December 11, 2007 Our Pearl Harbor by Victor Davis Hanson Tribune Media Services
On Dec. 7, 1941 — 65 years ago this week — pilots from a Japanese carrier force bombed Pearl Harbor. They killed 2,403 Americans, most of them service personnel, while destroying much of the American fleet and air forces stationed in Hawaii.
The next morning, an outraged United States declared war, which ended less than four years later with the destruction of most of the Japanese empire and its military.
Sixty years after Pearl Harbor came another surprise attack on U.S. soil, one that was, in some ways, even worse than the "Day of Infamy."
Nearly 3,000 people died in the Sept. 11 attacks — the vast majority of them civilians. Al-Qaeda's target was not an American military base far distant from the mainland. Rather, they suicide-bombed the United States' financial and military centers.
It's been five years since Sept. 11. After such a terrible provocation, why can't we bring the ongoing "global war on terror" — whether in Afghanistan, Iraq or elsewhere — to a close as our forefathers fighting World War II could?
Is our generation less competent?
Not really. The United States routed the Taliban from Afghanistan by early December 2001. America's first clear-cut victory against the Japanese, at Midway, came six months after Pearl Harbor.
Do we lack the unity of the past?
Perhaps. But we should at least remember that after Pearl Harbor, a national furor immediately arose over the intelligence failure that had allowed an enormous Japanese fleet to approach the Hawaiian Islands undetected. Extremists went further — clamoring that the Roosevelt administration had deliberately lowered our guard as part of a conspiracy to pave the way for America's entrance into the war.
Are we in over our heads fighting in both Afghanistan and Iraq?
Hardly. Within days after Pearl Harbor, the U.S. found itself in a three-front war against Germany, Italy and Japan — an Axis that had won a series of recent battles against the British, Chinese and Russians.
But there are significant differences between the "global war on terror" and World War II that do explain why victory is taking so much longer this time.
The most obvious is that, against Japan and Germany, we faced easily identifiable nation states with conventional militaries. Today's terrorists blend in with civilians, and it's hard to tie them to their patron governments or enablers in Iran, Saudi Arabia, Syria and Pakistan, who all deny any culpability. We also tread carefully in an age of ubiquitous frightening weapons, when any war at any time might without much warning bring in a nuclear, non-democratic belligerent.
The limitations on our war-making are just as often self-imposed. Yes, we defeated the Axis powers in less than four years, but it was at a ghastly cost. To defeat both Japan and Germany, we averaged over 8,000 Americans lost every month of the war — compared to around 50 per month since Sept. 11.
So far the United States has encouraged its citizens to shop rather than sacrifice. The subtext is that we can defeat the terrorists and their autocratic sponsors with just a fraction of our available manpower — ensuring no real disruption in our lifestyles. That certainly wasn't the case with the Depression-era generation who fought World War II.
And in those days, peace and reconstruction followed rather than preceded victory. In tough-minded fashion, we offered ample aid to, and imposed democracy on, war-torn nations only after the enemy was utterly defeated and humiliated. Today, to avoid such carnage, we try to help and reform countries before our enemies have been vanquished — putting the cart of aid before the horse of victory.
Our efforts today are further complicated by conflicting Internet fatwas, terrorist militias and shifting tribal alliances; in short, we are not always sure who the enemy cadre really is — or will be.
So paradoxes follow:
A stronger, far more affluent United States believes it can use less of its power against the terrorists than a much poorer America did against the formidable Japanese and Germans.
World War II, which saw more than 400,000 Americans killed, was not nearly as controversial or frustrating as one that has so far taken less than one-hundredth of that terrible toll.
And after Pearl Harbor, Americans believed they had no margin of error in an elemental war for survival. Today, we are apparently convinced that we can lose ground, whether in Afghanistan or Iraq, and still not lose either the war or our civilization.
Of course, by 1945, Americans no longer feared another Pearl Harbor. Yet, we, in a far stronger and larger United States, are still not sure we won't see another Sept. 11.
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
LONDON (AFP) - An oil painting by Sir Winston Churchill, Britain's prime minister during World War II, sold at auction for nearly three times its estimate, Sotheby's said. ADVERTISEMENT
"View of Tinherir", painted in 1951 during one of his frequent trips to Morocco after the conflict, made 612,000 pounds (1.2 million dollars) including premium, from an estimate of just 250,000 pounds.
