www.canada.com MALCOLM MORRISON
Canadian Press Wednesday, March 19, 2003

TORONTO (CP) - Stock markets were close to the unchanged mark Wednesday morning hours before a U.S. invasion of Iraq is likely to begin.

The countdown to an attack continued as long columns of U.S. troops, armoured vehicles and trucks advanced through swirling sand in the Kuwaiti desert toward the Iraqi border, positioning themselves to invade on short notice.

Toronto's S&P/TSX composite index moved 13.35 points higher to 6,451.96 after closing up 31.98 points.

The Canadian dollar lost territory as the American currency continued to strengthen, losing 0.19 cent to 67.63 cents US.

The euro was quoted at $1.0598 US, down from $1.0621 Tuesday.

The loonie had climbed 0.26 cent Tuesday after Bank of Canada governor David Dodge reiterated in a speech in Rome that more interest rate hikes will be needed to get Canada's inflation back down to the central bank's targets.

New York's Dow Jones industrial average rose 0.91 of a point to 8,195.14 after advancing 52.31 points Tuesday, moving up a total of 669 points in the past five sessions.

The Nasdaq lost 8.92 points to 1,391.63 after edging 8.28 points higher on Tuesday while the S&P 500 was flat at 866.45.

In corporate news, trading in chemical company DuPont Canada was halted on news that its U.S. parent is offering $1.4 billion Cdn to privatize it. Dupont Canada's shares closed Tuesday at $17.24.

Shares in DuPont and Co. were 20 cents lower at $39.88 US.

Softness on the Nasdaq came after software maker Oracle Corp. reported a cautious outlook for a recovery in technology spending late Tuesday.

The company posted a 12 per cent rise in fiscal third-quarter profit and said revenue grew modestly, helped by growth in sales of software upgrades to existing customers.

But the company said revenue from new software licences and sales of its flagship database product line each fell four per cent. Its shares were down 60 cents to $11.65 US.

Generally, stock markets have been driven higher since the middle of last week as investors look to the rally that followed the start of the 1991 Persian Gulf war and hope history repeats itself.

"There's a hope that a swift victory will create a perverse twist in Wall Street theory: Sell on the rumour and buy on the fact," said market commentator Bryan Piskorowski of Prudential Securities Inc. in New York.

But there's plenty of reasons for caution, including the possibility of torched oil fields, use of biological weapons and terrorist attacks.

Overseas, Tokyo's 225-issue Nikkei Stock Average rose 96.58 points, or 1.21 per cent, to close at 8,051.04, led by key exporters including automaker Honda and technology issues Nikon and Sony.

Hong Kong shares enjoyed a second consecutive day of gains, with some traders placing bets ahead of several key earnings announcements. The Hang Seng Index climbed 117.08 points, or 1.29 per cent, to 9,158.59.

London's FTSE 100 index rose 49.1 points or 1.3 per cent to 3,796.4 in mid-afternoon trading, Frankfurt's DAX added 1.55 per cent and Paris's CAC 40 rose two per cent.

Crude oil prices were on the way up with Brent crude futures in London up 48 cents to $27.73 US a barrel while futures in New York advanced 24 cents to $31.91 US.

On Tuesday, prices in New York plunged $3.25 in the biggest one-day drop in almost a year.

While U.S. crude inventories remain uncomfortably low, OPEC producers other than Iraq and strife-torn Venezuela have been increasing production for weeks. Much of that oil is now in storage or in tankers on the high seas, say oil analysts.

Saudi Arabia is believed to have as much as 50 million barrels in storage in the country and more en route to other storage facilities. That's enough to replace Iraq's 1.5 million to two million barrels a day for about a month.

Gold moved lower with the price of the metal slipping $1.70 to $335.50 US an ounce.

In other corporate news, Transat A.T. Inc., a major travel company and operator of Air Transat, slashed first-quarter losses as revenue jumped 20 per cent from a year earlier. Losses came in at $7 million, down from a $17-million loss a year earlier.

Air Canada has drafted a plan to cut $200 million in labour costs by closing two call centres, cutting 30 per cent of the jobs in the remaining centres and slashing some employee wages by 27 per cent.

www.nola.com The Associated Press 3/19/03 2:03 AM

NEW ORLEANS (AP) -- Against a backdrop of strong commodity prices, energy companies have filed 793 bids on 561 offshore drilling tracts in the Gulf of Mexico.

That's an increase from last year's showing of 697 bids on 506 tracts, according to data from the Minerals Management Service.

"It's an increase, and we feel it's a very strong showing," Minerals Management Service spokeswoman Caryl Fagot said.

