Week in Review

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Week in Review

02/26/2011

For the week 2/21-2/25

Wall Street…Public vs. Private…the Middle East

After posting last week’s column I headed to San Francisco and have spent the week gradually driving down the coast, something I had never done before as I overnighted in Carmel, Big Sur, Santa Barbara, Santa Monica, Laguna Beach and now San Diego, where today I’m attending the San Diego State-BYU basketball game, an event I’ve been looking forward to all season (it didn’t hurt that both teams cooperated and are in the midst of outstanding campaigns as they gear up for March Madness). Outside of the first day when I was delayed by the weather, it’s been a great time though I’ve also had long stretches where I haven’t been in contact with events in the world like I normally am when home, or my other trips where I stay in one place for a spell. So that’s my way of saying that while I didn’t miss any of the big stories, I’m begging off on a lot of the details. 

I also spent time this week at both the Ronald Reagan and Richard Nixon Presidential Libraries, so I took a few detours inland to Simi Valley and Yorba Linda and the timing couldn’t have been better given the chaos in the Middle East in particular, as well as the turmoil at home on the budget front and the whole public vs. private debate.

Both presidents, truth be told, were the ultimate pragmatists when they needed to be on the domestic side, while I’m convinced both would not have let Col. Gaddafi get as far as he has in Libya. Reagan bombed Libya and Libyan interests when he was in office (for good reason as noted below), and Nixon, in an episode often forgotten in his history, threatened the Soviet Union with nuclear war in defense of Israel in the immediate aftermath of the Yom Kippur conflict. Neither found it necessary to first ask for international support for their actions, they just did it; a far cry from today’s White House.

But when it comes to Libya, there isn’t anyone who predicted the chaos in the region would unfold in the manner in which it has, and as I go to post I don’t know any more than anyone else when it comes to how many more hours or days Gaddafi can last, though I took a shot at it last week and I’ll leave it up to you to reread it. For one week I’m close but I don’t want to be too presumptuous and repeat it in this space just now.

“As the Arab freedom wave reached Libya last week, Moammar Gaddafi reacted as he so often has during his benighted 42-year-old reign – by murdering his own people. The revolt against the aging state terrorist appears to have reached a point of no return, and the U.S. and Europe should be doing far more to help the Libyan people end Gaddafi’s rule….

“Long before al-Qaeda, Gaddafi was the Arab world’s terrorist-in-chief. In April 1984, a gunman inside the Libyan embassy on St. James’ Square in London opened fire on protesters, killing a British constable. The assassin was never identified. Two years later, Libyan agents bombed a discotheque in West Berlin, killing three and wounding 230, including 50 American servicemen. In 1988, Libyans blew up Pan Am flight 103 over Lockerbie, Scotland, killing 270 on board and on the ground.

“Gaddafi had a change of heart after the U.S. toppled Saddam in 2003, ending his secret nuclear program and inviting Western capital to exploit oil resources that his own country lacks the means to develop. The U.S. and Britain leapt at the chance in far too unseemly a fashion.

“Gaddafi’s internal tyranny has never ceased, and in 2009 his government bullied the U.K. into releasing one of the Lockerbie bombers, Abdel Baset al-Megrahi, from a Scottish prison on bogus humanitarian grounds. He’s still alive in Libya two years later. Some of the communications and military equipment that British companies have sold to Libya since the Megrahi deal might well have been deployed to kill Libyans in recent days.

“It is hard to believe, but the Obama Administration seemed more eager to topple Egypt’s Hosni Mubarak than it has Moammar Gaddafi, who has more American blood on his hands than anyone living other than Osama bin Laden. Now that the Libyan people are rising against him, they deserve urgent and tangible American support.”

And this view from the Middle East by Michael Young of Lebanon’s Daily Star.

“Consider for one moment the savagery in Libya this week, when Moammar Gaddafi unleashed his jets, helicopter gunships, and artillery on his own people. Then place that against a backdrop of the speech on Tuesday by the stuttering psychopath himself, followed by his instructions to hunt down and butcher his opponents.

“Do that, and then tell us, without wincing, that had some foreign power or powers magically deployed the military means to shoot down Gaddafi’s aircraft and bomb his soldiers, you would not, deep down, have taken immense satisfaction in the results – regardless of whether the United Nations had authorized the move.

“It’s in times like these that the formal institutions of international relations tend to break down. What we’re witnessing today we already witnessed in early 1991, when Iraq’s Saddam Hussein used his tanks and helicopters to crush a Shiite uprising after his army’s withdrawal from Kuwait. At the time the George H.W. Bush administration permitted the massacre to continue, fearing that any intervention might topple the Iraqi regime, creating a vacuum in Baghdad. Extraordinarily, Washington somehow managed to recognize Saddam both as an agent of instability in the Gulf and one of stability at home.

“That delicate American adjustment of the geopolitical dials may have imposed some quiet in the region, but at a terrible human cost. Tens of thousands – some say the figure is closer to a couple hundred thousand – of Iraqis were killed, most of them Shiites. This was followed by a 12-year U.N. sanctions regime that debilitated the Iraqi population but also strengthened Saddam’s rule. Oddly, many of those who later demanded that President George W. Bush gain U.N. approval before sending American forces to Iraq were the very same who had earlier denounced U.N. sanctions as inhuman….

“For now there is still much pussyfooting over Libya. The United States, ever fearful of an Islamist takeover in Tripoli, has limited its official reaction to ejaculations of indignation over Gaddafi’s ferocity. It seems increasingly obvious that Barack Obama is just not very good at adopting unambiguous positions on mass repression – whether it takes place in Iran, Tunisia, Egypt, Bahrain, or now Libya. The president, so eloquent when it comes to expressing abstract values in Muslim-Western relations, is without a moral compass when facing reality….

“Gaddafi is perhaps right in assuming that if he can turn the situation in Libya around quickly enough, Western leaders will swallow their disgust and deal with him, because the stability of oil markets demands it….