The price tag is a record for a work by Churchill, who was a keen artist.
He gave it to United States General George Marshall, the wartime chief of staff, as a symbol of Anglo-US solidarity in 1953.
The painting remained in the family for three generations and was sold by Marshall's granddaughter, the US actress Kitty Winn.
The previous most expensive Churchill painting sold was "On The Rance, Near St Malo", which fetched 344,000 pounds at Christie's in June last year, a Sotheby's spokesman said.
Churchill visited Marrakesh frequently to write his war memoirs and to paint.
In a letter accompanying the painting to Marshall, he wrote: "I send you herewith the picture I mentioned to you and your wife the other day.
"It was painted in January 1951 at a place called Tinherir".
In reply the US general's wife said: "My dear Sir Winston, Yesterday was a gala day for me, for we hung your painting. It has added so much to the beauty of our drawing-room and has the place of honour."
Donald Rumfeld w/ Cal Thomas: Transcript By Cal Thomas Monday, December 11, 2006 Send an email to Cal Thomas
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(Editor's note: Donald Rumsfeld, in his first interview since announcingin early November his resignation as secretary of defense, discussed hisconduct of the Iraq War and other world defense issues with Cal Thomas, themost widely syndicated political columnist in the U.S. Secretary Rumsfeld'slast day in office is Dec. 15. His successor, Robert Gates, is scheduled tobe sworn is as the new secretary of defense on Dec. 18.)
Cal Thomas: We meet on the 65th anniversary of the attack on Pearl Harbor.People compare wars - Vietnam to Iraq - but there were lessons that came outof World War II. If you were to compare the public's attitude during WorldWar II and the public's attitude over Iraq, how would they compare?
In this image released by the US Department of Defense, outgoing Secretary of Defense Donald Rumsfeld meets troops at Al-Assad air base in Iraq's volatile Anbar province Saturday Dec. 9, 2006, during a surprise visit to Iraq. Rumsfeld's trip follows an emotional farewell Friday at the Pentagon in Washington, where the defense secretary defended his record on Iraq and Afghanistan. (AP Photo/DoD, Cherie A. Thurlby)
Secretary Rumsfeld: It's dramatic. In World War II, the attack on PearlHarbor was stunning, but it followed a long series of (events) in Europe,and even in Asia, that were not stunning to the American people. The threatthat was anticipated on the West Coast was real and palpable. Themobilization of the country, and declaring war, moved us to the next step.The large number of people who went to serve from almost every community inthe nation, was an example of the extent to which people were engaged.
I can remember having a victory garden. I can remember buying war bonds for$18.75. If you held them long enough, they'd be worth $25. You could buythem in coupons until you had a whole (book); I remember collecting paper,collecting old rubber; collecting hangers and metal to be recycled into warmaterials. We were all engaged.
Furthermore, the movie industry was mobilized to support the war. They(filmmakers) wanted us to win, which was an important factor. The situationtoday, the success that has been achieved in not having another attack onthis country in the last five years, has allowed the perception of a threatto diminish, even though the threat has clearly not diminished and, indeed,is real and lethal and dangerous to the safety of the American people.
The fact that it's the first war of the 21st century and notably differentfrom World War I and World War II, is also a problem in the sense that it isunfamiliar ground. There are not big armies, navies and air forcescontesting against each other with visible results and unambiguous outcomes.We have, without question, the finest military on the face of the Earth and,indeed, in the history of the world. We can't lose a battle. And we haven't,and we won't.
But the military, given the nature of this conflict, can't win alone. Thereis no way the military can prevail, because what we are engaged in, in avery real sense, is a battle of ideas (and) a struggle within the Muslimfaith between the overwhelming majority of mainstream Muslims and arelatively small minority of violent extremists who have access to all themodern technology - off-the-shelf stuff, very lethal weapons, increasinglylethal and dangerous weapons - and all the technologies of wire transfersand e-mail and the Internet to communicate with each other. So the absenceof a good, clear, readily understandable and, indeed, visible war, throughphotographs and images, creates a notably different environment.
Second, all of the changes in the media in the 21st century. Not only isthis the first war of the 21st century from a military and technologystandpoint; it's also the first war of the 21st century in terms of themedia realities - 24-hour news and bloggers and digital cameras - all thethings that can be used and manipulated by the other side, which they dovery skillfully.