The tracts will be auctioned off in a federal lease sale in New Orleans Tuesday.

The increase in bids comes amid a stretch of abnormally high crude and natural gas prices caused by a variety of factors, including uncertainty in the Middle East, an oil-field strike in Venezuela and an unusually cold winter in the Northeast.

But the current statistics pale in comparison with lease sales a few years ago. The peak from recent years came in 1997, when energy companies bid on more than 1,000 tracts.

Leasing the offshore slots is the first step in oil and gas development. After the leased tracts actually begin producing, companies must pay the government royalties.

Many energy companies already hold substantial acreage in the deep-water Gulf. Moreover, many of the best prospects in the Gulf of Mexico already have been leased, leading to the downturn in bidding.

"It's an indication companies are struggling to find prospects," said Larry Benedetto, an analyst with Howard Weil, a New Orleans investment bank. "It's not a blockbuster sale."

In some cases, energy companies still plan new investment in the Gulf, even if they aren't acquiring the acreage at the lease sale.

On Tuesday, Apache Corp. of Houston announced the closing of a $509 million deal to purchase Gulf of Mexico prospects from BP.

Apache spokesman Tony Lentini said the company would post only a handful of bids Wednesday.

"We probably have as good or better prospects as what's coming" at the sale, Lentini said. "We're not a big participant these days at the lease sales."

www.forbes.com Reuters, 03.18.03, 1:31 PM ET By Per Jebsen

NEW YORK, March 18 (Reuters) - In September 1997, Citigroup Inc.'s (nyse: C - news - people) Tobias Levkovich downgraded 18 of the machinery and engineering/construction companies he covered in one day, concerned over the impact from the Asian financial crisis.

Back then, such audacity was far more likely to get an analyst fired than praised.

"It was my 'three V' call," Levkovich said. "I was viciously attacked by competitors, vilified by management and ultimately, vindicated by what happened in the markets."

Levkovich brushed off the brickbats to become senior U.S. institutional equity strategist for Citigroup's Salomon Smith Barney banking unit. And now he is making another big call -- a bullish wager on the impending conflict in Iraq.

In several essays since late summer, he has expounded upon his thesis that such a conflict is likely to prove to be quick and, from an investor's point of view, beneficial.

Indeed, a swift resolution will enable stocks to move sharply higher, he predicts. The Standard & Poor's 500 Index <.SPX>, trading in the mid-800s, will rally to a year-end target of 1,075, a gain of 25 percent or more, Levkovich expects.

"Investors have been clearly paralyzed by Iraqnophobia," Levkovich said. "Yet our base case is for a relatively quick war with a non-tumultuous aftermath."

Barring extreme events, such as searing terrorist attacks, Levkovich expects toppling the current Iraqi regime by the United States and its allies to have positive effects, including reduced energy prices.

Uncertainty from the crisis, along with a recent national strike in Venezuela that lasted for two months, has created a $10 to $15 premium in the per-barrel cost of oil. Once hostilities conclude, much of that premium will likely dissipate, boosting economic growth, he said.

A successful resolution on American terms would, moreover, reduce the uncertainty that has hamstrung U.S. executives and dampened spending, Levkovich said.

"Decisions at the corporate level would be made as opposed to keeping everything in abeyance," he said.

After "three years of everything going wrong," the stock market is undervalued. Money managers worry they could lose their jobs by taking undue risk, Levkovich said.

Equities are cheap when analyzed in terms of various valuation criteria -- and especially so in comparison to fixed-income securities, he said.

"Stocks are screamingly more attractive than bonds," Levkovich said. "Earnings yield gap analysis" indicates a 98 percent chance stocks will perform better than bonds, he said.

In the last week, investors have embraced the bullish case, sending the S&P 500 up about 8 percent.

BEAT THE MARKET

Before he became Salomon's stocks guru in 2001, Levkovich spent 13 years covering companies such as heavy-equipment makers Caterpillar Inc. (nyse: CAT - news - people) and Deere & Co. (nyse: CAT - news - people).

The lengthy stint prepared him for his current role because such businesses are both global and "thematic," in that their shares may respond to current investment notions, he said. Also, he honed his ability to ferret out facts, he said.

"I just love beating the market. I get a real kick out of that," Levkovich said. "It's the joy of discovering things before others do. You don't have to use inside information, you need to use insight ... the data that's available."

Levkovich often arrives at the office between 6:30 and 7 a.m., and leaves as late as 9 p.m. He devotes his weekends, from Friday evening to Sunday morning, to his family. His hard work has paid off: He was ranked the No. 1 analyst by Institutional Investor magazine for machinery in 1998-2000, and No. 1 for construction/engineering in 1998 and 1999. In 2002, he was named runner-up in the portfolio strategy category.