“(But) hasn’t Gaddafi done enough to earn more than just a few disobliging communiqués? He has, but good luck finding someone to show him the door.”

Libya has made for strange bedfellows, not just the United States but European nations such as Italy, its No. 1 trade partner in a highly twisted partnership that Prime Minister Silvio Berlusconi should be ashamed of (then again he obviously has none). 

But now Italian officials, just as they warned of massive immigration from Tunisia as it collapsed, fear that up to 350,000 migrant workers may flee Libya for the European continent, which would be a disaster and further spur the far right across Europe, as I discuss below.

Meanwhile, in other news across the region, British Prime Minister David Cameron made a courageous visit to Egypt, becoming the first world leader to do so, and talked to both military and opposition leaders. The big issue seems to be will Egypt’s new military rulers simply put up a new Mubarak in upcoming elections? Many of the generals are strongly anti-reformist, including 76-year-old Field Marshal Gen. Tantawi, who is heading the Higher Military Council. There are also reports by human rights organizations that at least 40-50 protesters have gone missing.

In Bahrain, the monarchy has released 100 political prisoners, meeting one of the protesters’ demands but that won’t be enough. Saudi Arabia has taken steps to support Bahrain, fearing a Shiite backlash in its own oil-rich eastern provinces if the Shia opposition wins out in Bahrain as both desperately try to keep Iran out of their orbit. Saudi rulers are injecting $8 billion in development aid for their own people in an attempt to quell any discord; aid for things like new homes, new businesses and encouraging marriages (if the Saudis want to give yours truly a few $million, I might consider getting married too!)

In both Algeria and Jordan, the protests have been largely peaceful. The Algerian government ended a 19-year-long state of emergency, meeting the major demand of the protesters, though we need more time to see if this keeps the peace for a spell, while in Jordan, as in Morocco, too, the calls are for more reform, not the end of the existing monarchies.

But then you have Iraq, which erupted in violence from north to south this week, with at last word about ten killed. Protesters claim they don’t want a new government, they just want a better one, but al-Qaeda and Iran are licking their chops knowing U.S. forces will soon be totally out of the country. Nixon had ‘peace with honor’ in Vietnam, but two years after we left the Communists had taken over the entire country, resulting in hundreds of thousands of further deaths and a decades-long repression that continues to this day. I’m already on record as saying the United States lost the war in Iraq, especially when Christians can’t celebrate Christmas.   This will become more self-evident after our withdrawal.

One event that was much ado about nothing this past week, however, was Iran’s sailing two naval vessels through the Suez Canal and on to Syria. Yes, both the United States and Israel weren’t happy that Egypt granted approval for the first Iranian vessels through Suez in 30 years, thus handing Iran a propaganda coup, but this is the least of Israel’s worries these days. There has been little progress in forming a new government in Lebanon, for example, but when one inevitably is it will still be controlled by Hizbullah. Plus, as part of the Egyptian revolution, gas lines from Egypt to Jordan were destroyed, and Jordan was forced to cut off supplies to Lebanon (though it appears for now Beirut is not impacted). The Lebanese are used to power blackouts, but none of this, especially today, is helpful.

Remember one thing, though. Hizbullah is no longer in the opposition. It’s their face on the new government and they can be held accountable for shortfalls in services. It’s just that they will find a way to exploit the coming protests to their advantage.

Back to Israel, there were clashes between Israeli Defense Forces and Hamas across the Gaza border, with Hamas firing at least one missile that did not injure anyone (due to my travels, on a story like this I plead ignorance over any more recent developments). Hamas itself is looking for a new relationship with Egypt. Hosni Mubarak had been against one, fearing the spread of extremism from Hamas’ creator, the Muslim Brotherhood. It will be critical to see how Egypt’s military leaders treat Hamas and the border between the two. Odds are good the Egyptians will just look the other way as arms go flooding into Gaza.

Separately, Palestinian Prime Minister Fayyad is offering Hamas a proposal for a joint government, with Hamas being given control of security in Gaza. This is deeply disappointing to the United States and Israel as it would kill any prospects for renewed peace talks due to the fact the two don’t recognize Hamas. We now wait to see if September elections for the Palestinians in both the West Bank and Gaza actually take place, this being Fayyad’s goal of cutting a deal with Hamas in exchange for an election including Gaza and Hamas’ participation. 

Two other items. There was an absurd story in the Journal headlined “Uprisings Put al-Qaeda on Sidelines.” The author’s point was that the “largely nonviolent, secular and pro-democracy revolts amount to a rejection of (al-Qaeda’s) core beliefs.”

An expert on the region based in Paris added, “It’s not just a defeat. It’s a catastrophe, the worst thing that has happened since al-Qaeda was created.”

I do not doubt that al-Qaeda’s principal mission upon formation in 1988 was to topple the “near enemy,” regimes ruling Arab states.

But now the terrorist group and its many offshoots have new safe havens from which to plan attacks on the West. As I noted the first week of the Egyptian revolution, you can be sure the new leadership there has confronting al-Qaeda type operations far back on its list of priorities, and for evidence of this look no further than the fact the Muslim Brotherhood is part of the discussions on a new government. This wasn’t the case in the days of Mubarak.

I have to concur with the thoughts of Russian President Medvedev on this front, he saying this week that “In some cases, we could be talking about the disintegration of big, densely populated countries. ‘Fanatics’ could come to power,” he warned. “That would mean fires for decades and the further spread of extremism.”

Finally, a note on Pakistan, speaking of countries that could come under the spell of extremists with a few bullets placed into the skulls of just a handful of current leaders. The case of U.S. diplomat Raymond Davis grew tenser as Davis, no surprise, was identified as a CIA contractor. The White House said this doesn’t change matters in the case where he is charged with killing two Pakistanis supposedly attempting to rob him. The Pakistani government was told in Jan. 2010 that he was a U.S. diplomat, the government didn’t raise any objections, and as far as these things go he has immunity.