CT: You've read the Iraq Study Group Report.
DR: I haven't. I've read reports of it and gone through the executivesummary.
CT: From what you've read, what is the good, the bad and the ridiculous inthe ISG Report?
DR: All I'm going to say about it is what the president said. He has cooperated with it; he has met with them (the ISG) and received theirrecommendations. Every six to eight weeks he meets with a cluster of people.He has listened to the advice and counsel he gets from Generals Abizaid andCasey and the Joint Chiefs of Staff. In the period immediately ahead, hewill be making some judgments.
It's fair to say that he is faced the country is faced with a situation in which, because of the nature of the struggle and the fact that it is notwell understood by the American people, the president has the task of managing and maintaining sufficient support for the things he believes arenecessary for our country's safety. He has to take into account the realitythat, only if we persevere, do we have an opportunity to succeed. Thepenalties and consequences of failure are so dire for the country that he has to recognize the center of gravity of this struggle while, to someextent is in the Middle East, is (also), in a very real sense, here in theUnited States of America. He has to take that into account in reviewing andconsidering the variety of proposals and suggestions he has received.
We have been working with the military and the joint chiefs and the CentralCommand. Some time back, I drafted a memo that took into account a varietyof suggestions offered by various people inside the (Defense) Department andelsewhere and I asked Gen. Pace to use it as a discussion piece with thechiefs, which he has done as a way of stimulating their thinking. They havebeen interacting and plan to report to the president in two (meetings).
I personally believe that the consequences of allowing the situation in Iraqto be turned over to terrorists would be so severe not simply because ofIraq's oil, water, wealth and geographic position, population size andhistory but also because Iraq would become a haven to plan attacks on themoderate countries in the region and the United States. (It would diminish)the ability of the United States to provide protection for the Americanpeople.
CT: Dr. Gates, (Robert Gates, Rumsfeld's replacement as secretary ofdefense) in his confirmation hearings, answered Sen. Carl Levin's question,'Are we winning in Iraq?' with a 'No.' Later on he added, 'We're not losingeither.' This question seems to fit into the template feeding the withdrawalsyndrome.
DR: I didn't see his testimony and don't want to comment on it at all, butif you ask me my view, it is that the military can't lose, but the militarycan't win alone. It requires political solutions. They've got to havereconciliation. They simply have to take a series of steps that they've notyet sufficiently taken. Set aside World War I and set aside World War II.Think more of the Cold War.
At any given moment during the Cold War, which lasted 50 years, you couldn'tsay if you were winning or losing. The Civil War, as well. There aren'tstraight and smooth paths. There are bumpy roads. It's difficult. The enemyhas a brain. They're constantly making adjustments. Think of the faces ofthe Cold War when Euro-communism was in vogue, and people were demonstratingby the millions against the United States, not against the Soviet Union. Andyet, over time, people found the will - both political parties and WesternEuropean countries - to persist in a way that ultimately led to victory.
The circumstance we are in today is more like that than it is like World WarII. People are going to have to get more familiar with that idea. It's not ahappy prospect. There are people in the world who are determined todestabilize modern Muslim regimes and re-establish a caliphate across theglobe and anyone who wants to know about it can go on the Internet and readtheir own words and what their intent is. They're deadly. They're not goingto surrender. They're going to have to be captured or killed. They're goingto have to be dissuaded, people are going to have to be dissuaded fromsupporting them, from financing them and assisting in their recruitment,providing havens for them.
We're in an environment where we have to fight and win a war where the enemyis in countries we are not at war with. That is a very complicated thing todo. It doesn't happen fast. It means you have to invest the time, effort andability. We don't have the institutions, we don't have the organization andwe haven't had the training, as a society, to rapidly develop the skill setsso that the countries that are cooperative with us develop the capacity todevelop their own real estate, which they don't have.
CT: With what you know now, what might you have done differently in Iraq?
DR: I don't think I would have called it the war on terror. I don't mean tobe critical of those who have. Certainly, I have used the phrase frequently.Why do I say that? Because the word Śwar' conjures up World War II more thanit does the Cold War. It creates a level of expectation of victory and anending within 30 or 60 minutes of a soap opera. It isn't going to happenthat way. Furthermore, it is not a Śwar on terror.' Terror is a weapon ofchoice for extremists who are trying to destabilize regimes and (through) asmall group of clerics, impose their dark vision on all the people they cancontrol. So 'war on terror' is a problem for me.
