We rounded off the year with a lovely weekend at the St. Regis Club at the Essex House, one of New York City’s finest hotels, with a suite overlooking Central Park, an endless parade of horses and buggies out your window and a floor butler. We tried being tourists and seeing the City again for the first time: breakfast in the hotel (excellent), room service, Radio City Christmas Spectacular with the Rockettes, noshing in Greenwich Village, the museum of art and design, and walking along Fifth Avenue. Very nice way to spend a weekend without flying somewhere and there are good weekend rates available during the winter. 

Now, let’s talk about the rest of the world. Go back and reread my end of year notes from 2003; they were mostly on the mark and anyone who followed its advice profited.

India/Pakistan – Rising fortunes here in India as country reforms from its over-regulatory past; prime minister and his party should do well in the March elections. Pakistan is a very scary place; Musharraf is very vulnerable and the security cordon around him has been shattered from the inside. Makes one wonder about the country’s nuclear situation. The army’s #2 is a good guy and the army supposedly has a good lock and key on the nuclear technological components, but the Islamists have a strong hand in the country’s intelligence services. Israel and India are cooperating highly these days on the anti-terrorism front; there is worry about Saudi and Pakistani cooperation toward an Islamic bomb. Several years ago the CIA warned that the India/Pakistan situation was the most likely cause of nuclear war; I think the situation between the two countries has simmered down a bit, but nuclear leakage coming from Pakistan is the most probable of threats facing third parties in the world.

Korea – The parties will continue negotiating. China has inserted itself into the situation and this matters a bit, but ultimately the matter will play itself on a low flame with the Chinese keeping the North Koreans somewhat honest until the Good Leader either cries Uncle or is eliminated, either of which could be years away.

Technology – Plasma TV is an interim technology; LCD is going to be the future or more space-efficient regular televisions. Spam filters and new laws are having an effect on dampening this industry and reducing a major annoyance to people.

Currency and Equity Markets – Euro to continue rising to 1.35-1.40 against the Dollar. This is not so bad for Europe; they buy many raw materials from the USA used for their manufacturing. Stocks will continue to appreciate but there is an underlying weakness in this market; people are not really buying things freely and “stability” is only a heartbeat away from a terrorist attack (and it is clear that the terrorists are out there trying the best they can and will sooner or later succeed).  Go for index funds rather than try to pick out individual stocks. Look at ishares.com for easy-in easy-out indexes around the world. Some foreign markets are likely to outperform the US this year; look at China and perhaps Latin America (where Argentina and Brazil are improving; in Brazil’s case it is because a leftist came to power and adopted conservative economic principles). Arab economies are also improving, although their markets are not very liquid. The Saudis balanced their budget this year for the 2nd time in 20 years. The Iraq war has been a bonanza to the neighborhood (and they all thought a year ago it would be a downer).

Cyprus – Pretty much resolved this year, as I predicted. The Turkish side, prodded by its public, will figure out how to get their house in order in time to join the EEC with the rest of Cyprus by 1 May or soon after.

US Presidential Race – Bush is unbeatable. I haven’t spent 10 minutes trying to learn details about Dean, Kerry and whoever else is running. There will be a lot of print given to Democratic hopefuls as the party’s strategy of putting an early-leader in place backfires, and they will spend months destroying each other. Meanwhile, Bush will sit pretty and above all this. I still like Lieberman as Best of Bunch of Democrats, but the guy looks like he is caught in a perpetual sigh and he fails the “Do I want to see this guy on TV every night for the next 4 years” test (which is a must-pass in order to become President). In Canada, Australia, and elsewhere, more conservative governments are taking power. Blair is safe this year in the UK as is Putin in Russia. Mexico’s Fox is not safe this year, having not done very much and having not figured out how to get Bush to work with him.