But now, disturbingly, Pakistan’s intelligence service, the ISI, is raising hell because it says it didn’t know just how many CIA agents are actually in the country, so on Thursday the Pakistani government told the United States to remove all of its spies, which would be a massive blow to our intel operations there (not that U.S. intelligence has particularly distinguished itself anywhere in the world these days). Davis, who had a hearing this week, has another critical one on March 3rd, while evidently the Pakistani Supreme Court rules on his case and whether he should be turned over to Washington. I just don’t see that happening because anti-American sentiment would then boil over, this while both Republicans and Democrats in Congress are saying if Davis isn’t returned, the U.S. will cut off Pakistan’s funds. Folks, this is not going to end well.

Lastly on this hellhole, the Washington Post had a story on the success of the CIA’s drone attacks, or lack thereof in Pakistan. Last year, 581 militants were killed in them, but, the actual number noteworthy enough to appear on a U.S. list of most-wanted terrorists was 2. A whopping 2.

Public vs. Private

The issue has now exploded in full view, as I told you it would. I also keep harping back to the Dec. 26 mishandling of the New York City blizzard as a prime, simple example of the issues at play here. Back then it all became crystallized when some lazy ass sanitation workers, public employees, decided to stage a job action in some parts of Gotham and many streets went unplowed for days, with at least three deaths being directly attributable to this dereliction of duty. The call from New Yorkers was clear. “We pay our taxes, we are paying your salaries and benefits, now clean up this freakin’ snow!!!”

“Individuals determine their destiny through ambition and hard work.”

“I have always wondered at this American marvel, the great energy of the human soul that drives people to better themselves and improve the fortunes of their families and communities.”

Sadly, when it comes to many of our public sector employees, this is no longer the case. And before you start writing me on this, I said “many,” not “all.”

Here are the battle lines, both sides, as exhibited by the furor that has erupted in Wisconsin, Indiana, Ohio, New Jersey and other states at lightspeed.

Robert Reich, former labor secretary under Bill Clinton.

“The Republican Party’s strategy is to turn working Americans against each other. Unionized vs. non-unionized, public versus private, older workers close to retirement age against younger ones who don’t believe Social Security will be there for them.” [Bloomberg]

“Our bills have come due and it’s time for us to move forward. We’re going to balance the budget in the right way, and we’re not going to push it off on the next generation of taxpayers.” [Bloomberg]

The bottom line is government workers must pay more for their health care and pension benefits, period. Gov. Walker wants government employees to pay 5.8% of their salaries toward their pensions, up from zero, and he seeks to hike health care premiums from 6% to 12%. Democrats say government workers are being singled out as scapegoats for deficits they didn’t cause.

In Friday’s Washington Post, Charles Krauthammer further crystallized the debate.

“In the private sector, the capitalist knows that when he negotiates with the Union, if he gives away the store, he loses his shirt. In the public sector, the politicians who approve any deal have none of their own money at stake. On the contrary, the more favorably they dispose of union demands, the more likely they are to be the beneficiary of union largess in the next election.”

It’s about unsustainable pension and healthcare obligations, with “Democrats desperately defending the status quo; Republicans charging the barricades.”

When it comes to public opinion, however, the situation is a bit muddled. Among the polls taken this week was a USA TODAY/Gallup survey which shows that Republicans by 67% to 26% believe unions do more harm than good, but Independents agree only by a 49-42 margin. And only 51% of Republicans actually want to reduce the pay or benefits of public workers. On the issue of collective bargaining, the big sticking point in Wisconsin, 61% in the Gallup survey would oppose a law in their state similar to that proposed by Cheesehead Nation’s leadership, with just 33%, both parties, favoring such a law. Other surveys show similar ambivalence, but give this topic more time for clarity. No way the people fully understand the pension issue in particular yet. 

As I walked through the Reagan Library, I couldn’t but help think of his big moment on the labor front as president, the PATCO strike. As Joseph White wrote in the Journal this week, in 1981 unions called 145 major strikes. In 2010, there were 11. Reagan, in firing 11,000 federal employees that year set the tone. [I have a good piece on PATCO in my “Wall Street History” archives. Or Google “Ronald Reagan PATCO strike” and you’ll see my story for BuyandHold on the first page.]

Ah yes, leadership. On one topic it is missing more than any other these days, battling the twin budget and federal deficits. A portion of this fight comes to a head this coming week with a threatened budget shutdown. It’s possible by the time you read this there will have been a short-term compromise among House Republicans and Senate Democrats, but the needed long-term solution cannot be achieved without presidential leadership and you saw how President Obama, given every opportunity in the world to address the American people on this paramount issue in his State of the Union, failed to write his own profile in courage. After seeing him compromise on the tax cut extension/stimulus bill in December, I stupidly thought he had received the message that it was time to sit down on entitlements. I consider this one of my worst mistakes in 13 ½ years of writing this column, including my stint at PIMCO.

Fred Barnes noted in an op-ed for the Wall Street Journal:

“Republicans have a second objective beyond restoring proper fiscal priorities: setting the stage for electing a Republican president in 2012. With Democrats in charge of the Senate and Mr. Obama in the White House, deep spending cuts and real entitlement reform may not happen this year or next. But a serious and very public effort to get them can improve the chances of Republican presidential candidates next year.

“The Democratic strategy of bewailing cuts in every domestic program has become an anachronism. The public knows there’s something larger at stake. Rarely has there been a better opportunity to do the right thing for the country. And Republicans have a chance to seize it.”

Turning to Wall Street, geopolitics once again came into play as the strife in Libya, and the impact on its 1.7 million barrels of oil per day, about 2% of global supply and largely exported to Europe, wreaked havoc on stocks and sent oil futures soaring to over $100 a barrel before settling at $98.17. Needless to say, $3.50-$4.00 a gallon gasoline ($4.89 in Big Sur!) in many parts of the country does not spell continuing economic recovery. We had further evidence of just how fragile that recovery is when on Friday we learned fourth quarter GDP had been revised all the way down to up 2.8% from an initial 3.5% estimate. One leading cause for the lower figure was continuing damage to the federal, state and local government workforce (the public sector), which accounts for 15% of all U.S. jobs when it comes to the last two, if I remember correctly.

