Week in Review

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Week in Review

07/17/2010

For the week 7/12-7/16

Wall Street…and BP

Last week I noted that the week’s 5% gains in the equity averages were absurd because, aside from perhaps an oversold condition, there was zero fundamental reason for the rally, there being no real news. Ah, but this week was different, and while the market continued to rally early on the strength of decent earnings news from Alcoa, CSX (railroad transportation) and Intel, reality then slammed investors against the wall. The fundamental news was not good. Retail sales for June were down more than expected, two regional manufacturing indices for New York and Philadelphia were putrid, and consumer sentiment, as measured by the folks at the Univ. of Michigan, dropped like a stone. It was this last bit that was the clincher as the market tanked to the tune of 260 Dow points, Friday, dragging all the major indices down for the week. 

It didn’t help that the earnings news later on was less than exciting. Sure, the investment and retail money center banks, JPMorgan Chase, Citigroup, and Bank of America, beat earnings estimates and lowered their loan loss reserves, a sign of a better economy, but their trading and investment banking revenues were down, which is not a good sign, and then at week’s end financial reform legislation cleared the Senate and now awaits the president’s signature. As discussed below, there is a ton of uncertainty as to how FINREG will impact the banks’ earnings down the road, the “unintended consequences,” as JPMorgan’s Jamie Dimon put it, and uncertainty is the killer of many a rally on Wall Street.

But there were far more reasons for concern. The Federal Reserve lowered its growth forecast for the year, as Chairman Ben Bernanke talked of five years of economic malaise, thanks to topics we discuss every week around here; a sluggish consumer, punk business spending, tight credit, and the coming end to the economic stimulus injection.

On the aforementioned issue of sentiment, however, it’s far deeper than the Michigan survey. A number of polls and studies show an American public that is downright depressed (as it should be). A Pew Research Center survey shows 71% of us say we are becoming more frugal, such as in buying less expensive brands, with 57% saying they’ve trimmed or eliminated vacations. A Bloomberg national poll has 2/3s believing the country is headed in the wrong direction. The same survey has 7 in 10 believing the economy remains mired in recession, with only 1 in 6 saying they are better off since Obama took office. A CBS News poll had 3/4s believing the recession type economy will last another two years.

As for the president’s overall job approval rating, he comes in at 43% in Bloomberg, 50% in the latest Washington Post/ABC News survey, and 44% in the CBS poll. [In this last one, 49% also disapprove of Obamacare, with just 36% supporting it.]

It doesn’t help that when the linchpin of the U.S. economy, small business, is suffering. Ben Bernanke said in a speech, “Making credit accessible to sound small businesses is crucial to our economic recovery. More must be done.”

Nor is President Obama’s talk of “creating or saving” 2.5 million to 3.6 million jobs through his stimulus program credible when the official unemployment rate remains at 9.5% and the unofficial one closer to 17%. The Wall Street Journal opined:

“Christina Romer went so far as to claim that the 3.5 million new jobs that she promised while the stimulus was being debated in Congress will arrive ‘two quarters earlier than anticipated.’ Yup, the official White House line is that the plan is working better than even they had hoped.

“We almost feel sorry for Ms. Romer having to make this argument given that since February 2009 the U.S. economy has lost a net 2.35 million jobs. Using the White House ‘created or saved’ measure means that even if there were only three million Americans left with jobs today, the White House could claim that every one was saved by the stimulus.

And then there is the federal deficit. Erskine Bowles is the former White House chief of staff under Bill Clinton. He’s also co-chairman, along with former Republican Senator Alan Simpson of Wyoming, of President Obama’s debt and deficit commission. This week Bowles offered a depressing assessment; the coming fiscal crisis “is as clear as a bell,” he said. “This debt is like a cancer,” he told the National Governors Association annual meeting.

“We can’t grow our way out of this,” Bowles continued. “We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can’t tax our way out…The reality is we’ve got to do exactly what you all do every day as governors. We’ve got to cut spending or increase revenues or do some combination of that.”

Yes, it’s depressing. Just who are the people who think the country is headed in the right direction? They can’t all be freeloaders, though that’s the direction we’re headed.   Nothing but a nation of people on the dole. 

But in the short run, it’s still all about housing and jobs. 2010 will see a record number of foreclosures, over one million compared to 900,000 in 2009. If you can eke out a payment or two, banks are often forgiving, but otherwise they are finally clearing the books of their inventory and that’s hardly good for prices until it’s whittled down. And on the jobs front, maybe Google is hiring (see below), and Wall Street is beginning to bring back a few, but there’s the Fed itself talking of five years of lackluster growth in employment.

Oh, and I can continue to walk you along the trail of tears when it comes to state and municipal budgets, but you already know these things. What’s good is that towns across America are being forced for the first time to make some hard choices. What is essential, what is non-essential. And as some towns in my area are doing, they are combining services, such as courtrooms. If we can make it through this wrenching period, we’ll be better off for it, but in the meantime, that means millions and millions will struggle.

But the changes America is going through are also taking place in Europe, only some, such as in Britain, are cutting public spending far more aggressively. Economists are split on this. Some say this is the exact opposite of what is needed with the global economy on a knife’s edge. More stimulus, not less, is required. Others say you have to restore fiscal discipline and the balance sheet first before moving on. Whose lemmings will be the first to leap off the cliff into the sea? I admire European governments for their newfound prudence, but I do worry about social disorder, with immigrants the easy target. There is a history to worry about across the pond, after all.