I've worked to reduce the extent to which that (label) is used and increasedthe extent to which we understand it more as a long war, or a struggle, or aconflict, not against terrorism, but against a relatively small number ofterribly dangerous and violent extremists. I say violent extremists becausean extremist who goes off in a closet is extreme, but he's not botheringpeople. An extremist who has those views and insists on imposing them onfree people strikes at the heart of who free people are. There are peoplewho want to be able to get up in the morning and go where they want, do whatthey want and that is exactly the opposite of the vision of violentextremists.
People who argue for more troops are often thinking World War II and theWeinberger Doctrine, which is valid in a conflict between armies, navies andair forces. The problem with it, in the context of a struggle againstextremists, is that the greater your presence, the more it plays intoextremist lies that you're there to take their oil, to occupy their nation,stay and not leave; that you're against Islam, as opposed to being againstviolent extremists.
People who argue for more, more, more, as I would in a conventionalconflict, fail to recognize that it can have exactly the opposite effect. Itcan increase recruiting for extremists. It can increase financing forextremists. It can make more persuasive the lies of the extremists that weare there for the oil and water and want to take over their country. Thereis no guidebook, no map that says to Gen. Abizaid or Gen. Casey what theyshould recommend to the secretary of defense or the president as to numbers.It is a fact, whether or not it flies in the face of the popular media, thatthe level of forces we have had going into Iraq, and every month thereafter,are the number of troops the commanding generals have recommended. I havenot increased them or decreased them over the objections of any general whois in a position of authority with respect to that decision.
Is it the right number? I don't know. Do I have a heckuva lot of confidencein those two folks? Yes. Do I think it's probably right? You bet, or I wouldhave overruled it, or made a different recommendation to the president. Butthey have to walk that line; they have to find that balance.
There are two centers of gravity. One is in Iraq and the region; the otheris here. The more troops you have, the greater the risk that you will beseen as an occupier and that you will feed an insurgency. The more troopsyou have - particularly American troops, who are so darn good at what theydo, the more they will do things and the more dependent the Iraqis willbecome and the less independent they will become. If there's a ditch to bedug, an American does not want to sit down and teach an Iraqi how to dig theditch. He'll go dig the dad burn ditch. But that is not what the task is.The task is to get the Iraqis to dig the ditches.
On the one hand, you don't want to feed the insurgency and on the other youdon't want to create dependency. So at some point, you've got to take yourhand off the bicycle seat. You've got the bicycle going down the street.You're pushing and holding it up, and you go from four fingers, to threefingers, to two and you know if you let go they might fall. You also know ifyou don't let go, you'll end up with a 40-year-old who can't ride a bike.Now that's not a happy prospect.
Simultaneously, you have the problem here at home. The more troops you havethere, the more force protection you need, the more food you need, the morewater you need, the more convoys you need, the more airplanes you need, themore people get killed, the more targets there are. If part of the center ofgravity is back here in the United States and they constantly see moreAmericans getting killed, they ask, 'Where are the victories?' 'Where's theland warfare victory?' 'Where's the sea victory?' 'Where's the air victory?''Where's the body count?' 'How many of these people are we killing?' 'Howmany are we capturing?' 'How do we know if we're winning or losing?' Themore people you put in, the more you're going to get killed.
The argument has been unimpressive, not terribly thoughtful (or)multidimensional and a bit narrow in this regard. Do I know that the rightnumber is there? No. Do I think it is? Yes. Is there anyone who is smartenough to prove it is or isn't? No.
CT: Where are we on missile defense? We have rogue nations like North Koreaand now Iraq threatening with possible nuclear missiles.
DR: When we came in (2001), the president wanted to proceed with missiledefense. Even the proponents didn't agree with each other. Some wanted land,some wanted sea. And the opponents were viscerally against it. It was callednational missile defense so our allies were against it. To the extent wewere successful in defending ourselves, they felt they would no longer beprotected. So we had many meetings. We ended up calling it missile defenseand not national missile defense and our goal was not to separate ourselvesfrom our allies and friends.