The War Against Terror and the various Players involved – Iran is still running its nuclear program, but I look at it as inevitable anyway. Iraq is a work in process; the US has aligned with Iran to provide a measure of stability for Iraq and has figured out that a Shiite-led Iraq is not a big problem for America (more a problem for Iran really over the long term and of course it will keep the other Sunnis in the region reliant on the US because they are scared to death of these Shiites). Libya’s nuclear concession is more a psychological shift than anything because the country didn’t have much going for it in this area, but there is a sense around the world that nuclear disarmament is back on the agenda and that Bush has rogue countries on the defensive. The Israelis will never give up this deterrent (and I don’t think its neighbors would benefit if it did because it helps keep the neighborhood honest).  An important shift this year is that Europe now views Saudi Arabia as being on the dark side of the war against terror. The French, UK and Germans had bad experiences this year finding out things about Saudi diplomats and getting little or no cooperation from the country’s officials. Syria must feel pressured, and I wouldn’t be surprised if Sharon and Assad began talking to each other this year (the fact that Sharon just announced a new Golan settlement program is probably a good cover for this). 

The Arab World is watching the Iraq experiment with interest and hoping it succeeds with dividends for them. There is no question that the deck of cards has been reshuffled this year. There are temptations for the US to cut loose from Iraq in an election year, but I think that Bush is strong, the long-term interests are vital, and there is no reason to believe that the US will do less than whatever is necessary, particularly since it has so far found that it has been working the learning curve rather well and that cutting corners results in losses.  The replacement troops coming in the spring also have learned lessons from mistakes of their predecessors and will likely have better relations on the ground with the natives (the amount of attacks on the various types of US troops correlates to the behavior of those troops). The country is set to receive as much aid as it can possibly absorb, the oil industry and various reconstruction projects are moving on or ahead of target (and it will become more noticeable in 2004 as infrastructure projects kick in; there might even be a need to import workers if all the Iraqis are employed on these projects), and there is no evidence so far that Haliburton is profiteering; it is a war zone with unpredictable demand and insecurity and the normal rules of business do not apply. 

Bin Laden remains to be caught; probably sometime before the next election. I’ve always felt that catching him too early works against the war on terror because it makes for a false sense that it has been won. True, much of the Islamic world still sees America as the root of all evil, and they have good reason to be hostile. Not all the danger is coming from the outside; one area overlooked is the amount of fundamentalism in the US federal prison system; moderate moslem imams complain they cannot get literature into the prisons because the chaplains are all extremists and a good amount of terrorist training and indoctrination goes on inside. But I think that America is in the midst of a Great Experiment in Arabia that threatens the current order and that promises Arabs a better future for the next generation to come. The war is not against Islam; it is against Islamic fundamentalists and the key is to remember that we have allies who would be good allies if we managed not to confuse them for enemies. For the short run while America runs on panic-attack and figures out how to calibrate risk, many people will school in other countries, there will be seen fundamentalists behind every conflict brewing in the world, and trade with America will be reduced, but in the long run (say another 5-10 years), the world could be a better place for one-eighth the world’s population and they could have more trade, education and wealth properly distributed. It could also be a safer world from the likes of Korea and Pakistan. It will be a painful wait and we will take hits in the meantime, but I think we should all stay the course, mainly because there is no better alternative.

France – This country faces the prospect of severe civil unrest in the not so distant future. Chirac this year chose sides; he is not sucking up to the Moslems but is rather taking them on because he has figured out they will never support him. The French have very rigid ideas about what it means to be French, and nobody at the top is pushing integration where it is needed. They cannot ignore the Arab immigrant population that is poor, alienated, multiplying and increasingly religious as a backlash to the “secular” French which is really biased toward Catholicism and against anything else. The rest of Europe is rightfully nervous.

