Islam currently out now.  Here are three I can personally recommend to you:

 • What Went Wrong? by Bernard Lewis.  Oxford, 2002.  Lewis teaches at Princeton and is the premier historian of the Middle East.  There is nobody better in explaining the historical path of Islam from medieval triumph to contemporary failure.

 • Islam Unveiled by Robert Spencer.  Encounter, 2002.  A very readable critical analysis of basic Islamic tenets.  Highly useful are the repeated parallels between Islamic and Soviet ideology.

 • The Sword of the Prophet by Serge Trifkovic.  Regina Orthodox, 2002.  This is another critical analysis of Islamic history and morals, coupled with a discussion of Western appeasement of Islam.  One weakness is the author’s unrelieved vitriol towards the Turks.

Talking about vitriol, nothing can match Oriana Fallaci’s The Rage and the Pride (Rizzoli, 2002).  There is nothing calm and dispassionate here.  It is a total cri du coeur, cry of the heart., and it needs to be read by every member of Western Civilization.

Lastly, I’d like to suggest a work of world class scholarship, Islam and Dhimmitude by Bat Ye’or (Farleigh Dickinson, 2002).  Ye’or is the foremost expert on “dhimmitude,” second-class citizenship of Jews and Christians subjected to Islamic rule over the last 1400 years.  She uses her prodigious historical erudition to focus upon Western Europe’s acceptance of dhimmitude today in its relationship with Islam.  This is a work of major importance.

[Written ten days after the start of The War in Iraq, March 31, 2003]Let me say it straight. I am almost sixty years old, and I have never in my life been prouder to be an American than I am today.I was talking to my friend Tony Blankley, editorial editor of the Washington Times, the other day, and when I compared George Bush to Ronald Reagan, Tony replied, “It may turn out to be the other way around.”

Doomsday scenarios were ever-popular during the Cold War. But the reality was that if a nuclear missile hit a U.S. city, we would know for sure who launched it: the Soviets. Thus we knew against whom to retaliate. And thus the Cold War was conducted without a single nuclear shot fired.We are now facing a threat an order of magnitude or greater than that of the Cold War. What if a nuclear bomb goes off in a U.S. city and we're not sure who did it, so we don't know against whom to retaliate?

STRATEGIC INVESTMENT, January 2003

One hundred and sixty years ago, in 1843, the Commissioner of the US Patent Office, Henry Ellsworth, reported to Congress:  “The advancement of the arts, from year to year, taxes our credulity and seems to presage the arrival of that period when human improvement must end.”  (This is the source of the spurious quote attributed in 1899 to Ellsworth’s successor, Charles Duell, who never said “Everything that can be invented has been invented”).

Human improvement did not come to an end in 1843, nor will it in 2003.  In fact, I think 2003 is going to be a great year for the US economy.  Not spectacular.  But I’m willing to bet a glass of Guinness at the Irish Times bar on Capitol Hill that the Dow, S&P 500, and NASDAQ will all be higher at the end of 2003 than they were at the start.

There are two basic reasons for this, and they are both named George W. Bush.  GW is determined not to make his Dad’s mistake, and knows voters must perceive the economy has been going well for many months, up to a year, before he runs for reelection.  Further — and here’s the key — his strategy for accomplishing this is to get the government out of the way, stimulating the economy by decreasing tax and regulatory burdens on businesses and investors, and not through socialist subsidies.

In other words, GW’s economic policy is to give the real engines of growth — entrepreneurs and small businesses — more freedom to prosper.  The timing couldn’t be better.  The bubble — and its bursting — has come and gone.  Both are over.  The entrepreneurs who are stepping up now aren’t the flashy, arrogant kids of the Dot-com Age.  They are more sober and experienced, i.e., grown-up.  They are coming up with solid technology and business plans that make sense and will make a lot of money. 

A good example is Wayne Pierzga.  He and his partners are level-headed engineers who’ve been around the entrepreneurial block, and know the electro-magnetic spectrum inside and out.  They’ve got a proprietary technology to capitalize big-time on a niche of the wireless communications market no one else has.

Instead of launching billion-dollar satellites or erecting gazillions of ground-based repeater towers, they’re going to put low-cost, lightweight radio repeaters on existing aircraft flying normal flight routes.  Such repeaters on only 14 aircraft at any given time (with 2 ground stations) will give full coverage for the entire US east of the Mississippi, providing a high-speed (240+kbs DSL equivalent) Internet and voice connection for business jet and commercial airline passengers, and for the entire shipping industry (cargo planes, trains, trucks, and ships).

In talking to Wayne, what struck me immediately was not just the enormous financial potential of his technology but its national security implications.  Every one of the countless shipping containers that enters the US daily is a possible security threat, containing, say, a “dirty bomb” capable of ruining a city.  A small tracking device placed on a container signaling Wayne’s system will tell the shipper where it is in real time and if it’s being opened after Customs inspection.  Warren Buffet (who owns NetJet), and Fred Smith (who runs FedEx) may have to get in line behind Tom Ridge (who runs the new Homeland Security Agency) to see Wayne.

I found out about Wayne through a VC firm that specializes in discovering start-ups with both proven business savvy and proprietary technology with a fabulous upside — the Artemis Strategy Fund in Bethesda, Maryland.  The Artemis team knows what it’s doing more than any other VC outfit I’m aware of.  Amidst the myriad of VC flame-outs and retrenching, Artemis developed a smarter strategy that wasn’t impacted like so many recent VC debacles.  Give Jim DeMocker a call at Artemis — 301-657-6222 — if you’d like to learn more about Wayne Pierzga’s Aegeus company or get a report on the Artemis investment strategy.

With GW now running the whole Washington show, he is going to make it far easier for folks like Wayne and at Artemis to revitalize the US economy.  The latent ingenuity, creativity, and sheer raw ability of so many Americans is staggering.  All they need is for the government to take away the regulatory and tax obstacles it sets on the road.  You watch.  A lot of these ingenious entrepreneurs are going to be unleashed in 2003, and a lot of investors are going to make money with them.  It’s our job here at SI to help you be one of them.  This is the start of my 17th year for SI, with my first article appearing in the January 1987 issue.  I wish you a free, healthy, and prosperous 2003 — and come January 2004, we can talk about it over a Guinness at the Irish Times.

One of the meta-reasons America won the Cold War is that Russians play chess, while Americans play poker. Chess demands great skill and intelligence, particularly at developing complex long-range strategies and anticipating your opponent's moves.  But it bears little resemblance to life in the real world.  It is completely static and open.  Nothing is hidden.  Poker is very different.  You have to guess what your opponent has and the extent to which he is bluffing.  In business, in politics, in life in general, the folks who know how to play poker will almost always fare better than those who know how to play chess.

Across the world, today's newspapers carried front-page headlines similar to that of the Washington Times:  "Russia Remains Silent on Deadly Knockout Gas."  The mystery of the Knockout Gas's identity has been solved.