But while the tax cut extension and stimulus program are aiding growth early on this year, as is the Federal Reserve’s ongoing quantitative easing and a resurgent manufacturing sector, you know what I continually focus on in these pages; that which can change sentiment on a dime, and the Middle East is supplying such items in spades these days. Or as PIMCO’s Mohamed El-Erian noted this week, “The West are bystanders to events out of their control.”

We also certainly didn’t get any good news on the housing front. The S&P/Case-Shiller index showed its 20-city index was down 2.4% in December over year ago levels (Case-Shiller’s calculations are based on a rolling 3-month average). Then the National Association of Realtors offered up that while existing home sales for January were better than expected, the median home price hit $158,000. I’ll have more on this next week but it’s a new low. Whether or not we now continue to a double-dip is up for debate but the fact is a majority of home purchases these days are either foreclosure sales and/or all-cash. One homebuilder, Hovnanian Enterprises, said while it expects a rebound (it’s been saying this every quarter for a while), the fact is it’s laid off 75% of its employees during the housing crisis.

One other item on housing, new home sales for January were at near record lows.

And a final note concerning Europe. On Friday, Ireland held its elections for a new government so I’ll have a few words on this next time. Europe’s debt crisis is far from going away. This past week, German Chancellor Angela Merkel suffered a big defeat in the first of seven state elections to be held this year, this one in Hamburg, the richest state. In fact the defeat was so resounding it was the worst for her party since World War II. In other words it was a resounding vote ‘no’ to further bailouts for Germany’s bankrupt cousins in the EU; this at a time when the European Union must come up with a final plan for aiding EU member states without bankrupting everyone else. It all comes to a head in March.

Street Bytes

--For the week, the Dow Jones declined 2.1% to 12130, while the S&P 500 lost 1.7% to 1319, the worst week for both since last November. Nasdaq declined 1.9%. All three, coincidentally, are up either 4.8% or 4.9% for the year. On the earnings front, Hewlett-Packard and Wal-Mart were major disappointments, while Home Depot guided higher. Wal-Mart had its seventh consecutive quarter of declining same-store sales, which is a rather telling economic indicator. Again, the recovery is shallow and fragile.

As for $100 oil, the Saudis announced they would increase production, but this is not necessarily the scenario I spelled out a long time ago when talking about ‘selling’ any spike in oil. I was referring to an Iran-related crisis, not what we have now. Nonetheless, the Saudis stand ready to help, but at the same time they are pissed off at the Obama administration for backing uprisings in their neighborhood.

Once again, Treasuries were aided by another flight to safety.

But another item on the deficit front. I received a note from a good friend this week referring me to a piece by Thomas Donlan in Barron’s concerning the growing interest tab on the federal debt. I try like heck not to repeat myself all the time, but I do have to remember I’m gaining (and losing) new readers all the time.

On this topic, however, the interest on the deficit, I refer you way back…way, way back, to WIRs from 2/11/06 and 3/18/06, for starters. On 2/11/06, I wrote “It irks me to no end that more Americans aren’t upset over this single fact,” going on to call it a “crime.” So I apologize if I haven’t written of the topic in recent weeks, but I’ve been all over it for years.

--Of 14.7 million workers in unions last year; 7.6 million worked for governments.

--The definitive National Association of Realtors may have overstated the number of existing home sales sold since 2007, which means we face an even bigger inventory overhang than we thought, this according to CoreLogic, which estimates the NAR overestimated by 20%.

“A.P. Moller-Maersk A/S, the world’s largest container-shipping line, signed a $1.9 billion deal Monday to buy what would be the 10 biggest ships ever built, as the ocean-shipping industry continues its recovery from a steep global-trade slump in 2009.” [L.A. Times]

The ships will be used to carry cargoes ranging from iPhones to powdered milk between Asia and the ports of Rotterdam, the Netherlands; as well as others in England and Germany.

--In the Reagan Library, there’s a bit about his State of the State address as California governor in January 1974 when he touted geothermal and solar power. I wanted to add a footnote to this exhibit showing his supposed foresight in the matter. The fact is every president for 40 years, since the first real oil shock, has failed to come up with a national energy policy and our current president is as big a failure as any in this regard.

--Hewlett-Packard posted a strong quarterly profit increase, but gave poor revenue guidance due to lower PC sales to consumers, a surprise that sent its shares plunging. New CEO Leo Apotheker is not off to a good start.

--For those of you wondering about the impact of speculators on some commodities, all you need to know is this quote from Bloomberg on Friday as the funds unwind many of their positions.

“The amount of speculative positions is off the charts,” said a commodities trader at PIMCO.

[Separately, many hedge fund managers are having their offices and homes swept of bugs (listening devices) as a result of the SEC’s insider trading probe. At least 15 hedge funds improperly received inside information on earnings and takeovers. You rock, Prosecutor Preet Bharara!]

--I’ve been saying that when it comes to 2016, a man to watch is Dem. Gov. Andrew Cuomo and even the Wall Street Journal editorial board is extolling his virtues as he tackles New York State’s humongous budget deficit, especially the Medicaid debacle.

“Today, one of four New Yorkers is on Medicaid, which is staggering.   A quarter of a rich state’s entire population is dependent on government health care. Recall that ObamaCare will bring national Medicaid enrollment to about the same level. The Kaiser Family Foundation figures that the rolls will still increase by 6% in New York, though by about 28% nationwide.”

New York is already spending more than twice the national average per capita, $2,488 to $1,150. “In 2010, it spent more on Medicaid than K-12 schools, higher education, social services, transportation or public salaries and pensions….

“Mr. Cuomo wants cuts in absolute terms, not merely a reduction of the growth rate, which would bring spending for the next two years below 2010 levels….

“Given the Obama Administration’s rigidity…Mr. Cuomo seems to recognize that these liabilities can’t be repaired at the margins. The real test will be if he starts to do the politically difficult work of scaling Medicaid down.”

