Iraq:

Tuesday 24 February 1998 Oil prices expected to stay low A tentative deal with Iraq on weapons inspections could signal the start of a long period of low prices for crude oil and other commodities, analysts say. JAMES MCCARTEN CP; Bloomberg news

[Wednesday Night#819 Nov 12th 1997] This, the final item to be discussed divided the room into two camps, namely that which believed that the current confrontation with the United States represents undue interference by one country in the internal affairs of a sovereign country, the other believing that criminal must be punished, and that broken agreements and treaties invite armed intervention. See CIA's Economic Facts.

The role of the United States in Iraq was contrasted with its attitude relating to China and Pakistan. Some suggestions were offered as to the possible need to find a proving ground for weapons developed since Desert Storm, the danger of Iraq as an aggressor if not stopped and the danger of upsetting the delicate balance of power between Iraq and Iran.
By Herbert Bercovitz

Play It Again, Saddam

So, once again, we find ourselves between Iraq and a hard place.

And once again, Mr. Who's Sane? is sticking out his furry tongue at us.

Since this is a remake of the old movie, maybe we can change the ending this time. Six years ago, you may remember, the script called for George the Hero, after thoroughly boxing the bad guy's ears, to show his kind and gentle nature by letting Saddam the Villain keep his palaces, his perks and his phantasies, so long as he promised to behave. The essence of the deal was that Saddam could continue to chew on the rugs, but blowing up the world was out.

Prompting this extraordinary forbearance was the conviction that if Hussein were to be terminated with extreme prejudice or even relocated to his natural habitat in the Reptile House of the Bronx Zoo, Iraq might fall apart. An innocent, not schooled in the subtleties of geopolitical strategy, might think that reducing Iraq to reasonably small pieces was the whole point of the exercise known as Desert Storm and obviously would minimize the necessity of a repeat performance.

But such naivete eloquently demonstrates why such momentous decisions can be made only by knowing professionals like Presidents, Secretaries of State and five-star generals. For delivering the coup de grace to Saddam & Co., our wise leaders divined, would inevitably turn the Middle East into a mess, encourage Iran to continue to throw tantrums and make life even more miserable for people like the Kurds, for whom the neighborhood already was an extremely hostile place.

And, of course, the wisdom of that approach has been fully validated by events. The Middle East today is a sea of serenity, entirely populated by happy campers. Iran's our new best friend, and the mullahs all sport Atlanta Braves baseball caps. And everyone is just kissy-poo with the Kurds.

Frankly, we thought six years ago that trying to fine-tune Saddam was the equivalent of trying to fine-tune Godzilla. We were wrong -- Godzilla you can reason with.

Now it's Bill's turn, and our first reaction was that we ought to let George do it again and hope this time he'd get it right. We know Bill, and Bill's no Teddy Roosevelt. Still, perhaps, we're too harsh. There's absolutely no evidence that Saddam chipped in so much as a tittle to the Dems' campaign slush fund, so we can't dismiss out of hand the possibility of military action against Iraq. Especially since Bill could use a win here after his ignominious defeat by General Gephardt.

Not that we're eager to see the President do anything precipitous. Before taking up arms against Saddam, he might consider other, less bellicose moves. Like sending Alan Greenspan to Baghdad. Mr. Greenspan, after all, has long and successful experience in dealing with irrational autocrats like the heads of Senate and House committees and arguably might bring Saddam to what few senses he retains. At the very least, an hour or two's conversation with the Federal Reserve chairman could well leave Saddam so befuddled and uncertain as to seriously diminish his capacity to do battle.

Fortunately, Mr. Greenspan is free to sign on for such a critical mission because he has brilliantly allayed the rising unease of his fellow citizens concerning spreading financial disturbances around the globe. Thus, in testimony on the Hill last Thursday, he addressed the especially virulent turmoil in Asia and pinpointed the potential impact on the American economy. Said impact, Mr. Greenspan said, "can be expected not to be negligible." Investors particularly had expected Mr. Greenspan not to be so forthright. Pleasantly surprised, they resolved not to be so bearish, and the stock market, which had been expected not to be reassured, proceeded not to extend its decline.

Stock Mkt

In the vanguard of Friday's spirited rally, which picked up steam as the session wore on, were the online stocks. Not terribly surprising, we guess, since they'd taken quite a bruising in those rough recent markets. America Online, for example, which got hammered from above 90 to below 70, spurted nearly 5. And Amazon.com, which had skidded from 66 to the 40s, surged 3 and change.

While we must confess that the valuations awarded most of the Internet stocks seem to us to be out of touch with even virtual reality, Amazon.com is in a class by itself. In case somehow the company and its rocketing shares have eluded your ken, it's a bookseller, a line of endeavor that, as an old, inveterate browser, we heartily applaud. It vends solely on the Web and, as one of the pioneers of the concept, it has quickly carved out a solid position for itself, accounting for, oh, something like two-thirds of online sales of books.

