Monday, January 15, 2007

Cure for Iraq? Impeach Bush, Cheney

Vice President Cheney has challenged the Democrats to come up with a better solution to the Iraq problem. Notwithstanding that Cheney's comment mistakenly presumes that all the Republicans support his plan, I'll take Cheney up on the challenge. My suggestion is that it's time for Congress to impeach Bush and Cheney.

This suggestion brings up some reasonable questions, including the following:
  • What's wrong with the Bush/Cheney plan?
  • How will impeachment solve the Iraq situation?
  • On what basis could Bush and Cheney be impeached?
  • How likely is it that my suggestion will be adopted?

What's Wrong with the Bush/Cheney Plan?

The biggest problem with adding 21,500 US troops in Iraq is that it will not achieve its "mission." There are five key reasons for this:

  • The mission is vaguely defined. It is unclear why US troops are in Iraq. In 2003, Bush sold the war as a way to eliminate the threat of Iraq's WMDs and to punish Iraq's role in the 9/11 attacks. Both reasons were proved false. So Bush/Cheney redefined the mission variously as "getting the job done", "victory" or "a democratic Iraq." It is impossible to measure whether any of these vaguely defined missions has been achieved therefore there is no logic for ever withdrawing US troops.
  • The Bush/Cheney plan's real purpose is not consistent with that mission. It will not be possible to learn Bush/Cheney's true purpose for adding the new troops. I speculate that since Bush and Cheney's political careers will end no later than January 2009, they are currently trying to improve how history will judge them. I further speculate that they believe that adding more troops will increase the odds that they can delay a resolution of the Iraq situation into the next administration. By forcing another administration to withdraw US troops, I speculate that Bush and Cheney hope that history will shift blame for the failure of their policy to their successors.
  • Iraq does not really exist. The concept of Iraq, as a united country fitting into the borders on the map which currently appears in atlases, does not really exist. Under Saddam Hussein, the country appeared to hold together with the help of a brutally repressive police force. In reality, Iraq is at least three separate groups -- the relatively peaceful Kurds in the North, a smaller group of Sunnis, and a larger group of Shiites -- the latter two having been at war with each other for a long time. Since Saddam left power, the fault lines between these three groups have emerged more clearly.
  • The current Iraqi government is structured to undermine the Bush/Cheney concept of Iraq. Bush/Cheney envisions a unified, democratic Iraq. However, the current government is controlled by the Shiites. The Bush/Cheney plan relies on this Iraqi government stopping Sunni and Shiite extremists -- which Bush/Cheney believes are the cause of the Iraqi civil war. In fact, the Iraqi government supports the Shiite domination of the country and thus the Bush/Cheney plan will be directed to achieve this end rather than the Bush/Cheney concept of the Iraq mission.
  • The American public does not support the Bush/Cheney plan. Polls suggest that only 29% of the US public supports the Bush/Cheney plan. This lack of support for its Iraq policy should have been clear after the the Democratic Party took over Congress last November. Moreover, the Bush/Cheney plan is at odds with the Iraq Task Force report which seemed to have greater support.
  • The consequences of not pursuing the Bush/Cheney plan are unclear. Bush/Cheney claims that disaster will follow a withdrawal of US troops from Iraq. This claim is similar to the arguments made about withdrawal from Vietnam. Back then, President Johnson argued that withdrawing from Vietnam would cause a domino effect in which many countries would go Communist. Bush/Cheney are suggesting that US troop withdrawal would create a safe haven for terrorists. Clearly previous Bush/Cheney predictions -- that US troops would be greeted as liberators and that the war would last at most six months -- have proven false. The only consequence of their plan that's certain is that more US troops will die as they become targets for the parties to a civil war in Baghdad.

How Will Impeachment Solve the Iraq Situation?

Impeachment will not solve the Iraq situation immediately. However, it appears certain to me that the US will not form or implement a realistic strategy to solve the Iraq problem until Bush and Cheney are out of office. As noted above, they are not concerned about reelection which in their mind frees them to pursue policies which they believe will vindicate their legacy.

After four years of consistently achieving results at odds with the objectives they stated, it is clear to me that Bush and Cheney are determined to leave the problem to their successors. I believe that the problem will get worse in the next two years and will certainly result in more deaths -- especially as the 21,500 new US troops are added.

By impeaching Bush and Cheney, the US can reduce the number of lives lost and begin the process of minimizing further damage from their disastrous Iraq adventure.

On What Basis Could Bush and Cheney be Impeached?

Although I am not a lawyer, according to Impeach Bush, there are at least three legal bases on which impeachment could proceed:

How Likely is it That my Suggestion Will be Adopted?

My suggestion could be adopted but only with significant voter pressure. Unfortunately, it appears that an unspoken consensus has emerged that the impeachment process is not helpful for those members of Congress aspiring to the White House in 2009.

In order to move forward with new leadership, Congress would need to do something unprecedented in US history -- impeach a president and a vice president. Just impeaching Bush would not solve the problem since a president Cheney would probably make the situation even worse.

It is likely that neither would voluntarily resign as Nixon did. And achieving the votes necessary to ensure a successful conviction and removal of Bush and Cheney is a long shot -- the failure of which would likely have severe political consequences for all presidential aspirants.

However, everyone running for president or re-election will have to face voters in the near future. And they will be judged on how they handled Iraq. If enough voters push to stop the train wreck, Congress could change its mind.

Monday, January 01, 2007

The Cohan Letter up 15% in 2006

After trailing the S&P 500 index for most of 2006, the stocks mentioned in The Cohan Letter, my investment newsletter, managed to surpass the index by 1% by the end of the year – ending up an average of 15%.

In thinking over the performance of the stocks mentioned this year, I was struck by how difficult it was to find stocks that did well. Thus the 2% stop loss rule which I’ve been using for the last several years played a very big role in cutting losers before they could do much damage.

Compared to 2005, four more stocks fell at least 2% this year from the price at which they were mentioned. Specifically in 2006, 22 out of 36 stocks fell at least 2% below the price at which they were mentioned compared to 18 stocks cut in 2005.

These figures suggest that most of my stock picks are lousy. In 2005, when the stock picks were up 23.2% compared to 3% for the S&P 500, fully 50% of the stocks I mentioned proved to be money losers while in 2006, 61% dropped at least 2%.

This analysis suggests that a big part of investing success is following a strict discipline for selling losing stocks before they can do much damage.

But merely not losing is not enough to win in the investment game. Finding stocks that go up more than the market averages is also important. And this year, of the 14 stocks that were left in the portfolio at the end of December, six outperformed the S&P 500, one equaled it, and seven under-performed the index.

I found it interesting that the two top performing stocks in the portfolio were both Mexican companies whose stock prices surged in December. Specifically, Telefonos de Mexico, S.A. (ADR) (NYSE: TMX) was up 36% from $20.83 to $28.26 and Wal-Mart de Mexico (ADR) (OTC: WMMVY) rose 28% from $34.25 to $43.85. At the end of November, these two stocks were up a relatively paltry 25% and 10% respectively.

I am not sure why these stocks climbed so much in December but one reason may be window dressing – the decision by portfolio managers to acquire shares in top performing companies at the end of the year so they can show their investors that they owned these top performers.

This strategy strikes me as silly since investors should be able to tell that their portfolio managers did not hold these winning stocks long enough to capture the high returns that the winning stocks demonstrated during the year.

Nevertheless, this predictable pattern suggests there’s money to be made by traders who can anticipate – maybe in late November – which stocks will be the biggest volume window trimmings for portfolio managers towards the end of December.