The other governors undoubtedly are taking note because New York’s present is their future.

--General Motors earned $4.7 billion in 2010, its first annual profit since 2004, though the report was less than expected and the shares fell as the fourth quarter story wasn’t too good, the slimmest profits of the year.

--Toyota was forced to recall another 2.17 million vehicles in the U.S. to address the ongoing accelerator pedal issue.

--Mexico’s GDP rose 5.5% in 2010, the best since 2000; up 4.6% in the fourth quarter. I have to admit I’m surprised given the drug violence. India is projecting GDP growth of 9.5% this fiscal year. Goodness gracious.

--Japan’s population is growing at its slowest pace since 1920. Not good given the massive entitlement expense the nation faces from here to eternity.

--If you can figure out AIG’s finances you’re a better man than me. It reported an operating loss for the fourth quarter of $2.2 billion, but net income of $11.2 billion when considering asset sales. That’s the simple part. Just wake me when the rest of it is all washed out and the government has disposed of its 92% stake.

--Alibaba.com was hit by a fraud scandal after an internal investigation found more than 2,300 sellers used fraudulent credentials in 2009 and 2010, sometimes with the help of Alibaba staff. Two top executives were forced to resign from the online business-to-business platform. Alibaba primarily offers items in bulk – finished goods as well as parts – to other businesses and individuals to then sell to consumers. The bad news is that this is prevalent among Chinese companies (Alibaba being based in Beijing). The good news is that this case forces them to become more transparent. The chairman, Jack Ma, had always touted the company’s “integrity.”

--The federal government killed a proposed Indian casino for the Catskills, one that in his waning days former New York Gov. David Paterson had approved with a band of Mohicans, meaning no disrespect to the latter you understand.

--A survey of 503 investors with $10,000 or more in liquid assets and/or mutual funds by Edelman found that 38% said their level of trust in the financial services industry had decreased from last year. 53% remained the same. 9% trusted more. Note to my friends in the business. Call all your clients in, read them these percentages, and ask them what more you can do for them. “John, I’ve been in this business a long time and as a broker/planner I find this pretty distressing. Are you happy with my level of service?” Then follow-up with a personal note! You know, a few weeks ago when I harped on the personal note bit, the very next day, CBS’ “Sunday Morning” had a piece on the power of, you guessed it, personal notes. With real writing instruments. Use a quill pen, like Jefferson and Adams employed when writing each other back in the day.

--A Fidelity survey said the average 401(k) balance rose to $71,500 last year, a 10-year high. This is good. But an extensive piece in the Wall Street Journal last weekend discussed how short most Americans are in facing retirement, even if you take a different methodology used by the Center for Retirement Research, which shows the average 401(k) balance at $149,400, including plans from previous jobs. It’s just a massive issue down the road for the Baby Boom Generation.

--Rainfall in California has been plentiful and this bodes well for the agriculture sector here this year. For example, in the Santa Barbara area it’s already 148% of normal (before this weekend’s rains).

--The Pentagon handed Boeing a nice $35 billion contract to build a fleet of 179 aerial refueling tankers that could equate to 50,000 aerospace jobs, with much of these coming in Seattle and Wichita.

--USA TODAY had a story that air traffic controllers made more than 1,800 errors last year, as reported by the FAA, including 43 that could have caused a midair collision between planes, which is up 81% from 2007’s level.

--You gotta love this one. Goldman CEO Lloyd Blankfein told the Financial Crisis Inquiry Commission last June it was wrong to raise base salaries in his industry and then 8 months later he more than tripled his own. That, my friends, is the very definition of a slimeball.

--Speaking of slimeballs, I pick up Thursday’s Los Angeles Times and there’s a big story on those Winklevoss twins, who continue to contest their original settlement with Facebook founder Mark Zuckerberg; contending they were the creators, not him. The settlement first reached with Zuckerberg three years ago is now valued at $160 million. But they are seeking a valuation of more than $600 million. Frankly, without having seen “The Social Network,” (I tend to watch movies about 30-40 years after they come out, so like my next flick when I can grab a few hours is “Ice Station Zebra”), this incredibly irritating duo are the last people on earth (save for those defending Gaddafi) that I’d want to have a beer with. I mean they were given $20 million in cash in 2008, plus $45 million in Facebook shares, which is how you come up with the increased valuation. And that’s a memo…

Foreign Affairs

Afghanistan: In the worst attack of the week, a suicide bomber killed 31 at a census office with the Taliban claiming responsibility. The scope of the attacks is only growing here, despite the American troop surge. There is no way Afghan security forces are remotely near to being able to secure major portions of the country, and there are growing signs that Gen. David Petraeus’ plans to arm warlords and get them to work for the good guys is backfiring and that he is in effect creating death squads. Lovely. Might be time to put away those Petraeus 2012 buttons. I’ve discarded mine.

[Australia suffered its 23rd combat death of the Afghan campaign. That’s a lot for them and this is one American who appreciates their sacrifice.]

New Zealand: Speaking of sacrifices, what an incredibly devastating and depressing event in Christchurch this week, the second massive earthquake to strike since September. Last time, incredibly, the quake didn’t kill anyone because it occurred at night. This time it hit at lunchtime during a work day and the death toll will probably hit 300 when all are accounted for. The damage is estimated at $9 billion, or more than September’s $6 billion. It will be a wonder if city officials rebuild. Who would want to live there?

But here is something that should concern, for example, Californians, who await their own Big One. I saw a caption on a photo from Christchurch containing the following:

“The magnitude 6.3 quake, an aftershock to a September quake, damaged even structures built to standards used in California and Japan.”

The reason this one was so devastating, compared to September’s 7.8 temblor, was the fact the epicenter was not only closer to Christchurch but it was shallow. You can expect a similar shallow quake in California to thus have the same catastrophic impact.

Somalia: After four Americans were killed by Somali pirates, we all know what needs to be done…a massive airstrike on the pirates’ bases. It should have been done long ago.

