MSN A drawn-out conflict in Iraq -- one lasting into summertime -- would further delay any recovery and hurt some companies more than others. Here's a sector-by-sector look. By Michael Brush Just two weeks into the conflict with Iraq, media commentators are already floating the dreaded Q word. Quagmire, military officials shoot back, popped up as a concern early in the conflict with Afghanistan, as well. And look how that one turned out. True. But what if this conflict does drag out through the summer because allied troops get bogged down in house-to-house combat or endless skirmishes with diehard guerilla fighters? Above all, that would be a tremendous heartache for the families of men and women fighting in Iraq or anyone else who cares deeply about them. But a drawn-out war would hurt in other ways as well, primarily by putting off the robust economic rebound needed to produce jobs and growth. Here are the highlights of how a long war might impact the economy and the market. Retail spending: more pullback? Already on shaky ground because of worries about jobs and economic growth, consumers will pull back even more as the war drags on. “This past weekend many malls did not have much foot traffic because people did not want to go out shopping amidst all this savagery they are watching in their living room,” says Kurt Barnard, president of Barnard's Retail Consulting Group. Indeed, four of the nation's biggest retailers said Monday that sales continued to suffer last week because consumers are so focused on the war. Citing what it called the "CNN effect," or shoppers staying home to watch war coverage, Wal-Mart Stores (WMT, news, msgs) warned that same-store sales -- sales at stores open at least a year -- will be at the low end of its forecast for March. Federated Department Stores (FD, news, msgs), Nordstrom (JWN, news, msgs) and J.C. Penney (JCP, news, msgs) offered similar warnings. Barnard thinks consumers will pull back even more if the war drags on. “People will start to feel guilty about buying things to make themselves feel good at a time when American men and women are in harm’s way,” he says. About the only thing to be spared will be spending on necessities. But that won’t save retailers, since most sell lots of discretionary goods even if they do stock plenty of staples. With capital spending at companies already weak, continued declines in consumer spending will raise fresh doubts about the prospects for overall economic growth. Exposure of U.S. companies abroad Opposition to the war tips in at 70% to 90% in many countries around the world. So it’s no surprise that war opponents are launching boycotts against U.S. products and leading campaigns that grab headlines and sometimes result in outright attacks on storefronts. Soon after the war started, Paris demonstrators smashed the windows of a McDonald's (MCD, news, msgs) restaurant, forcing police in riot gear to protect staff and customers. In Indonesia, war protestors have pasted signs on the doors of McDonald’s and other American fast-food restaurants to limit entry. Bars and restaurants in Germany have pulled Coca-Cola and Budweiser from menus. A Web site sponsored by Consumers Against War calls for boycotts of 26 top American companies (see link at left). It’s hard to imagine this won’t affect results at U.S. consumer companies. After all, companies such as Coca-Cola (KO, news, msgs) get some 70% of their sales from abroad. Other U.S. companies with large foreign presences include Anheuser-Busch (BUD, news, msgs), The Gap (GPS, news, msgs), Procter & Gamble (PG, news, msgs), Colgate-Palmolive (CL, news, msgs) and Starbucks (SBUX, news, msgs). So far, money managers aren’t too concerned. “We have seen this movie before,” says Rajiv Jain, an analyst with Vontobel International Equity (VNEPX). “These things normally don’t change buying habits in a dramatic fashion or have a real impact on business.” Investors may react nevertheless, selling off shares in these companies. And sustained boycotts in a drawn-out war scenario would do some damage. The companies above declined to comment on foreign sales trends since the start of the conflict with Iraq. The ailing airlines Expect more losses because a prolonged war and fears of terror strikes would ground more business travelers and tourists. As of March 23, airline traffic was off 7% domestically and 25% for cross-Atlantic flights. Domestic bookings were down more than 20%. Higher fuel prices, meanwhile, are pinching airlines on costs. Salvation for airlines could come from two corners. The government might step in with bailout packages. And unions may offer enough concessions to keep troubled airlines aloft. Just this week, unions at AMR Corp.'s (AMR, news, msgs) American Airlines offered just enough concessions to keep the company afloat, and US Airways Group (UAWGQ, news, msgs) emerged from bankruptcy protection. Without proper aid from government and unions, a big carrier like United Airlines parent UAL Corp. (UAL, news, msgs) could go under. While that would be bad for employees (and places like Chicago, Denver, Washington and San Francisco where United has major hubs), the loss of a major carrier could help survivors in the long run by reducing industry capacity. Potential winners include the more financially sound airlines that will pick up business, such as America West (AWA, news, msgs), Northwest Airlines (NWAC, news, msgs), Frontier Airlines (FRNT, news, msgs), and low-cost carriers Southwest Airlines (LUV, news, msgs) and JetBlue Airways (JBLU, news, msgs). (For a more detailed discussion, see my recent column, “6 airlines that win if United fails.’) The geopolitical turmoil, meanwhile, hasn’t soured the outlook among insiders at Mesa Air Group (MESA, news, msgs), notes Vickers Weekly Insider Report. Seven executives and directors bought over 68,000 shares in March at prices from $3.08 to $3.28 per share. Already, they’re winners: the stock closed Tuesday at $5.34. Bonds, gold and the dollar If the war is long, expect bonds and gold to strengthen. The dollar and cyclical stocks will weaken. “Putting aside the overriding humanitarian considerations, the market wants to see this conflict end as soon as possible so that confidence will come back for consumers and business,” says Jim Moltz, an equity strategist with International Strategy and Investment Group (ISI), a New York investment research firm. Until that happens, bonds will likely advance as investors favor fixed income holdings over stocks, which will perform poorly in a sluggish economy spooked by an ongoing war. Higher bond prices mean lower interest rates. And that would hurt the dollar as investors move money elsewhere. “In a slow economy, the two-year Treasury yield could fall through historic lows and that kind of environment would be just awful for the dollar,” says Chris Orndorff, a money manager at Payden & Rygel in Los Angeles. Lower rates might spark another mortgage refinance cycle. But where that cash ends up will depend on the mood of the consumer, says Patrick Alwell, a bond market analyst for ISI. He points out cash levels among individuals recently rose 18% over last year. Consumers may also opt to pay down debt. The dollar would also lose some of its “safe haven” status as investors worry about the effects of more terror strikes on the economy. All these factors would be positive for the euro and the Swiss franc, says Orndorff. A weak dollar, meanwhile, would nudge up the price of gold. Because gold is priced in dollars, it looks cheaper to foreigners as the dollar declines. So they buy more. Second, the worries weighing on the dollar -- from war and terrorism to U.S. economic weakness -- push investors towards hard assets like gold, says Jay Shartsis, of the brokerage R.F. Lafferty & Co. in New York. Shartsis also likes gold stocks because investors are so bearish about them. Often, groups of stocks reverse a downward trend whenever investor fear about them nears peak levels. Shartsis says investor bearishness on gold stocks recently got close, based on the large number of put options purchased on gold stocks. Investors buy puts when they are bearish about stocks, because puts give them the right to sell stocks at a pre-arranged price, even if the stocks tank. Outlook for oil Near term, the Kirkuk oil fields in Northern Iraq are the key factor to watch. “If the Republican Guard lights them up, you could see oil go up several dollars a barrel,” says Tom Petrie of Petrie Parkman, an energy-related investment bank in Denver. Not that the fields contribute that much to world production. “But you would have the yellow flames on the screen, and psychologically that would be the backdrop for oil traders.” In this scenario, oil could spike into the upper $30 range for a short period. Otherwise, several forces easing demand will keep oil prices in the $25 to $30 per barrel range -- despite war jitters and problems with supply from Venezuela and Nigeria, says Petrie. First, the home heating season is behind us. Second, if world economic growth slows because of a prolonged war, that will reduce demand for oil. Energy companies that may outperform if oil holds in the $25 to $30 per barrel range include independent producers such as Westport Resources (WRC, news, msgs), Forest Oil (FST, news, msgs) and Cimarex Energy (XEC, news, msgs), says Petrie. No cakewalk for defense sector To get the crass question out of the way, no, a prolonged war probably won’t help defense stocks. First of all, ammunition and ordnance comes out of hefty stockpiles which are replenished at a rate set awhile back -- with foreseeable conflicts in mind. Plus the war won’t increase production of the big-ticket items that account for the lion’s share of revenue, said Paul Nisbet, a defense sector analyst at JSA Research in Newport, R.I. That means planes, ships, vehicles and missile defense systems. Meantime, perhaps surprisingly, if the war drags on very long, spending on defense projects could actually drop. That’s because spending to support the troops on the ground could crowd out planned outlays for hardware. This very thing happened during the Vietnam era. To be sure, defense stocks are trading down with the market, and some believe they’re a good buy for long-term investors -- no matter what the length of the war. But ironically, a long war calls all assumptions into question. Money flow to Asian markets As investors shy away from U.S. stocks in a prolonged war scenario, some of their money will flow to parts of the world removed from the conflict and experiencing economic growth -- like China. Since the start of the year, China’s Shanghai Composite has advanced 10% while the S&P 500 is off by about 2%. “They are far from the mess,” says Orndorff. “And those markets are not typically correlated with the U.S. markets. Europe is somewhat tethered to the U.S. economically.”