As for President Obama and his staff of lightweights who haven’t held a real job, including the occupant of the Oval Office, nothing like slamming a sick economy with big tax hikes in 2011. But Americans do have an opportunity to express themselves at the polls in November, and for this we can be thankful.

Lastly, a few items on the international front. China’s GDP for the second quarter came in at 10.3%, a little below estimates and a bit of a comedown from the first quarter’s raging 11.9% pace. But to the doom and gloomers on China, there’s nothing wrong with 10.3%! The government’s attempts to slow the economy and prevent a serious bout of inflation, while pricking the housing bubble, are working thus far. The June CPI in China came in at an annual rate of 2.9%, down from May’s pace and hardly worrisome. Home prices, in 70 major urban areas, also ticked down 0.1% in June over May, a good sign. Some say China’s home prices will fall 20%. Fine. That’s not a crash. I have been consistently in the soft landing camp, though obviously if the rest of the world totally craps out and double dips (as opposed to the muddle through, gloomy environment I see), then China will take a licking along with everyone else.

One concern I do share with the bears on China, however, is the bank issue when it comes to hidden loans on many of their books. Fitch, the ratings service, is warning of a crisis in this regard, with too many bad loans being secretly shifted to understate credit growth, and risk.

But for now, China will continue to slow, though with June exports up 44% (and Taiwan’s to China and Hong Kong up 61.9% for the first six months of the year), the region is doing just fine. One other, Singapore, had record GDP growth of 18.1% for the first half of 2010 and is calling for 15% growth for all of the year. Gotta love that authoritarian, though highly capitalist, system of theirs.  

After posting my column last Saturday morning from Orange Beach, Alabama, I walked down to the beach as I had every morning to check on what the tide brought in…hopefully not oil. I saw big tar balls one morning, and I know just down the beach from me the situation was more serious, but Saturday some tractors were dragging the sand, revealing underneath a layer of oil. This was just further proof of my point last week that regardless of whether or not BP is successful in finally capping the well (we all pray this latest attempt is indeed the case), the beaches are already contaminated. Just picture that with each tide that brings in oil, unless it’s then cleaned up, the next tide dumps sand on top of it. Then maybe three tides later some more oil rolls in, it’s not cleaned up, and sand goes over that. You can stand from afar, and the Gulf coast’s gorgeous white sand beaches look fine, but particularly in parts of Alabama and Louisiana, you have beaches that are fouled until the next hurricane comes along and blasts it all away. Remember, you can’t replenish the beach with sand from the shallows of the Gulf because they are contaminated, too.

It’s important to draw the distinction, though, between the beaches and the Gulf water itself. I am more optimistic after my trip that the Gulf will recover. I’m sure there will be some dead zones for a spell (there are long-term dead zones off the Pacific coast, largely the result of industrial pollution…including pesticides), but overall a fishing industry will reemerge.

The immediate question is, however, who will be left to harvest it? And should the well be capped, permanently, and some of the press coverage fade away, will BP truly “make things right” and pay the small businesses for their losses?

Through both my trip, talking to merchants, and in devouring anything I could read on the region the past few months, there is a consistent figure on the loss of business, outside the fishing industry, along the impacted Gulf coast of 50%; whether you’re talking hotel owners, restaurants, souvenir shops, realtors…you name it. It’s actually amazing how consistent that number is, across the board. This wasn’t a force of nature that caused these losses. It was outright criminal negligence, as the courts will one day prove once we get the BP and Transocean folks on the stand, for example. 

But among the disturbing elements of the story, just as in any disaster, is how some profit who shouldn’t be. In an article for BloombergBusinessweek, Dean Blanchard, who owned a shrimp processing plant with about $30 million in sales, said:

“True, some ex-employees are skimming oil for BP, and it’s proving far more lucrative for them than shrimping ever was. Those lucky enough to sign on with BP are getting as much as $2,000 a day for their boats. Others are getting BP payouts, collecting $2,500 a month.

“But some of these are guys that were making $5,000 to $6,000 a month with me,” says Blanchard. “The idea that BP is making people whole is a lie…They are making people that were poor, rich, and people that were rich, poor. They’ve turned everything upside down.”

And then we have the Obama administration’s reimposition of a ban on Gulf deepwater drilling after the courts had declared the first moratorium illegal. A Bloomberg nationwide survey found 73% saying the ban was unnecessary, with most believing it was a “freak accident.” Thousands and thousands of jobs are being impacted, but as the Wall Street Journal editorialized about Interior Secretary Ken Salazar’s latest move:

“Even as Mr. Salazar retooled his moratorium, the first deep water-drilling rig was preparing to leave the Gulf in the wake of the U.S. ban. Diamond Offshore said it is relocating its Ocean Endeavour drilling rig to Egypt, immediately, in a contract that will run at least through mid-2011. Diamond CEO Larry Dickerson said ‘We greatly regret the loss of U.S. jobs that will result from this rig relocation.’

“No doubt Louisiana will, too, not that the Obama administration seems to mind.”