North Korea: Pyongyang could be preparing a third nuclear bomb test as photos show new tunnels being prepared at the previously used site. This would be typical behavior on their part, especially as new stories of mass starvation emerge. Hold the world up for more food aid.

Russia: The other day there were two events that call into question the future of the 2014 Winter Olympics in Sochi. Just hours after President Medvedev and Prime Minister Putin appeared on site to inspect preparations and promote the Games, terrorists attacked a mini-bus with six Russian tourists skiing in the area, killing three of them. Then hours after that, they blew up cables for ski lifts at a prominent slope. Later, police defused three bombs in a car outside a major hotel. I’ve said before you’d have to be nuts to even think of going to this event and the IOC must immediately moves the Games to another location. Of course they don’t have the guts to hold them elsewhere because they were all bribed by Russian officials to vote for Sochi in the first place, but what athletes, let alone spectators, will risk attending the event?

Separately, the Kremlin announced it was going to launch a major defense buildup whose goal is to provide 600 more fighter jets and 8 nuclear submarines, among other items, by 2020. Europe take note. Also, former Soviet leader Mikhail Gorbachev harshly criticized Russian leadership, both Putin and Medvedev, for saying that they would decide who should run for president next year. Gorby called the statement a show of “incredible conceit” and disrespect for voters. “It’s not Putin’s business,” he said. “It must be decided by the nation in the elections, by those who would cast ballots. Can’t other people also run?” [AP]

China: At least 15 leading rights lawyers and activists have disappeared since Saturday as the government censors Net postings calling for demonstrations.

France: IMF chief Dominique Strauss-Kahn, a socialist, has a 61-39 lead over French President Sarkozy in a hypothetical battle between the two in 2012. Strauss-Kahn is expected to make his plans known this spring and seems a lock to run.

So this gives me an excuse to finally just talk about a third candidate (the above poll assumes Sarkozy and Strauss-Kahn emerge as the two finalists in a run-off after the first round of voting), that being the daughter of Jean-Marie Le Pen, Marine, 42 and the mother of 3.

Jean-Marie, 82, has until very recently led France’s extreme right National Front for 40 years but in a party vote daughter Marine was named his successor. She has endorsed British Prime Minister David Cameron’s view on the failure of multiculturalism (with the British leader quickly disavowing any connection between his stance and Le Pen’s virulent anti-immigration posture).

But what will make France’s race fascinating is that Marine is forcing Sarkozy to move even more to the right in an attempt to keep her from playing a major spoiler role, which nonetheless seems inevitable.

On the issues, Marine captures a solid level of support, such as 39% of the French people are against prayer in the street, one of her main platforms. She has an overall 33% approval rating, better than her father did. [I kind of think of her impact as being similar to that of George Wallace in our own 1968 presidential race, which at the Nixon Library I was reminded he took the states of Georgia, Alabama, Mississippi, Arkansas and Louisiana (46 electoral votes).]

The bottom line in France is that Marine Le Pen, who is far more appealing as a candidate than her father ever was, could split the far-right vote that Sarkozy desperately needs and possibly, under the right economic circumstances in 2012, finish second in the first round, which would then handily give the presidency to the socialist Strauss-Kahn. It’s also a reason why some say Sarkozy and Carla need to have a baby, to soften the president’s image. Bruni, 43, does want one as well.

The far right is on the rise across Europe – Switzerland, Hungary, Austria, Sweden, Belgium, the Netherlands – and Marine Le Pen’s National Front is worth keeping an eye on. There are many in France who are tired of the immigration wave that undermines French secular tradition separating church and state, and as noted above the immigration issue is about to gain even more of a stage.

Mexico: Following the murder of a U.S. DEA agent in Mexico, Jaime Zapata, the DEA conducted a sweep of U.S. cities and rounded up 100, mostly low-level suspects affiliated with Mexico’s cartels. This was heavily promoted in Mexico itself as the government sent the message to the drug kingpins there to lay off killing any more U.S. agents. The day when we launch airstrikes grows nearer should another agent or two be killed, though not without extensive discussions between our two presidents. No doubt the Mexican people would be none too happy, but such a move would send the strongest message of all. We know where these leaders are.

Zimbabwe: It was over ten years ago I first called for the assassination of President Robert Mugabe, saying it was the responsibility of Britain, the former colonial ruler there, with intel help from the United States. A simple commando raid would have done the trick and think of the millions of lives that would have been better for it had Blair and/or Bush done so. 

And so we fast-forward to today and the news this week that over 40 students and activists were arrested for watching Al Jazeera and BBC News coverage of the uprisings in the Middle East. They face the death penalty for “treason.” I’ve said on countless occasions, God must be looking down on us just shaking his head. I wouldn’t be surprised if many a time he thinks of just moving on. “These guys are hopeless.”

Random Musings

--Stephen Hayes commented in an op-ed for the Wall Street Journal on the supposed new “civility” in American discourse, as put forward by President Obama during his Tucson address.

“On Feb. 13, just the other side of the news cycle, a post on ‘Organizing for America,’ the website for the president’s campaign arm, urged progressives to protest a proposal from Wisconsin Gov. Scott Walker to reform public-employee benefits and limit collective-bargaining rights. The message, from Organizing for America’s regional director for Wisconsin, began this way: ‘We’ve got a fight on our hands and it’s personal.’

“The next day dozens of angry protesters marched in front of the home of Republican state Sen. Van Wangaard, a Walker supporter. The head of the local teachers union said this: ‘We want him to know we have our eyes on him.’ In neighboring Kenosha, Joe Kiriaki, the executive director of the Kenosha Education Association, joined protesters at the home of state Rep. Samantha Kerkman and confronted her parents when they drove down the street. Mr. Kiriaki noted that Ms. Kerkman lives in a 3,300 square-foot house worth more than $400,000. ‘I don’t think she’s feeling too much pain,’ he quipped.

