Fund report Judith Rehak IHT Saturday, March 22, 2003   After two years of a U.S. bond bonanza created by tumbling interest rates, most fixed-income experts are warning that the bond party is over and that it's time to switch into equities. Daniel Fuss, manager of the $1.3 billion Loomis Sayles Bond Fund, sees things differently. "It's a fascinating time for bonds right now," he said recently, citing big value distortions between government and corporate issues in the United States, and widely varying yield curves between the United States, Europe and Australasia. That spells opportunity for Fuss, who shops the world for his favorite value plays, from investment grade to the decidedly risky. One of the best long-term performers in the multisector category, his fund returned 13.18 percent last year, and as of Friday, a gain of 5.8 percent for 2003. An off-shore version, the CDC AM-Loomis Sayles Bond Fund, returned 15.60 percent and 3.65 percent respectively. So how is the portfolio positioned right now? With nowhere to go but up for U.S. rates, Fuss has sold off all of his U.S. Treasury issues. But 20 percent of the fund remains in his longtime favorites, Canada's federal and provincial bonds. Canadian rates are already rising, so he has switched half of the provincials into shorter maturities. "We've made our money, but we still like the currency," he said. The Canadian dollar has been strengthening against the U.S. dollar, which lifts returns. Fuss also owns AAA-rated short-term sovereign debt from Norway, where rates are kept high to hold down inflation. The current yield on Norwegian debt of about 1.5 years is roughly 4.90 percent, versus a meager 1.40 percent on a comparable U.S. Treasury. With this solid background as ballast for the portfolio, Fuss has added riskier fare. He likes U.S. corporates in depressed cyclical industries that should benefit from an improving economy. For example, he owns convertible preferred bonds from International Paper Co., and he notes that he already sees prices of certain grades of paper "rising and sticking". Even racier are carefully selected junk bonds from shaky survivors of the telecom meltdown, like Lucent Technologies Inc. and Corning Inc., both suppliers of telecommunications equipment. "It's risky," Fuss acknowledged, "but I don't mind taking risk at 40 cents on the dollar when the odds are 10 to one in your favor, and as long as you can diversify." His Lucent bonds have doubled in price. "I wouldn't buy any more," he said. Fuss has also dipped into a few of Europe's struggling telecoms. He owns convertibles in Britain's Colt Telecom Group PLC, where he is betting on revenue growth and better financial management, the latter installed by Fidelity Investments, the U.S. financial group whose investment unit is a majority owner of Colt. Colt is also buying back its bonds, another positive sign, Fuss said. Turbulence in emerging markets can yield onetime opportunities as well. In January, the fund boldly snapped up two bonds from Cerro Negro Finance, a venture between Petroleos de Venezuela SA, Venezuela's state-owned oil company and ExxonMobil Corp.,during a crippling strike of oil workers and widespread political unrest. The strike has now ended, and Fuss figures it's in the interest of both ExxonMobil and the government to get production going again. Meanwhile, one bond price has already popped 3.25 percent "The rating agencies are worried about the government, and so are we," Fuss said. "But that's when you buy cheap bonds."

Industry experts say Iraq war unlikely to cause shortage 3/21/03 By KEITH CLINES Times Staff Writer kclines@htimes.com

Long lines of cars waiting to get gasoline is an image from the past Gulf War, not the one that started Wednesday night.

Afternoon rush-hour business Thursday was quiet at the Exxon convenience store on Governors Drive near Huntsville Hospital.

"There's not been a rush,'' said clerk Sherrie McKinley. "Most of the regulars filled up instead of getting $5 or $10 worth."

Outside at the eight pumps, the average was two customers at a time. There were moments when no one was buying.

Wanda Jones of Guntersville stopped for a few dollars worth before heading home. She was surprised not to find a line at the station, which was selling regular unleaded gas for $1.699.

"I'm not afraid of not getting any gas," she said. "I just want to find the cheapest."

