cbs.marketwatch.com By CBS.MarketWatch.com Last Update: 4:28 PM ET Feb. 27, 2003

TULSA, Okla. (CBS.MW) -- Williams Cos. announced Thursday that it's completed the sale of its retail travel center operations to Pilot Travel Centers for $189 million. EARNINGSWATCH Gap reverses year-ago loss, hits Wall Street target Gold prices drop to one-week low on stronger dollar Novellus holds first-quarter targets steady Univision sees Q4 topping views Free! Sign up here to receive our SiteWatcher e-Newsletter!

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The deal includes 60 travel centers and their working inventories in 15 states, Williams said.

The company (WMB: news, chart, profile), which is primarily engaged in the exploration, processing and transport of natural gas, said about 1,500 people were working for Williams TravelCenters when the transaction closed.

The former corporate office for the operations will remain open for portions of March and April for certain employees providing transitional services, Williams said.

The firm's only remaining retail petroleum assets consist of 29 convenience stores in Alaska. Those stores are up for sale under Williams' plan to divest its North Pole, Alaska refining operations.

Shares of Williams closed up 13 cents at $3.85.

Valero L.P. sees Q1 profit below target

Valero L.P. said Thursday that lower refinery runs would weigh on its first-quarter earnings.

The company (VLI: news, chart, profile), a master limited partnership 73-percent owned by Valero Energy (VLO: news, chart, profile), expects first-quarter earnings of 55 cents per unit, below the current average estimate of two analysts polled by Thomson First Call for a profit of 69 cents per unit.

The San Antonio owner and operator of oil pipelines said it continues to expect a sequential decline in average pipeline and terminal throughput levels due to lower refinery runs at certain facilities in January and early February.

Valero L.P. also cited reduced crude oil availability due to the oil worker's strike in Venezuela.

It expects pipeline and terminal throughput levels to return to normal levels for the remainder of 2003. The stock closed at $37.98, down 52 cents.

PG&E posts $2.2 billion loss in Q4

PG&E Corp. lost $2.2 billion in the fourth quarter, as revenue fell and operating expenses leaped 60 percent, the utility operator said Thursday.

PG&E (PCG: news, chart, profile) said it lost $5.75 a share, the result of $2.4 billion worth of asset impairments in the merchant power-generation unit of the PG&E National Energy Group. In the comparable period a year ago, the utility earned $520 million, or $1.45 a share.

See full story.

Oil prices ease back from 12-year high

Crude futures soared to a fresh 12-year high before easing back Thursday, as traders maintained a high degree of wariness over the latest developments regarding a possible war with Iraq.

The pull-back in prices also weighed on many oil company shares.

See Futures Movers and Energy Stocks.

www.smh.com.au By Matt Wade February 28 2003

Businesses shrugged off the threat of war, drought and global economic gloom and spent up on investment last quarter, but the relentless rise in oil prices continues to haunt the economy.

Capital expenditure rose 13.8 per cent in the December quarter to be up 24 per cent in 2002, the Bureau of Statistics said.

"Corporate Australia is taking advantage of solid profit growth and healthy consumer demand to both upgrade and update its assets," CommSec senior analyst Craig James said.

There was no sign that global uncertainties have taken much of a toll on future investment plans, with local firms reporting solid investment intentions.

"Australia is two years into a business investment upturn and [this] data points to it extending into 2003-04," Deutsche Bank senior economist Tony Meer said.    advertisement       advertisement

Investment in plant and equipment was up a strong 17.1 per cent in the December quarter and is expected to lead the way in the months ahead, analysts said.

Investment in buildings and structures was up 3.6 per cent in the quarter.

Investment by miners and manufacturers stood out and transport was boosted by spending by Qantas and Virgin Blue.

Official economic forecasts have been counting on business investment contributing significantly to economic growth this year, and yesterday's figures confirmed these expectations.

HSBC senior economist Anthony Thompson said the capital expenditure figures were stronger than expected considering the confidence-sapping global backdrop.

"Considering the survey was taken during January-February, when business confidence fell back under the weight of geopolitical concerns, investment plans for both 2002-03 and 2003-04 are very strong," he said.

The investment strength made an imminent interest rate cut even less likely.

"The Reserve Bank's confidence in the economic outlook has been reinforced by the solid investment result," CommSec's Mr James said.

"With unemployment low, business and consumer spending healthy and construction activity booming, the Reserve Bank has no domestic justification to cut interest rates."

But with world oil prices reaching a post-Gulf War high just under $US38 a barrel on Wednesday night, developments overseas still pose a significant risk to the local economy.