But while its rapid growth-sales have risen from half a million in '95, its first year of operations, to an estimated $130 million this year -- is patently impressive, the performance of its stock strikes us as positively amazing. The company came public in May, when it sold three million shares at $18 apiece. It had a warm reception only to slip a couple of bucks below the offering price and then went mildly ballistic, doubling in a month's time.

That small float of available shares hasn't, of course, hurt at all, especially with some heavy-breathing Wall Street houses climbing on board and especially, too, with a short position that, last we looked, had swelled to something like two million shares.

So far as Wall Street goes, Amazon is a splendid reminder, never underestimate the attraction of the Internet. New issues, some with only the most peripheral online pretensions, invariably get a whirl.

What's just a little odd about such bubbling enthusiasm, however, is that the history of Internet stocks has not been uniformly cheerful. The propulsion on the way down often seems even more extraordinary than on the way up. And not infrequently, what occasions the hurtling descent is nothing more than the fact that someone finally takes the time to do a rudimentary analysis of the company's vital statistics and likely prospects.

What has stirred up the shorts about Amazon is, let us readily admit, what inspires this brief look at the company: the spectacular rise in its stock and the vast leaps necessary by its gathering army of fans to justify the heights to which the stock has soared. For example, one reasonably astute Street follower of Amazon partly predicates an urgent buy recommendation on the notion that the shares are selling at only 1.5 times sales. However, not this year's sales or next year's or even sales for the year after that. Rather, the sales in question are for 2001.

We can understand and sympathize with analytical angst arising from a desire to recommend the stock absent some of the usual excuses for doing so. Like earnings. In Amazon's case, there are none; a safe guess is that it'll lose on the order of $27 million-$28 million this year, or let's say $1.20-plus a share. And next year, its adherents expect more of the same. Not until '99 do the bulls anticipate Amazon reaching the promised land of profitability.

For a company awarded a market cap of $1.2 billion, it seems a long wait until payday.

Actually, our curiosity about Amazon was first aroused by an editor we know who wasn't born yesterday, has been in the publishing business for a lot of yesterdays and, we should add, is both an entrepreneur of sorts and a computer adept. He was profoundly skeptical, not about the stock, of which he's blissfully ignorant, but of the business.

His reason, simply, is that he thinks entry is invitingly easy (and it is). And he espies competition beyond the obvious rivals from potentially enterprising newcomers that can sharply undercut the price at which Amazon peddles its books. He was reluctant to be too explicit because he's intent on exploiting the possibilities himself.

Competition, in any case, of a more conventional and visible kind looms large, and looms exceptionally large in the minds of the bears. One of these, an anomaly who even the past three years has managed to make money on the short side, insists that "anything Amazon can do, Barnes & Noble can do better." By way of support for what is basically an unprovable assertion (the only kind that gets much attention in Wall Street), he cites Barnes & Noble's clout with publishers, thanks to annual sales of $2.5 billion worth of books, that enables it to get rock-bottom prices. And, relatedly, he points to the financial strength that allows it to offer big discounts.

He also notes that Barnes & Noble's financial muscle supplies a lot of marketing heft, both in securing tie-in deals with online providers and in advertising wallop.

But serious competition isn't limited to Barnes & Noble. One smaller but robust Web book retailer is CUC International, which has a membership-based operation that can be quite aggressive in discounting, thanks to the fees from members. And come January, Borders Group, which has proved itself a resourceful and powerful presence in the book business, is slated to start up its Internet outlet.

Moreover, the ease and relatively modest cost of entry (Barnes & Noble had to shell out only $15 million to establish its online services) promises more competitors. And, as our editor friend suggests, they'll come not only from familiar sources but from people with innovative approaches.

The bullish argument on competition is that the Internet user population is exploding and that the jostling among the expanding book selling contingent will widen the market. The first observation is incontestable. The second, though, is debatable, even doubtful. In any case, newcomers are inevitably going to use price as a weapon to gain market share, and, try as we might, we have trouble envisioning price wars as benefiting profits. But maybe it's simply our limited imagination.

The fellow who suggested earlier this year that Unisys looked like a decent spec -- an idea that, given its provenance, we unhesitatingly passed along to you and then happily watched the stock about double -- recently mentioned something else he's bought of the same speculative ilk -- Novell.

Again, because he's conservative to the core, he emphasizes the risks, which are considerable and imposing. Novell has been pretty much on the rocks and it's losing money. Hardly a secret, as evidenced by the fact that the stock, which sold in the mid-30s in '93 and over 20 a couple of years ago, closed Friday a hair over 8. Novell did some less-than-rewarding acquisitions, but its real trouble is nothing more or less (and we can't think of anything more) than Microsoft.

Novell has been going head-to-head with the monster and, in a nutshell, has had its head handed to it.

Our man's case for the company is simple. It has a new CEO recruited from Sun Microsystems, has been ditching some doggy units (and is duly taking the usual charges) and overall seems to be making the right moves.

He expects the company will be in the black in fiscal '98 and offers a comfort factor: It has no long-term debt and $3 a share in cash. Not a sure thing, by any means, he stresses -- but that's why the stock's selling at 8.

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