On a different angle, I believe it is going to be very important how “60 Minutes” handles the crisis. I imagine their entire first show in the fall season will be on this topic and it’s why I’m focused on the state of the beaches. It’s a good story, easy to dramatize, but if I’m right, and a hurricane doesn’t rip them up, a devastating portrayal could set back some communities even further.

Finally, on a lighter note, I went back out on the Gulf State Park Pier on Saturday, where you can walk way out into the water, and the place was teeming with fish, including the sharks I had written of last time. Turns out they were blacktips, for the record. It’s just a gorgeous, relaxing spot. Hot as heck, though, so if I ever go back it will be outside the June to August time period. I wish all the people of the region well. And I hope the BP executives responsible for the disaster never have another restful sleep the remainder of their sorry lives.

Street Bytes

--As noted above, stocks slid on Friday, leading to a down week following the prior one’s big rally. The Dow Jones lost 1.0% to 10097, the S&P 500 dropped 1.2% and Nasdaq declined 0.8%. For the year, the three major averages are now off 3% to 4.5%.

Bonds rallied (yields plunged) at week’s end, with the 2-year Treasury hitting a record low, on renewed uncertainty over the fate of the U.S. economy and further questions concerning China, as well as Europe. The inflation data was another help for bonds with June producer prices falling 0.5%, while the consumer price index for the month declined 0.1%. Over the past 12 months, the CPI is up just 1.1%, while the core rate, ex- food and energy, is up only 0.9%, year over year.

--President Obama will finally be signing the Financial Regulation overhaul legislation, FINREG (or Dodd-Frank, named after its two prime committee chairmen), and who the heck knows what the impact will really be? Regulators have a ton of new authority should they choose to use it (which in my mind would be good in most cases when it comes to the larger financial institutions), but, they also have to write the rules first and that could take years in some cases (with Wall Street having its lobbyists looking over the rule writers’ shoulders in trying to water it all down). To repeat one more time…all they had to do was raise capital requirements and get rid of credit default swap instruments. Regulations have been in place for the other stuff, though it’s just like in the case of gun laws; no one enforces the rules already on the books.

The articles on FINREG all talk about sweeping changes, and change there will be, such as with a new Consumer Financial Protection Bureau, but I cannot overemphasize that the vast majority of the details are yet to be worked out. At least in terms of borrowers being forced to provide evidence they can repay a loan or mortgage, and some new transparency in derivatives markets, there are positive changes, but where this all helps small business is debatable. As the president of the American Bankers’ Association said, “The result will be over 5,000 pages of new regulations on traditional banks and years of uncertainty as to what the massive new rules will mean.”

And of course FINREG doesn’t address financing giants Fannie Mae and Freddie Mac.

This whole effort will go down as a giant missed opportunity and doesn’t begin to address the real issues that caused the Great Recession.

--The SEC and Goldman Sachs settled on the civil fraud case for $550 million, the largest penalty ever paid by a Wall Street firm, with Goldman forced to admit it didn’t give investors all the information it should have in marketing materials, including the fact that Paulson & Co. [the hedge fund] were involved in the portfolio selection process for one of its CDO offerings. In a statement accompanying the settlement, the firm said, “Goldman regrets that the marketing materials did not contain that disclosure.” But as is customary in such cases, Goldman denied any wrongdoing, and no management changes were required. An issue going forward is to what extent was Goldman’s reputation damaged beyond that of public opinion? Does it really lose that much business (you can’t say it will pick up a lot of new clients, at least in the near term)? But on the relief that this huge issue is now behind it, shares of Goldman, which closed at $131 two weeks ago, ended the week solidly higher at $146, though off Friday’s earlier high of $152.

--The European banking authorities are set to release the results of stress tests on 91 Euro banks around July 23. The issue is, can the individual governments provide cash to those banks needing help, while taking care of their own sovereign debt issues. It’s a double whammy. Many just don’t believe the euro banks, loaded with sovereign debt in turn, will come clean so all manner of European officials late in the week were scrambling to say there are no big threats to their banking system, which is one reason why the euro currency continued to rebound vs. the U.S. dollar.

[One side issue on the euro nations. France and Italy, to cite two, both have governments dealing with serious corruption issues, with French President Sarkozy and Italian Prime Minister Berlusconi forced to reshuffle their cabinets in the face of serious allegations of wrongdoing among some in their respective governments. The timing couldn’t be worse.]

--Federal authorities conducted the largest Medicare fraud bust ever in five different states this week, arresting at least 90 in a ring that scammed $250 million. Several doctors and nurses were among those arrested in Miami, New York City, Detroit, Houston and Baton Rouge, La. Why the leaders of such a crime aren’t given the death penalty I’ll never know. Someday we’ll all wise up to premeditated crimes of this nature. Give me one reason, just one, why the ringleaders in such cases should live. Cruel and unusual punishment? I think not.

[Cleaning up Medicare fraud is a key to Obamacare. The president has my full support in this endeavor.]

--Google shares took a hit on its earnings report, down $34 on Friday, as the figures generally fell short, but the bigger concern for analysts was a further increase in headcount and potentially out of control expenses.

--Consumer Reports announced on Monday that it couldn’t recommend Apple’s new iPhone 4 because of a design flaw in its antenna. Said the writer of the product review, “It’s a wonderful phone with a terrible flaw.” Apple initially countered it discovered a software issue that impacted the bars and false readings on signal strength, even as it was learned a senior Apple exec had voiced concern to CEO Steve Jobs a year ago that the antenna design could lead to dropped calls. But Jobs decided to proceed with it anyway. 

