-- SIT-4-27; Mon., April 27, 1998 (5:00 PM EST)

* Strategic Issues Today - in the News:
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* 1. Wall Street & REITS: Moral Suasion
* 2. Iraq: Saddam Reneges?
* 3. Israel: Constitutionalism, Vatican & PLO
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Correction : In SIT 4-23 I mis-named the Prime Minister of Canada as ãLevequeä when I meant Jean Chretien. He is visiting Havana today. Spring is here and international love is in the air; Mr. Chretien is embracing Fidel.

ãApril is the Cruelest Month :ä
* It seems race warfare is out -- Black leaders were starting to anger Latinos and Asians-- and Class warfare is in as to Clinton strategy. Yesterdayâs New York Times Magazine explored the Leftist-Populist politics of public school funding in Vermont --where Howard Dean has national aspirations-- and today, at Ohio U., Jesse Jackson is preaching the gospel that the gap between rich and poor is wider than the gap between black & white. Why is that gap wider? Because the Clinton Buccaneers are pillaging corporations and the real estate market faster than anybody else --other than Bill Gates and Warren Buffet-- can make it the old-fashioned way, by earning it.

* In political terms, the case for affirmative action has not succeeded but a case for beggar thy neighbor will work It is the Centenary of William Jennings Bryanâs reckless populist pandering to the selfish --the prairie populists-- and these are the tactics of the ad hominem appeal to envy, greed, selfishness and class begger-thy-neighbor taxation. The rhetoric gets ugly very quickly from here and those making the biggest pots-full, Michael Eisner and the Hollywood-Wall Street FOB s donât get effected rhetorically or financially at the national level, lesser fortunes get affected at the local level in their communities. This strategy of dividing the people pitting them against each other on local issues of class ãfairnessä is working in Vermont and it will work in other states, such as New Jersey. Where the gender gap has shrunk, according to the latest polls, these appeals will be designed to attract the soccer moms back to Al Gore and Democratic candidates for Congress -and theyâre lining up a lot of female candidates.

1. Wall Street & REITS v. the Federal Reserve: Talking the Markets Down

* The Fed has begun a campaign of ãmoral suasionä to talk the markets down and the effects of that campaign are already apparent in todayâs southbound market. Mr. Sparico and I checked the trends and found our estimates. But first, this is related to inflation of financial assets, particularly stock prices and REIT speculation in ãtrophy propertyä real estate. We are on the 24th.anniversary of the last REIT speculative disaster, punctured by Arthur Burns in the summer of 1974, a Congressional Election year, coincident with the after shocks of the Oil Crisis and Nixonâs resignation. In those days the Fed had tight controls on money supply and interest rates.

* Today, Greenspanâs influence and controls are more problematic as the banks, themselves, do not control the flow of money to anywhere near the extent they did then. Wall Street and the international Money Markets do; and the Fedâs controls are thus, much weaker. But the markets do respond to his warnings-threats and to gossip that the Fed may tighten rates, which they still can do a bit of. Every Federal Reserve Governor will be speaking publicly over the next week to ten days in a collective campaign of moral suasion to dampen what Mr. Greenspan labeled ãirrational exuberanceä when things were getting ahead of themselves in December 1996.

* Inflation at the retail level is not a factor; there is no shortage of Fords, Compaq computers, Campbellâs soup, Nikes or gasoline. But at the investment level, there is a shortage of yield-oriented blue chip stocks, new bonds and other conservative investments to fund retirement life-styles. Hence the REIT game --our real national shell game is real estate and when the banks wonât play, the investors must get plucked. With the GM building --not a very new or spectacular ãtrophyä-- at $475-500 per sq/ft. it is time to start talking the market down a bit.

* Further, stocks are way ahead of their 150-day trend and we are, thus, looking for a 500 point correction from Fridayâs 9060 -- weâre looking for 8600 on the Dow, 1050 on the S&P 500, and for the 30-Treasury to rise and trade between 61/8 and 6 1/4. But gold traded down today; and is churning around $312. Currencies appear to be responding to Herr Kohlâs election reversal --there is a vainglorious proposition that Europe's Socialists can improve Europe's economy.

* Given the strong investment flows, we expect more upside action in late May, a classical seasonal pattern in Bull Years We are worried about real estate and less about the markets; in the long-term we donât ever short the United States, But we do watch the real estate manipulators --all big contributors to Clinton and the Democratic Party, and we do know whatâs what. Mr. Greenspan and Treasury Secretary Robert Rubin are not going to let it all go down the drain. An aside: Mr. Rubin, as a partner in Goldman Sachs, was able to liberate some $200 million in capital by taking his job in the Clinton Administration in early 1993. Had he remained a partner, he would be worth about $1 Bil or so by now. How he has done with his assets in a blind trust is probably not bad, but it is doubtful he has made out as well as he would had he remained in New York --but he was nervous, it is said, about the marketâs prospects at the time. He headed the Clintonâs off of their wilder socialist agenda --äthe economy, stupid.ä
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2. Iraq: Saddam Welching on the Deal?