Israel/Palestine – Sharon corruption scandal gains traction now that video exists of his son discussing these real estate deals. But the press doesn’t want to bring him down just yet; he keeps dangling the prospect of peace and there is nobody else on the horizon that could deliver it. So he keeps tempting; a step forward, a step backward; talking peace but building a wall and more settlements to create facts on the ground. The settler population seems to have doubled over the past decade. The Palestinians are wasting time; Arafat refuses to die or to yield; he is still pathetically in his hut and over the past year has reasserted control over the purse. Barghouti is still in jail; Sharon has neutralized his opponents; the Labor party doesn’t even have a leader whose name anyone knows (unless you believe that Peres can again somehow be anything). The Likud alternatives are Olmert and Bibi, the first of whom is palatable but not powerful; the second of whom is powerful but not palatable. The economy, tied more to NASDAQ than to peace, is rebounding even though it is still a tough life there. Tourism is back up; flights and hotels are expensive again and there is a tremendous amount of fundraising and programming going on in the Jewish World for the benefit of Israel, despite any qualms about Sharon and his government. The Egyptians and Jordanians have let the Palestinians know that time is not on their side and that they are not going to get anywhere waiting for the world to get the Israelis to move first. It is a sign of the times that the average Israeli today couldn’t care less who is the current prime minister of the Palestinians and have no interest in talking to him, and that they also show no interest in the various ceasefires being bandied about among the Egyptians and Palestinians. The Israeli government managed to sideline the Geneva initiative; I personally didn’t find it to be so problematic, but the Israelis went out and convinced enough of the mainstream that it was an awful idea and an unacceptable end-run around their sovereignty to be strong-armed into such a scheme. There is a good lesson to be learned here, and that is that private initiatives to get governments to get other governments to change policy are not likely to work because governments work with each other directly and have their own agendas of give and take; there is lots of horse-trading that goes on which is the basis for international relations, and the people sitting in Geneva don’t have what to trade in order to get their way. Arafat has to either die or be killed sooner or later and the Palestinians will get something in the process (although less as time goes by – though the 1948 population also ages and dies in the meantime). The Israelis and various Jewish organizations are preparing in a serious way to lodge claims for the loss of $5 billion worth of Jewish property and the displacement of 850,000 Jews who lived in Arab countries who also wound up on the short side of life after 1948. They will seek to prove through unearthed documentation that the Arab League made a pact to force Jews out of these countries after Israel was created; whatever the cause and effect, the Jewish population of those countries now totals about 8,000, meaning 99% wound up leaving. Short term though, 2004 probably ends with Sharon and Arafat still sitting exactly where they are now. Last year I said that if something didn’t happen this year, it probably wouldn’t for several more.

A month ago I wrote that Israel is in a coma. I take that back. Actually, there has been significant change over the past year, albeit a quiet earthquake. The shakeup has been in the Likud. The mainstream of the party has figured out that Israel can’t remain an occupier and continue as a democracy if it winds up ruling an apartheid state with a Palestinian minority which could become a majority. It doesn’t want to be in this position because it knows that it is wrong. But it has also come to believe that no negotiated settlement is possible either with Arafat or with Palestinians of this generation because the hatred has become so deep that it will take a new generation of people to reconcile themselves to living side by side with a Jewish state. And so they are building this wall to implement a unilateral solution if the Palestinians don’t come to the table and make a deal soon. This represents a big change in the status quo; the concept of holding onto all the territories is no longer the objective of the mainstream of the Likud party, and the concept of transferring the Palestinians to Jordan is also out the window as unrealistic and wrong.

Egypt – I’m less sure that Gamal Mubarak is going to take over that country when his dad dies, but I have no idea who will.

China – The Big New Power in Asia, especially now that America is lowering its profile in countries such as Indonesia and Malaysia, due to fears about terrorism coming from those countries. The region is tailoring its policies toward doing business with China, and the Chinese are making reforms in order to do more business with the rest of the world. They will likely make better quality goods as they strive to become more like Korea in its second stage of development after the Korean War.

Google: I went to a lecture today about geneological research and its connection to art provenance investigation. It is amazing how much of an indispensable resource the Internet and its search engines such as Google have become and you wonder how people tracked things down without it. Last year Google even catalogued Global Thoughts. Can you imagine?