Fears that war in the Persian Gulf will affect oil supplies and reduced supplies from major oil producer Venezuela have triggered a sharp rise in fuel prices.

Many oil market analysts believe the price of crude could soon move above $US40 barrel, pushing petrol prices higher.

Higher fuel costs could cause local businesses to review investment and employment plans and force consumers to cut spending, with negative consequences for the economy.

The Merrill Lynch Leading Indicator, released yesterday, rose marginally in December but points to slower economic growth in Australia.

"We expect the leading indicator will continue to point to a slowing economy over coming months. However ... the slowdown in the Australian economy over the next six to nine months is not expected to be severe," Merrill Lynch Australian economist Trent Barnett said.

www.vheadline.com Posted: Thursday, February 27, 2003 By: Robert Rudnicki

The Caracas Stock Index (IBC) rose by 2.05% or Bs.163.57 points to 8,149.66 in strong trading.

The Industrial Index fell 62.28 points to 6,924.68 and the Financial Index added 831.53 to 14,305.98.

A total of Bs.1.9 billion worth of stocks were traded in 54 transactions as two stocks rose, four fell and 13 traded flat.

The bulk of trading centered on Mercantil Servicios B, which ended flat on Bs.1,300.00.

CANTV fell Bs.10.25 to Bs.2,350.00 and Electricidad de Caracas lost Bs.3.95 to Bs.151.05.  Banco Provincial led the market higher, rising Bs.86.90 to Bs.394.90.

cbs.marketwatch.com By Thom Calandra, CBS.MarketWatch.com Last Update: 12:04 PM ET Feb. 26, 2003

SAN FRANCISCO (CBS.MW) - A veteran intelligence analyst says Washington almost surely will choose a full-out war against Iraq, as soon as this weekend over the moonless Arab desert. CBS MARKETWATCH COMMENTARY

THOM CALANDRA (WEEKDAYS) Intelligence analyst: Weekend invasion, rally, likely TOMI KILGORE (MONDAYS) A lack of volume is negating some positive signals BAMBI FRANCISCO (TUESDAYS) Why Ma Bell should buy Covad MIKE TARSALA (WEDNESDAYS) The tech guidebooks are all wrong DAVID CALLAWAY (THURSDAYS) Osama and the great duct tape conspiracy JON FRIEDMAN (FRIDAYS) What am I offered for CNN?

With that first strike, says Strategic Forecasting founder George Friedman, President Bush will have lodged the centerpiece of his administration's foreign policy: a global effort to oust Saddam Hussein and root out international terrorists. The president also will have sparked greater technology spending, a significant stock-market rally and a collapse in energy prices.

"He really has no choice," says Friedman, who explains how the president has a bleak political future if America capitulates to Iraq, or the United Nations. "His biggest problem is that right after Sept. 11 (2001) he was decisive, and now he has dragged this out so long."

Friedman, as chairman of 7-year-old Strategic Forecasting, or Stratfor.com, is something of a pioneer in the field of private intelligence. The former director of the center for geopolitical studies at Louisiana State University publishes regularly on national security, warfare and computer security. His books include "The Future of War" (Crown, 1997), "The Intelligence Edge" (Crown, 1997) and "The Coming War with Japan" (St. Martin's Press, 1991).

In Friedman's view, Bush has hemmed himself in politically and strategically. On the political front, "no attack on Iraq" leaves America, and the world, with a lame-duck president, abandoned by his right-wing allies and scorned by those to his left.

"Imagine, Bush throws up his hands and says, 'No international coalition, so I am not going to invade.' The left wingers say they stopped the lunatic. The right wing bolts. We have now a two-year lame duck. Can you say President (John) McCain? Bush will be crippled," Friedman tells me from his office in Austin, Texas.

Many investors fail to interpret correctly the fast-moving events leading up to war, he says. The financial media are under the impression peace will bring with it lower oil prices and a relief rally in the stock market. Not so, says this analyst.

"If the scenario the market regards as bullish comes to pass, which is the U.S. makes the decision not to attack, the consequences will be intense. Saddam Hussein becomes a hero of the Arab world. The United States appear weak, and the foundations underneath Bush will crumble," Friedman tells me. "The financial markets, as they always do, will react badly when the Republican leadership dissolves."

In the Middle East, a stalemate "leaves Kuwait hung out to dry. Israel will become much more aggressive in its own defense. And strategically, the United States does not have the Iraq base of operations to pursue its war against terrorism," he says.

Friedman, in a long career of mixing geo-political and economic forecasts, says he is always amazed at how markets - energy, currency, stocks and bonds -- react irrationally at the perceived threat of war.