At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column.

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URL 2003-04-02 / Reuters /

Sixteen Colombian journalists working in a region where U.S. special forces are providing anti-guerrilla training said they were fleeing to the capital Bogota on Monday after receiving death threats from gunmen, a media rights group and colleagues said.

Paris-based Reporters Without Borders (RSF) said leftist rebels and right-wing militias fighting in Colombia's four-decade-old war had separately declared the journalists in the eastern, oil-rich province of Arauca "military targets" and warned them they should leave or face being killed.

Rodrigo Avila, a correspondent for Caracol TV and one of the journalists threatened, said local radio stations in Arauca were only playing music and airing cultural programs.

"The rebels' idea is to silence the press in the capital of Arauca and unfortunately they are achieving it. We are forced to shut up and find a solution," Avila told reporters.

The Revolutionary Armed Forces of Colombia, known as the FARC, produced a list of eight journalists, while the right wing paramilitaries, known as the AUC, threatened another eight, and also named two who had previously been killed.

One of the men named, Eduardo Alfonso, was gunned down and killed two weeks ago by suspected far-right paramilitaries as he arrived for work at an Arauca radio station. His boss, Efrain Varela, was killed last year.

War-ravaged Colombia is one of the most dangerous places in the world for reporters, according to media watch groups.

President Alvaro Uribe late last year declared Arauca, a steamy area of savannas and swamps on the border with Venezuela, a special war zone, giving security forces extra powers to control movements and check identities.

The measures, which have been strongly criticized by rights groups, have had little effect on violence in the province, which has been hit by a rebel car-bombing campaign.

About 70 U.S. special forces are in Arauca province training Colombian troops to combat guerrillas and defend a key oil pipeline.

Local police say they do not have enough bodyguards to protect the threatened journalists.

"We ask the government to guarantee the security of the journalists threatened in the province of Arauca," RSF said in a news release. "The absence of journalists is an open door for more abuses."

Journalists in Arauca routinely face harassment and threats from rebels and militias fighting for control of oil proceeds and the booming drug trade.

In January, rebels held a British reporter and an American photographer hostage for almost two weeks, in a kidnapping which drew worldwide attention. Attacks on local reporters hardly ever make international headlines.

<a href=www.energypulse.net>Energy Pulse 4.2.03   Jose Luis Gambande, President, Andrews SA

Not all things are worsening in Latin America economy and, particularly, in energy markets. Technology is opening new businesses niche, if you have an aggresive vision and a ground knowledge.

Scenario The old problems of the Latin-American economies have not disappeared. Even, some of them seem to have aggravated with the problems of American economy and some hard changes in Brazil and Argentina, including unstable politics in Venezuela and Bolivia.

But, in the last decade, some progress were made in public services. The liberal wave left better de-regulated markets in almost all countries, most of them in the electric wholesale market.

In the 90´s, continuing and copying the models of Chile and Argentina, almost all the countries adopted electrical markets of similar characteristics, among which the most importants were:

• Self-regulated Markets
• Authority independent rules
• Marginal Pricing
• Prohibition of vertical integration
• Prohibition of generators and distributors concentration(monopoly)
• Incentives for the private investment
• Free access to the transmission grid

Strictly speaking, many of these criteria were not applied in all countries in the same way, but each one adopted restrictions imposed by its internal economic most powerful actors. (perhaps Argentina could be the more close example to the ideal market in electric energy related business)

Old problems All these efforts to modernize the electrical energy market have been faced to the old and classical regional problems. And there were exactly these problems the ones that have braked the development of these markets.

The strong dependence on foreign capital is one of them. This kind of capital only moves on with gigantic transactions and projects, often executed by governments itself far beyond its management skills, and with an implicit trend to excite the structural corruption. This dependence was clear in all privatization processes in Latam.

Failure to create serious and independent control and regulation agencies, conducted by expert and honest professionals, and provided with sufficient resources. These agencies are the guarantee of market transparency and its poor performance elevates notably the risk of any investment, more in the energy business where the ROI requires constant settings during many years.

Today Now the governments are not able to face new great generation plants like in the past. They have to wait international capitals to enter the game, but private funds are looking at recession indexes, establishing an impasse before enter in new projects. But in the future, with new and great projects on the way, prices will not move downwards as it were in the past. Market works.