Apple’s response, typical hubris, was criticized. At first the company said consumers needed to hold the phone in a way that wouldn’t affect the signal. But on Friday, Steve Jobs called a press conference to address the issue and offered users a free case, or bumper, that should fix the problem. Jobs then slammed his competitors, saying Apple’s problems were no different than the others when it came to dropped calls. Apple is also offering a full refund if the user is still unhappy by Sept. 30.

So will this bloody nose impact sales? Probably not, but it would behoove Mr. Jobs to be a bit more humble in the future.

--A Food and Drug Administration advisory panel recommended allowing GlaxoSmithKline to continue to sell the diabetes drug, Avandia, while saying it still poses “a significant safety” concern because it raises the risk of heart attacks; though those voting ‘for’ said Avandia should be used only if other diabetes’ drugs don’t work. Regardless, sales of Avandia have been sliding since a 2007 New England Journal of Medicine study linked the medicine to an increase in heart attack risks.

In another FDA advisory move, a committee voted against endorsing a prescription drug for obesity, in a further sign of concern for the health risks associated with diet pills; including heart issues, possible birth defects and psychiatric problems. However, the full FDA doesn’t vote on this particular drug, Qnexa, until October and as the advisory panel vote was close, there is still a chance the FDA could override it. The drug does appear to work.

--Britain’s housing market had been exhibiting a resurgence the past 12 months or so, but now with deep public-spending cuts coming down the pike, home values are projected to resume their slide, down 5% to 10% in each of the next two years, according to some economists.

--California’s median home sale price fell 2.9% in June compared with May, though up 9.8% from June 2009.

--Home sales in the Hamptons rose to 923 from 433 in the first half of the year, with the median price climbing 34% to $935,000…just slightly out of most Americans’ price range. Of course during the bubble, you could have gotten a no money down mortgage for the full amount, with the bank asking, “What do you do?” “I’m a candlestick maker.” “Perfect!”

--The world’s largest IPO, Agricultural Bank of China, a $22 billion offering, rose just fractionally in its first day of trading in both Hong Kong and Shanghai, which disappointed the government some but at the same time at least the share price wasn’t down.

--Early tests by the Department of Transportation reveal that some of the drivers who said their Toyotas and Lexuses were surging out of control had actually forgotten how to drive and mistakenly floored the accelerator rather than hitting the brakes.  However, this doesn’t exonerate Toyota for “sticky” accelerator pedals and floor mats that can trap accelerators to the floor.

--Intel’s CEO may have been exceedingly bullish on the company’s future prospects, in addition to their “best quarterly results” ever this week, but as the Wall Street Journal, and a JPMorgan analyst note, “there are signs of slowing PC demand in Europe, China and the U.S.” It’s all about the still murky global economic picture.

--General Electric CEO Jeffrey Immelt, who is as unimpressive a major executive as I’ve seen, realized that perhaps it wasn’t a brilliant idea to criticize China in the fashion he did the other week. Immelt’s drinks could be laced with excessive amounts of melamine in the future, after all, so he had a change of heart, telling the Financial Times, “China is a very important market for GE. It’s one that we do quite well in. It’s one that we’re committed to for the long term. Trade is always going to be challenging on all sides and in many countries. That’s what I was reflecting on.” Good boy, Jeffrey. 

--An Irish think tank said 120,000 will emigrate by the end of 2011 to escape the unemployment at home, most of them being Irish as opposed to the non-nationals leaving since the financial crisis began, like the Polish plumbers and the Indian bartenders.

Separately, Ireland’s Department of Finance cast doubts on whether the final taxpayer bill for nationalizing Anglo Irish Bank is the already earmarked $28 billion or closer to $40 billion. Former Anglo chief Sean Fitzpatrick has in excess of $130 million in debts, including interest-only loans from Anglo, and has declared bankruptcy.

--Room-occupancy rates in New York hit 92% in May, far exceeding that of any other major city in the U.S., according to Crain’s New York Business; this despite adding 37 properties and 6,425 rooms to Gotham’s stock. Still another 21 hotels, and 4,300 rooms, are coming online over the coming years.

--For the first time in nine quarters, the magazine industry saw gains in both ad pages and revenues over the April-June time period.

“An Air France plane en route to Paris from Brazil was forced to make an emergency return to Rio de Janeiro because several of the aircraft’s toilets did not work, the company said yesterday.

“The Boeing 747 airplane with 443 passengers on board departed Rio at 4:20 pm Tuesday. Two-and-a-half hours into the flight, the pilot made a decision to return to Rio after it was learned that at least six of the plane’s toilets were out of order. It returned to Rio six hours after taking off.”

So Air France said completing the 11-hour flight would have been impossible, or rather it would have caused “great discomfort for our passengers.”

The passengers, though, upon disembarking back in Rio called the whole deal “chaotic,” “absurd” and “unimaginable.”

Over the past few years, there have been a ton of problems involving Air France flights, including a major crash (never solved), but in all my travel on the airline, they’ve been perfect.