Second, it meant the concept of a perfect shield, which is the way PresidentReagan's proposals were characterized by people who wanted to be dismissive.We decided to say that the reality is that this was in an early stage. Wewanted to do the developmental work to see what was possible and what madesense and what kinds of capabilities might be developed. That requiredgetting out of the ballistic missile treaty, which the president stepped upand did, to his great credit. That permitted us to do the necessary researchand development. We have been proceeding to do that.
I've always believed the way you get something is not by sitting aroundtrying to develop it full blown before you put it out there, but you testit, use it, play with it, evolve it, and that's what we've been doing. Wehave evolved to the point where we have an initial missile capability toshoot down a missile from a rogue state. We've not had to do it yet, but weare prepared to. Each month that goes by, additional elements add to thatcapability; whether it's an additional radar here, or a sensor there, anadditional interceptor, or a ship that can help triangulate and addinformation, or whether it's the development of information about thecapabilities of others Š all of that adds to a growing body of knowledgethat gives us increasing confidence we will continue to evolve thiscapability at a pace we believe is appropriate to the threat.
You'd like things faster, I suppose, but the North Koreans put thatTaepodong-2 (missile) on there and it didn't work. What we have to do isrecognize there is a threat to our country and there will be a growing treatto our country and we have to invest and evolve this capability, as we havebeen doing. We're now discussing things with European countries as to ways we could add radars and interceptors and various sensors that would improvethe capability to intercept an Iranian rogue missile.
CT: What are you most proud of in this, your latest, service in Washingtonand what is your biggest disappointment?
(Rumsfeld's aide handed me a stack of papers, in which Rumsfeld outlined his career high points, which included the liberation of 50 million people in Afghanistan and Iraq, which led to elections in Afghanistan and Iraq,capturing, killing the senior leadership of America's enemies, the shapingof forces for asymmetric warfare and humanitarian efforts, such asassistance for victims of hurricanes Katrina and Rita, the modernization offorces, organizational transformation, and moving toward a more agileinstitution.)
DR: We've achieved a number of accomplishments and a number of initiatives.We face risks down the road from things like cyber attacks, given our highdegree of vulnerability. Given our free way of life, we face risks fromchemical, biological as well as nuclear devices.
CT: Biggest disappointment?
DR: It's the inability to help the free people of the world to understand that this new century and the struggle we're engaged in is real, is terriblydangerous to their safety and regrettably, it is not going to be as easilyseen in terms of pitched battles.
CT: Will it take another 9/11 to make people wake up?
DR: There are people who have written that this administration is a victimof its success, due to the fact that there hasn't been another attack insidethe United States. I remember shortly after Sept. 11, I met with the Sultanof Oman in a tent. It must have been 150 degrees. We were perspiring throughevery piece of clothing we had on. He said this terrible thing that'shappened might be a blessing in disguise. It may be the thing that will wakeup the world to the danger these extremists pose, before those people gettheir hands on chemical, or biological or nuclear weapons where they couldkill many multiples of what they were able to kill on Sept. 11.
This was a man sitting in a tent in the desert with that perspective andunderstanding of the dangers of extremists. It did for a short while, butthen that threat diminished in their minds, whereas it not only has notdiminished in reality, it has grown because of the advances in technologies.Look at the Johns Hopkins exercise with small pox called Dark Winter. It wasput in three airports in America. Something between 800,000 and 1 million people 'died' in some number of months, or a year, from a disease people areno longer vaccinated against. So there are things that can be done. There'sa tendency for a lot of people to be dismissive of this and to ridicule it.
Churchill's phrase about the gathering storm - there was a storm gathering,but there were people in Europe who didn't believe it and who didn't takethe periodic storm clouds and the squalls as a real threat. They thoughtthey were transitory and, of course, paid an enormous penalty in treasureand life for their failure to understand the nature of that threat. I worrywe are in a gathering storm and we do not, as a society, accept it. Many ofthe elites of our society, the key opinion leaders, are unwilling or unableto accept what an awful lot of people believe to be the case. The penaltyfor being wrong can be enormous.
CT: Gen. MacArthur said, Śold soldiers never die, they just fade away.' Whatabout old secretaries of defense? A book?
DR: I don't know. I haven't given any thought to it. There are a lot ofpeople who think I should write a book and I may very well. Life's been goodand we feel very, very fortunate to have been able to be here and to beinvolved in something as important as this. Its' been an enormouslychallenging time for the country. I feel so fortunate to have had this veryintimate relationship with these amazing people in uniform - the young menand women who volunteer - who represent the best led, the best equipped, thebest trained, the most capable military in the world. They're motivated.They're proud. The people who are dismissive of them don't understand what'sgoing on in our society.