* Saddam is definitely not turning in anything new and nothing material appears to have been found by inspectors. Further, even as AmeriCares was trying to deliver hospital supplies over the weekend, Saddam announced a cut-back on the monthly food ration, to reimpose the appearance of US-British oppression of the Iraqi people. His Foreign Minister, Mr. al-Sahhaf, is bragging that sanctions will be broken within 12 months and even the French are not thrilled with Iraqi non-conformance with the biological warfare restrictions the UN is seeking to enforce. Saddam has already rejected a Russian proposal for compromise on the UN inspection regime going forward.

* AmeriCares delivered some $2.4 million in aid for the Jordanian Air Force to fly to preselected clinics throughout Iraq over the weekend. Through the assistance of the International Red Cross-Red Crescent AmeriCares seeks to ensure that none of the badly needed supplies went to Saddamâs Army. As of now, Iraq is delaying the Jordanian flights on technicalities, saying they will happen on Tuesday --we shall see. If heâs cutting back the rations, he may be obstructing the medicine, as well. (I am told that Val Kilmer, was very much more than an empty suit, and pitched in to the work in substantive and helpful way -he pays attention to details and helps out.)

* Looks like Clinton settled to easily, and heâs neglected our forces in the Gulf, too long --too many over-strained people are still out there, maintaining the illusion of a disciplinary force the US cannot anymore use. Clinton cooperated with the Russia-China-France deal because it was supposed to be an easy way out; now it is not so easy. But everybody here loves Bill so much that the Poll results wonât mind if Saddam wriggles free over the course of the next year. For today, sanctions remain in place for another six months, and Saddam may upset the AmeriCares delivery and other foreign assistance other than from Leftist groups responding to pleas from Ramsey Clark and similarly-pliable ãuseful idiotsä of the Ethical Left.

* This has wider implications as Iran cannot abandon its retaliatory WMD programs if Saddam has notâ given up his; that slows rapprochement with the US and leaves strains in the Gulf

3. Israel at 50: Whatâs really Missing here

"Ye shall hallow the fiftieth year, and proclaim liberty throughout all the land unto all the inhabitants thereof: it shall be a jubilee unto you ." --Leviticus 25:10

* Interesting profiles are being published in newspapers in New York, New Jersey and Washington on the occasion of Israelâs 50th Jubilee. The Post, yesterday, reported on the swelling numbers of educated Russian Jews, expected to number 2 millions by AD 2000 and their effect on Israelâs economic expansion. But others are also looking at the continued struggle between the Orthodox Rabbis and other sectors of Jewish opinin: the Rabbis want to turn Israel into a theocracy and Bibi Netanyahu is pandering to that to retain their political support.

* Though 50 years ago Israel issued a Declaration of Independence, which officially guaranteed the rights of Christian, Muslim and Druze Citizens as well as those of Jews, Israel never had a Constitutional Convention to embed ãchecks & balancesä that would get in the way or its socialist governments of 1947-1977. Ambitious politicians have used that gap ever since. But since 1967 this lack of checks & balances and rigorous guarantees has stood in the way of presenting any proposal for a permanent solution to the West Bank occupation, either by constitutional union of two states, or any solution less than full independence for Palestine.

* Still, Netanyahu is only offering local autonomy where Israel controls most external communications and also controls the water, electricity, communications and transport networks serving the West Bank No Constitutional guarantees exist. This fact and the strident Jew v. Jew argument between the Orthodox and non-Orthodox wings of the faith scares every observer, be they non-Jewish citizens of Israel, Palestinians, or informed outsiders. There is an interesting story in the wires today: Vatican and PLO push on with joint commission plan (Reuters). It seems that Catholics are concerned about the increasingly hysterical Ultra-Orthodoxy as a threat to Christians, Muslims and Druze who are citizens of both Israel and Palestine:

ã ``The meeting decided upon the setting up of a 'Bilateral Working Commission' between the Holy See and the Palestine Liberation Organisation...,'' a joint statement read.

ã ``The Commission, which will meet periodically, will have the task of studying and defining together matters of mutual interest, including bilateral agreements, with a view to strengthening and developing further the official cooperation established between the parties on 25 October 1994.''

ã The Vatican says plans to create a commission to find a status for the Roman Catholic Church in Palestinian territories go back to 1994, when it forged official relations with the PLO.

ã The establishment of relations in 1994 was seen as a move by the Holy See to secure its influence with all players in the Middle East peace process. It came four months after the Vatican and Israel established full diplomatic ties. (Vatican City: REUTERS@ 11:01 04-27-98).

* The Papacy has long aspired to be the Universal Faith and its Cardinals aspire to retain status as the established church, though establishmentarianism is obsoleted by Human Rights law. Now the Pontiff must help defender othersâ from anotherâs attempt to establish its faith. Paradoxical. It is bothersome to many of us who are friends of Israel but not of Likud, that Israel is vastly more capable of doing damage to itself than its neighbors are.