In spite of the fact that markets have been submitted to strong tensions, as the originated by the devaluations of the local currency (Brazil, Argentina), the political difficulties (Venezuela) and the macroeconomic changes (Ecuador), they are still operating within its rules. This is a good signal.

Renewal energies, in special hydro, are plentiful in Latam. And technology is breaking down the prices of turbines and governors, achieving costs /kW that in the past were proper of big machinery. A new and realistic option for the region. And another fact: Nevertheless the energy continues being a strategic commodity and of great profit in the majority of the countries of the region. Self-regulated markets, working at international price level with few exceptions, are a big chance.

New business South America is not the promised land. But it has opportunities for all people that have certain intelligence and know how to avoid the traps that the underdevelopment imposes.

The model of CSHP (Coordinated Small Hydro Projects), for instance, offers a new vision of the energy generation business in the region. Its fundamental premises are based on identification, evaluation and assembly design of small hydro generation plants with the paradigm of construction and operation costs reduction through design.

These hydroelectric plants (typ 2 to 10MW each, qty 3 to 6), designed as a whole system, will achieve a very much lower cost per Kw installed than any of them separately.

We all heard about hydro plants that they are always different each from another. But we ask: what is “different”? And the answer is not so easy. It requires a new approach from the point of view of what “different” means from the cost´s point of view.. The fact that many components are not ´on the shelves´ does not mean, necessarily, that it has different manufacturing costs.

The model requires a modelling of possible universe of plants in a specific region, to choose the better granularity and the possibilities of expansion in the time, that reduce investment and, therefore, increase IRR.

To date, we have the technology to do perform that. Specialized programming tools, better and wider insights in to the manufacturing process, and innovative thoughts, are the key. And we are moving forward.

Utilizing criteria of modularity and standarisation, the expected reduction of different elements (generators, governors, controls, etc.) conducts to very optimized costs. On the other hand, programming joint or scheduled manufacturing already causes reductions in the final price of various components.

The careful selection of the location of the plants contributes to diminish the climatic risk, permitting a diversified income that assures a balanced cash flow. So, investments are more stable in time inside a same country. Technology offers today systems to perform O&M of plants located far away.

Even in civil design works, different designs can be carried out with a minimum investment if you know and program the complete set of work to do. In addition, local costs are diminishing in all Latam countries compared with developed ones and measured in USD.

And there are more advantages: An adequate design of the facilities of O&M will do also improve the operational conditions. And the ROI, of course.

The majority of the markets of the region permits the sale of energy blocks, some with the figure of the trader, or by means of contracts to term that enable the sale of a block of energy and/or power. The greater availability of these blocks do them more attractive for the industries that are so called electro-intensive. Though this increase the transmission toll, only the reduction of operational cost will over compensate this greater cost. Looking at the future, even the simultaneous and joint undertaking in various countries will improve the necessary forecasts of political risk, for instance.

CSHP is applicable in greater or smaller measure in almost all the countries of the area. In some of them it is still necessary to remove some regulatory obstacles and in other the practical incentives to renewal uses is still negligible.

Figures The total volume of hydro energy composed by SHP (< 10MW) that can be mobilized in Latam is of 2400 TWh/yr, based on expert estimations of 1999.

Not all of these sources can be implemented, not even studied inside CSHP framework. Considerations must be made regarding site conditions, grid conditions, isolated systems, and restrictions that could be operative in each one. The modelling process often begins with a complete projects database feeding an expert system that moves forward and backward looking for the proper project´s suit

As one of various simulation processes showed, following a conservative calculation, a case modelled on the base of 5 x 10MW in a small market like Ecuador, presents rates of ROI of 25%+ in optimistic conditions of evolution of prices, and 18% in the pessimistic (worst) case.

Conclusions All the facts showed above are of common sense, you can say, but difficult to implement. Think it twice. We did. CSHP coud be a good option for small and medium size investors who are now looking for diversified risks with a creative mind. All you need is knowledge of what and where.

And CSHP is an example, too, of the opportunities that the Latin-American market, in spite of its distortions and ambiguity, has to offer to smart investors. The only condition is to challenge those things that are called “impossible”.

<a href=www.sfgate.com>SFGate.com Tuesday, April 1, 2003
(04-01) 15:55 PST MEXICO CITY (AP) --

Mexican stocks closed lower Tuesday despite U.S. market gains, as local interest rates rose following the central bank's latest monetary tightening.

The market's key IPC index closed down 0.3 percent or 18.27 points at 5,895.76. At the end of 2002, the IPC stood at 6,127.09.

Volume was a modest 56 million shares worth 723.5 million pesos, compared with Monday's 59.4 million shares worth 774.7 million.