"The short-term market has an IQ of 60. The long-term market is a genius," says Friedman, who offers his opinion on where the smart money is headed later in this article. "Yet we all talk about the market as if it is one entity."

Of note is the fact that speculators in the past three months have bid up prices of crude oil, natural gas and other energy products. At one point in frenzied trading this week, natural gas futures contracts were trading at double their price of mid-November, and at least one energy executive was proclaiming a "new era" of higher prices for natural gas, a crude-oil alternative. See: Energy market set to tumble.

"Iraq exports 1.7 million barrels of oil a day," Friedman explains. "In the event of a total catastrophic war, the world markets will lose just 1.7 million barrels at a time when Venezuela oil is coming back online and many producers, like Saudi Arabia, want to fill that capacity. The rising oil market is acting how it always does in the short term, irrationally."

Friedman says Saudi Arabia and other members of the Organization of Petroleum Exporting Countries are eager to boost production in a bid to replenish their dwindling financial coffers. "Every major producer has some surplus capacity and is eager to fill it because they have cash-flow problems," Friedman says. "In the '73 oil crisis, the debt structure of these countries was absolutely different. In '73, the Saudis could sit on their oil. Now they can't."

Friedman fully expects that if, or indeed, when, America goes to war, and the war is rapidly successful, "the war premium gets squeezed out of energy markets. The prospect of cheaper oil now and in a year or two is very bullish for most financial markets."

On timing, Friedman says an attack is probably imminent. This weekend offers a moonless night over Iraq's desert sands. U.S. Gen. Tommy Franks, who will have responsibility for an invasion of Iraq, arrived at Camp As Sayliyah in Qatar earlier in the week.

"This is the best weekend militarily to do it," Friedman says. "There is no moon, and if you ever have been on the desert in special operations, you know you don't want a moon when you need to take bridges and other strategic posts."

The war in Iraq, Friedman is telling his clients, is simply a campaign in a "much longer and much more complex war, and the forces that invade Iraq will remain there, for future potential operations (against terrorists)."

Friedman dismisses talk that the court of public opinion will lead to a peaceful solution in Iraq. Opinion polls still show a majority of Americans who support an invasion of Iraq. "Public opinion around the world does not matter that much," says Friedman, who says "elitist" European opinions about America's motives actually benefit the Bush administration's domestic approval ratings. "The U.S. is never going to be loved."

What's more, France's Jacques Chirac and Germany's Gerhard Schroeder are in their own political deep water. "Schroeder is sitting there with a 25 percent popularity rating. Chirac and Schroeder are committed to the European Union but the EU is badly split on several issues, not just the war. The French want the EU to be a vehicle for French foreign policy, but the Spanish and the Italians don't," he says.

Friedman says an invasion, whether it is immediately successful or a one-year affair, will boost technology spending. "Historically, wars have been stimulative," says the analyst and author, who scoffs at the notion the war will rack up costs of $1.3 trillion, as some have forecast. "Deficit spending is stimulative. The antidote of a deflation scenario is a deficit. Wars also drive technology. Oracle (ORCL: news, chart, profile) was created to give the Navy a database."

I asked Stratfor.com's Friedman where he thought the long-term money, the smart money, was headed. "In general, I don't believe in smart money," he says. "Everyone I knew who was smart bought dot.coms. The definition of smart is to be unstable. The official smart money that I talk to is incredibly confused. Some believe in deflation, others are buying commodities--some believe in deflation and are buying commodities."

He sees profits in stocks, especially those tied to security issues.

"We believe that with the yield curve positive and net free reserves positive - in other words, a healthy, liquid financial market -- equity markets are the place to be over the long run," Friedman says. "We are particularly interested in technologies that will become important in homeland defense and the extended war-fighting we will be seeing in the eastern hemisphere. The smartest people I know are positioning themselves to take advantage of technologies that feed into federal purchasing for the war."

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www.businessweek.com FEBRUARY 25, 2003 INSIDE WALL STREET ONLINE By Gene Marcial

Money manager Stephen Leeb says the time is now -- and the price is right -- to get into a select few defense and energy stocks   Gene Marcial is BusinessWeek's Inside Wall Street columnist

With war rhetoric heating up to its highest levels yet, the stock market continues to erode. Rocked by an impending conflict with Iraq, investors are rushing for the exists. Where do you hide or park your money in these days of doom and gloom? For some courageous few, the place to be is defense and energy stocks. To such professional value players, these groups have never been more attractive -- or cheap.