--Speaking of Air France, long story but I delayed requesting refunds on my flight segments with them that were impacted by the volcano back when I was in Europe and the Middle East in April. I did finally ask and was informed this week I was getting refunds totaling $1,200, which was very satisfactory to moi…so the foie gras is on me this week! [Just submit your receipts to the address found elsewhere on the site.] So I say again, Air France has always done me solid!

--“What do the sim-ple folk doooo?”   Heck with them. The above noted hedge-fund king John Paulson recently paid $24.5 million for an 8-acre spread in Aspen, Colo. This is on top of the $41.3 million Southampton, L.I., home he purchased in 2008. But the Paulsons gave $5 million to Southampton Hospital for a new emergency department named after them, because, sports fans, when you’re that rich, the last thing you want to do is be treated in some Third World care center by a guy without a real license.

--84-year-old Hugh Hefner is taking his Playboy Enterprises private by buying up the shares he doesn’t already own. But, FriendFinder Networks, parent of Penthouse magazine (they’re the ones who way back first started showing….oops, can’t go there), has issued its own, higher offer. Mr. Hefner, however, is saying he isn’t interested in any mergers.

--A number of you have commented on the new Wizarding World of Harry Potter ride at Universal Orlando and as Liz S. put it, “People my age were walking off it with their mouths hanging open in an ‘OMG’ type of stupefication. The kids, though, don’t get how great it really is. The 40+ group was in awe.”

--And Japanese airliner ANA is going to start offering draft beer on domestic flights, though the cost will be about $11.30! And only 20 glasses will be available. You see, kids, draft beer couldn’t be served before because fluctuating air pressure caused too much foam, according to Japan Probe and the Daily News.

Foreign Affairs

Afghanistan: As of Friday, at least 47 international troops, including at least 35 Americans, had been killed here. Last month 103 coalition troops were killed. In this week’s worst incident, a rogue Afghan soldier killed 3 Brits, with the attacker then escaping into the night. You always have this concern of Taliban sleeper cells, though the British press is reporting this doesn’t appear to be the case in this instance. The British have been responsible for training 130,000 police and members of the Afghan National Army and in that size a group it’s inevitable there will be some problems.

Meanwhile, a Bloomberg poll shows only 46% of Americans approve of President Obama’s handling of the war. A CBS News survey has 62% believing things are not going well here.

But this was a week that also saw the appointment of Marine Gen. James Mattis to head Central Command, replacing Gen. David Petraeus, who as you know is now in charge of Afghanistan.

“The Weekly Standard” quotes conservative historian Victor Davis Hanson, who writes that “Mattis is a proven battlefield commander, a sophisticated student of history, and unshakable in his nerve and purpose.” In applauding Obama’s selection, Hanson adds, “We now have, with General Petraeus as ground commander, our two most gifted senior combat generals in charge of Afghanistan, who have worked well together and who were brilliant in Iraq in its darkest hours.”

TWS’ “Scrapbook” column also contributes some “Mattisisms that have been circulating since the announcement of his pick”:

“Speaking to tribal leaders in Iraq: ‘I come in peace. I didn’t bring artillery. But I’m pleading with you, with tears in my eyes: If you f--- with me, I’ll kill you all.’

“Convincing an Iraqi that the United States wouldn’t cut and run: ‘I said I am never going to leave. I told him I had found a little piece of property down on the Euphrates River and I was going to have a retirement home built there. I did that because I wanted to disabuse him of any sense that he could wait me out.’

“Advice to soldiers and Marines: ‘Be polite, be professional, but have a plan to kill everybody you meet.’ Also: ‘If I were to sum up what I’ve learned in 35 years of service, it’s improvise, improvise, improvise.’ And: ‘You are part of the world’s most feared and trusted force. Engage your brain before you engage your weapon.’ Similarly: ‘An untrained or uneducated Marine… deployed to the combat zone is a bigger threat to mission accomplishment…than the enemy.’”

The selection of General Mattis was universally praised.

Iran: This week saw the strange case of the Iranian nuclear scientist who had disappeared in Saudi Arabia 14 months ago, but had been long thought to have defected to the United States.   Suddenly, the gentleman showed up at the Pakistani mission in Washington (which represents Iran’s interests…I dealt with these folks when I tried to go to Iran and the bastards toyed with me) and promptly went back to Iran to a “hero’s welcome.” The question is, did the CIA, who allegedly paid him $5 million, gain any “significant cooperation”? It would at least appear that due to the new sanctions regime, the U.S. isn’t obligated to fork over any unpaid funds.

As for the sanctions themselves, the Financial Times had a detailed analysis and said they aren’t working; that Iran’s missile and uranium-enrichment activities continue apace, though in the case of energy, the fact the state declared a two-day holiday was apparently because Iran needs to save electricity.

And it’s disturbing, though hardly surprising, that while Russian President Dmitry Medvedev said Iran was gaining the ability to build a nuclear bomb, at the same time, Russia was doing all it could to aid Iran’s energy program, thus circumventing the new U.S. and European sanctions. Russia has long said it disapproved of any sanctions beyond the pathetic ones levied by the UN Security Council. Medvedev said, “At the moment, patience is demanded and the speediest resumption of productive dialogue with Tehran.”

Also, in a region bordering Pakistan, at least 27 Iranians, including members of the Revolutionary Guard, were killed in a suicide attack at a Shia mosque.   The region is home to a Sunni militant group which claimed responsibility, saying it was in revenge for the recent execution of its leader. Iran accuses the U.S. of funding the militants, the Jundallah, or “Soldiers of God,” in an attempt to destabilize the government. The U.S. denies this.