A Mexico City trader said the monetary tightening pursued by the Bank of Mexico to keep inflation in check was negative for local stocks.

Among the most active issues Tuesday, phone company Telmex L shares fell 1.4 percent to 15.76 pesos, retailer Walmex V shares fell 0.8 percent to 26 pesos, and banking group BBVA-Bancomer B shares fell 0.6 percent to 8.23.

Wireless phone service provider America Movil L shares rose 0.3 percent to 7.29, and brewer Modelo C shares rose 1.8 percent to 22.26.

SAO PAULO, Brazil (AP) -- Brazil's stock prices ended higher Tuesday as the country's C-bond and real rallied and global equity markets recovered slightly from war-induced gloom.

The main Sao Paulo index finished 2.8 percent ahead at 11,592 points, compared with 11,273 points at Monday's close.

Stocks rose as Brazil's real strengthened about 1 percent Tuesday to its best level since Jan. 14. The country's foreign bonds hit their best levels since May 2002 on signs Congress is getting ready to pass some key reforms the government has promised the market.

On the stocks front, key fixed-line telecoms saw heavy interest. Bellwether Telemar rose 5.3 percent to 29 reals. Jet-maker Embraer rose 4.7 percent on news American Airlines, a key client, has struck a deal with unions to stave off bankruptcy.

Oil giant Petrobras gained 2.6 percent to 47.60 and retail companies like supermarkets chain CBD rose 3 percent to 44.

SANTIAGO, Chile (AP) -- Share prices on the Santiago Stock Exchange closed lower Tuesday, with uncertainty about the Iraq war weighing along with lower utilities share prices and a plunge in copper cable maker Madeco, traders said.

Chile's blue-chip Ipsa index dropped 0.2 percent to 1,006.93 points from 1,008.64. The narrower Inter-10 index of more liquid, internationally traded Chilean shares lost 0.3 percent to 98.83, compared to 99.04.

Volume plummeted to a low 4.54 billion pesos from 10.13 billion as uncertainty drove investors out of the market, traders said.

Liquidity will also be reduced by the capital increase approved by shareholders in utilities heavyweight Enersis, which in a first phase will see its Spanish parent, Endesa, raise its stake in the company above 65 percent.

Enersis' shares will trade close to the 60.42 issue price for new shares and also limit liquidity at its Endesa Chile unit. Enersis ended down 1.7 percent at 57, while Endesa Chile lost 0.2 percent to 172.

CARACAS, Venezuela (AP) -- Venezuelan shares ended a bit higher Tuesday, with the IBC General Stock Index closing at 8,570 points, up about 0.7 percent.

The market's biggest stock, telephone giant CA Nacional Telefonos de Venezuela, or CANTV, closed 45 bolivars, or about 2 percent, higher at 2,350.

CANTV's American Depositary Receipts, worth seven common shares each, were down 7 cents at US$8.91 each in late afternoon trade on the New York Stock Exchange.

BUENOS AIRES, Argentina (AP) -- Argentine stocks closed mixed Tuesday, with exporters falling back as the peso strengthened against the dollar and a late rally took the market back to near its opening levels.

The large-cap Merval Index closed down 0.62 point, or 0.1 percent, at 565.84 points, while the broader General Index finished 87.25 points or 0.3 percent higher at 27,008.56 points.

Despite last Friday's announcement that President Eduardo Duhalde had signed a decree ordering a year-old banking freeze to be lifted over the next four months, the peso gained ground Tuesday, closing at 2.965 per dollar, compared with 2.985 Friday.

Among the hardest hit of the export stocks were petrochemical company Indupa, which closed down 3.3 percent at 1.77, aluminum firm Aluar, which was 2.3 percent lower at 4.30, and carmaker Renault, which weakened 1.5 percent to 1.32.

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Tuesday, April 01, 2003 By: Patrick J. O'Donoghue

The weekend homicide rate nationwide rocketed to 108 with a record 72 cases reported in the provinces and 36 in the Caracas Metropolitan area. 

• In Caracas, Libertador municipality reached a record 34 homicides and Sucre municipality 2. 

In the provinces, Zulia State beat Carabobo as No.1 provincial red stop with 11 homicides ... Carabobo reported 10, Miranda 8, Portuguesa 5, Aragua, Tachira and Apure 4 each, Lara, Falcon, Nueva Esparta, Anzoategui 3 each. 

25 persons died settling of scores, 15 in shoot-outs with the police, 13 resisting mugging, 9 in street brawls, 5 crimes of passion, 2 revenge and 2 shot while robbing.