"Now is the time to buy stocks that won't get hurt -- or will even benefit -- if the Iraq situation worsens," says investment veteran Stephen Leeb, president of Leeb Capital Management. Defense and energy companies are the two clearest beneficiaries of any hostilities in the Persian Gulf, he contends. Leeb thinks the big guns in defense are the surest bets: Northrop Grumman (NOC ) and General Dynamics (GD ) top his list. In energy, Leeb favors Anadarko Petroleum (APC ) and ConocoPhillips (COP ). EARLIER LIFT.  Defense stocks look like a no-brainer in the current situation, since they should harvest gains from increased military spending. Yet at this point, they haven't been the big winners that people would expect. In mid-2002, their share prices anticipated the conflict with Iraq and rocketed to high levels, only to come down in November. Consequently, defense stocks have underperformed in the past several months. This big drop, however, is in fact a great buying opportunity, argues Leeb. General Dynamics, now trading at $61 a share, is way down from its 52-week high of $111.18. And Northrop, now $88, is also well below its 52-week high of $135. From here on, says Leeb, the U.S. will obviously need a very strong military apparatus to protect its interests -- particularly oil -- in the Middle East, especially if Iraqi dictator Saddam Hussein has been ousted. Moreover, the U.S. will, more than ever, need a strong homeland defense infrastructure after its invasion of Iraq -- which appears to be a foregone conclusion to many. The U.S. has to expect increased terrorist activity at home. DRAMATIC POTENTIAL.  In Leeb's view, Northrop and GD fit the bill in such a scenario. Northrop is now a "complete defense company with unassailable stakes in every major defense-related area, including electronics and network-centric warfare," notes Leeb (see BW Online, 1/7/03, "The Network Is the Battlefield"). "We expect profits and cash flow to grow at double-digit rates for the foreseeable future," he says. Northrop trades at a discount to the S&P 500-stock index and comparable defense contractor Lockheed Martin (LMT ). This points to a dramatic upside potential for Northrop during the next 12 to 18 months, Leeb adds. Its free cash flow of an estimated $7 a share, figures Leeb, will likely rise to well over $11 a share by 2005. He expects Northrop to earn $5 a share in 2003, vs. diluted earnings of 34 cents in 2002. His stock price target: $100. GD gets marks nearly as high as Northrop, says Leeb. What has been weighing down GD shares is its ailing Gulfstream aircraft unit, which generates some 25% of total revenues. Gulfstream will limit GD's price-earnings expansion even when the company turns the corner, warns Leeb. But GD is "a prime defense contactor with a high level of free cash flow and strong growth prospects in the forseeable future," says Leeb. He thinks the stock, now trading at a p-e of 11, is a bargain up to $70 a share. He sees GD earning $5.50 a share in 2003, vs. $4.52 in 2002. "HUGE DISCONNECT."  In energy, oil-company share prices have lagged behind the jump in crude prices. Tina Vital, oil analyst at Standard & Poor's, thinks worries about the sustainability of oil's current prices and the fate of the U.S. economy, given the prospect of war in the Persian Gulf, have contributed to the oil stocks' weakness. But she sees the price of oil remaining high in the forseeable future. And Vital says S&P economists still believe that the U.S. economy will pick up in the second half, which would bode well for oil demand. One of Leeb's oil picks, Anadarko, trading at $46 a share -- off its 52-week high of $58 -- is an independent oil-and-gas explorer with operations in the U.S. and Canada, as well as Tunisia, Algeria, West Africa, Venezuela, Oman, and Qatar. Anadarko is a prime example, says Leeb, of how the prices of crude oil and gas and the stock prices of oil companies are out of sync. Anadarko's share price has yet to catch up with the spike in natural gas -- its most important commodity. Gas has nearly tripled in price, and oil -- which accounts for more than 40% of production -- has also moved up sharly. "This huge disconnect means Anadarko trades at a substantial discount to its underlying value," says Leeb. Its earnings in 2004 could easily exceed $6 a share, he figures, up from an estimated $3.90 in 2003. His stock-price target: $70. CLASS LAGGARD.  ConocoPhillips, an integrated energy company that explores for, produces, and refines oil, is trading at $49 a share, down from its 52-week high of $64. Leeb singles it out among other integrated oil companies because of the synergies from the 2002 merger of Phillips and Conoco, which created the ConocoPhillips giant. Cost savings plus modest production increases should translate into double-digit profit growth for at least the next three years, he estimates. ConocoPhillips' current PEG (price-to-earnings ratio divided by its growth rate) is the lowest in its class, notes Leeb. Like many other major oils, ConocoPhillips is also attractive for its 3% dividend yield, says Leeb, whose price target is $50. With the major stock indexes trading around their recent lows, these oil and defense shares could provide at least some shelter from the storm spiraling out from the widely feared -- and expected -- conflict with Iraq.

Marcial is BusinessWeek's Inside Wall Street columnist