Israel: Following his favorable visit with President Obama in Washington, Prime Minister Netanyahu reiterated that he was prepared for direct talks with Palestinian President Abbas, but then the Jerusalem building and planning committee approved plans for 32 new housing units in East Jerusalem, and while these are to be built in a previously established neighborhood that Palestinians agreed would remain part of Israel under any final status agreement, the decision allows President Abbas another opportunity to say that Netanyahu isn’t serious. Netanyahu also caught heat for the official Israeli government inquiry into the flotilla debacle, which admitted mistakes were made in operational details but that the “use of live fire was justified.” So neither the Palestinians nor Turkey were satisfied by the findings and Turkish Prime Minister Erdogan took the opportunity to once again slam his supposed ally the United States.

South Africa: Officials were duly pleased with the handling of the World Cup. For two years I talked of terrorists targeting this event and thankfully it was terror free, though at the same time I didn’t see anything that makes me want to go there and it cracks me up how some are saying South Africa really put its best face forward. [All I know is white South Africans continue to flee the country.]

And as Matthew Kaminski in the Wall Street Journal commented, “The thugs were scared away by the additional 40,000 policemen deployed in town centers or distracted by soccer. Pessimists assume the police will disappear with the last Cup tourist.”

But now, as both the New York Times and Journal pointed out, the fear is of a wave of violence against immigrants from neighboring African countries, with the usual complaints that the Zimbabweans and Mozambicans are taking jobs and resources that native South Africans deserve.

Uganda / Somalia: Instead of terror striking South Africa during the World Cup, however, Somali Islamists struck two sites in Kampala where fans were watching the Cup Final and at least 74 died, including one American, in twin suicide attacks. The group claiming responsibility, Al Shabaab, had already threatened to attack Uganda for sending peacekeeping forces to Somalia and more violence can be expected. U.S. officials are duly fearful as well, because it is Al Shabaab that has been recruiting Americans, such as from the huge Somali population in St. Paul, Minnesota. Will these terrorists, who receive their training in Somalia, then return home? [See Mall of America.]

North Korea: Last week I noted that Pyongyang was declaring victory over the UN Security Council’s statement condemning North Korea for the attack on a South Korean naval vessel because the resolution contained a passage that the North “has stated that it had nothing to do with the incident.” Then Pyongyang called off talks set for Tuesday with the U.S.-led UN Command that oversees the Korean War truce. Lower level officials from both sides eventually met on Thursday, but then North Korea demanded it be allowed to conduct its own probe into the sinking.

“More amazing still, the (UN) resolution that didn’t bark is being hailed as a deft way to lure North Korea back to the six party talks over its nuclear program. Follow the logic: Since the North wasn’t condemned for doing what everyone knows it did, the North’s leaders might now be appeased enough to return to the nuclear talks they walked out of last year. Sink a ship, and gain new diplomatic respect. If former U.S. Ambassador to the UN John Bolton had predicted this scenario, the New York Times would have accused him of trying to undermine the credibility of the UN.

“It would be nice if we could dismiss the UN as a land of meaningless make-believe, but too many people, including the Obama Administration, imbue the UN with moral authority and the Security Council with the power to enforce collective global security. A body that refuses even to speak obvious truths about a murderous act, much less do anything about it, deserves no such authority, much less respect.”

China: Beijing is furious over the joint U.S.-South Korean naval exercises, calling it a throwback to the Cold War. Reaction is related to the handling of the North Korean issue. A spokesman for the Chinese foreign ministry said:

“This means dividing the region into different military alliances and viewing regional security from an angle of opposition and confrontation as in the Cold War era….

“We firmly oppose any foreign warships and airplanes conducting activities undermining China’s security interests in the Yellow Sea and China’s coastal waters.”

The Pentagon maintains the naval exercises, including in the Sea of Japan, were intended to deter North Korea from any repeat of the March incident.

Meanwhile, in Taiwan, President Ma’s approval rating has rebounded with the signing of the trade agreement with the mainland; Ma now gaining the support of 47% of the public, while 68% back his efforts to improve relations with China. Earlier in the year, various polls had Ma’s approval rating in the 20% to 30% range.

Haiti: Six months after the devastating earthquake, this place remains a total hellhole and I’m glad I didn’t contribute one dollar to relief efforts. Not that Haitians don’t deserve the help, it’s just that this was one place where you had no idea where your money was going, especially given Haiti’s corrupt past.

So this week we learned that donor governments have paid just 10% of what they promised to give Haiti   10%?! If you were looking for one statistic to give you an idea as to the future of Planet Earth, this is all you need.

Northern Ireland: The worst rioting in years has left over 80 police officers injured in Belfast, including one in stable condition after a concrete slab was dropped on her head from a rooftop, as reported by John Burns of the New York Times. The riots originated with the incredibly stupid annual marches of the Orange Order (the Protestant fraternal organization), with the Protestants choosing this period to protest the British government’s handing over control of the police in Northern Ireland to local officials. [Yes, I’m Catholic…and of course the remaining IRA diehards are wrong as well.]