“Last Tuesday, hundreds of protesters shut down the road in front of Gov. Walker’s family home in Wauwatosa, Wis. Across the state in Madison, a crowd of 20,000 – many of them teachers skipping school – gathered at the Capitol. Signs compared Mr. Walker to Egyptian dictator Hosni Mubarak, Joseph Stalin and Benito Mussolini. Still others accused him of ‘terrorism’ and ‘rape.’ One sign had a photo of the governor in crosshairs: ‘Don’t Retreat, Reload.’….

“In Tucson, the president called on Americans to honor the victims with a ‘more civil and honest public discourse’ that would ‘help us face up to the challenges of our nation in a way that would make them proud.’ Perhaps it’s unfair to expect him to answer for the offensive language and actions of Wisconsin’s protesters, though Joe Kiriaki is an Obama donor…But given his words just a month ago, is it too much to ask him to emphasize now that he meant what he said?”

--I was sorry to see South Dakota Rep. Sen. John Thune say he wouldn’t be a presidential candidate in 2012, but certainly understand why he opted out. Not enough name recognition at this stage, but he could still emerge as a solid veep selection.

--Rahm Emanuel handily won the first round of voting in the Chicago mayoral contest, thus avoiding any kind of run-off and ending 22 years of rule under Richard Daley. Where did the time fly?

--Just a few tidbits on Richard Nixon (whose library has far more detail than Reagan’s, which is kind of funny because that’s just the way the two were):

Yes, I recognize most of you know some of this but a little repetition never hurt anyone.

Just 11,085 votes in four states – Illinois, Missouri, Delaware, and Hawaii – out of 69 million cast separated Nixon from becoming president in 1960. His refusal to demand a recount (which some say back in those days would have taken up to six months, but which Eisenhower vehemently wanted Nixon to go through with) remains one of his top two or three moments…the grace in which he handled it all.

When Nixon was vice president, Eisenhower suffered a heart attack in Sept. 1955 and a stroke in Nov. 1957, with tremendous uncertainty as to whether Ike would survive the initial 24 hours in both cases. That’s how close Nixon came to becoming president then. One can only wonder how history would have changed. Vietnam, for starters. But looking back, given the times and medicine in those days, Ike’s rapid recoveries from both serious ailments is startling.

OK…I was embarrassed in totally blanking out on who Nixon’s running mate was in 1960… Henry Cabot Lodge.

There was an exhibit of letters written by children to Nixon after his defeat to JFK. Here’s one (all spelling and punctuation is correct):

Dear NIXON. Your debates are the best. I Like the way you answer the questions for the panel. I thing Kennedy is a hot head and he fell you with a lot of balony.

James G. Mead
Age 7, but wish I was 21

[Then the kid added a drawing of the American flag. Wouldn’t you love to know what Mr. Mead is doing today? He also would have been 18 in 1971. I wonder if he served in Vietnam?]

Nixon lost two brothers at an early age. Arthur died at age 7 of encephalitis and Harold died at 23 of TB. A younger brother, Edward, still survives, lives in Oregon, and a docent told me he comes to visit quite often and everyone loves the guy because he sounds just like the president.

Did you know that the house Nixon was born in (on site at his library), is the only original birthplace among our presidents to remain in its exact location? Pretty cool. His relatives also had the foresight to save everything, including the very bed he was born in. They even saved his blanket.

I told the docent I felt like I was the only remaining fan of Richard Nixon (yes, I’m well aware of the disgusting stuff that has emerged on the tapes) and she said I’m not alone. 5,000 came to the museum on Monday, Presidents Day. I went on Thursday. On Wednesday I was at Reagan’s Library and the crowd was massive.

The only moment I teared up at the Nixon Library (as opposed to my water works at the Reagan museum) was over a video of his address to the Soviet people on one of his trips to the U.S.S.R. Incredibly moving, as he described having visited a World War II memorial to the victims of the siege at Leningrad.

Nixon appeared on the cover of TIME magazine a record 54 times, still more than anyone in history, to give you an idea of how consequential, for good and bad, he was in American history.

He showed amazing courage as a vice president, not only in confronting Khrushchev in the Soviet Union, but also in handling an explosive situation in Guatemala when his motorcade was attacked by communists there and he kept the Secret Service from firing on the demonstrators who could have killed Nixon. But he knew firing on them would only make the situation worse and they eventually got out of there. There’s great film of Nixon then returning to America as a hero. The times were different, that’s for sure.

It was amazing to read the timeline of his first visit to China in Feb. 1972. That trip was 8 full days! He and Pat did everything, as opposed to George W. Bush, who when he went overseas couldn’t wait to get home, which irked me to no end. His lack of curiosity in the world around him still cracks me up. [OK, it actually ticked me off at the time.]

I forgot…I teared up a second time when I saw a video of the POWs being released in 1973, including a great shot of John McCain landing in the Philippines.

I’ve mentioned this before, but every time there is a really beautiful day back home, I think of Richard Nixon. It was Nixon, the pragmatist, who oversaw the clean air and water acts, as well as founding the Environmental Protection Agency, and then having the foresight to let William Ruckelshaus do his thing. This was back in the day, kids, when the United States was like China is today…dirty and toxic beyond belief. Nixon really didn’t care about the environment as an issue, versus say foreign policy, but he recognized an opportunity to gain some votes, while at the same time doing what was best for the country, and went for it.

Nov. 3, 1969…President Nixon in his Silent Majority speech:

“If a President – any President – allowed his course to be set by those who demonstrate, he would betray the trust of all the rest.”

“One must wait ‘til evening to see how splendid the day has been.”

Lastly, on Nixon’s tomb is how he most wanted to be remembered:

“The greatest honor history can bestow is the title of peacemaker.”

--No doubt we have our “Idiot of the Year” award winner already, ‘Domestic Category,’ in Charlie Sheen, who just doesn’t get it. Now his show, “Two and a Half Men,” has been discontinued by Warner Bros. and CBS. What a selfish bastard in screwing with the lives of 200 whose livelihood is dependent on the comedy.