Should war stop the flow of crude oil from Iraq, Americans would have little problem getting gasoline for their cars and trucks, a state expert said Wednesday.

"I don't see any reason for panic buying,'' said Dr. Peter Clark, associate professor of chemical engineering at the University of Alabama. "There is no hint of a shortage."

Iraq can produce about 2 million barrels of crude oil daily, or about 3 percent of world production. Saudi Arabia and Qatar have increased production to ensure an adequate supply, and Venezuela is increasing its output to make up for a two-month strike that shut down its oil exports.

Oil futures on the New York Mercantile Exchange have grown steadily over the last two months as traders faced the uncertainty of war in the Persian Gulf. The futures prices hit $39.99 a barrel on Feb. 27, the highest price since October 1990 when the price rose to a record $41.15 a barrel the day after Iraq invaded Kuwait.

But President Bush's ultimatum to Saddam Hussein this week and the beginning of the war Wednesday night actually calmed fears. Thursday, oil futures fell on the belief that the war would be short with limited disruption of supply from the Middle East. The futures price was $35.32 a barrel last Friday. By Wednesday the price had fallen to $29.88, and oil ended trading Thursday at $28.61.

Those drops won't immediately show up at the pumps, although the average local price for a gallon of unleaded dropped from Wednesday to Thursday, according to AAA Alabama's fuel survey. The average price in Huntsville on Wednesday was $1.692 and was $1.690 Thursday.

A check of some Huntsville restaurants Thursday night also revealed typical crowds, despite the war in Iraq.

At Applebee's Neighborhood Grill &Bar, 2028 South Memorial Parkway, manager Robby Barnes said during the evening dining time the crowd at his restaurant was normal for that day of the week. "It's been about the same as it usually is," he said around 8:15 p.m.

The TV sets were tuned to war coverage, he said, but the telecasts were not drawing an especially large amount of attention from the patrons.

"We have CNN on and people are looking up at it now and then. It doesn't even appear to be a big topic of conversation," Barnes said.

Dave Montgomery, manager of Ruby Tuesday's at Madison Square Mall, also reported business as usual.

"The evening started out a little slow and at first I thought we were going to have a slow night, but around 7:45 people began coming in. The numbers were about typical for a Thursday night," Montgomery said. The restaurant has several TV sets and all but one were tuned to war coverage, he said. One was tuned to sports channel ESPN, but nobody was watching it.

The Steak Out location at 2105 Whitesburg Drive specializes in home delivery, customers stop there for carry-out orders. Assistant manager Darla Mayo said, "We have about the same for a Thursday night. We've got the news about the war on TV and people are watching it."

Times staff writer Howard Miller contributed to this report.

USA to host Venezuela after Japan football friendly cancelled

CHICAGO, March 21 (AFP) - The United States will host Venezuela on March 29 in Seattle after the Japanese Football Association decided not to travel to the US for two friendly matches because of the start of the war in Iraq.

"We are certainly disappointed by the decision of the Japanese Football Association," said US Soccer President S. Robert Contiguglia. "We provided their federation with ample evidence of the extensive security measures in place, and we continue to have every confidence that Seattle will provide a safe environment for the players and fans to enjoy an outstanding display of soccer. Sporting events around the country remain on schedule, and we look forward to welcoming Venezuela to Seattle."

Japan was scheduled to play Uruguay on March 26 at Qualcomm Stadium, then travel to meet the U.S. in Seattle three days later.

The United States is continuing preparation for participation in two major tournaments this summer. In June the Americans will square off against Brazil, Cameroon and Turkey in the FIFA Confederations Cup from June 18-29 in France, and the USA will defend its regional championship in the 2003 CONCACAF Gold Cup to be held from July 12-23 in Boston, Miami and Mexico City.