Random Musings

“Astonishingly, 55% of citizens think Mr. Obama is a ‘socialist’ against only 39% who do not share that diagnosis. The same poll shows 48% support for Republicans against just 42% for Democrats. The numbers are eerily similar to 2006, except that it was George W. Bush’s Republicans who were on the receiving end four years ago.

“ ‘The bottom line here is that Americans don’t believe in President Obama’s leadership,’ says Rob Shapiro, (a) former Clinton official and a supporter of Mr. Obama. ‘He has to find some way between now and November of demonstrating that he is a leader who can command confidence and, short of a 9/11 event or an Oklahoma City bombing, I can’t think of how he could do that.’

“In private, informal advisors to Mr. Obama are almost as negative. According to one, the U.S. public’s loss of confidence in Mr. Obama’s leadership is a factor above and beyond their dissatisfaction over the state of the real economy, which continues to slow as last year’s $787 billion stimulus starts to run dry. The adviser, who asked to remain anonymous, said the public did not know what Mr. Obama really believed. Examples include his lukewarm support last year for a public option in the healthcare bill and his equally lukewarm support today for a Senate bill that would extend unemployment insurance and aid state governments to keep teachers in their jobs….

“ ‘I never thought I would say this, but even I’m unsure what President Obama really believes,’ says the adviser. ‘Instead of outsourcing decisions to Congress, he should spell out his bottom line. That is what leaders are for.’”

“No one disputes that the effects of the health and financial reforms for which he has fought will be felt for decades, or that he has kept up a prodigious work rate making the case for them in Congress and on flying visits to virtually every corner of the country.

“But for millions of Americans the reality of his first term so far is one of expiring unemployment benefits, shuttered businesses and broken dreams. This has left Mr. Obama vulnerable to the charge of misjudging his administration’s priorities whenever he focuses on anything other than jobs.”

“What rotten luck! If the Oval Office were a ship, the crew would be forgiven for suspecting that a Jonah was on board. Look at a partial list of calamities thus far in the USS Obama’s voyage: The Chicago ‘not’ Olympics; gate-crashers Michaele and Tareq Salahi; the $787 billion economic ‘where’s the stimulus’ package; the $30 billion-and-counting BP oil spill; four-star General ‘Loose Lips’ Stanley McChrystal; Solyndra…

“You’ve never heard of Solyndra? That’s strange, because it was supposed to be the cornerstone of Obama’s vaunted green-energy future, but now is a king-size political embarrassment. Solyndra, recipient of a $535 million Department of Energy loan guarantee, last month cancelled a $300 million initial public offering because auditor PricewaterhouseCoopers said its operating losses and negative cash flow raise doubts about its ability to continue as a going concern. Ouch!

“It gets worse for Obama. When he toured Solyndra’s Fremont, Calif., factory in May, he gushed that the company was ‘leading the way toward a brighter and more prosperous future.’

“More embarrassing, Solyndra was the first recipient of a loan guarantee under the dual auspices of the Recovery Act and Title XVII of the Energy Policy Act of 2005. The Department of Energy noted the loan guarantee was the first it had issued since the 1980s. On Sept. 4, 2009, the day of the award, Vice President Joe Biden crowed that it was ‘part of the unprecedented investment this Administration is making in renewable energy, and exactly what the Recovery Act is all about.’ DOE Secretary Steven Chu called it ‘part of a broad, aggressive effort to spark a new industrial revolution that will put Americans to work, end our dependence on foreign oil and cut carbon pollution.

“To borrow the words that Biden used on another auspicious occasion, it was a big &#*%! deal.

“Taxpayers are on the hook for $390.5 million – 73% of the loans.”

Oh, this story goes on and on. But I think you get the picture. As McTague concludes:

“Let’s hope for the sake of American taxpayers that Obama’s rotten luck changes soon.”

“Act One is over. The stimulus, Obamacare, financial reform have exhausted his first-term mandate. It will bear no more heavy lifting. And the Democrats will pay the price for ideological overreaching by losing one or both houses, whether de facto or de jure. The rest of the first term will be spent consolidating these gains (writing the regulations, for example) and preparing for Act Two.

“The next burst of ideological energy – massive regulation of the energy economy, federalizing higher education and ‘comprehensive’ immigration reform (i.e., amnesty) – will require a second mandate, meaning reelection in 2012.

“That’s why there’s so much tension between Obama and congressional Democrats. For Obama, 2010 matters little. If Democrats lose control of one or both houses, Obama will probably have an easier time in 2012, just as Bill Clinton used Newt Gingrich and the Republicans as the foil for his 1996 reelection campaign.

“Obama is down, but it’s very early in the play. Like Reagan, he came here to do things. And he’s done much in his first 500 days. What he has left to do he knows must await his next 500 days – those that come after reelection.

“The real prize is 2012. Obama sees far, farther than even his own partisans. Republicans underestimate him at their peril.”

--Why wouldn’t the president take his family to the Gulf of Mexico for vacation instead of Maine? It’s not as if they didn’t have weeks to prepare a place…the security requirements and all…and it’s not as if a few floors of rooms at a hotel, let alone a house, aren’t available. Heck, it’s a teaching moment for his kids, after all, let alone a chance to do as I did…give the folks at Mo’s Barbecue and the Waffle House outrageously large tips. After I left one tip at the latter, I overheard the waitresses tell the one who had waited on me, ‘You’re sharing that, honey!’