These are terrific people and they are doing a superb job. The fact thatit's tough; the fact that it's long; the fact that it's hard; the fact thatit can be ugly at times should take nothing away from what they're doing.They're doing everything a military can do.
Health care for Iraqis and Afghanis and prisons for criminals is not the jobof the military, all of those things are the tasks of other elements of ourgovernment and coalition partners and they take time. I read where someonewas saying this is longer than World War II. Germany didn't even have agovernment until 1949, as I recall. And you were dealing with a verydifferent environment in Western Europe than you are here. So the progressthat's been made in these countries, when the uniform personnel look backfive, 10 or 15 years from now, they're going to know that they helpedliberate 50 million people. That is a big thing. It is historic. They'regoing to know they've given these folks an opportunity to succeed in anenvironment that is not a repressive political system, but a free politicalsystem.
Is it easy to get from where they were to that? No, it's hard. It's darnhard. But is it worth it? You bet. People said the Japanese could never havea democracy. It didn't fit their culture, they said. Well, the Japanese aredoing pretty well with the second biggest economy on Earth. I feel thesefolks can be darn proud of what they've done and what they're doing.Fortunately, the history won't be written by the local reporters who arelooking for bad news to report because it's newsworthy. It will be writtenby history over time and with perspective.
Cal Thomas is America's most widely syndicated op-ed columnist and co-author of Blinded by Might.
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
here was a very interesting tidbit from the article
If you want to know what someone means when they say that the stock market is a leveraged play on economic growth, here's about as good a picture as you could find on the subject. Look at the very strong correlation between Nominal GDP growth (blue line) and Trailing Operating Earnings per Share on the SPX (red line). And note the differences in the scales (blue at left, red at right). Earnings growth tends to move with GDP growth but swings with much greater volatility (leverage).
And here's the troubling part. If the bond market is correct and Nominal GDP is going to remain low, near +4.5% in the longer term (yellow highlight on the chart above), then it is very likely that EPS growth (the red line) is going to fall quite sharply from the giddy +23% level that it achieved in 3Q06.
In fact, over the span of this chart, dating back to 1988, any time the blue line has fallen to 4.5% or below EPS growth has fallen to sub-zero levels.
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Guru Screen Buying High, Selling Higher John Reese, Validea Hot List 12.11.06, 3:10 PM ET
The old investment adage "buy low, sell high" makes perfect intuitive sense, but folks like William O'Neil would prefer to "buy high and sell higher."
Perhaps best known for Investor's Business Daily, the newspaper he founded, O'Neil is a seasoned stock picker and theorist. I base my interpretation of his strategy on his writings, specifically his book, How to Make Money in Stocks.
The O'Neil strategy doesn't believe in looking for bottom feeders, undervalued stocks or stocks-on-the-rocks that are likely to change from pumpkins into princesses. It looks for companies that are on a roll, have the wind at their backs and have momentum at their command. If you want the best, the O'Neil strategy believes you have to pay for it. O'Neil himself has the research to back up this approach. Don't expect to make money by buying first-rate merchandise at discounted prices; discounted merchandise is typically troubled merchandise. To use another cliché: You get what you pay for.
Special Offer: Invest like the legends--Graham, Buffett, Neff, Lynch and others. The Validea Hot List takes the best current picks based on the strategies of the world's best investors of all time. The portfolio has returned 171.4% over the past 3.5 years, versus 36.3% for the S&P 500. Click here for the complete list of current buys. One of the strategy's criteria that makes this point clearly is the requirement that a stock be trading no less than 15% off its 52-week high. Put another way, this strategy looks for stocks whose prices are high in the belief that such heights indicates the company is doing well and the stock has momentum. With momentum, it should be able to break through to new heights.
Of course, one has to watch out that the stock isn't overvalued. To this end, the strategy subjects each stock to a number of basic financial tests, such as earnings consistency, return on equity and the level of debt.
It is important to note, however, that this approach, in general, may pick stocks that tend to be more volatile than many of the other types of stock selection strategies that I've highlighted in past columns (strategies from the likes of Buffett, Lynch, Graham and others). Momentum, like strategies, can be boom or bust depending on the type of market environment, but over the long term, investors who can stomach the volatility and stick to the strategy can give themselves a good chance for market outperformance.