"Tobias produces some of the more unique work put out by the Street. It's not your usual pedestrian stuff," said Joe Rosenberg, chief investment strategist at conglomerate Loews Corp. (nyse: LTR - news - people).

"I genuinely enjoy having him come in and sitting down with our group," said Will Braman, chief investment officer at John Hancock Funds, which has about $25 billion under management.

Levkovich provides a broad overview in give-and-take sessions that John Hancock fund managers, who may focus on a narrower slice of the market, find helpful, Braman said.

Last year, Levkovich dropped now-bankrupt telephone and data services company WorldCom Inc. <WCOEQ.PK> from his recommended list when it was still highly rated by former colleague Jack Grubman.

"He did it in the face of his firm being the investment banker and the analyst being the leading analyst on the stock," Loews' Rosenberg said. "It takes a lot of courage to do that."

"He's not prone to hyping situations or being overly pessimistic," said Bob Turner, chairman and chief investment officer of Turner Investment Partners, which has about $8 billion of assets.

Levkovich's insights are particularly useful at a time when stocks are apparently in a trading range, Turner said.

LOVE OF POLITICS

Levkovich, who is Canadian, graduated from Concordia University in Montreal with a degree in commerce, and attended Boston University's Graduate School of Management.

In 1988, he joined Smith Barney, which ultimately became a part of today's Citigroup. This week, he picked up what he describes as a "very pointy" Lucite paperweight marking his 15 years with the firm.

"Management has treated me fairly over the years," he said. "I've had some wonderful relationships with people whom I've worked with and that's worth more than the extra bucks" he would have made by jumping ship, he said.

Levkovich, 41, is married, and has two teen-age daughters, as well as a 9-year-old son. He lives on Long Island, commuting by car to Salomon's downtown headquarters. The Levkoviches have family in Israel and often spend their vacations there.

A fan of Tom Clancy and Robert Ludlum spy thrillers, Levkovich says a long love of politics animates his work.

"I have a strong interest in politics and the impact of politics on today's environment," he said. "I grew up sitting on my father's knee watching the Democratic and Republican conventions," he said.

(The Profile column appears weekly. Comments or questions on this one can be e-mailed to per.jebsen(at)reuters.com.)

www.nashvillecitypaper.com Commentary by David DeRosa

It didn’t take long for U.S. Secretary of the Treasury John Snow to get in trouble talking about the dollar.

When asked about the dollar’s decline following a hearing before the House Ways and Means Committee, Snow, who has been in his post since February, quipped that he was “not particularly concerned about that.”

So, of course, the currency market declared open season on the dollar, sending it down about one full cent against the euro. Oh, the power of the Treasury secretary’s mouth.

It could have been worse had Snow’s aides not stepped up to declare that there had been no change in Treasury’s strong dollar policy, one that Snow himself supported during his Senate confirmation hearing. That put the breaks on the dollar’s slide, at least for now. The dollar has fallen more than 20 percent against the euro over the past 12 months.

A Railroad man

So, no big deal, you might say. Maybe, except it will probably happen again. The reason is simple: Snow doesn’t know how the market works.

His career was not spent in a trading environment; he was a railroad man. Casey Jones isn’t watching the market’s semaphore. When the Treasury secretary speaks, there can be trouble ahead and trouble behind for the dollar.

The ways of the market mystified Snow’s predecessor, Paul O’Neill, too. He was a paper and aluminum executive. At one point he threw up his hands and declared in so many words: “Why would anyone care what I say?”

Here’s why.

Foreign exchange traders have positions in currencies, long or short the dollar against other currencies. Some of these positions come as a result of making markets in foreign exchange. Others are deliberate bets on the future direction of currencies.

Even a small change in exchange rates can generate sudden, steep trading losses, or profits for that matter.

The foreign exchange market is huge. It trades something on the order of $1.3 trillion a day.

But even a small position, say dollars against the euro in the amount of 1 million euros can get hurt. If the euro moved from 1.0900 to 1.1000 — which is approximately what Snow’s comment caused — there would be a loss of $10,000.

That doesn’t sound like much except that the actual positions in the foreign exchange market are humongous. If that had been dollars against 100 million euros, the loss would be $1 million — all over the course of about one or two minutes.

For most foreign exchange traders, the art of the game is in avoiding getting clipped on short-term moves like what happened yesterday. The point is that the market is like a coiled spring waiting to release.