--Newt Gingrich said he’s seriously considering running for president and will announce his decision in early 2011. Spare your breath, Newt. With your unfavorability ratings, you wouldn’t stand a chance. You’re just not likeable! Plus, you’ve proved to be a dirtball when it comes to your personal life. What you would be better at is a domestic policy adviser, who could also advise the next Republican president on dealing with Congress. You would, of course, have to be muzzled somewhat and limited strictly to Sunday talk show appearances because a President Daniels, let’s just say, couldn’t afford to have you giving your own briefings or press conferences.

--Peggy Noonan, in her op-ed for the Wall Street Journal, lamented the lack of experienced leaders, around the world, and how youth is the norm these days, unfortunately. I agree with her. It’s time for adult supervision.

“Who might benefit from a real, if not consciously felt, longing for the old, tried and true? Not a Facebook jockey twittering from deepest cyberspace. A frank, unshowy Sen. Tom Coburn? Gov. Haley Barbour, an old-style, gray-haired, shrewd-eyed southerner? Maybe Mitch Daniels, who is, as they say, an old person’s idea of a young man. He has the style of a lovely normal boring person. Boring: that looks so good right now. Old, that looks so fresh, so new.”

I mentioned Daniels last week as my personal pick for the Republican Party in 2012. Look for him to continue to gain traction. As for Haley Barbour, I like him too.

--Talk about a nightmare, Bristol Palin and Levi Johnston decided they would get engaged, again, but opted to do it through Us Weekly, rather than telling Sarah and Todd, first. To which Sarah said, “Bristol believes in redemption and forgiveness to a degree most of us struggle to put into practice in our daily lives.” In the interview for the magazine, the kids said, “It is intimidating and scary just to think about what (Sarah’s) reaction is going to be.”

Good ol’ Bristol. What a jerk. And I love how I was watching Bill O’Reilly the night this story broke, he showed a bunch of clips from the NAACP convention on speakers taking pot shots at Sarah, yet didn’t mention the Bristol/Levi deal, which is big. C’mon, Bill. You can do better than that.

--In 2007, 58% held a favorable view of Al Gore, 37% an unfavorable one, which considering the split on the global warming issue was quite good for the former vice president. Today, a new Gallup poll reveals 49% now view him unfavorably, while 44% see him favorably, this after his separation from Tipper and the allegation he sexually assaulted a massage therapist in a hotel room. It is going to be very difficult for Gore to get his mojo back. What he really needs is for Tipper to stay quiet because it was she who reportedly always suspected her husband was up to no good with his frequent massages.

--My brother informed me that Paul the ‘oracle’ octopus was being courted heavily by a zoo in Spain after Paul went 8-for-8 in picking the winners of World Cup matches, including Spain over the Netherlands in the title contest. Paul is currently in the Oberhausen, Germany aquarium. But evidently Paul is getting rather tired of the attention. I would just add that thanks to him, the octopus is rocketing up the All-Species List, cracking the top 20 for the first time. For his part, Man continues to plummet, having fallen behind the wildebeest.

“March, April, May and June set records, making 2010 the warmest year worldwide since record-keeping began in 1880, the National Oceanic and Atmospheric Administration says.”

But there are those who disagree with NOAA’s data. NASA’s satellite figures show an average temperature in June that was 0.43 degrees higher than normal. NOAA says it was 1.22 degrees higher.

--Finally, we note the passing of World War II hero and Medal of Honor winner, Vernon Baker, 90. I have a special feeling for this man, the first living black U.S. soldier to be awarded the highest honor for service in the Big One, specifically action he took near Viareggio, Italy, April 1944.

Baker did receive the Purple Heart, Bronze Star and Distinguished Service Cross at the time, but not the Medal of Honor. But in 1993, the U.S. Army looked into the issue and Pentagon officials selected seven black soldiers for the MOH, but Baker was the only recipient still alive. In 1997, he then received the medal from President Clinton.

I remember him fondly, however, because years earlier, U.S. News & World Report did a story on him and I must have been the first to do so, but I immediately mailed the page with his picture on it to him, complete with a self-addressed, stamped envelope, and asked for his autograph. About a week later he sent it back, and included a separate signed picture of him in his uniform, with a great note attached. I guarantee that weeks later he was receiving a ton of requests like mine, let alone years later when he received the MOH, but I was lucky I caught him when he had the time, though from later stories I read, he appeared to have the time for everyone.

So I framed both and gave the signed picture from the article to the local VFW chapter and kept the autographed photo for myself. Someday I’ll pass it on to a kid who might really appreciate it.

Pray for the men and women of our armed forces, and all the fallen.

Gold closed at $1188
Oil, $76.01

Returns for the week 7/12-7/16

Dow Jones -1.0% [10097]
S&P 500 -1.2% [1064]
S&P MidCap -1.7%
Russell 2000 -3.0%
Nasdaq -0.8% [2179]

Returns for the period 1/1/10-7/16/10

Dow Jones -3.2%
S&P 500 -4.5%
S&P MidCap +0.0%
Russell 2000 -2.4%
Nasdaq -4.0%

Bulls 32.6 [interesting this declined after the big move of two weeks ago]
Bears  34.8 [unch.] [Source: Chartcraft / Investors Intelligence]

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