Special Offer: Dan Sullivan, editor of The Chartist, uses a similar high relative strength stock-picking strategy. He's doubled subscribers' money in Apple Computer and Gilead Sciences. Click here for the current buy list in The Chartist. Here are five stocks the O'Neil strategy views as having great potential. All of these stocks meet the methodology's stringent criteria.
1. Polo Ralph Lauren (nyse: RL - news - people )
This famous fashion house enjoys extremely strong growth--36.42% annually for the past five years. That's a big plus for the O'Neil strategy. In addition, earnings have been fairly consistent, having risen in four of the past five years. Ralph Lauren also meets the strategy's price criterion: Its stock is trading within 1% of its 52-week high.
Other things it has going for it: a strong relative strength of 86 (relative strength is a measure of a stock's price performance compared with the overall market over the past year), no debt and a return on equity of 18.2% (17% is the strategy's minimum).
A retailer of sporting goods, private's enjoys strong earnings growth of 26.06%, earnings that have increased in each of past five years, a stock trading within 2% of its 52-week high, a relative strength of 86, an attractive industry (19 companies in private's industry have a relative strength of at least 80), very low debt and high return on equity (22.9%).
3. Dril-Quip (nyse: DRQ - news - people )
This maker of offshore drilling and production equipment has a fast-paced rate of EPS growth--23.34%. Its earnings have increased in four of the past five years, its stock price is within 3% of its 52-week high, its relative strength is 88, its long-term debt is practically nil and its return on equity is a healthy 22.2%. This is a company on a roll.
4. Southern Copper (nyse: PCU - news - people )
Southern Copper mines for silver, zinc and other minerals in Peru and Mexico. Over the past five years, its annual earnings growth rate has been a sizzling 52.28%, during which time earnings increased in four out of five years. The stock's current price is about 4% below its 52-week high. In addition, the company's relative strength is 87, and there are 25 companies in its industry (metal mining) with a relative strength of 80 or more. Furthermore, the company has low long-term debt, and its return on equity is a very strong 54.6%.
5. Tenaris (nyse: TS - news - people )
Based in Luxembourg, this international manufacturer of seamless steel tubing operates in a number of countries, including Argentina, Brazil, Canada, Italy, Japan, Mexico and Venezuela. Its annual earnings growth rate over the past five years has been a blazing 75.12%. During this time, earnings have risen in all but one year, and the stock's current price is within 4% of its 52-week high. The company's relative strength is a very strong 91 (a relative strength of 90 or more is exceptional). Its debt-to-equity ratio is a low 0.12%, and its return on equity is a powerful 43.7%.
All of these companies get the O'Neil strategy's blessing.
In a report out today, The World Bank looks both at current economic growth rates and projections for the next 25 years. The report, Global Economics Prospects 2007 says "developing economies are projected to grow by 7.0 percent in 2006,more than twice as fast as high-income countries (3.1 percent), with all developing regions growing by about 5 percent or more." While these nations have only 22 percent of global GDP they accounted for 38 percent of the increase in global output. And they are expected to increase their share of global output by about 50 percent by 2030.
The report expects the world economy to grow from last year's $35 trillion to $72 trillion by 2030. And this "is driven more than ever before by strong performance in the developing countries." Only two decades ago the poor nations provided only 14 percent of wealthy nations' manufactured imports. Today they provide 40 percent and by 2030 they are projected to provide over 65 percent.
As it was over the last 25 years it is the poor who will benefit the most. "The number of people living on less than $1 a day [in constant dollars] could be cut in half, from 1.1 billion now to 550 million in 2030." And the number living on less than $2 per day will decline by an estimated 800 million.
This will happen in spite of a growing world population, though growth levels will be much slower than today. The population growth rate, which was around 1.7 percent in the 1980s will decline to 1 percent by 2015 and to 0.7 percent in 2030.
A new middle class will be created in the developing nations. Today 400 million people in the poorer nations are consider to be in the "global middle class" with a purchasing power parity of between $4000 and $17,000 per capita. By 2030 there will be 1.2 billion.
For the next 25 years the report estimates that developing nations will increase their wealth by an average of 3.1 percent per year, above their average of 2.1 percent for the last 25 years. "That rate of increase will produce average per capita incomes [constant dollars adjusted for purchasing power parity] in the developing world of $11,000 by 2030, compared with $4,800 today, roughly the level of the Czech Republic and the Slovak Republic today."