Good news

Snow did better a day later when he spoke about the energy market. He addressed short- and long-run supply and demand much as you might hear in a course on microeconomics.

He said that high gas prices reflect “the uncertainty about the geopolitical situation. Once we put that behind us, gas prices will return to normal.”

Snow singled out the Middle East situation and Venezuela for driving up oil prices, and said more supply is on the way because “new wells are being brought on stream in Texas and Oklahoma and other places like that.”

On the demand-side, he said “the higher oil prices are going to lead to considerable conservation,” adding that “they already have.”

“With the higher oil prices, people are driving their smaller cars rather than their SUVs. They’re buying smaller cars and cutting back on demand for the SUVs,” Snow said.

There is nothing wrong with that analysis. The energy market is probably going to play out the way he suggests, given enough time. What is revealing is that Snow is a big picture kind of guy — who may be a tad light on the close-up view on how money and foreign exchange markets functions.

David DeRosa, president of DeRosa Research & Trading, is also an adjunct finance professor at Yale School of Management.

www.detnews.com Tuesday, March 18, 2003 By Mike Hudson / The Detroit News

Possible quick confrontation with Iraq sends market ahead, drops crude oil prices

DETROIT -- Wall Street saw major rallies on all of its major indexes in response to the U.S., Spanish and British withdrawal from diplomacy efforts at the United Nations.

The Dow Jones industrial average rose 282 points to close at 8,141. The Nasdaq jumped 51 points to close at 1,392. And the Standard & Poor's 500 index rose 29 points to close at 862.

"Removing this cloud of uncertainty is as regarded as a positive development to investors," said Patrick Anderson, principal of Anderson Economic Group, a Lansing-based economic consulting firm. "It's a crazy world we live in when we talk about war and the stock market goes up, but that's how it is in this instance."

The idea that a quick war will help the economy may prevent the Federal Reserve from cutting interest rates at its meeting today, economists said.

Sung Won Sohn, chief economist at Wells Fargo Bank in Minnesota, said Fed chairman Alan Greenspan and his colleagues will start cutting interest rates only if they believe an Iraq war was harming the economy or threatening to disrupt financial markets.

"If the war goes badly, the Fed is going to need all the ammunition it has," Sohn said. "I would expect the Fed to cut interest rates to zero in an extreme situation."

The stock market has been hurt by more than just tensions in the Middle East. It has been fighting off a number of negative factors, including the down economy, a dicey diplomatic environment and lingering effects from the 2001 and 2002 corporate accounting scandals. Because of the complexity of the down market, analysts say, the market will have to see substantial evidence of improvement for Monday's rally to become permanent.

"There will have to be a seismic shift in the current environment," said Dennis M. Nally, chairman of PricewaterhouseCoopers LLP, speaking to the Detroit Economic Club on Monday. "Many factors will have to change before we see a meaningful, long-term turnaround in the market."

In another bright but potentially temporary development, oil prices fell 45 cents per barrel to $34.93 on the West Texas Intermediate market. Prices had topped out at $37.83 per barrel Wednesday.

Energy prices have been the major point of concern for economists because of the damaging effects on consumer spending that high gasoline, natural gas and diesel prices tend to have.

"History would suggest that oil prices would go down fairly rapidly (after war begins), maybe $5-$7 a barrel, probably within one day," said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland.

McPhail believes markets will be awash in crude after a swift war, particularly if Venezuela continues to recover from an oil industry strike and other members of the Organization of Petroleum Exporting Countries keep producing more than their output quotas. For the second half of the year, ING Financial Markets foresees an average crude price to be around $18.50 a barrel. But the recent drop in oil prices hasn't been reflected at the gas pump.

AAA Michigan reported prices for regular unleaded averaged $1.72 on Monday, unchanged from last week. Across Michigan prices averaged $1.76, up 1 cent from last week. Nationwide, gasoline averaged $1.72 per gallon, AAA said.

"Retail gasoline records are being blown out," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, which markets gasoline and heating oil to local distributors. "We can expect prices to rise by another dime in the short term."

A colder-than-normal winter in the United States that sapped heating-fuel supplies exacerbated the problem, forcing some refiners to keep producing heating oil when they might have begun to make gasoline in anticipation of the peak driving season this summer.

Furthermore, the U.S. economy can expect a few days of doldrums if war breaks out. Millions of consumers will spend their free time at home watching news developments, economists say.

The auto industry will be particularly impacted by this phenomenon, Anderson said, although the extent of which will be determined by the length or brevity of the war.

You can reach Mike Hudson at (313) 222-2293 or mhudson@detnews.com. The Associated Press contributed to this report.