--Finally, a few more thoughts on Ronald Reagan. One of the items at the revamped museum is an audio recording, along with the letter from Nov. 5, 1994, in which Ronnie announced he had Alzheimer’s. The audio is so touching to listen to as you read the words, and it’s pretty well documented he was in essence gone shortly after penning his final missive.

“My dream is that you will travel the road ahead with liberty’s lamp guiding your steps and opportunity’s arm steadying your way.”

I wrote in another column I do that after touring the exhibits, I went out to the gravesite and was startled I was the only one there. It’s as if everyone else forgot to do the most important thing, pay their respects.

Ronald Reagan was far more perfect, but what his fans most admired was he was a man of conviction, first and foremost, and, boy, did he love America. You may not have agreed with his policies, but you cannot deny that he not only positively impacted the lives of tens of millions of Americans, he was a leading figure in bringing freedom to hundreds of millions across the world.   Freedom that a further hundred million or more across the Middle East today are striving for. I got a little emotional more than a few times in the Reagan Library because of our lack of Reaganesque figures today at a time when the world so desperately needs them.

So I save things, articles, news stories, and I kept a column by Peggy Noonan from Newsweek, Oct. 2, 1995, or almost a year after Reagan announced he had Alzheimer’s. In part:

“When Steve Forbes announced for president last week, he said Republicans have an ‘empty feeling’ about the ’96 race, and it’s true. They’re poised for victory, it’s a Republican year, they’ve already won the Congress, and yet…they’re frustrated. [Ed. We ended up with the miserable candidate, Bob Dole, and the rest is history.]….

“There is one Republican out there who united the party; who has the respect and affection of both its elders and collegiate Dittoheads….

“He is, of course, Ronald Reagan, more than ever the party’s undiminished hero. Seven years out of office, no one has quite taken his place. That’s what the empty feeling is – his big absence.

“The feeling is not confined to his party. He is old now and ill, and for the nation, he is a poignant presence. He is in a kind of twilight; we cannot mourn him, but we can miss him, and we do.

“Which is not to say his critics have ever stopped trying to tear down his record. But it doesn’t seem to have worked….

“Other presidents have loomed large. Nixon loomed, but like a shadow. Reagan looms like a sun, lighting the stage on which the year’s contenders stand. But his light is so bright they squint in the glare and seem paler, washed out.

“Part of this is inevitable. We appreciate presidents more than we appreciate candidates. When a man becomes president, we suddenly discover virtues of which we – and they - had been unaware….

“And it’s good to remember we didn’t always love Reagan. In 1980 he was called an aging nuclear cowboy who’d throw Grandma into the snow, a washed-up grade-B former actor former-governor who’d run twice and lost and whose hands were clasped in victory over a pompadour people said was dyed.

“The media and academe saw him not as a statesman but as a joke. And there were failures: he never really cut the size and scope of government, and the deficit grew. There were irritating excesses (glitz, glamour), insensitivities and derelictions.

“But for all that, he is missed and admired, still the man you see when you hear the phrase The American President. Why? Because of a combination of qualities in the man and in his presidency.

“He set out to make big change. Only a few times a century do you find a president who really changed things. Most presidents, one way or another, have no serious grievance with the status quo…But Reagan changed things as much as Franklin Roosevelt – only in the opposite direction. He changed the way we look at the role of government in America. In the 50 years preceding his presidency it was generally agreed (though not generally stated) that the government created wealth and should supervise its distribution. But Reagan said no – it does not create wealth, it is an impediment to prosperity, and it should not be distributing your money, you should. Like it or not, that was change.

“He knew what he thought and why he thought it….

“He didn’t hold views to be popular, he held them because he thought they were right….his positions were not poll driven, and the people could tell. So even when they disagreed with him, they still respected him.

“He meant it. His beliefs were sincerely held. And because he was sincere, the people cut him slack where they wouldn’t cut it for others. Reagan raised taxes in ’82 and won by a landslide in ’84. When George Bush raised taxes, they sent him to Elba.

“He was right. He said the Soviet Union was evil and an empire, and it was; he said history would consign it to the ash heap, and it did….

“He had the presidential style. He knew how to act the part. In this he was like FDR and JFK, who also understood the role. He intuited that a certain detachment produces mystery, and mystery enhances power. He was not on television every night. It would have lowered his currency, made him common…He thought it boorish to be in the nation’s face all the time….

“He loved America. He really loved it. His eyes went misty when he spoke of her. It was personal, emotional, protective and trusting. He was an American exceptionalist – we weren’t like other countries, God put us in a special place with a special job, to lead the forces of good, to be the city on a hill John Winthrop saw and hoped for. [Ed. Noonan goes on to explain how some love America at her best. “But Reagan loved America, period.”]….

“It worked. If, when he ran for president in 1980, a little angel had whispered in your ear, ‘If Reagan wins, by the time he leaves Soviet communism will be dead, the Dow will have passed 2000, taxes will be cut and we’ll all have a more spirited sense of the historical possibilities,’ would you have voted for him? Of course you would have.

“He won by 10 points that year, but if we’d known what was coming he would have won by 30. The fact is he was a big man who did big things, and that is why we already miss him.”

And why over 15 years after Ms. Noonan penned the above, we still do, and reach for the Kleenex at his grave.

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

Gold closed at $1409
Oil, $98.17

Returns for the week 2/21-2/25

Dow Jones -2.1% [12130]
S&P 500 -1.7% [1319]
S&P MidCap -1.8%
Russell 2000 -1.5%
Nasdaq -1.9% [2781]

Returns for the period 1/1/11-2/25/11

Dow Jones +4.8%
S&P 500 +4.9%
S&P MidCap +6.3%
Russell 2000 +4.9%
Nasdaq +4.85

Bulls 53.3
Bears 18.9 [Source: Chartcraft / Investors Intelligence…18.9 is obviously low. Understand the survey is released on Wednesday mornings but is the sentiment of newsletter writers taken mostly from the prior week, or Monday, i.e., before all hell broke loose in full.]

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