<a href=news.pacificnews.org>Commentary, Andrew Reding, Pacific News Center, Mar 21, 2003

Though France took the heat for its promised veto of the U.S. war resolution on Iraq, in fact Latin America was the resolution's defeater. As the rift between Washington and Latin America widens, America's isolation from its neighbors and NAFTA partners is taking its toll.

Much has been made of the split that has developed within the European Union over whether to join Washington in its war with Iraq. Almost unnoticed, though, is the rift that has developed in the Americas, leaving the United States virtually isolated in its own hemisphere.

To put it bluntly, France never got a chance to cast its Security Council veto because opposition from the United States' closest economic partners in Latin America ensured that the resolution could not pass. France may be the scapegoat, but Latin America was the resolution's undertaker.

Both of America's NAFTA partners -- Canada and Mexico -- have broken with Washington over Iraq. Elsewhere in Latin America, the only sizable nation whose leadership backs Washington is Colombia -- a war-torn nation that is the third-highest recipient of U.S. foreign aid after Israel and Egypt.

Canadian Prime Minister Jean Chrétien, whose proposed compromise resolution was labeled a "non-starter" in Washington, says he will not back the military effort in any way. His natural resources minister openly criticized President George W. Bush, saying, "I think he's let not only Americans, but the world, down by not being a statesman."

As recently as last November, President Bush said that "the United States has no more important relationship in the world than the one we have with Mexico." Bush's first presidential visit abroad was to Mexico, and Mexican president Vicente Fox was the first foreign leader to be feted with a state dinner at the Bush White House.

That relationship has now soured. President Fox was disappointed with the White House's unwillingness to pursue immigration reform following the Sept. 11 terrorist attacks. By May 2002, Fox was telling the Council of the Americas in New York, "There can be no privileged U.S.-Mexico relationship without actual progress on substantive issues...and there will be no substantive progress without comprehensively addressing the issue of migration."

In January, Mexican foreign minister Jorge G. Castañeda quit in frustration after failing to secure concessions on migration by aligning Mexico more closely with Washington on foreign policy issues, such as human rights in Cuba.

In the past month, however, Bush unexpectedly found himself needing to ask a special favor of Fox. Mexico had won a two-year seat on the United Nations Security Council in October 2001. Its support was now crucial to passage of the Bush-Blair resolution authorizing use of force against Iraq.

But Fox declined to provide that support, ultimately forcing abandonment of the resolution. It is not hard to see why. Public opinion in Mexico is overwhelmingly opposed to war with Iraq, and Fox's conservative National Action Party faces difficult parliamentary elections in July. Absent a major concession from Washington such as a deal on immigration, a yes vote would have been political suicide at home.

The other Latin American country with a seat on the Security Council -- Chile -- likewise said no. It did so even though it is the only other Latin American country to have concluded negotiations for a free trade agreement with the United States.

With the exception of Colombia, all the other major countries of the region -- Argentina, Peru, Venezuela and giant Brazil -- opposed the resolution. Besides Colombia, only the Central American nations of Nicaragua and El Salvador lined up with Washington.

This is not the first time the Bush administration has found itself isolated in Latin America. When the White House briefly gave its blessing to the abortive military coup against Venezuelan president Hugo Chávez last April, Mexico led 19 Latin American nations in condemning the coup. Only tiny El Salvador lined up with the United States.

Frustrated in its attempt to develop a new relationship with the "colossus of the north," Mexico is again turning southward, reassuming its traditional leadership role in Latin America, and cultivating ties with the European Union. Short of a major change of attitude in Washington, Latin America will pursue its own path toward economic integration, with rising hostility to the United States.

"Anti-Americanism" has been signaled as a primary source of concern in the post-Sept. 11 environment. With anti-Americanism on the rise throughout the Americas, one thing is certain: Washington's indifference to the concerns of its continental neighbors is beginning to compromise its own interests.