The net result is that the income of developing countries "will continue to converge with those of wealthy countries. This would imply that countries as diverse as China, Mexico and Turkey would have average living standards roughly comparable to Spain today."
As good as this is the Bank says things could be even better. They believe their projections "are fairly impervious to all but the most severe and sustained shocks" but they also admit that "the possibility exists that the world will be even better than envisioned... thanks possibly to unanticipated technological improvements, more innovation in business processes that allow for an acceleration of globalization and widespread adoptions of good policies within countries."
Their "optimistic" scenario would lead to incomes 45 percent higher than today and a decline of absolute poverty from 20 percent of the world's population to 4 percent. So many people seem to intentionally look for bad news or invent it. It's a nice change of pace to find a report from a world body which says that the future is either bright or very bright.
It's not whether you win or lose but how you play the game. This old adage is especially relevant to trading. Many novice traders assume that winning is the only thing that matters, but what they soon find out is that profiting over the long-term requires discipline and trading well developed trading plans. Sure, you can capitalize on chance and make a few winning trades here and there, but you can only win in the long run by developing a trading plan and following it.
It is important to distinguish justified wins from unjustified wins. A justified win is when a trader makes a very detailed trading plan and follows the plan. A win that results from following a trading plan is justified and reinforces discipline. An unjustified win occurs when a trader doesn't make a plan or drifts from the plan. He or she may be rewarded, but the outcome occurred by chance. The win is unjustified and can reinforce undisciplined trading.
For example, suppose you go long on a stock, expecting it to go up $1, but it went down. If you followed your plan, you might close the trade. Suppose out of frustration, though, you hold out and hope against hope that the trade will turn around. Now suppose that it does, and you end up profiting. You have ended up with a profit, but you may have reinforced an impulsive trading style.
You might think that profits are all that matter. "All is well that ends well," right? Well, maybe not. You may make a big profit, but at what psychological cost? Unexpected wins may provide short-term pleasure, but they can adversely influence discipline in the long term. Rather than developing a well-defined trading plan, following it, and getting rewarded by trading it, a trader puts on a trade haphazardly and is coincidently rewarded. In this case, a lack of discipline is rewarded, and this unjustified reward may increase a trader's tendency to abandon trading plans in the future because he or she has been rewarded for doing so in the past. However, the positive outcomes are usually short-lived, and a lack of discipline ultimately produces trading losses.
Cultivating discipline is vital for consistent and profitable trading. One implements proven trading strategies, over and over, so that across a series of trades, the strategies work enough to produce an overall profit. It's like making shot after shot on the basketball court so as to accumulate a winning number of points. The more shots you take, the more likely you will amass points. But the winning player is the person who first develops the skill to make the shot consistently, so that at every possible opportunity, the ball is likely to go through the basket. To a great extent, consistency is key. If the player uses one approach one time, and a different approach at another time, performance is haphazard. It's the same for trading. One must trade consistently, following a specific trading plan on each and every single trade. This allows the law of averages to work in your favor, so that across the series of trades, you will make an overall profit. If you follow the plan sometimes and abandon it at other times, you throw off the probabilities. Suppose you used a strategy that had a track record of 80%. Under the best-case scenario, you could only expect to win 80% of the time. But since history doesn't always repeat itself, it's likely that you will win less than 80% of the time. If you don't execute the trading strategy the same way each time, you will decrease your winning odds. And fewer winning trades may mean an overall loss. That's why discipline is so important.
With discipline comes profitability. Don't let unjustified wins interfere with your ability to maintain discipline. Follow your trading plan, and reinforce the idea that if you follow your plan, you will end up with profits in the long run. If you abandon your trading plan, and get an unjustified win, you may feel good in the short term, but you'll pay a long term price when it comes to your ability to maintain discipline. So clearly define your trades, and stick with your trading plan. The justified wins you receive from following your plan with help you develop an unwavering pattern of disciplined trading.
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
"The permabear faction and many other whiners seem to want to nail the turning point in the boom, even as they refuse to acknowledge the boom's reality."
"The permabear faction and many other whiners seem to want to nail the turning point in the boom, even as they refuse to acknowledge the boom's reality."
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