PNS Associate Editor Andrew Reding (areding@earthlink.net) is a senior fellow of the World Policy Institute in New York.

www.forbes.com Reuters, 03.21.03, 5:03 PM ET By Tim Ahmann WASHINGTON, March 21 (Reuters) - U.S. consumer prices posted their biggest gain in more than two years in February as energy surged on the march to war with Iraq and food costs jumped, the government said on Friday. But the government's Consumer Price Index showed inflation well-contained apart from volatile food and energy costs. The CPI, the main U.S. inflation gauge, rose 0.6 percent last month, the Labor Department said. It was the biggest gain since a matching rise in January 2001 and was a touch above the O.5 percent increase expected on Wall Street. Energy prices shot up 5.9 percent, the largest increase since June 2000, while food costs staged their biggest climb since June 1996, gaining 0.7 percent. However, the so-called core CPI, which strips out food and energy, edged up just 0.1 percent, a notch below the 0.2 percent increase economists had expected and a sign that underlying inflation pressures were lacking. That meager gain brought the 12-month rise in core prices to just 1.7 percent, the smallest in nearly 37 years. In contrast, the overall CPI has risen a strong 3.0 percent over the last 12 months, mostly on higher energy costs. Markets shrugged off the data, focusing instead on the war in Iraq with investors' hopes rising that the conflict's toll on the U.S. economy would prove to be limited. Stock prices surged, with the blue chip Dow Jones industrial average <.DJI> closing up 235 points at 8,523, its best weekly gain since October 1982. Bonds sold off as investors scaled back expectations that the Federal Reserve might have to ride to the economy's rescue with interest rate cuts. A separate report released on Friday suggested the fate of the U.S. economy depends on a quick resolution of the U.S.-led war in Iraq. The Economic Cycle Research Institute said its weekly leading index fell to a 10-week low due to war worries. "If it is quicker and more decisive, we have a chance at tipping away from a recession," ECRI Managing Director Lakshman Achuthan said. "If something goes wrong and things get bogged down, we can tip toward more vulnerability which would lead to recession." OIL Many economists have worried a sharp increase in the price of oil in recent months, which helped pushed gasoline pump prices to a record high of $1.73 a gallon this week, would take a big bite out of consumers' wallets and slow the economy. Gasoline prices rose 9.9 percent in February, the largest monthly gain since June 2000, and the cost of heating oil spiked up 15.8 percent, the sharpest gain in three years. But relief may be on the way soon. Oil prices had climbed steeply through February after a now-ended workers' strike in Venezuela cut into supplies and as the United States prepared for war in Iraq. But as war began to appear inevitable and bombs started to drop, prices turned tail. Crude oil future prices fell to four-month lows in New York trade on Friday after U.S. and British troops seized control of key oil-producing areas in southern Iraq. Crude prices are now down a third from the 12-year high reached late last month. Comfortable that retail energy prices would soon recede, economists focused on the benign underlying inflation picture presented by the 0.1 percent rise in the core CPI. "Most people should not be concerned about inflation," said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis. The scant increase in core prices reflected a 0.2 percent drop in apparel costs, a 0.1 percent decrease in new vehicle prices and a 0.3 percent plunge in prescription drugs prices. An unchanged reading in shelter costs, which had been rising sharply, also helped hold core prices down. WHAT NEXT? Federal Reserve policymakers think inflation will likely drift lower this year given a high degree of slack in the economy, minutes from a January rate-setting meeting released on Thursday showed. However, officials spoke about a number of "crosscurrents" that made the inflation picture hard to judge. Still, the recent rise in oil and gold prices has eased fears that the United States could face deflation -- an outright drop in the general price level. "Inflation is in existence. We are nowhere near close to a deflationary environment," said David Durrant, chief currency strategist at Bank Julius Baer in New York. Rising service prices have ensured a modest inflation in the United States despite falling goods prices. Fed officials held interest rates steady at 1961 lows this week and said that given the high degree to which war clouds had shrouded the outlook, they could not "usefully" characterize whether economic risks were weighted toward inflation or weakness or balanced between them.